UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the Fiscal Year Ended July 31, 2015

 

OR

 

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

 

Commission File No. 333-147056

 

INCEPTION MINING, INC.

(f/k/a Gold American Mining Corp.)

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   35-2302128
(State or Other Jurisdiction   (I.R.S. Employer
Of Incorporation or Organization)   Identification Number)
     

5320 South 900 East, Suite 260

Murray, UT

 

 

84107

(Address of Principal Executive Offices)   (Zip Code)

 

Registrant’s telephone number, including area code (801) 312-8113

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.00001 par value.

(Title of Class)

 

Securities registered pursuant to Section 12(g) of the Act:

 

None.

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [  ]

 

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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

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

 

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

 

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

 

The aggregate market value of voting stock held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, January 31, 2015, was $1,434,702. For purposes of this computation, it has been assumed that the shares beneficially held by directors and officers of registrant were “held by affiliates”; this assumption is not to be deemed to be an admission by such persons that they are affiliates of registrant.

 

The number of shares of registrant’s common stock outstanding as of November 17, 2015 was 253,863,750.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

No documents are incorporated by reference.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I      
       
ITEM 1. BUSINESS   3
ITEM 1A. RISK FACTORS   7
ITEM 1B. UNRESOLVED STAFF COMMENTS   15
ITEM 2. PROPERTIES   15
ITEM 3. LEGAL PROCEEDINGS   16
ITEM 4. MINE SAFETY DISCLOSURES   16
       
PART II      
       
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   16
ITEM 6. SELECTED FINANCIAL DATA   19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK   23
ITEM 8. FINANCIAL STATEMENTS   23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   23
ITEM 9A(T). CONTROLS AND PROCEDURES   24
ITEM 9B. OTHER INFORMATION   25
       
PART III      
       
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   25
ITEM 11. EXECUTIVE COMPENSATION   28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   31
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES   31
       
PART IV      
       
ITEM 15. EXHIBITS   32
  SIGNATURES   33

 

2
 

 

PART I

 

ITEM 1. BUSINESS

 

As used in this Annual Report on Form 10-K, unless otherwise indicated, the terms “we,” “us,” “our” and “the Company” refer to Inception Mining, Inc., a Nevada corporation.

 

Forward-Looking Statements and Associated Risks. This Annual Report on Form 10-K contains forward-looking statements. Such forward-looking statements include statements regarding, among other things, (1) discussions about mineral resources and mineralized material, (2) our projected sales and profitability, (3) our growth strategies, (4) anticipated trends in our industry, (5) our future financing plans, (6) our anticipated needs for working capital, (7) our lack of operational experience and (8) 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. These statements constitute forward-looking statements. 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” as well as in this filing 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 Item 1A below and other risks and matters described in this filing and in our other SEC filings. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur as projected. We do not undertake any obligation to update any forward-looking statements.

 

The Company

 

Overview

 

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

 

On 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 subsidiary Compania Minera Cerros del Sur, S.A., and holds other mining concessions. Its workings include several historical underground operations dating back to the early Mayan and Spanish occupation.

 

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

 

3
 

 

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

 

The Company and its independent consultants have developed a detailed exploration drilling program to confirm and expand mineralized zones in these mines and collect additional environmental and technical data. The first phase of confirmation and expansion drilling will begin in 2015 and the Company intends to continue drilling, metallurgical testing, engineering and environmental programs and studies during 2015 and soon thereafter update the historic feasibility study and environmental permit applications.

 

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

 

Competition and Mineral Prices

 

We compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities, personnel and financial resources. There is a limited supply of desirable mineral lands available for claim-staking, lease or acquisition in the United States and other areas where we may conduct exploration activities. Because we compete with individuals and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage in acquiring desirable mineral properties. From time to time, specific properties or areas that would otherwise be attractive to us for exploration or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial resources. Competition in the mining industry is not limited to the acquisition of mineral properties but also extends to the technical expertise to find, advance, and operate such properties; the labor to operate the properties; and the capital needed to fund the acquisition and operation of such properties. Competition may result in our company being unable not only to acquire desired properties, but to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration activities or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation and business. The mineral exploration industry is highly fragmented, and we are a very small participant in this sector. Many of our competitors explore for a variety of minerals and control many different properties around the world. Many of them have been in business longer than we have and have established strategic partnerships and relationships and have greater financial resources than we do.

 

There is significant competition for properties suitable for gold exploration. As a result, we may be unable to continue to acquire interests in attractive properties on terms that we consider acceptable. We will be subject to competition and unforeseen limited sources of supplies in the industry in the event spot shortages arise for supplies such as dynamite, and certain equipment such as drill rigs, bulldozers and excavators that we will need to conduct exploration. If we are unsuccessful in securing the products, equipment and services we need we may have to suspend our exploration plans until we are able to secure them.

 

Market for Gold

 

In the event that gold is produced from our property, we believe that wholesale purchasers for the gold would be readily available, as many purchasers of precious metals exist in the United States and abroad. Among the largest are Handy & Harman, Engelhard Industries and Johnson Matthey, Ltd. Historically, these markets are liquid and volatile. Wholesale purchase prices for precious metals can be affected by a number of factors, all of which are beyond our control, including but not limited to:

 

fluctuation in the supply of, demand, and market price for gold;
   
mining activities of our competitors;
   
sale or purchase of gold by central banks and for investment purposes by individuals and financial institutions;
   
interest rates;
   
currency exchange rates;
   
inflation or deflation;
   
fluctuation in the value of the United States dollar and other currencies; and
   
political and economic conditions of major gold or other mineral-producing countries.

 

4
 

 

If we find gold that is deemed of economic grade and in sufficient quantities to justify removal, we may seek additional capital through equity or debt financing to build a mine and processing facility, or enter into joint venture or other arrangements with large and more experienced companies better able to fund ongoing exploration and development work, or find some other entity to mine our property on our behalf, or sell or lease our rights to mine the gold. Upon mining, the ore would be processed through a series of steps that produces a rough concentrate. This rough concentrate is then sold to refiners and smelters for the value of the minerals that it contains, less the cost of further concentrating, refining and smelting. Refiners and smelters then sell the gold on the open market through brokers who work for wholesalers including the major wholesalers listed above. We have not found any gold as of today, and there is no assurance that we will find any gold in the future.

 

Compliance with Government Regulation

 

Mining Operations

 

UP and BURLINGTON (Lemhi County, Idaho): Mine operation is governed by both federal and state law. We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the United States generally. Federal laws, such as those governing the purchase, transport or storage of explosives, and those governing mine safety and health, also apply. The Company plans to obtain a Lemhi County Conditional Use Permit, an Idaho Department of Lands Surface Reclamation Bond and permitting for the U.S. Forest Service Access Road.

 

When this mine comes into production we will also be subject to the rules and regulations of the Mine Safety and Health Administration, a Division of the United States Department of Labor.

 

CLAVO RICO (Honduras, Central America): The mining operations in Honduras are governed by the national entities Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA). The Clavo Rico mine has operated under a grandfathered concession granted many years ago and has now complied with all regulatory requirements of the above agencies and the recently adopted HONDURAN Mining laws (The General Mining Law was approved by Legislative Decree No. 238-2012, dated January 23, 2013), including employee health and safety regulations, Environmental requirements, water discharge requirements, and potential reclamation requirements. As the above ministries have only limited operational experience and the new mining law has only recently been adopted, the interpretation, adoption and enforcement of many regulations are evolving. Other local ordinances (municipality of El Corpus) minor and most regulatory efforts are as a result of interaction between the mine and the local populace, (examples include use of the mine haul road for local traffic, restricting mine operations to daylight hours for noise considerations, watering for dust control, etc.) where no regulation or law exists, we have attempted to duplicate best practices as required in other business climates.

 

These laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities. To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.

 

Environmental Laws

 

Mining activities at the Company’s properties are also subject to various environmental laws, both federal and state, including but not limited to the federal National Environmental Policy Act, CERCLA (as defined below), the Resource Recovery and Conservation Act, the Clean Water Act, the Clean Air Act and the Endangered Species Act, and certain Idaho state laws governing the discharge of pollutants and the use and discharge of water. Various permits from federal and state agencies are required under many of these laws. Local laws and ordinances may also apply to such activities as construction of facilities, land use, waste disposal, road use and noise levels.

 

These laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities. To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.

 

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), imposes strict, joint, and several liability on parties associated with releases or threats of releases of hazardous substances. Liable parties include, among others, the current owners and operators of facilities at which hazardous substances were disposed or released into the environment and past owners and operators of properties who owned such properties at the time of such disposal or release. This liability could include response costs for removing or remediating the release and damages to natural resources. Our properties, because of past mining activities, could give rise to potential liability under CERCLA.

 

Under the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies may incur costs for generating, transporting, treating, storing, or disposing of hazardous or solid wastes associated with certain mining-related activities. RCRA costs may also include corrective action or clean up costs.

 

5
 

 

Mining operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, such as crushers and storage facilities, and from mobile sources such as trucks and heavy construction equipment. All of these sources are subject to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality laws. Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in order to comply with the permitting conditions.

 

Under the federal Clean Water Act and the delegated Colorado water-quality program, point-source discharges into waters of the State are regulated by the National Pollution Discharge Elimination System (NPDES) program. Storm water discharges also are regulated and permitted under that statute. Section 404 of the Clean Water Act regulates the discharge of dredge and fill material into Waters of the United States, including wetlands. All of those programs may impose permitting and other requirements on our operations.

 

The National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of major federal actions. The federal action requirement must be satisfied if the project involves federal land or if the federal government provides financing or permitting approvals. NEPA does not establish any substantive standards, but requires the analysis of any potential impacts. The scope of the assessment process depends on the size of the project. An Environmental Assessment (EA) may be adequate for smaller projects. An Environmental Impact Statement (EIS), which is much more detailed and broader in scope than an EA, is required for larger projects. NEPA compliance requirements for any of our proposed projects could result in additional costs or delays.

 

The Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S. Department of Interior. The purpose of the ESA is to conserve and recover listed endangered and threatened species and their habitat. Under the ESA, endangered means that a species is in danger of extinction throughout all or a significant portion of its range. The term threatened under such statute means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful to take a listed species, which can include harassing or harming members of such species or significantly modifying their habitat. Future identification of endangered species or habitat in our project areas may delay or adversely affect our operations.

 

U.S. federal and state reclamation requirements often mandate concurrent reclamation and require permitting in addition to the posting of reclamation bonds, letters of credit or other financial assurance sufficient to guarantee the cost of reclamation. If reclamation obligations are not met, the designated agency could draw on these bonds or letters of credit to fund expenditures for reclamation requirements. Reclamation requirements generally include stabilizing, contouring and re-vegetating disturbed lands, controlling drainage from portals and waste rock dumps, removing roads and structures, neutralizing or removing process solutions, monitoring groundwater at the mining site, and maintaining visual aesthetics.

 

Capital Equipment and R&D Expenditures

 

During the fiscal year ended July 31, 2015, we did not incur any expense related to research and development. Additionally, we are not currently conducting any research and development activities other than those relating to the possible acquisition of new gold and/or silver properties or projects of which there is no guarantee. As we proceed with our exploration programs, we may need to engage additional contractors and consider the possibility of adding additional permanent employees, as well as the possible purchase or lease of equipment.

 

Employees

 

As of the date of this filing, we currently employ one hundred twenty-three (123) full-time employees in the United States and Honduras. We have contracts with various independent contractors and consultants to fulfill additional needs, including investor relations, exploration, development, permitting, and other administrative functions, and may staff further with employees as we expand activities and bring new projects on line.

 

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts

 

We do not currently own any patents or trademarks. Also, we are not a party to any license or franchise agreements, concessions, royalty agreements or labor contracts arising from any patents or trademarks.

 

Company Information

 

The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov. Further information about the Company may be found at its website: www.inceptionmining.com. The Company makes available its filings to investors, free of charge, on this website.

 

6
 

 

RISK FACTORS

 

High Degree of Risk

 

An investment in our securities involves a high degree of risk. You should consider carefully the following risks, along with all of the other information included in this report, before deciding to buy our common stock. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also impair our business operations. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer.

 

Risks Relating to Our Company

 

We have incurred losses since our inception in 2007 and may never be profitable, which raises doubt about our ability to continue as a going concern.

 

Since our inception in 2007, we have had nominal operations and incurred operating losses. As of July 31, 2015, our accumulated deficit since inception was approximately $10,661,785. We have substantial current obligations and at July 31, 2015, we had approximately $1,791,371 of current liabilities as compared to only approximately $194,861 of current assets. Since inception, we have been able to raise only minimal additional capital, and we have minimal cash on hand. Accordingly, the Company does not have sufficient cash resources or current assets to pay its current obligations, and we have been meeting many of our obligations through the issuance of our common stock to our employees, consultants and advisors as payment for the goods and services.

 

Our management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions along with the substantial turmoil in the capital and credit markets, there is a significant possibility that we will be unable to obtain financing to continue our operations.

 

As we are in the beginning stages of our exploration activities on UP & Burlington and Clavo Rico, and such property has not generated revenue in the recent past, we expect to incur additional losses in the foreseeable future, and such losses may continue to be significant. To become profitable, we must be successful in raising capital to continue with our mining efforts, exploration activities, meet the work commitment requirements on UP & Burlington and Clavo Rico, discover economically feasible mineralization deposits and establish reserves, successfully develop the properties and finally realize adequate prices on our minerals in the marketplace. It could be years before we receive any revenues from gold production, if ever. Thus, we may never be profitable.

 

These circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent registered public accounting firm’s report on our audited financial statements as of and for the year ended July 31, 2015. If we are unable to continue as a going concern, investors will likely lose all of their investment in our company.

 

We have a limited operating history.

 

As an early stage company that has recently made acquisitions, we are subject to all the risks inherent in the initial organization, financing, expenditures, complications, and delays inherent in a new business. Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. Our business is dependent upon the implementation of our business plan. There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability. Additionally, the Company’s recent merger with the operating foreign entity was based on a review of all historical data and potential revenue streams and resources as could be ascertained from the submission of documents and a thorough review of all data made available. We believe the materials to be accurate and have attempted to discount the valuations due to perceived risks of foreign operations and the tasks of incorporating a non-public entity into inception.

 

The feasibility of mineral extraction from UP & Burlington has not yet been established, as we have not completed exploration or other work necessary to determine if it is commercially feasible to develop the properties.

 

UP & Burlington does not have any proven or probable reserves. A “reserve,” as defined by the SEC, is that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. A reserve requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically extracted and produced. We have not yet completed our feasibility study with regard to UP & Burlington. As a result, we currently have no reserves and there are no assurances that we will be able to prove that there are reserves on UP & Burlington.

 

7
 

 

Exploring for gold is an inherently speculative business.

 

Natural resource exploration, and exploring for gold in particular, is a business that by its nature is very speculative. There is a strong possibility that we will not discover gold or any other resources that can be mined or extracted at a profit. Even if we do discover gold or other deposits, the deposit may not be of the quality or size necessary for us to make a profit after extracting it. Few properties that are explored are ultimately developed into producing mines. Unusual or unexpected geological formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides, and the inability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral exploration programs and the subsequent development of gold deposits.

 

We will require significant additional capital to continue our exploration activities, and, if warranted, to develop mining operations.

 

We will be required to raise significantly more capital in order to develop UP & Burlington for mining production, assuming economically viable reserves exist. There is no assurance that our investments in UP & Burlington will be financially productive. Our ability to obtain necessary funding depends upon a number of factors, including the price of gold, base metals, and other minerals we are able to mine, the status of the national and worldwide economy, and the availability of funds in the capital markets. If we are unable to obtain the required financing in the near future for these or other purposes, our exploration activities would be delayed or indefinitely postponed, we would likely lose our lease and options to acquire an ownership interest in UP & Burlington and this would likely lead to failure of our Company. Even if financing is available, it may be on terms that are not favorable to us, in which case, our ability to become profitable or to continue operating would be adversely affected. If we are unable to raise funds to continue our exploration and feasibility work on UP & Burlington, or if commercially viable reserves are not present, the market value of our securities will likely decline, and our investors may lose some or all of their investment.

 

The global financial conditions may have an impact on our business and financial condition in ways that we currently cannot predict.

 

The continued pressure on commodities markets and related turmoil in the global financial system may have an impact on our business and financial position. The recent high costs of consumables may negatively impact costs of our operations. In addition, current financial market conditions may limit our ability to raise capital through credit and equity markets. As discussed further below, the prices of the metals that we may produce are affected by a number of factors, and it is unknown how these factors will be impacted by a continuation of the financial crisis.

 

Fluctuating gold and mineral prices could negatively impact our business plan.

 

The potential for profitability of our gold and mineral mining operations and the value of any mining properties we may acquire will be directly related to the market price of gold and minerals that we mine. Historically, gold and other mineral prices have widely fluctuated, and are influenced by a wide variety of factors, including inflation, currency fluctuations, regional and global demand, and political and economic conditions. Fluctuations in the price of gold and other minerals that we mine may have a significant influence on the market price of our common stock and a prolonged decline in these prices will have a negative effect on our results of operations and financial condition.

 

Our business is subject to extensive environmental regulations which may make exploring for or mining prohibitively expensive, and which may change at any time.

 

All of our operations are subject to extensive environmental regulations, which could make exploration expensive or prohibit it altogether. We may be subject to potential liabilities associated with the pollution of the environment and the disposal of waste products that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental pollution, which may reduce the amount of money that we have available to use for exploration. This may adversely affect our financial position, which may cause you to lose your investment. If we are unable to fully remedy an environmental problem, we might be required to suspend operations or to enter into interim compliance measures pending the completion of the required remedy. If a decision is made to mine our properties and we retain any operational responsibility for doing so, our potential exposure for remediation may be significant, and this may have a material adverse effect upon our business and financial position. We have not yet purchased insurance for potential environmental risks (including potential liability for pollution or other hazards associated with the disposal of waste products from our exploration activities). However, if we mine one or more of our properties and retain operational responsibility for mining, then such insurance may not be available to us on reasonable terms or at a reasonable price. All of our exploration and, if warranted, development activities may be subject to regulation under one or more local, state and federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion of our business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch as posting of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits, increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental laws.

 

8
 

 

We may be denied the government licenses and permits which we need to explore on our properties. In the event that we discover commercially exploitable deposits, we may be denied the additional government licenses and permits which we will need to mine our properties.

 

Exploration activities usually require the granting of permits from various governmental agencies. For example, exploration drilling on unpatented mineral claims requires a permit to be obtained from the United States Bureau of Land Management, which may take several months or longer to grant the requested permit. Depending on the size, location and scope of the exploration program, additional permits may also be required before exploration activities can be undertaken. Prehistoric or Indian grave yards, threatened or endangered species, archeological sites or the possibility thereof, difficult access, excessive dust and important nearby water resources may all result in the need for additional permits before exploration activities can commence. As with all permitting processes, there is the risk that unexpected delays and excessive costs may be experienced in obtaining required permits. The needed permits may not be granted at all. Delays in or our inability to obtain necessary permits will result in unanticipated costs, which may result in serious adverse effects upon our business.

 

The values of our properties are subject to volatility in the price of gold and any other deposits we may seek or locate.

 

Our ability to obtain additional and continuing funding, and our profitability in the unlikely event we ever commence mining operations or sell our rights to mine, will be significantly affected by changes in the market price of gold. Gold prices fluctuate widely and are affected by numerous factors, all of which are beyond our control. Some of these factors include the sale or purchase of gold by central banks and financial institutions; interest rates; currency exchange rates; inflation or deflation; fluctuation in the value of the United States dollar and other currencies; speculation; global and regional supply and demand, including investment, industrial and jewelry demand; and the political and economic conditions of major gold or other mineral producing countries throughout the world, such as Russia and South Africa. The price of gold or other minerals have fluctuated widely in recent years, and a decline in the price of gold could cause a significant decrease in the value of our properties, limit our ability to raise money, and render continued exploration and development of our properties impracticable. If that happens, then we could lose our rights to our properties and be compelled to sell some or all of these rights. Additionally, the future development of our properties beyond the exploration stage is heavily dependent upon the level of gold prices remaining sufficiently high to make the development of our properties economically viable. You may lose your investment if the price of gold decreases. The greater the decrease in the price of gold, the more likely it is that you will lose money.

 

Our property titles may be challenged. We are not insured against any challenges, impairments or defects to our mineral claims or property titles. We have not fully verified title to our properties.

 

Our future unpatented claims will be created and maintained in accordance with the federal General Mining Law of 1872. Unpatented claims are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the General Mining Law. Defending any challenges to our future property titles may be costly, and may divert funds that could otherwise be used for exploration activities and other purposes. In addition, unpatented claims are always subject to possible challenges by third parties or contests by the federal government, which, if successful, may prevent us from exploiting our discovery of commercially extractable gold. Challenges to our title may increase our costs of operation or limit our ability to explore on certain portions of our properties. We are not insured against challenges, impairments or defects to our property titles, nor do we intend to carry extensive title insurance in the future. Potential conflicts to our mineral claims are discussed in detail elsewhere herein.

 

Honduran mining operations have increased exposure.

 

Sustaining foreign mining operations, such as those in Honduras, comes with increased uncertainty, due to less stable governments, political interruptions, volatility in taxes and fees, implementation of new laws and regulations, and more. The effect of this exposure can lead to closure of operations, nationalization, and strikes, all of which are beyond the company’s control. Granting and maintaining concessions is highly subject to political whim and maintaining the concessions is subject to a number of factors and variables beyond the company’s control. We do not currently insure against these interruptions but have chosen to structure our operations to minimize exposure to capital assets by subcontracting major areas of work, and to otherwise keep our financial exposure limited even at the expense of operation costs and our bottom line.

 

Foreign operations involve numerous risks associated with fluctuating exchange rates and other financial risks.

 

Foreign operations involve numerous risks associated with fluctuating exchange rates and with increasing taxes and fees associated with importing of necessary goods, equipment and services not adequately found in country and with exporting of the finished gold doré. Recent enactment of the Honduran mining laws has helped stabilize the fees, but continual review by the various government operations, and central bank subject the historical operations to review and could impact our ability to export on a timely basis and/or face possible fines etc. associated with repatriation of past revenues, etc.

 

Possible amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.

 

The U.S. Congress has considered proposals to amend the General Mining Law of 1872 that would have, among other things, permanently banned the sale of public land for mining. The proposed amendment would have expanded the environmental regulations to which we might be subject and would have given Indian tribes the ability to hinder or prohibit mining operations near tribal lands. The proposed amendment would also have imposed a royalty of 8% of gross revenue on new mining operations located on federal public land, which might have applied to our future properties. The proposed amendment would have made it more expensive or perhaps too expensive to recover any otherwise commercially exploitable gold deposits which we might find on our future properties. While at this time the proposed amendment is no longer pending, this or similar changes to the law in the future could have a significant impact on our business model.

 

9
 

 

Market forces or unforeseen developments may prevent us from obtaining the supplies and equipment necessary to explore for gold and other resources.

 

Gold exploration, and resource exploration in general, demands contractors available for such work, and unforeseen shortages of supplies and/or equipment could result in the disruption of our planned exploration activities. Current demand for exploration drilling services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled times for our exploration program. Fuel prices are extremely volatile as well. We will attempt to locate suitable equipment, materials, manpower and fuel if sufficient funds are available. If we cannot find the equipment and supplies needed for our various exploration programs, we may have to suspend some or all of them until equipment, supplies, funds and/or skilled manpower become available. Any such disruption in our activities may adversely affect our exploration activities and financial condition.

 

We may not be able to maintain the infrastructure necessary to conduct exploration activities.

 

Our exploration activities depend upon adequate infrastructure. Reliable roads, bridges, power sources, and water supply are important factors that affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our exploration activities and financial condition.

 

Our exploration activities may be adversely affected by the local climates, which could prevent or impair us from exploring our properties year round.

 

The local climate in our area of operations may impair or prevent us from conducting exploration activities on our properties year round. Because of its rural location and limited infrastructure in this area, our property is generally impassible for several days each year as a result of significant rain or snow events. Earthquakes, heavy rains, snowstorms, and floods could result in serious damage to or the destruction of facilities, equipment or means of access to our properties, or may otherwise prevent us from conducting exploration activities on our properties.

 

We do not currently carry any property or casualty insurance.

 

Our business is subject to a number of risks and hazards generally, including but not limited to, adverse environmental conditions, industrial accidents, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory environment, and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result in damage to our properties, equipment, infrastructure, personal injury or death, environmental damage, delays, monetary losses and possible legal liability. You could lose all or part of your investment if any such catastrophic event occurs. We do not carry any property or casualty insurance at this time (but we will carry all insurances that we are required to by law, such as motor vehicle and workers compensation, plus other coverage that may be in the best interest of the Company). Even if we do obtain insurance, it may not cover all of the risks associated with our operations. Insurance against risks such as environmental pollution or other hazards as a result of exploration and operations are often not available to us or to other companies in our business on acceptable terms. Should any events against which we are not insured actually occur, we may become subject to substantial losses, costs and liabilities, which will adversely affect our financial condition.

 

Reclamation obligations could require significant additional expenditures.

 

We are responsible for the reclamation obligations related to any exploratory and mining activities. The satisfaction of current and future bonding requirements and reclamation obligations will require a significant amount of capital. There is a risk we will be unable to fund these additional bonding requirements, and further, increases to our bonding requirements or excessive actual reclamation costs will negatively affect our financial position and results of operation.

 

Title to mineral properties can be uncertain, and we are at risk of loss of ownership of our property.

 

Our ability to explore and mine future leased and optioned properties depends on the validity of title to that property. These uncertainties relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory guidelines, assessment work and possible conflicts with other claims not determinable from descriptions of record. Since a substantial portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty is inherent in the mining industry. Thus, there may be challenges to the title to future properties, which, if successful, could impair development and/or operations.

 

10
 

 

Our ongoing operations and past mining activities of others are subject to environmental risks, which could expose us to significant liability and delay, suspension or termination of our operations.

 

Mining exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment.

 

Environmental and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which will require stricter standards and enforcement, and increased fines and penalties for non-compliance. Such changes may prevent us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental hazards may exist on UP & Burlington, or we may acquire properties in the future that have unknown environmental issues caused by previous owners or operators, or that may have occurred naturally.

 

UP & Burlington is subject to royalties on production.

 

As part of our purchase of UP & Burlington, we granted a Net Smelter Royalty (“NSR”) of 3%. In addition, historical royalties may be asserted by third parties currently unknown to us.

 

Our industry is highly competitive, attractive mineral lands are scarce, and we may not be able to obtain quality properties.

 

We compete with many companies in the mining industry, including large, established mining companies with capabilities, personnel and financial resources that far exceed our limited resources. In addition, there is a limited supply of desirable mineral lands available for claim-staking, lease or acquisition in the United States, and other areas where we may conduct exploration activities. We are at a competitive disadvantage in acquiring mineral properties, since we compete with these larger individuals and companies, many of which have greater financial resources and larger technical staffs. Likewise, our competition extends to locating and employing competent personnel and contractors to prospect, develop and operate mining properties. Many of our competitors can offer attractive compensation packages that we may not be able to meet. Such competition may result in our company being unable not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation and business.

 

We depend on our Chief Executive Officer and Chief Financial Officer and the loss of these individuals could adversely affect our business.

 

Our company is completely dependent on our Chief Executive Officer, Michael Ahlin, and our Chief Financial Officer, Trent D’Ambrosio who are also members of our Board of Directors. As of the date of this report the two are significant to the company. Thus, the loss of either Ahlin or D’Ambrosio could significantly and adversely affect our business, and certainly the loss of both of these individuals on or about the same time could result in a complete failure of the Company. We do not carry any life insurance on the life of Ahlin or D’Ambrosio.

 

The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses that could materially and adversely affect our operations.

 

Exploration for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result in the discovery of economically feasible mineralization. Few properties that are explored are ultimately advanced to the stage of producing mines. We are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties such as, but not limited to:

 

economically insufficient mineralized material;
   
fluctuations in production costs that may make mining uneconomical;
   
labor disputes
   
unanticipated variations in grade and other geologic problems;
   
environmental hazards;
   
water conditions;
   
difficult surface or underground conditions;
   
industrial accidents, such as personal injury, fire, flooding, cave-ins, and landslides;
   
metallurgical and other processing problems;
   
mechanical and equipment performance problems; and
   
decreases in revenues and reserves due to lower gold and mineral prices.

 

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Any of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts spent that are not recoverable.

 

Our operations are subject to permitting requirements that could require us to delay, suspend or terminate our operations on our mining property.

 

Our operations and exploration activities require permits from the local, state and federal governments. We may be unable to obtain these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits, our timetable and business plan for Inception will be adversely affected.

 

We may never find commercially viable gold or other reserves.

 

Mineral exploration and development involve a high degree of risk and few properties that are explored are ultimately developed into producing mines. We cannot assure you that any future mineral exploration and development activities will result in any discoveries of proven or probable reserves as defined by the SEC since such discoveries are remote. Nor can we provide any assurance that, even if we discover commercial quantities of mineralization, a mineral property will be brought into commercial production. Development of our mineral properties will follow only upon obtaining sufficient funding and satisfactory exploration results.

 

Historical production of gold at UP & Burlington and Clavo Rico may not be indicative of the potential for future development or revenue.

 

Historical production of gold and minerals from UP & Burlington and Clavo Rico cannot be relied upon as an indication that these mines will have commercially feasible reserves. Investors in our securities should not rely on historical operations of UP & Burlington and Clavo Rico as an indication that we will be able to place them into commercial production again. We expect to incur losses unless and until such time as the properties enter into commercial production and generate sufficient revenue to fund our continuing operations.

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

 

In their audit opinion issued in connection with our consolidated balance sheets as of July 31, 2015 and our related consolidated statements of operations, deficiency in stockholders’ equity, and cash flows for the year ended July 31, 2015, our auditors have expressed substantial doubt about our ability to continue as a going concern given our recurring net losses, negative cash flows from operations and the limited amount of funds on our balance sheet. We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue in existence. This could make it more difficult to raise capital in the future.

 

Risks Associated with Our Common Stock in General

 

Trading on the Over the Counter markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

 

Our common stock is quoted on the OTCQB Inter-Dealer Quotation System owned and operated by the OTC Markets Group, Inc. and the OTC Pink Sheet service of the Financial Industry Regulatory Authority (“FINRA”) under the symbol SILA. We intend to change the name of the company and the symbol in the near future. Trading in stock quoted on over the counter markets is often thin, volatile, and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the over the counter markets are not a stock exchange, and trading of securities on the over the counter markets is often more sporadic than the trading of securities listed on other stock exchanges such as the NASDAQ Stock Market, New York Stock Exchange or American Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares.

 

12
 

 

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the FINRA’s sales practice requirements, which may limit a stockholders ability to buy and sell our stock.

 

Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers’ account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability or willingness of broker-dealers to trade our securities. We believe that the penny stock rules discourage broker-dealer and investor interest in, and limit the marketability of, our common stock.

 

Our common stock may be affected by limited trading volume and price fluctuation which could adversely impact the value of our common stock.

 

There has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

 

FINRA sales practice requirements may also limit a stockholders ability to buy and sell our stock.

 

In addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and sell our stock and have an adverse effect on the market value for our shares.

 

Because the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling to trade our securities. This means that you may have difficulty reselling your shares, which may cause the value of your investment to decline.

 

Our shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your shares and may cause the value of your investment to decline.

 

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, or convertible debt instruments, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

 

13
 

 

Our stock price may be volatile.

 

The stock market in general has experienced volatility that often has been unrelated to the operating performance of any specific public company. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

changes in our industry;
   
competitive pricing pressures;
   
our ability to obtain working capital financing;
   
additions or departures of key personnel;
   
limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market prices of our common stock;
   
sales of our common stock;
   
our ability to execute our business plan;
   
operating results that fall below expectations;
   
loss of any strategic relationship;
   
regulatory developments;
   
economic and other external factors; and
   
period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

We have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.

 

We have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors.

 

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

 

Recent federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. While our Board of Directors has adopted a Code of Ethics and Business Conduct, we have not yet adopted any of these corporate governance measures and, since our securities are not listed on a national securities exchange or NASDAQ, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

 

14
 

 

Difficulties we may encounter managing our growth could adversely affect our results of operations.

 

As our business needs expand, we may need to hire a significant number of employees. This expansion may place a significant strain on our managerial and financial resources. To manage the potential growth of our operations and personnel, we will be required to:

 

  improve existing, and implement new, operational, financial and management controls, reporting systems and procedures;
     
  install enhanced management information systems; and
     
  train, motivate, and manage our employees.

 

We may not be able to install adequate management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable to manage growth effectively, our business would be seriously harmed.

 

If we lose key personnel or are unable to attract and retain additional qualified personnel we may not be able to successfully manage our business and achieve our objectives.

 

We believe our future success will depend upon our ability to retain our key management, Mr. Ahlin, our Chief Executive Officer, Mr. D’Ambrosio, our Chief Financial Officer, and Mr. Cluff our Consulting Director. We may not be successful in attracting, assimilating and retaining our employees in the future.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity related securities in the future at a time and price that we deem reasonable or appropriate.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

UP & Burlington Gold Mine, Salmon, Lemhi County, Idaho

 

On February 25, 2013 the Company acquired certain real property and the associated exploration permits and mineral rights commonly known as the UP and Burlington Gold Mine (“UP & Burlington”) pursuant to an asset purchase agreement. We are presently in the exploration stage at UP & Burlington. UP & Burlington contains two federal patented mining claims, which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises this property.

 

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

 

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

 

15
 

 

The Company has obtained the necessary permitting, cut additional access roads, made surface improvements, and initiated surface mining on a 2,500 foot per day lighted vein for bulk sampling, vein definition and ore valuation. In Phase II, we plan to contract an underground mining and operations plan, expand portal development leveraging existing underground access, and implement underground mining to a depth based on optimizing costs versus processed ore value. There is no guarantee that we will be successful in implementing any stage of our plans.

 

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

 

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

 

We currently maintain our corporate offices at 5320 South 900 East, Murray, Utah 84107. During the fiscal year ended July 31, 2015, we paid monthly rent of approximately $450 for use of a corporate office, which we anticipate will be sufficient until we commence full operations.

 

ITEM 3. LEGAL PROCEEDINGS

 

We are not aware of any material pending legal proceedings to which we are a party or of which our property is the subject. We also know of no proceedings to which any of our directors, officers or affiliates, or any registered or beneficial holders of more than 5% of any class of our securities, or any associate of any such director, officer, affiliate or security holder are an adverse party or have a material interest adverse to us.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is not traded on any exchange. Our common stock is quoted on the OTC Bulletin Board and OTC Markets, under the trading symbol “IMII.” We cannot assure you that there will be a market in the future for our common stock.

 

OTC securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC securities transactions are conducted through a telephone and computer network connecting dealers. OTC Bulletin Board issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a national or regional stock exchange.

 

The following table reflects the high and low bid information for our common stock and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

 

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The high and low bid prices of our common stock for the periods indicated below are as follows:

 

OTC Bulletin Board 
Quarter Ended  High   Low 
2015          
October 31, 2014  $1.18   $0.70 
January 31, 2015  $0.75   $0.20 
April 30, 2015  $0.40   $0.09 
July 31, 2015  $0.280   $0.090 
           
2014          
October 31, 2013  $1.55   $1.01 
January 31, 2014  $1.200   $0.510 
April 30, 2014  $1.230   $0.510 
July 31, 2014  $1.150   $0.840 

 

Holders

 

As of July 31, 2015 there were 61 holders of record of our common stock. As of November 17, 2015 there were 1,506 holders of record of our common stock.

 

Dividends

 

To date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Directors.

 

Equity Compensation Plans

 

As of November 17, 2015 we have an equity compensation plan: the 2013 Incentive Stock Plan.

 

Recent Sales of Unregistered Securities

 

On July 1, 2014, the Company issued 300,000 shares of common stock to Desert Bloom Capital Ltd. for consulting services. On August 1, 2014 the Company issued 100,000 shares of common stock to Desert Bloom Capital Ltd. for consulting services. On August 29, 2014 the Company issued 100,000 shares of common stock to Desert Bloom Capital Ltd. for consulting services. On October 1, 2014 the Company issued 100,000 shares of common stock to Desert Bloom Capital Ltd. for consulting services. On November 3, 2014 the Company issued 100,000 shares of common stock to Desert Bloom Capital Ltd. for consulting services. On December 1, 2014 the Company issued 100,000 shares of common stock to Desert Bloom Capital Ltd. for consulting services. On December 31, 2014, the Company issued 200,000 shares of common stock to Desert Bloom Capital Ltd. for consulting services. On July 7, 2015, the Company issued 100,000 shares to Desert Bloom Capital Ltd. for consulting services. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering. The Company amended its Advisory Agreement with Desert Bloom Capital Ltd. in October 2015 and November 2015 and as a result Desert Bloom is obligated to return 300,000 shares of common stock to the Company for cancellation.

 

On August 29, 2014, the Company issued a total of 272,503 shares of common stock to Garden State Securities, LLC, Daniel J. Walsh, and Ernest Pellegrino as part of a consulting agreement. On November 28, 2014, a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. On December 29, 2014, a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc., and its principals for consulting services. On January 29, 2015, a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. On February 27, 2015 a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. On March 30, 2015, a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. On April 29, 2015 a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. On May 29, 2015 a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. On June 29, 2015 a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. On July 29, 2015 a total of 90,833 shares of common stock were issuable to Garden State Securities, Inc. and its principals for consulting services. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

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On September 2, 2014, the Company issued 33,333 shares of common stock to Iconic Holdings LLC upon the conversion of $15,000 of note payable principal. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On September 3, 2014, the Company issued 162,750 shares to SSGH, LLC for consulting services. On December 3, 2014, 54,250 shares were issuable to SSGH, LLC for consulting services. On January 2, 2015, 54,250 shares were issuable to SSGH, LLC for consulting services. On February 3, 2015, 54,250 shares of common stock were issuable to SSGH, LLC for consulting services. On March 3, 2015, 54,250 shares of common stock were issuable to SSGH, LLC for consulting services. On April 2, 2015, 54,250 shares of common stock were issuable to SSGH, LLC for consulting services. On May 3, 2015, 54,250 were issuable shares of common stock to SSGH, LLC for consulting services. On June 3, 2015, 54,250 shares of common stock were issuable to SSGH, LLC for consulting services. On July 3, 2015, 54,250 shares of common stock were issuable to SSGH, LLC for consulting services. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On September 5, 2014, the Company issued 108,500 shares to JFS Investments PR LLC for consulting services. On December 5, 2014, 36,167 shares of common stock were issuable to JFS Investments PR LLC for consulting services. On January 5, 2015 36,167 shares of common stock were issuable to JFS Investments PR LLC for consulting services. On February 3, 2015 36,167 shares of common stock were issuable to JFS Investments PR LLC. On March 5, 2015 36,167 shares of common stock were issuable to JFS Investments PR LLC. On April 2, 2015 36,167 shares of common stock were issuable to JFS Investments PR LLC. On May 2, 2015 36,167 shares of common stock were issuable to JFS Investments PR LLC. On June 5, 2015 36,167 shares of common stock were issuable to JFS Investments PR LLC. On July 5, 2015 36,167 shares of common stock were issuable to JFS Investments PR LLC. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering. On September 29, 2015, 108,5000 shares originally issued to JFS Investments PR LLC for consulting services were surrendered to the Company and then cancelled for no value pursuant to a rescission agreement to the consulting agreement that rendered all shares issuable under the consulting agreement to be cancelled or cancellable.

 

On October 14, 2014, 142,707 shares originally issued for legal services to Stephen Fleming and Evan James Costaldo were surrendered to the Company and then cancelled.

 

On November 3, 2014, 1,000,000 shares of common stock were issuable to Oria Development for consulting services. On July 31, 2015, the Company cancelled a total of 1,000,000 unissued shares to Oria Development, LLC pursuant to a rescission and termination agreement.

 

On December 10, 2014, the Company issued 91,666 shares of common stock to U.P. & Burlington pursuant to the conversion of $41,250 of note payable principal.

 

On December 12, 2014, 2,760,000 shares originally issued to Agratronics, Inc. and 2,760,000 shares originally issued to BMC Highland Ventures, LLC for an asset purchase were cancelled upon negotiations by the Company for these shares to be returned for no value.

 

On December 17, 2014, the Company issued 666,666 shares of common stock to U.P & Burlington Development, LLC upon the conversion of $300,000 of note payable principal. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On January 19, 2015, the Company issued 74,985 shares of common stock to Iconic Holdings, LLC upon the conversion of $10,000 of note payable principal. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On February 9, 2015, the Company issued 101,023 shares of common stock to Iconic Holdings, Inc. upon the conversion of $15,000 of note payable principal. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

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On February 18, 2015, 259,000 shares originally issued to Highland Ventures, LLC, 259,000 shares originally issued to BKBK Holdings, LLC and 74,000 shares originally issued to Lee Kimball were surrendered to the Company and then cancelled upon negotiations by the Company for these shares to be returned for no value. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On March 10, 2015, the Company issued 88,526 shares of common stock to Iconic Holdings LLC upon the conversion of $7,500 of note payable principal. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On March 16, 2015, the Company issued 123,967 shares of common stock to Iconic Holdings LLC upon the conversion of $7,500 of note payable principal. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On March 17, 2015, the Company issued 200,000 shares of Common Stock to Stonegate Securities for consulting services. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On April 1, 2015, the Company issued 127,032 shares of common stock to Iconic Holdings LLC upon the conversion of $7,500 of note payable principal. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On June 25, 2015, the Company issued 287,588 shares of common stock to Typenex Co-Investments upon the conversion of convertible debt.

 

On August 7, 2015, the Company issued 204,082 shares of common stock to Iconic Holdings LLC upon the conversion of $14,499 of note payable principal and accrued interest. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On September 25, 2015, as required by the Merger Agreement, the Company retired 2,600,000 shares of common stock issued in the name of Trent D’Ambrosio.

 

On September 25, 2015, as required by the Merger Agreement, the Company retired 2,000,000 shares of common stock issued in the name of Michael Ahlin.

 

On September 25, 2015, as required by the Merger Agreement, the Company agreement to retired 1,000,000 shares of common stock issued in the name of Whit Cluff.

 

On September 25, 2015, as required by the Merger Agreement, the Company retired 350,000 shares of common stock issued in the name of MDL Ventures LLC.

 

A total of 240,225,901 shares of Common Stock of the Company were issued on a pro rata basis to the then-shareholders of Clavo Rico as consideration for the Merger and to certain officers and directors. Specifically, as compensation for the work in closing the Merger Agreement and for services rendered to date, certain officers and directors were issued shares of the Company’s common stock on October 2, 2015. Whit Cluff was issued 1,375,000 shares; Trent D’Ambrosio was issued 3,855,929 shares; and Michael Ahlin was issued 2,750,000 shares. The Company’s transfer agent is holding these shares in book entry for the benefit of its new shareholders. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On November 3, 2015, 250,000 shares of common stock were issued to Firstfire Global Opportunities Fund as an Extension Fee pursuant to an Amendment to the Loan Documents. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.

 

On November 3, 2015, the Company retired 350,000 shares of common stock issued in the name of MDL Ventures LLC.

  

ITEM 6. SELECTED FINANCIAL DATA

 

This information is not required because we are a smaller reporting company.

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

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

 

Overview

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The Company and its independent consultants have developed a detailed exploration drilling program to confirm and expand mineralized zones in the Mine and collect additional environmental and technical data. The first phase of confirmation and expansion drilling will begin in 2015 and the Company intends to continue drilling, metallurgical testing, engineering and environmental programs and studies during 2015 and soon thereafter update the historic feasibility study and environmental permit applications.

 

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

 

Results of Operations

 

Year ended July 31, 2015 compared to the year ended July 31, 2015

 

We had a net loss of $4,578,447 for the year ended July 31, 2015, which was $2,923,797 more than the net loss of $1,654,650 for the year ended July 31, 2014. This change in our results over the two periods is primarily the result of an increase of $1,054,450 in interest expenses due to beneficial conversion features, and $2,255.812 in general and administrative expenses primarily due to consulting expenses. The following table summarizes key items of comparison and their related increase (decrease) for the years ended July 31, 2015 and 2014:

  

   Year Ended July 31,   Increase/ 
   2015   2014   (Decrease) 
Revenues  $-   $-   $- 
Exploration Costs   248,542    34,494    214,048 
General and Administrative   2,956,979    701,167    2,255,812 
Total Operating Expenses   3,205,521    735,661    2,469,860 
(Loss) from Operations   (3,205,521)   (735,661)   2,469,860 
Change in Derivative Liabilities   1,269,008    12,020    (1,256,988)
Gain on Forgiveness of Debt   161,750    (147,778)   (309,528)
Loss on Extinguishment of Debt   (15,843)   -    15,843 
Loss on Impairment of Mining Claim   (950,160)   -    950,160 
Net Interest Income/Expense   (1,837,681)   (783,231)   1,054,450 
Loss from Operations Before Taxes   (4,578,447)   (1,654,650)   2,923,797 
Net Loss  $(4,578,447)  $(1,654,650)  $2,923,797 

 

Liquidity and Capital Resources

 

Our balance sheet as of July 31, 2015, reflects assets of $194,861. As we had cash in the amount of $0 and a working capital deficit in the amount of $1,596,510 as of July 31, 2015, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.

  

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Working Capital

 

   July 31, 2015   July 31, 2014 
Current assets  $194,861   $140,785 
Current liabilities   1,791,371    1,160,371 
Working capital deficit  $(1,596,510)  $(1,019,586)

 

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.

 

Going Concern Consideration

 

As reflected in the accompanying financial statements, the Company is in the exploration stage with no revenue generating operations and has a net loss since inception of $10,661,785. In addition, there is a working capital deficiency of $1,596,510 and a stockholder’s deficiency of $1,596,510 as of July 31, 2015. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

From March 5, 2010, the Company changed its intended business purpose to that of precious metals mineral exploration, development and production. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

 

   Year Ended July 31, 
   2015   2014 
Net Cash Used in Operating Activities  $(506,392)  $(342,045)
Net Cash Used in Investing Activities   -    - 
Net Cash Provided by Financing Activities   500,697    316,615 
Net Increase (Decrease) in Cash  $(5,695)  $(25,430)

 

Operating Activities

 

Net cash flow used in operating activities during the year ended July 31, 2015 was $506,392 – an increase of $164,347 from the $342,045 net cash outflow during the year ended July 31, 2014.

 

Investing Activities

 

Cash used in investing activities during the year ended July 31, 2015 was $0 – no change from the $0 net cash outflow during the year ended July 31, 2014.

 

Financing Activities

 

Financing activities during the year ended July 31, 2015, provided $500,697 to us, an increase of $184,082 from the $316,615 provided by financing activities during the year ended July 31, 2014. During the year ended July 31, 2015, the company received $403,000 from notes payable, $397,322 in advances from related parties and made payments of $299,624 in cash 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.

 

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

 

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain. As of July 31, 2014, none of our properties have proven reserves.

 

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.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

We are not required to provide disclosure under this item because we are a smaller reporting company.

 

ITEM 8. FINANCIAL STATEMENTS

 

The financial statements of the Company required by Article 8 of Regulation S-X are attached to this report, beginning at page F-1.

  

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

On March 2, 2015, the Company opted to change accounting firms for purposes of independent auditing, and subsequently released Fiondella Milone & LaSaracina LLP (Fiondella) as its independent registered accounting firm. Our Board of Directors participated in and approved the decision to change independent accountants. Fiondella was initially engaged by the company on May 31, 2013 for the year ended July 31, 2013.

 

Fiondella’s report on the financial statements for the year ended July 31, 2014 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to scope or accounting, except that the report contained an explanatory paragraph stating that there was substantial doubt about the Company’s ability to continue as a going concern.

 

Through the period covered by the financial review of financial statements of the quarterly period ended January 31, 2015, there were no disagreements with Fiondella on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Fiondella, would have caused them to make reference thereto in their report on the financial statements. Also, through the interim period through March 2, 2015 (the date of release of the former accountant), there have been no disagreements with Fiondella on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Fiondella would have caused then to make reference thereto in their report on the financial statements.

 

During the interim period through March 2, 2015, there were no reportable events with us as set forth in Item 304(a)(1)(iv) of Regulation S-K.

 

The Company originally reported this change in accountant to the SEC on Form 8-K on March 3, 2015, and provided a copy of these disclosures to Fiondella prior to that date. Fiondella subsequently furnished a letter addressed to the SEC stating that it agreed with the statements of that report.

 

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On February 11, 2015, the Company engaged Sadler, Gibb & Associates of Salt Lake City, Utah, as its new independent registered public accountant. During the year ended July 31, 2014, and prior to February 11, 2015 (the date of the new engagement), we did not consult with Sadler, Gibb & Associates regarding (i) the application of accounting principles to a specified transaction, (ii) the type of audit that might be rendered on the Company’s financial statements by Sadler, Gibb & Associates, in either case where written or oral advice provided by Sadler, Gibb & Associates would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Item 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not efffective as of July 31, 2015.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles, or GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

 

With the participation of our Chief Executive Officer and Chief Financial Officer (principal financial officer), our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2015 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation and the material weaknesses described below, management concluded that the Company’s internal controls were not effective based on financial reporting as of July 31, 2015 based on the COSO framework criteria. Management has identified control deficiencies regarding the lack of segregation of duties, tax compliance issues and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff and reliance on outside consultants for external reporting. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

 

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

 

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

 

In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended July 31, 2015 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the year ended July 31, 2015 are fairly stated, in all material respects, in accordance with US GAAP.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

 

24
 

 

Limitations on Effectiveness of Controls and Procedures

 

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

 

Changes in Internal Controls

 

During the fiscal quarter ended July 31, 2015, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

Our Bylaws state that our authorized number of directors shall be one or more and shall be set by resolution of our Board of Directors. We currently have five directors.

 

Our current directors and officers are as follows:

 

Name   Age   Position
         
Michael Ahlin   67   Chief Executive Officer, President, Secretary and Director
         
Trent D’Ambrosio   50   Chief Financial Officer and Director
         
Whit Cluff   65   Director
         
Reed Benson   69   Director
         
Kay Briggs   71   Director

 

Our directors will serve in that capacity until our next annual shareholder meeting or until a successor is elected and qualified. Officers hold their positions at the will of our Board of Directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.

 

25
 

 

Michael Ahlin, Chief Executive Officer, President, Treasurer, Secretary and Director

 

Mr. Ahlin is a seasoned executive with several decades of experience who has founded numerous startups and has held executive management positions in public and private companies in various industries. From 1985 through the present, Mr. Ahlin has served as the founder and President of WetCor, Inc., a multi-disciplined Engineering Construction Firm licensed in numerous states and performing both bid and design / build projects including minerals processing, mining, water treatment, energy, Medical ( 5 MRE centers), geothermal power, and renewable energy and commercial buildings. In addition, from 2004 through the present, Mr. Ahlin has served as a Managing Partner of Cactus Management Services LLC. Mr. Ahlin has served as Inception Resources’ CEO since inception. Mr. Ahlin was appointed as CEO, President, Treasurer, Secretary and Director of the Company on February 25, 2013. Mr. Ahlin received a Bachelors of Science Degree in Mechanical Engineering and a Masters Degree in Business Administration from the University of Utah in 1971 and 1977, respectively.

 

Trent D’Ambrosio, Chief Financial Officer and Director

 

Mr. D’Ambrosio has been a Director of Inception Mining Inc. since Februaryuary 28, 2013. From October 2011 through the March 2013, Mr. D’Ambrosio has held the positions of Interim Chief Executive Officer and Chief Financial Officer of Inception Holdings LLC, a resource exploration company, and is the responsible for the overall strategic direction for the organization. His professional record includes 25 years of management and financial services experience with companies ranging from Fortune 500 companies to start ups. From February 2008 to December 2012, he was the acting Chief Financial Officer and consulting to a Fund of Hedge Funds and Private Equity. Prior to this, from September 2002 to September 2007, he served as the Chief Financial Officer for the D’Ambrosio Auto Group. He has held leadership positions with MCI, World Com, and Montana Power.

 

Whit Cluff, Director

 

Mr. Cluff has over 35 years of experience in the commercial real estate industry. Mr. Cluff has been involved in all disciplines of real estate land development, mixed-use development, retail tenant representation, developer representation, industrial property procurement and asset management. Mr. Cluff has an extensive background in public and private businesses giving him strong analytical, planning, and organization ability with effective negotiation skills. From 2003 through the present, Mr. Cluff has served as Vice President and Associate Broker at Coldwell Banker Commercial, NRT in Salt Lake City, Utah. Mr. Cluff attended the University of Utah and served in the United States Army.

 

Reed Benson, Director

 

Mr. Bensen has been a director from October 2, 2015 to the present. From September, 2008, to the present, in addition to the private practice of law, he is a founder and partner of Legends Capital Group, LLC, a privately held venture capital group that identifies investment opportunities in natural resources, bio tech and technology fields. From October 2004 to September 2008 he was employed as Chief Financial Officer, Secretary, and General Counsel and member of Board of Directors of Broadcast International, Inc., a publically traded communications services company. From 2001 to October 2004, he was in the private practice of law where his practice focused on tax and business related matters. From July 1995 to January 2001 he was secretary and general counsel for Data Broadcasting Corporation, a provider of market information to individual investors. Mr. Benson received J.D. degree from the University of Utah School of Law in 1976 and a Bachelor of Science Degree in Accounting from the University of Utah in 1971. Mr. Benson became a Certified Public Accountant in 1974. Mr. Benson’s experience in finance, accounting and business consulting, together with his prior public company directorship, provide Mr. Benson with expertise enabling critical input to our Board decision-making process.

 

Kay Briggs, Director

 

Mr. Briggs has BS degrees in economics and political science from Brigham Young University, magna cum laude. To launch his career, he completed internships with CitiBank in New York and Argentina. He then went on to obtain an MBA with an emphasis in international business and finance, also from Brigham Young University. He then pursued post-graduate work with IBM and Stanford University. Mr. Briggs spent nearly ten years with EXXON (Esso International) with managerial opportunities in information systems; refinery maintenance (with additional training in product blending chemistry); maritime contract negotiating; supply and transportation managing in Toronto, Canada with Imperial Oil; and an executive position with Tar Sands and Heavy Oil Extraction and Refining in Calgary, Canada. Mr. Briggs spent the next 32 years with The Church of Jesus Christ of Latter-day Saints as managing director of materials management and international operations, and director of business affairs in Argentina, Southeast US, and 32 island nations in the Caribbean. He has experience with numerous civic assignments, including school boards, city council, and as mayor of North Salt Lake, Utah. Additionally, he has served in various board of directors positions with several organizations.

 

Other Directorships

 

Other than as set forth above, none of our directors hold any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.

 

26
 

 

Board of Directors and Director Nominees

 

Since our Board of Directors does not include a majority of independent directors, the decisions of the Board regarding director nominees are made by persons who have an interest in the outcome of the determination. The Board will consider candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, at any time not less than 90 days prior to the next annual Board meeting at which a slate of director nominees is adopted, the Board will accept written submissions from proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as a director; and a statement as to why the security holder submitting the proposed nominee believes that the nomination would be in the best interests of our security holders. If the proposed nominee is not the same person as the security holder submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the nominee’s qualifications to serve on the Board, as well as a list of references.

 

The Board identifies director nominees through a combination of referrals from different people, including management, existing Board members and security holders. Once a candidate has been identified, the Board reviews the individual’s experience and background and may discuss the proposed nominee with the source of the recommendation. If the Board believes it to be appropriate, Board members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of the slate of director nominees submitted to security holders for election to the Board.

 

Some of the factors, which the Board considers when evaluating proposed nominees, include their knowledge of and experience in business matters, finance, capital markets and mergers and acquisitions. The Board may request additional information from each candidate prior to reaching a determination, and it is under no obligation to formally respond to all recommendations, although as a matter of practice, it will endeavor to do so.

 

Conflicts of Interest

 

Our directors are not obligated to commit their full time and attention to our business and, accordingly, they may encounter a conflict of interest in allocating their time between our operations and those of other businesses. In the course of their other business activities, they may become aware of investment and business opportunities which may be appropriate for presentation to us as well as other entities to which they owe a fiduciary duty. As a result, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. They may also in the future become affiliated with entities that are engaged in business activities similar to those we intend to conduct.

 

In general, officers and directors of a corporation are required to present business opportunities to the corporation if:

 

the corporation could financially undertake the opportunity;
   
the opportunity is within the corporation’s line of business; and
   
it would be unfair to the corporation and its stockholders not to bring the opportunity to the attention of the corporation.

 

We plan to adopt a code of ethics that obligates our directors, officers and employees to disclose potential conflicts of interest and prohibits those persons from engaging in such transactions without our consent.

 

Significant Employees

 

Other than as described above, we do not expect any other individuals to make a significant contribution to our business.

 

Legal Proceedings

 

None of our directors, executive officers or control persons has been involved in any of the following events during the past five years:

 

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
   
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
   
being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, where the judgment has not been reversed, suspended, or vacated.

 

27
 

 

No Audit Committee or Financial Expert

 

The Company does not have an audit committee or a financial expert serving on the Board of Directors. The Company plans to form and implement an audit committee as soon as practicable.

 

Family Relationships

 

There are no family relationships among our officers, directors, or persons nominated for such positions.

 

Code of Ethics

 

Due to our recent change in business strategy and objectives and our small size and limited resources, we have not yet adopted a code of ethics that applies to our principal executive officer and principal accounting officer, but intend to do so this year.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act of 1934, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash only rights) and any changes in that ownership with the Securities and Exchange Commission. The Company has evaluated all relevant Section 16(a) filings and has determined that the company is compliant with this section to the best of its knowledge. 

 

ITEM 11. EXECUTIVE COMPENSATION

 

Our Board of Directors has not established a separate compensation committee. Instead, the Board of Directors reviews and approves executive compensation policies and practices, reviews salaries and bonuses for our officer(s), decides on benefit plans, and considers other matters as may, from time to time, be referred to it. We do not currently have a Compensation Committee Charter. Our Board continues to emphasize the important link between our performance, which ultimately benefits all shareholders, and the compensation of our executives. Therefore, the primary goal of our executive compensation policy is to closely align the interests of the shareholders with the interests of the executive officer(s). In order to achieve this goal, we attempt to (i) offer compensation opportunities that attract and retain executives whose abilities and skills are critical to our long-term success and reward them for their efforts in ensuring our success and (ii) encourage executives to manage from the perspective of owners with an equity stake in us.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position  Year  Salary
($)
   Bonus
($)
   Stock Awards
($)
   Option Awards
($)
   Non-equity Incentive Plan Compensation ($)   Non-qualified Deferred Compensation Earnings
($)
   All Other Compensation ($)   Total
($)
 
Michael Ahlin, Chief  2015   0    0    0    0    0    0    0    0 
Executive Officer, President, Secretary, and Director  2014   0    0    0    0    0    0    0    0 
                                            
Trent D’Ambrosio,  2015   0    0    0    0    0    0    0    0 
Chief Financial Officer and Director  2014   0    0    0    0    0    0    0    0 
                                            
Whit Cluff,  2015   0    0    0    0    0    0    0    0 
Director  2014   0    0    0    0    0    0    0    0 
                                            
Reed Benson,  2015   0    0    0    0    0    0    0    0 
Director  2014   0    0    0    0    0    0    0    0 
                                            
Kay Briggs,  2015   0    0    0    0    0    0    0    0 
Director  2014   0    0    0    0    0    0    0    0 

 

28
 

 

None of our named executive officers received any compensation from us during the fiscal years ended July 31, 2015, and July 31, 2014.

 

Option Grants

 

As of July 31, 2015 we had not granted any options or stock appreciation rights to our named executive officers or directors.

 

Management Agreements

 

On August 1, 2015, the Company amended the previously entered into employment agreement with Michael Ahlin pursuant to which the eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with the SEC were removed.

 

On September 25, 2015, as required by the Clavo Rico Merger Agreement, the Company retired 2,600,000 shares of common stock issued in the name of Trent D’Ambrosio.

 

On September 25, 2015, as required by the Clavo Rico Merger Agreement, the Company retired 2,000,000 shares of common stock issued in the name of Michael Ahlin.

 

On September 25, 2015, as required by the Clavo Rico Merger Agreement, the Company retired 1,000,000 shares of common stock issued in the name of Whit Cluff.

 

Compensation of Directors

 

As of the Closing of the Clavo Rico Merger Agreement on October 2, 2015, Reed Benson and Kay Briggs were elected as members of the Board of Directors of the Company.

 

Our directors did not receive any compensation for their services as directors from our inception to July 31, 2015. We have no formal plan for compensating our directors for their services in the future in their capacity as directors, although such directors are expected in the future to receive options to purchase shares of our common stock as awarded by our Board of Directors or by any compensation committee that may be established.

 

Pension, Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.

 

Compensation Committee

 

We do not currently have a compensation committee of the Board of Directors or a committee performing similar functions. The Board of Directors as a whole participates in the consideration of executive officer and director compensation.

 

29
 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following tables set forth the ownership, as of October 31, 2015, of our common stock by each of our directors, by all of our executive officers and directors as a group, and by each person known to us who is the beneficial owner of more than 5% of any class of our securities. As of October 31, 2015, there were 253,872,437 shares of our common stock issued and outstanding. All persons named have sole or shared voting and investment control with respect to the shares, except as otherwise noted. The number of shares described below includes shares which the beneficial owner described has the right to acquire within 60 days of the date of this Form 10-K.

 

Title of Class  Name and Address of
Beneficial Owner
  Amount and
Nature of
Beneficial Ownership
   Percent of Class 
            
Common Stock  Legends Capital Group, LLC (1)   64,346,250    25.35%
   4049 S. Highland Drive          
   Salt Lake City, Utah 84124          
              
Common Stock  Madison, LLC (2)   13,727,200    5.41%
   4049 S. Highland Drive          
   Salt Lake City, Utah 84124          
              
All 5% beneficial owners as a group      78,073,450    30.75%

 

  (1) Legends Capital Group, LLC is beneficially controlled by Jason Briggs. Reed Benson, a director of the Company, owns an 11% equity interest in Legends Capital Group, LLC.
     
  (2) Madison, LLC is beneficially controlled by Jason Briggs.

 

Title of Class  Name and Address of
Beneficial Owner
  Amount and
Nature of
Beneficial Ownership
   Percent of Class 
            
Common Stock  Michael Ahlin (1)   2,750,000    1.08%
   c/o Inception Mining, Inc.          
   5320 South 900 East, Suite 260          
   Murray, UT 84107          
              
Common Stock  Trent D’Ambrosio (1)   3,855,929    1.52%
   c/o Inception Mining, Inc.          
   5320 South 900 East, Suite 260          
   Murray, UT 84107          
              
Common Stock  Whit Cluff (1)   1,375,000    0.54%
   c/o Inception Mining, Inc.          
   5320 South 900 East, Suite 260          
   Murray, UT 84107          
              
Common Stock  Reed Benson (1)    5,147,700(2)   2.03%
   c/o Inception Mining, Inc.          
   5320 South 900 East, Suite 260          
   Murray, UT 84107          
              
Common Stock  Kay Briggs (1)   1,715,900    0.68%
   c/o Inception Mining, Inc.          
   5320 South 900 East, Suite 260          
   Murray, UT 84107          
              
All Officers and Directors as a Group      14,844,529    5.85%

 

 

30
 

 

  (1) Executive officer and/or director of the Company.
     
  (2) These shares are held by Moreland Family, LLC, whose majority member is Jeanne Benson, Mr. Benson’s wife.

 

Changes in Control

 

As a result of the Clavo Rico Merger Agreement described herein, a change in control of the Company has occurred.

 

Securities authorized for issuance under equity compensation plans.

 

As of November 17, 2015, we have one equity compensation plan: the 2013 Incentive Stock Plan.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

There have been no transactions since the beginning of our last fiscal year or any currently proposed transactions in which we are, or plan to be, a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.

 

Director Independence

 

Our securities are quoted on the OTC Bulletin Board and OTC Markets, which does not have any director independence requirements. Once we engage further directors and officers, we plan to develop a definition of independence and scrutinize our Board of Directors with regard to this definition.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees. The aggregate fees paid for the annual audit of financial statements included in our Annual Report for the year ended July 31, 2015, and the review of our quarterly reports for such years amounted to $36,556. The aggregate fees paid for the annual audit of financial statements included in our Annual Report for the year ended July 31, 2014, and the review of our quarterly reports for such year, amounted to $32,500.

 

Audit Related Fees. For the years ended July 31, 2015, and July 31, 2014, there were no fees billed for other audit related fees.

 

Tax Fees. For the years ended July 31, 2015, and July 31, 2014, we paid $0 and $0, respectively, for tax fees.

 

All Other Fees. For the years ended July 31, 2015, and July 31, 2014, there were no fees billed for services other than services described above.

 

Our Board of Directors serves as the Audit Committee and has unanimously approved all audit and non-audit services provided by the independent auditors. The independent accountants and management are required to periodically report to the Board of Directors regarding the extent of services provided by the independent accountants, and the fees for the services performed to date.

 

There have been no non-audit services provided by our independent accountant for the years ended July 31, 2015 and 2014.

 

31
 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)(1)(2) Financial Statements: See index to financial statements and supporting schedules.

 

(a)(3) Exhibits.

 

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

10.16

  Employment Agreement with Michael Ahlin dated August 1, 2015 (11)
10.17   Agreement and Plan of Merger dated August 4, 2015 (11)
10.18   Addendum to Agreement and Plan of Merger (11)
21.1   List of Subsidiaries
31.1*   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 *   Certification of Chief Executive and Chief Financial Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

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

(10)

 

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

(11)   Incorporated by reference from From 8-K filed with the SEC on October 7, 2015.

 

32
 

 

SIGNATURES

 

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  INCEPTION MINING, INC.
     
Date: November 23, 2015 By: /s/ Michael Ahlin
  Name: Michael Ahlin
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
Date: November 23, 2015 By: /s/ Trent D’Ambrosio
  Name: Trent D’Ambrosio
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SIGNATURE   TITLE   DATE
         
/s/ Trent D’Ambrosio        
Trent D’Ambrosio   Director  

November 23, 2015

         
/s/ Michael Ahlin        
Michael Ahlin   Director  

November 23, 2015

       
/s/ Whit Cluff        
Whit Cluff   Director  

November 23, 2015

         
/s/ Kay Briggs        

Kay Briggs

  Director  

November 23, 2015

         
/s/ Reed Benson        
Reed Benson   Director   November 23, 2015

 

33
 

 

INCEPTION MINING, INC.

(Formerly known as Gold American Mining Corp.)

 

CONTENTS

 

PAGE F-1 REPORT OF REGISTERED INDEPENDENT AUDITORS
     
PAGE F-3 CONSOLIDATED BALANCE SHEETS AS OF JULY 31, 2015 AND JULY 31, 2014
     
PAGE F-4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 31, 2015 AND 2014
     
PAGE F-5 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
     
PAGE F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 31, 2015 AND 2014
     
PAGES F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

34
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Inception Mining, Inc.

 

We have audited the accompanying consolidated balance sheet of Inception Mining, Inc. as of July 31, 2015, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended. Inception Mining, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inception Mining, Inc. as of July 31, 2015 and the results of its operations and its cash flows for the year ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has negative cash flows from operations, negative working capital and accumulated losses, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Sadler, Gibb & Associates, LLC

 
 

Salt Lake City, UT

 
November 20, 2015  

 

  

  F-1 
 

  

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

Inception Mining, Inc.

 

We have audited the accompanying consolidated balance sheet of Inception Mining, Inc. and Subsidiary (the “Company”) as of July 31, 2014, and the related consolidated statement of operations, changes in stockholders’ deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inception Mining, Inc. as of July 31, 2014, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company is in the exploration stage with minimal operations, has a net loss of $1,654,650 and used cash in operations of $342,045 for the year ended July 31, 2014. In addition, there is a stockholders’ deficiency of $69,426 as of July 31, 2014. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning this matter are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

   
Glastonbury, CT  
November 18, 2014  

 

 

 

300 Winding Brook Drive. Glastonbury, CT 06033 P: 860.657.3651 F: 860.657.3657 W: fmlcpas.com 

  

  F-2 
 

 

Inception Mining, Inc. and Subsidiary

Consolidated Balance Sheets

 

   July 31, 2015   July 31, 2014 
ASSETS          
Current Assets          
Cash  $-   $5,695 
Prepaid expenses and other assets   194,861    135,090 
Total Current Assets   194,861    140,785 
           
Land and mineral rights   -    950,160 
Total Assets  $194,861   $1,090,945 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities          
Accounts payable and accrued expenses  $77,634   $158,499 

Checks in excess of bank

   23    - 
Accrued salary   

342,000

    - 
Accrued interest payable   

113,586

    

26,178

 
Advances, related party   -    

286,446

 
Notes payable   -    18,000 
Convertible note payable - related party, net of debt discount of $60,882 and $0 as of July 31, 2015 and 2014, respectively   622,886    - 
Convertible notes payable, net of debt discount of 168,902 and $124,103 as of July 31, 2015 and 2014, respectively   159,098    558,397 
Derivative liability   476,144    112,851 
Total Liabilities   1,791,371    1,160,371 
           
Commitments and Contingencies (See Note 8)          
           
Stockholders' Deficit          
Preferred stock, $0.00001 par value; 10,000,000 shares authorized, none issued and outstanding   -    - 
Common stock, $0.00001 par value; 500,000,000 shares authorized, 20,206,013 and 21,770,681 shares issued and outstanding as of July 31, 2015 and 2014, respectively   202    218 
Additional paid-in capital   9,065,073    5,968,852 
Common stock subscribed   -    

44,842

 
Accumulated deficit    (10,661,785)   (6,083,338)
Total Stockholders' Deficit   (1,596,510)   (69,426)
           
Total Liabilities and Stockholders' Deficit  $194,861   $1,090,945 

 

See accompanying notes to the consolidated financial statements.

 

  F-3 
 

 

Inception Mining, Inc. and Subsidiary

Consolidated Statements of Operations

 

   For the Year Ended 
   July 31, 2015   July 31, 2014 
Revenues  $-   $- 
           
Operating Expenses          
Exploration costs   248,542    34,494 
General and administrative   2,956,979    701,167 
Total Operating Expenses   3,205,521    735,661 
           
Loss from Operations   (3,205,521)   (735,661)
           
Other Income/(Expenses)          
Interest income   -    - 
Change in derivative liability   1,269,008    12,020 
Gain (loss) on forgiveness of debt   161,750    (147,778)

Loss on extinguishment of debt

   

(15,843)

    - 
Loss on impairment of mining claim   

(950,160

)   - 
Interest expense   (1,837,681)   (783,231)
Total Other Income/(Expenses)   (1,372,926)   (918,989)
           
Loss from Operations before Income Taxes   (4,578,447)   (1,654,650)
           
Provision for Income Taxes   -    - 
           
NET LOSS  $(4,578,447)  $(1,654,650)
           
Net loss per share - Basic and Diluted  $(0.21)  $(0.08)
           
Weighted average number of shares outstanding during the period - Basic and Diluted   21,455,357    

21,097,744

 

 

See accompanying notes to the consolidated financial statements.

 

  F-4 
 

 

Inception Mining, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders’ Equity (Deficit)

 

   Preferred stock   Common stock   Additional   Common       Total 
   ($0.00001 Par)   ($0.00001 Par)   Paid-in   Stock   Accumulated   Stockholders' 
   Shares   Amount   Shares   Amount   Capital   Subscribed   Deficit   Deficiency 
Balance, July 31, 2013   -   $-    20,216,739   $202   $4,288,815   $101,025   $(4,428,688)  $(38,646)
Shares issued for services   -    -    440,000    4    300,996    -    -    301,000 
Shares issued for cash   -    -    598,942    6    269,520    (101,025)   -    168,501 
Shares issued for conversion of debt   -    -    288,889    3    129,997    -    -    130,000 
Shares issued for settlement of accounts payable   -    -    226,111    3    249,524    -    -    249,527 
Shares to be issued for services rendered   -    -    -    -    -    44,842    -    44,842 
Debt discount on convertible notes due to beneficial conversion feature   -    -    -    -    730,000    -    -    730,000 
Net loss for the year   -    -    -    -    -    -    (1,654,650)   (1,654,650)
Balance,  July 31, 2014   -    -    21,770,681    218    5,968,852    44,842    (6,083,338)   (69,426)
Shares issued for prepaid services   -    -    4,584,589    45    2,625,818    (44,842)   -    2,581,021 
Shares issued for conversion of debt   -    -    1,594,786    16    418,109    -    -    418,125 
Shares surrendered and cancelled   -    -    (7,744,043)   (77)   77    -    -    - 
Debt discount on convertible notes due to beneficial conversion feature   -    -    -    -    52,217    -    -    52,217 
Net loss for the year   -    -    -    -    -    -    (4,578,447)   (4,578,447)
Balance,  July 31, 2015   -   $-    20,206,013   $202   $9,065,073   $-   $(10,661,785)  $(1,596,510)

   

See accompanying notes to the consolidated financial statements.

 

  F-5 
 

 

Inception Mining, Inc. and Subsidiary

Consolidated Statements of Cash Flows

 

   For the Year Ended 
   July 31, 2015   July 31, 2014 
Cash Flows From Operating Activities:          
Net Loss  $(4,578,447)  $(1,654,650)
Adjustments to reconcile net loss to net cash used in operations          
Depreciation expense   -    - 
Impairment of mining claim   950,160    - 
Stock issued for services   -    365,092 
Change in derivative liability   (1,057,403)   112,851
Change in warrant liability   (111,615)   - 
Amortization of debt discount   649,734    688,397 
Initial value of derivative liabilities   902,602    - 
Loss on settlement of accounts payable   -    147,778 
Loss on extinguishment of debt   

15,843

    

-

 
Gain on forgiveness of debt   (161,750)   - 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   2,521,250    (100,256)
Accounts payable and accrued expenses   261,159    81,780 
Accrued interest   102,075    16,963 
Net Cash Used In Operating Activities   (506,392)   (342,045)
           
Cash Flows From Investing Activities:          
Net Cash Used In Investing Activities   -    - 
           
Cash Flows From Financing Activities:          
Repayment of note payable   (5,000)   (142,000)
Repayment of convertible notes payable   

(294,624

)     
Proceeds from notes payable   403,000    182,500 
Proceeds from notes payable-related party - expenses   14,620    - 
Proceeds from notes payable-related party - cash   382,701    107,615 
Proceeds from issuance of common stock   -    168,500 
Net Cash Provided by Financing Activities   500,697    316,615 
           
Net Change in Cash   (5,695)   (25,430)
Cash at Beginning of Period   5,695    31,125 
Cash at End of Period  $-   $5,695 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $72,406   $- 
Cash paid for taxes  $-   $- 
           
Supplemental disclosure of non-cash investing and financing activities:          
Conversion of debt to common stock  $418,125   $130,000 

 

See accompanying notes to the consolidated financial statements.

 

  F-6 
 

 

Inception Mining, Inc. and Subsidiary

(formerly known as Gold American Mining Corp.)

Notes to Consolidated Financial Statements

As of July 31, 2015

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A) Organization

 

Inception Mining, Inc. (formerly known as Gold American Mining Corp.) was incorporated under the name of Golf Alliance Corporation and under the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. is a precious metal mineral acquisition, exploration and development company. Inception Development, Inc., its wholly owned subsidiary was incorporated under the laws of the State of Idaho on January 28, 2013.

 

Golf Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided to redirect its business focus toward precious metal mineral acquisition and exploration. The Company is currently performing exploration and evaluation work on its property in Salmon, ID.

  

On March 5, 2010, the Company amended its articles of incorporation to (1) to change its name to Silver America, Inc. and (2) increased its authorized common stock from 100,000,000 to 500,000,000.

 

On June 23, 2010 the Company amended its articles of incorporation to change its name to Gold American Mining Corp.

 

On November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented.

  

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

 

On May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc.

 

  F-7 
 

 

(B) 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 July 31, 2015, the Company incurred net losses of $4,578,447 and used $506,392 in cash for operating activities. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

 

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.

 

(C) Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Inception Mining, Inc. and its wholly owned subsidiary, Inception Development, Inc. (collectively, the “Company”) from January 28, 2013. All intercompany accounts have been eliminated upon consolidation.

 

(D) Basis of Presentation

 

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America.

 

(E) Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and expenses during the reported period. Significant estimates include valuation of in kind contribution of interest and services, inputs into the determination of the derivative liabilities and the valuation of deferred tax assets. While management believes the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates.

 

(F) Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At July 31, 2015 and July 31, 2014, the Company had no cash equivalents.

 

(G) Exploration and Development Costs

 

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 in accordance with FASB ASC 930, Extractive Activities- Mining. 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.

 

During the years ended July 31, 2015 and 2014, the Company recorded exploration costs of $248,542 and $34,494, respectively.

 

  F-8 
 

 

(H) Property and Equipment

 

The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life. The Company uses a five year life for computer equipment. Upon retirement or disposal, cost and related accumulated depreciation are removed from the related accounts, and any resulting gain or loss is recognized as a component of income or loss for the period.

 

Impairment of Long-Lived Assets

 

The Company accounts for long-lived assets, other than goodwill and intangible assets not subject to amortization, in accordance with the provisions of ASC Topic 360-10, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. ASC 360-10 requires that when indications of potential impairment of long-lived assets are present, the Company evaluates the carrying value of these assets. The Company reviews the carrying value of property, mineral rights and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, the effects of obsolescence, demand, competition, and other economic factors.

 

The Company recorded an impairment expense of $950,160 on its mining claim and no impairment during the years ended July 31, 2015 and 2014, respectively.

 

(I) Derivative Instrument Liability

 

The Company accounts for derivative instruments in accordance with ASC 815, Derivatives and Hedging, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At July 31, 2015 and 2014, the Company did not have derivative instruments that were designated as hedges (see (M) below).

 

(J) Net Loss per Common Share, basic and diluted

 

The Company has adopted ASC subtopic 718-10, Compensation, specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Diluted loss per share is calculated by dividing the Company’s net loss available to shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is adjusted for any potentially dilutive debt or equity. Warrants for the purchases of stock have been excluded as common stock equivalents in the diluted loss per share because their effect is anti-dilutive on the computation. Fully diluted shares outstanding were 21,672,251 for the year ended July 31, 2015.

 

(K) Stock-Based Compensation

 

In December 2004, the FASB issued FASB ASC Topic No. 718, Compensation – Stock Compensation. Under FASB ASC No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value.

 

Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

 

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC No. 718. FASB ASC Topic No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either (a) a performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

 

(L) Business Segments

 

The Company operates in one segment and therefore segment information is not presented.

 

  F-9 
 

 

(M) Financial Instruments

 

The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted 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.

 

As of July 31, 2015 or July 31, 2014, the Company did not have any items that would be classified as level 1 or 2 disclosures.

 

All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.

 

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.

 

The derivative liability as of July 31, 2015, in the amount of $476,144 has a level 3 classification.

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of July 31, 2015:

 

   Derivative Liabilities    Warrant
Liability
 
Balance, July 31, 2013  $-   $- 
Transfers in upon initial fair value of derivative liabilities   124,871    - 
Change in fair value of derivative liabilities and warrant liability   (12,020)   - 
Transfers to permanent equity upon conversion of note   -    - 
Balance, July 31, 2014  $112,851   $- 
Net gain for the period included in earnings relating to the liabilities held at July 31, 2014  $12,020   $- 

 

   Derivative
Liabilities
   Warrant
Liability
 
Balance, July 31, 2014  $112,851   $- 
Transfers in upon initial fair value of derivative liabilities   1,458,820    225,698 
Change in fair value of derivative liabilities and warrant liability   (1,157,394)   (111,614)
Transfers to permanent equity upon conversion of note   (49,328)   (2,889)
Balance, July 31, 2015  $364,949   $111,195 
Net gain for the period included in earnings relating to the liabilities held at July 31, 2015  $1,157,394   $111,614 

 

  F-10 
 

 

The fair value of the embedded derivatives at July 31, 2015, in the amount of $476,144, was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 101.53% to 207.39%, (3) weighted average risk-free interest rate of 0.08% to 0.33%, (4) expected life of 0.15 to 0.93 years, and (5) estimated fair value of the Company’s common stock of $0.13 per share. The Company recorded a gain on change in derivative liabilities of $1,269,008 during the year ended July 31, 2015.

 

Liabilities measured at fair value on a recurring basis are summarized as follows:-

 

   Level 1   Level 2   Level 3   Total 
Long-term investments  $-   $-   $-   $- 
Total   -    -    -    - 
Warrant liability   -    -    

111,195

    111,195 
Debt Derivative   -    -    364,949    364,949 
Total  $-   $-   $476,144   $476,144 

 

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price decreased approximately 86% from July 31, 2014 to July 31, 2015. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases, therefore decreasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Decreases in expected volatility would generally result in a lower fair value measurement.

 

  F-11 
 

 

NOTE 2 PROPERTY AND EQUIPMENT

 

Property and Equipment

 

At July 31, 2015 and July 31, 2014, respectively, the Company held no depreciable property.

 

Depreciation/expense for the years ended July 31, 2015 and 2014 was $0 and $0, respectively.

 

Mineral Property

 

On February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly known as the U.P. and Burlington Gold Mine (“UP & Burlington” or the “Mine”) pursuant to that certain asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). We are presently in the exploration stage at UP & Burlington. UP & Burlington contains two Federal patented mining claims which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises UP & Burlington. The property was recorded at cost and the Company recognized $950,160 impairment expense on the property as of July 31, 2015. At July 31, 2015 and 2014 the value of the property was $0 and $950,160, respectively (See Note 8(A).

 

  F-12 
 

 

NOTE 3 CONVERTIBLE NOTES PAYABLE

 

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

 

   7/31/2015  7/31/2014
UP and Burlington convertible note payable  $10,000   $500,000 
Iconic Holdings convertible note payable   20,000    82,500 
Dave Waverek convertible note payable   70,000    100,000 
Typenex convertible note payable   58,000    - 
Jonathan Shane convertible note payable   55,000    - 
Firstfire Global convertible note payable   115,000    - 
Total Convertible notes payable   328,000    682,500 
Less unamortized discount   (168,902)   (124,103)
Total notes payable net of unamortized debt discount  $159,098   $558,397 

 

UP and Burlington Gold Mine

 

On February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of $0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and $150,000 and the assignment of a 3% net royalty. The Asset Purchase Agreement closed on February 25, 2013. On November 1, 2013, one of the notes was renegotiated with the note holder. The original note was restructured and treated as an extinguishment and as such is now convertible into shares of the Company’s common stock at $0.45 per share. All the other points of the note remained the same. A beneficial conversion feature on the new note was recorded for $630,000. On February 11, 2014, the Company converted $130,000 of principal into 288,889 shares of common stock. On December 10, 2014, the note holder elected to convert $41,250 of the principle balance of the note into 91,666 shares of common stock at $0.45 per share. On December 17, 2014, the note holder elected to convert $300,000 of the principle balance of the note into 666,666 shares of common stock at $0.45 per share. On December 17, 2014, the note holder elected to forgive $148,750 of the principle balance of the note. As of July 31, 2015, the outstanding balance on this note was $10,000.

 

Iconic Holdings

 

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

 

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

 

  F-13 
 

 

The fair value of the embedded derivatives were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 131.64% to 156.78%, (3) weighted average risk-free interest rate of 0.05% to 0.12%, (4) expected lives of 0.31 to 0.97 years, and (5) estimated fair value of the Company’s common stock from $0.80 to $0.94 per share based upon quoted market price. The initial fair value of the embedded debt derivatives of $124,871 were allocated as a debt discount up to the proceeds of the notes ($82,500) with the remainder ($42,371) charged to current period operations as interest expense. On September 2, 2014, the note holder elected to convert $15,000 of the principle balance of the note into common stock at $0.45 per share. Accordingly, the Company issued 33,333 shares of common stock. The Company moved the related portion of the derivative liability for the $15,000 converted of $24,878 to permanent equity. On January 19, 2015, the note holder elected to convert $10,000 of the principle balance of the note into common stock at $0.13336 per share. Accordingly, the Company issued 74,985 shares of common stock. The Company moved the related portion of the derivative liability for the $10,000 converted of $388 to permanent equity. On February 9, 2015, the note holder elected to convert $15,000 of the principle balance of the note into common stock at $0.14848 per share. Accordingly, the Company issued 101,023 shares of common stock. The Company moved the related portion of the derivative liability for the $15,000 converted of $591 to permanent equity. On March 10, 2015, the note holder elected to convert $7,500 of the principle balance of the note into common stock at $0.08472 per share. Accordingly, the Company issued 88,526 shares of common stock. The Company moved the related portion of the derivative liability for the $7,500 converted of $468 to permanent equity. On March 16, 2015, the note holder elected to convert $7,500 of the principle balance of the note into common stock at $0.0605 per share. Accordingly, the Company issued 123,967 shares of common stock. The Company moved the related portion of the derivative liability for the $7,500 converted of $268 to permanent equity. On April 2, 2015, the note holder elected to convert $7,500 of the principle balance of the note into common stock at $0.05904 per share. Accordingly, the Company issued 127,032 shares of common stock. The Company moved the related portion of the derivative liability for the $7,500 converted of $529 to permanent equity. For the year ended July 31, 2015, the Company amortized $50,190 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the note was $20,000 and accrued interest was $8,021.

 

Dave Waverek

 

On June 7, 2014, the Company entered into an unsecured Note Purchase Agreement for the sale of a 20% convertible promissory note in which the Company will receive the principal amount of $100,000. The note bears interest at the rate of 20% per annum and all interest and principal must be repaid on December 31, 2015. The note is convertible, at the holder’s option into shares of the Company’s common stock at $0.45 per share. A beneficial conversion feature on the new note was recorded for $100,000. For the year ended July 31, 2015, the Company amortized $73,913 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the note was $70,000 and accrued interest was $40,000.

 

Typenex

 

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

 

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

 

In connection with the issuance of the Note, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 113,453 shares of the Company’s common stock at $0.507 per share. The warrants expire on September 30, 2019. The warrants contain certain reset (anti-dilutive) provisions.

 

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

 

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

 

The determined fair value of the aggregate derivatives of $199,373 were charged as a debt discount up to the net proceeds of the note with the remainder $99,373 charged to current period operations as non-cash interest expense. On March 25, 2015, the Company made a payment of $34,679 ($28,750 of the principle balance of the note and $5,929 of accrued interest). On April 27, 2015, the Company made a payment of $29,496 ($28,750 of the principle balance of the note and $746 of accrued interest). On May 26, 2015, the Company made a payment of $29,231 ($28,750 of the principle balance of the note and $481 of accrued interest). On June 25, 2015, the Company made a payment of $14,499 and converted $14,375 into 287,588 shares of common stock ($28,750 of the principle balance of the note and $248 of accrued interest). The Company moved the related portion of the derivative liability for the $14,499 converted of $22,184 to permanent equity.

 

On July 7, 2015, the Company issued an unsecured Convertible Promissory Note (“Note”) to Typenex Co-Investment LLC (“Typenex”), in the principal amount of $58,000 (the “Note”) due on February 7, 2016 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $5,000 and legal fees reimbursement of $3,000).

 

  F-14 
 

 

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

 

In connection with the issuance of the Note, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 250,000 shares of the Company’s common stock at $.25 per share. The warrants expire on June 30, 2020. The warrants contain certain reset (anti-dilutive) provisions.

 

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

 

At the inception of the Note, the Company determined the fair value of $123,304 and $51,250 of embedded derivatives related to the Note and warrants, respectively. The fair value of the embedded derivatives were determined using the Binominal Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 177.12% and 704.06% (3) weighted average risk-free interest rate of 0.08% and 1.55%, (4) expected life of 0.59 and 5.01 years, and (5) the quoted market price of the Company’s common stock of $0.205 per share.

 

The determined fair value of the aggregate derivatives of $174,554 were charged as a debt discount up to the net proceeds of the note with the remainder $124,554 charged to current period operations as non-cash interest expense. For the year ended July 31, 2015, the Company amortized $6,474 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the note was $58,000 and accrued interest was $381.

 

JMJ Financial Services

 

On November 19, 2014, the Company issued an unsecured Convertible Promissory Note (“Note”) to JMJ Financial Services (“JMJ”), in the principal amount of $60,000 (the “Note”) due on November 19, 2016 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $54,000 (less an original issue discount (“OID”) of $6,000). The Note is convertible into common stock, at holder’s option, at the lesser of $0.59 or a 40% discount of the lowest trading price of the common stock during the 25 trading day period prior to conversion.

 

On June 16, 2015, the Company made a payment of $25,000 ($15,000 of the principle balance of the note and $10,000 for a conversion standstill payment). On June 29, 2015, the Company made a payment of $85,000 ($45,000 of the principle balance of the note, $14,667 of accrued interest and $25,333 as a negotiated payoff amount) and issued five-year warrants for 100,000 shares of common stock of the Company with an exercise price of $0.205 valued at $20,500. The Company recorded a loss on extinguishment of debt of $15,843 relating to this note repayment. For the year ended July 31, 2015, the Company amortized $60,000 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the note was $0 and accrued interest was $0.

 

KBM Worldwide

 

On January 5, 2015, the Company issued an unsecured Convertible Promissory Note (“Note”) to KBM Worldwide, Inc. (“KBM”), in the principal amount of $54,000 (the “Note”) due on October 5, 2015 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less legal fees reimbursement of $4,000). The Note is convertible into common stock, at holder’s option, at a 49% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion.

 

On July 8, 2015, the Company made a payment of $77,636 ($54,000 of the principle balance of the note and $23,636 of accrued interest). For the year ended July 31, 2015, the Company amortized $54,000 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the note was $0 and accrued interest was $0.

 

Jonathan Shane

 

On June 15, 2015, the Company issued an unsecured Convertible Promissory Note (“Note”) to Jonathan Shane in the principal amount of $25,000 (the “Note”) due on June 14, 2016 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $25,000. The Note is convertible into common stock, at holder’s option, at a price of $0.59 or a 40% discount to the average of the three lowest trading prices of the common stock during the 25 trading day period prior to conversion. The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features.

 

  F-15 
 

 

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date. At the inception of the Note, the Company determined the fair value of $40,716 of embedded derivatives related to the Note. The fair value of the embedded derivatives were determined using the Binominal Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 188.8% (3) weighted average risk-free interest rate of 0.28%, (4) expected life of 1.00 year, and (5) the quoted market price of the Company’s common stock of $0.12 per share. The determined fair value of the aggregate derivatives of $40,716 were charged as a debt discount up to the net proceeds of the note with the remainder $15,716 charged to current period operations as non-cash interest expense.

 

On July 7, 2015, the Company issued an unsecured Convertible Promissory Note (“Note”) to Jonathan Shane in the principal amount of $30,000 (the “Note”) due on July 6, 2016 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $30,000. The Note is convertible into common stock, at holder’s option, at a price of $0.59 or a 40% discount to the average of the three lowest trading prices of the common stock during the 25 trading day period prior to conversion. The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features.

 

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date. At the inception of the Note, the Company determined the fair value of $84,695 of embedded derivatives related to the Note. The fair value of the embedded derivatives were determined using the Binominal Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 201.56% (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 1.00 year, and (5) the quoted market price of the Company’s common stock of $0.205 per share. The determined fair value of the aggregate derivatives of $84,695 were charged as a debt discount up to the net proceeds of the note with the remainder $54,695 charged to current period operations as non-cash interest expense.

 

For the year ended July 31, 2015, the Company amortized $5,123 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the notes were $55,000 and accrued interest was $0.

 

Firstfire Global

 

On June 23, 2015, the Company issued an unsecured Convertible Promissory Note (“Note”) to Firstfire Global in the principal amount of $115,000 (the “Note”) due on September 23, 2015 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $94,000 (less an original issue discount (“OID”) of $21,000). The Note is convertible into common stock, at holder’s option, at a price of $0.10 or a 55% discount to the lowest bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features.

 

In connection with the issuance of the Note, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 250,000 shares of the Company’s common stock at $1.25 per share. The warrants expire on June 23, 2020. The warrants contain certain reset (anti-dilutive) provisions.

 

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

 

At the inception of the Note, the Company determined the fair value of $310,952 and $50,000 of embedded derivatives related to the Note and warrants, respectively. The fair value of the embedded derivatives were determined using the Binominal Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 92.75% and 788.07% (3) weighted average risk-free interest rate of 0.08% and 1.71%, (4) expected life of 0.25 and 5.01 years, and (5) the quoted market price of the Company’s common stock of $0.20 per share.

 

The determined fair value of the aggregate derivatives of $360,952 were charged as a debt discount up to the net proceeds of the note with the remainder $266,952 charged to current period operations as non-cash interest expense. For the year ended July 31, 2015, the Company amortized $47,500 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the note was $115,000 and accrued interest was $958.

 

NOTE 4 DERIVATIVE LIABILITIES

 

Debt derivatives

 

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

 

  F-16 
 

 

At July 31, 2015, the Company marked to market the fair value of the debt derivatives and determined a fair value of $364,949. The Company recorded a gain from change in fair value of debt derivatives of $1,157,394 for the year ended July 31, 2015. The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 92.75% to 627.33%, (3) weighted average risk-free interest rate of 0.00 to 0.71% (4) expected life of 0 to 2.0 years, and (5) the quoted market price of the Company’s common stock of $0.13 per share.

 

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

 

Warrant liabilities

 

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

 

At July 31, 2015, the Company marked to market the fair value of the warrant liability and determined a fair value of $111,195. The Company recorded a gain from change in fair value of warrant liability of $111,614 for the year ended July 31, 2015. The fair value of the warrant liability was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 122.49% to 746.38%, (3) weighted average risk-free interest rate of 0.47 to 1.82% (4) expected life of 2.0 to 5.0 years, and (5) the quoted market price of the Company’s common stock of $0.13 per share.

 

NOTE 5 CONVERTIBLE NOTE PAYABLE, RELATED PARTY

 

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

 

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date. At the inception of the Note, the Company determined the fair value of $600,937 of embedded derivatives related to the Note. The fair value of the embedded derivatives were determined using the Binominal Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 121.06% (3) weighted average risk-free interest rate of 0.10%, (4) expected life of 1.00 year, and (5) the quoted market price of the Company’s common stock of $0.88 per share. The determined fair value of the aggregate derivatives of $600,937 were charged as a debt discount up to the net proceeds of the note with the remainder $242,521 charged to current period operations as non-cash interest expense.

 

For the year ended July 31, 2015, the Company amortized $297,534 of debt discount to current period operations as interest expense. As of July 31, 2015 the gross balance of the note was $683,767 and accrued interest was $64,094.

 

NOTE 6 STOCKHOLDERS’ DEFICIT

 

(A) Common Stock Issuances

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  F-17 
 

 

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

 

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

 

In December 2014, the Company issued 481,250 shares for services valued at $152,258. The value for shares issued was based on quoted market prices. The services are being provided over a twelve month period.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

In May 2015, the Company issued 181,251 shares for services valued at $18,787. The value for shares issued was based on quoted market prices. The services are being provided over certain periods based on agreements entered into.

 

On June 25, 2015, the Company issued 287,588 shares of common stock upon the conversion of $14,375 of note payable principle and accrued interest.

 

In June 2015, the Company issued 181,251 shares for services valued at $28,596. The value for shares issued was based on quoted market prices. The services are being provided over certain periods based on agreements entered into.

 

In July 2015, the Company issued 281,251 shares for services valued at $50,844. The value for shares issued was based on quoted market prices. The services are being provided over certain periods based on agreements entered into.

 

  F-18 
 

 

(B) Warrants

 

The following tables summarize the warrant activity during the years ended July 31, 2014 and 2015:

 

   Number of Warrants   Weighted Average
Exercise Price
 
Stock Warrants          
Balance at July 31, 2013   -   $- 
Granted   345,695    0.90 
Exercised   -    - 
Forfeited   -   $- 
Balance at July 31, 2014   345,695   $0.90 

 

   Number of
Warrants
   Weighted Average
Exercise Price
 
Stock Warrants          
Balance at July 31, 2014   

345,695

   $0.90 
Granted   

667,320

    0.65 
Exercised   -    - 
Forfeited   -   $- 
Balance at July 31, 2015   1,013,015   $0.72 

 

2014 Outstanding Warrants    Warrants Exercisable 
Range of
Exercise Price
  Number
Outstanding at
July 31, 2014
   Weighted
Average
Remaining
Contractual
Life
   Weighted
Average
Exercise Price
   Number
Exercisable at
July 31, 2014
   Weighted
Average
Exercise Price
 
$

0.90

   345,695    2.37 years   $0.90    345,695   $0.90 

 

2015 Outstanding Warrants    Warrants Exercisable 
Range of
Exercise Price
  Number
Outstanding at
July 31, 2015
   Weighted
Average
Remaining
Contractual
Life
   Weighted
Average
Exercise Price
   Number
Exercisable at
July 31, 2015
   Weighted
Average
Exercise Price
 
$

0.205 - 1.25

   1,013,015    3.89 years   $0.72    1,013,015   $0.72 

 

NOTE 7 RELATED PARTY TRANSACTIONS

 

(A) Acquisition of Mining Rights

 

On February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of $0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and $150,000 and the assignment of a 3% net royalty (see Note 2). The Asset Purchase Agreement closed on February 25, 2013. As of July 31, 2015, the outstanding balances on these notes were $10,000 and $0, respectively. On November 1, 2013, one of the notes was renegotiated with the note holder. The original note was restructured and treated as an extinguishment and as such is now convertible into shares of the Company’s common stock at $0.45 per share. All the other points of the note remained the same. A beneficial conversion feature on the new note was recorded for $630,000. During the year ended July 31, 2014, $630,000 of the beneficial conversion feature was accreted as interest expense. During the year ended July 31, 2015, the note holders agreed to forgive $161,750 of these notes resulting in the Company recognizing a gain on forgiveness of debt in the amount of $161,750. As of July 31, 2015, the Company determined that it was too costly for the mine to produce gold effectively and the mining claim should be impaired. The Company recognized a loss on impairment of the mining claim for $950,160 for the year ended July 31, 2015.

 

(B) Convertible Note Payable

 

Through July 31, 2015, a stockholder/director provided advances for working capital purposes. The advances are unsecured and convertible, due on October 31, 2015, and bear interest at a rate of 15% per annum. As of July 31, 2015, the Company owes $683,767 for loans and payments, plus an additional $64,094 in accrued interest. During the years ended July 31, 2014 and 2013, the Company recorded interest expense on the advances of $66,186 and $39,397, respectively and paid the stockholder/director $32,000 in cash for accrued interest.

 

(C) Consulting Agreement

 

In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $18,000 per month for twelve months. As of July 31, 2015, the Company owed $342,000 to the stockholder/director in accrued consulting fees.

 

(D) Lease

 

The Company leases office space from a related affiliate, MDL Ventures, LLC, which includes month to month terms. Rent expense for the year ended July 31, 2015 amounted to $5,686.

 

(E) Employment Agreements

 

On February 25, 2013, the Company entered into an employment agreement with Michael Ahlin pursuant to which he was appointed as the Chief Executive Officer, President, Treasurer, Secretary and Director of the Company. Under the terms of his employment agreement, Mr. Ahlin will become eligible to receive an annual salary, bonus and stock option upon the Company achieving positive earnings before interest, taxes, depreciation, and amortization (“EBITDA”) in two consecutive quarters as reflected in its filings with the Securities and Exchange Commission (“SEC”).

 

  F-19 
 

 

On February 25, 2013, the Company entered into an employment agreement with Whit Cluff pursuant to which he was appointed as the Chief Financial Officer and Director of the Company. Under the terms of his employment agreement, Mr. Cluff will become eligible to receive an annual salary, bonus and stock option upon the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with the SEC.

 

On February 25, 2013, the Company entered into an employment agreement with Brian Brewer pursuant to which he was appointed as the Chief Operating Officer and Director of the Company. Under the terms of his employment agreement, Mr. Brewer will become eligible to receive an annual salary, bonus and stock option upon the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with the SEC. As of February 10, 2015, Mr. Brewer is not an officer or director of the Company.

 

NOTE 8 AGREEMENTS AND COMMITMENTS

 

David Rees Agreement

 

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

 

Chienn Consulting Agreement

 

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

 

Elliott Foxcroft Agreement

 

On March 27, 2014, the Company entered into an Advisory Agreement with Elliott Foxcroft (“Foxcroft”) pursuant to which Foxcroft received 300,000 shares of restricted common stock of the Company in consideration for providing/assist the Company with general legal, corporate advisory and M&A matters. Mr. Foxcroft will help the Company source, identify and evaluate potential acquisition targets (the “Target Acquisitions”) for a period of 90 days. A total of $214,173 was recognized as expense related to the Advisory Agreement for the year ending July 31, 2015. During July 2015, 200,000 shares of restricted common stock of the Company were returned and cancelled by the Company.

 

Desert Bloom Capital Agreement

 

On August 1, 2014, the Company entered into an Advisory Agreement with Desert Bloom Capital, Ltd. (“Desert Bloom”) pursuant to which Desert Bloom will receive 1,100,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with identifying strategic alliances and with the Company's business development activities for the period of one year. Per the agreement, 500,000 shares of common stock were issued upon signing, 100,000 shares of common stock will be issued on the first day of the month for the next four months and 200,000 shares of common stock will be issued on the first day of the sixth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of July 31, 2015, the value of the services was $760,500. As of July 31, 2015, $717,808 was recognized in consulting expense related to the agreement.

 

Golden State Securities Agreement

 

On August 29, 2014, the Company entered into an Advisory Agreement with Golden State Securities, Inc. (“Golden State”) pursuant to which Golden State will receive 1,090,003 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. Per the agreement, 272,503 shares of common stock were issued upon signing and 90,833 shares of common stock will be issued on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of July 31, 2015, the value of the services was $492,856. As of July 31, 2015, $481,809 was recognized in consulting expense related to the agreement.

 

In January 2015, the Company paid Golden State $5,400 in cash for a finder’s fee for financing that was brought to the Company by Golden State.

 

  F-20 
 

 

SSGH Agreement

 

On September 3, 2014, the Company entered into an Advisory Agreement with SSGH, LLC. (“SSGH”) pursuant to which SSGH will receive 651,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. Per the agreement, 162,750 shares of common stock were issued upon signing and 54,250 shares of common stock will be issued on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of July 31, 2015, the value of the services was $253,348. As of July 31, 2015, $253,348 was recognized in consulting expense related to the agreement.

 

JFS Investments Agreement

 

On September 5, 2014, the Company entered into an Advisory Agreement with JFS Investments PR, LLC. (“JFS”) pursuant to which JFS will receive 434,003 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. Per the agreement, 108,500 shares of common stock were issued upon signing and 36,167 shares of common stock will be issued on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of July 31, 2015, the value of the services was $173,297. As of July 31, 2015, $172,101 was recognized in consulting expense related to the agreement. During July 2015, 289,336 shares of restricted common stock of the Company were returned and cancelled by the Company.

 

Oria Development, LLC Agreement

 

On November 1, 2014, the Company entered into an Advisory Agreement with Oria Development, LLC. (“Oria”) pursuant to which Oria will receive 1,000,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. On November 1, 2014, the value of the services for shares issued was $720,000. As of July 31, 2015, $538,521 was recognized in consulting expense related to the agreement. During July 2015, 1,000,000 shares of restricted common stock of the Company were returned and cancelled by the Company.

 

Stonegate Securities, Inc. Agreement

 

On March 17, 2015, the Company entered into an Advisory Agreement with Stonegate Securities, Inc. (“Stonegate”) pursuant to which Stonegate will receive 200,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. On March 17, 2015, the value of the services for shares issued was $30,000. As of July 31, 2015, $30,000 was recognized in consulting expense related to the agreement.

 

Litigation

 

The Company at times is subject to other legal proceedings that arise in the ordinary course of business. In the opinion of management, as of July 31, 2015, the amount of ultimate liability with respect to such matters, if any, is not likely to have a material impact on the Company’s business, financial position, results of operations or liquidity. However, as the outcome of litigation and other claims is difficult to predict significant changes in the estimated exposures could exist.

 

NOTE 9 INCOME TAXES

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

  F-21 
 

 

The provision for income tax expense (recovery) is comprised the following amounts:

 

   2015   2014 
Expected income tax (recovery) expense at the statutory rate of 34%  $(1,556,672)  $(562,581)
Tax effect of expenses that are not deductible for tax purposes (net of other amounts deductible for tax purposes)   

443

    179 
Change in valuation allowance   1,556,229    562,402
Provision for income taxes  $-   $- 

 

The components of deferred income tax in the accompanying balance sheets are as follows:

 

   2015   2014 
Deferred income tax asset:          
Net operating loss carry-forwards  $

267,323

   $

134,465

 
Section 195 Start up Costs   

1,393,346

    

381,344

 
Other   -    70 
Debt Discount   (78,127)   

(42,195

)
Derivative Liability   

162,871

    

38,369

 
Mineral Property   

322,869

    - 
Valuation allowance   (2,068,282)   (512,053)
Deferred income taxes  $-   $- 

 

As of July 31, 2015 and July 31, 2014, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $2,100,000 and $1,774,000 million, respectively. A portion of the federal amount, $1,710,000, is subject to an annual limitation of approximately $17,000 as a result of a change in the Company’s ownership through February 2013, as defined by Federal Internal Revenue Code Section 382 and the related income tax regulations. As a result of the 20 year federal carryforward period and the limitation, approximately, $1,400,000 of the net operating loss will expire unutilized. These net operating loss carry-forwards will expire through the year ending 2035.

 

The valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to utilize all of the net operating loss carry-forwards before they will expire through the year 2035.

 

The net change in the valuation allowance for the year ended July 31, 2015 was an approximate increase of $1,558,000.

 

The components of income tax expense related to continuing operations are as follows:

 

    2015    2014 
Federal  $-   $- 
Current  $-   $- 
Deferred  $-   $- 
           
State and Local  $-   $- 
Current  $-   $- 
Deferred  $-   $- 

 

The Company is subject to income tax in the U.S. federal jurisdiction. The Company has not been audited by the U.S. Internal Revenue Service in connection with income taxes. The Company’s tax years beginning with the year ended June 30, 2010 through July 31, 2015 generally remain open to examination by the Internal Revenue Service until its net operating loss carryforwards are utilized and the applicable statutes of limitation have expired.

 

NOTE 10 CONCENTRATION OF RISK

 

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

 

NOTE 11 SUBSEQUENT EVENTS

 

On August 4, 2015, Inception Mining Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Inception Mining Inc., Clavo Rico, LTD, a Turks and Caicos corporation (“Clavo Rico”), and CR Acquisition Corp., a Nevada corporation (“Merger Subsidiary”). On August 5, 2015, after realizing there would be some administrative delays with the transfer agent on the issuance of shares, the parties entered into an Addendum to the Merger Agreement in which the parties agreed that Inception Mining Inc. would operate the Clavo Rico mine in Honduras and receive the proceeds for all operations beginning August 5, 2015. After the transfer agent issues were resolved, and the shares were able to be issued (a precondition to the closing of the Merger Agreement), the Merger Agreement closed on October 2, 2015 (the “Closing”). Pursuant to the terms of the Merger Agreement, at the Closing, the Merger Subsidiary merged with and into Clavo Rico, the separate corporate existence of Merger Subsidiary ceased, and Clavo Rico will continue as the surviving corporation and as a wholly-owned subsidiary of the Company (the “Merger”). As consideration for the Merger, (i) the shareholders of Clavo Rico at the time of the Closing received a total of 240,225,901 shares of the Company in the aggregate to be held in book entry, to be issued on a pro rata basis and (ii) the Company assumed certain promissory notes of Clavo Rico in the amount of $8,883,306.

 

  F-22 
 

 

Employment Agreements

 

On August 1, 2015, the Company amended the previously entered into employment agreement with Michael Ahlin pursuant to which the eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with the Securities and Exchange Commission (“SEC”) were removed.

 

Other Agreements

 

On September 25, 2015, as required by the Merger Agreement, the Company retired 2,600,000 share of common stock issued in the name of Trent D’Ambrosio.

 

On September 25, 2015, as required by the Merger Agreement, the Company retired 2,000,000 share of common stock issued in the name of Michael Ahlin.

 

On September 25, 2015, as required by the Merger Agreement, the Company agreement to retired 1,000,000 share of common stock issued in the name of Whit Cluff.

 

On September 25, 2015, as required by the Merger Agreement, the Company retired 350,000 share of common stock issued in the name of MDL Ventures LLC.

 

As compensation for the work in closing the Merger Agreement and for services rendered to date, certain officers and directors were issued shares of the Company’s common stock on October 2, 2015. Whit Cluff was issued 1,375,000 shares; Trent D’Ambrosio was issued 3,855,929 shares; and Michael Ahlin was issued 2,750,000 shares.

 

A more detailed description of the acquired mine follows:

 

Clavo Rico Gold/Silver Mine: El Corpus, Honduras, Central America

 

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 subsidiary Minera Cerros del Sur, and holds other mining concessions. Its workings include several historical underground operations dating back to the early Mayan and Spanish occupation.

 

Through its operating subsidiaries, Clavo Rico is engaged in processing a significant historical tailings body along with several open pit ore bodies, utilizing a new 600,000-ton membrane-lined leach system and ADR recovery plant. Processing had increased to an average of 300 ounces per month with one month of 700 ounces prior to the last rain season at which time the company elected to install a new crushing circuit, allowing for an increase in monthly production and greater reliability. After installing the new cone and subsequent reworking of the primary crusher and other equipment, production has recently recovered and is stabilized at more than 500 ounces per month. Precious metals, including silver, are recovered via an electro-winning circuit and then smelted into doré onsite. The subsequent doré bars, being approximately 94% pure, are then picked up by an armored car service and held in the Capital of Tegucigalpa. Upon completion of assay work, and payment of Honduran taxes and fees, the doré is shipped via air to Asahi Refining (previously Johnson Mathey) in Salt Lake City, Utah. The doré is again assayed and then sold either via Asahi or other dealers.

 

The primary operation of Clavo Rico sits on 20 hectares and acquisition of adjacent property is in progress. The concession extends well beyond the surface boundary limits. The tailings were the byproduct of a historical underground mine production and a vat leach system. Government requirements to place the tailings on a membrane lining allowed for the expansion of further mining on fresh ore bodies and the construction a larger membrane lined leach pad and new ADR process plant. The current operation has available open pit ore bodies to allow for extended operations at the current processing level. Tailings grade between 2-3 grams per ton (GPT) and fresh ore bodies have ranged from 2-6 GPT. Mine life has not been forecast as the concessions are so extensive that costs to determine at this point were not justified. However, the current known and assayed ore will allow for several years production at cost levels well below those of major producers. With the stabilization of extraction and crushing, and minor capex, production is expected to be more efficient.

 

New ore bodies associated with the property have been preliminarily mapped and drilled, leading to future mine planning and expanded operations. The acquisition includes all of the current mining operations and primary concession along with the rights to acquire the additional concessions. Efforts are underway to accumulate all available data and then along with new proposed drilling and geotechnical analysis the company will move towards a 43-101 compliant Resource Analysis of the known ore bodies. The Company’s exploration team will focus on bringing those new bodies to production within the next two years and will also embark on a comprehensive mapping of the additional concessions.

 

  F-23 
 

 

 

EXHIBIT 31.1

 

OFFICER’S CERTIFICATE

PURSUANT TO SECTION 302

 

I, Michael Ahlin, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Inception Mining, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 23, 2015 By: /s/ Michael Ahlin
  Name: Michael Ahlin
  Title: Chief Executive Officer (Principal Executive Officer)

 

   
   

 

 

EXHIBIT 31.2

 

OFFICER’S CERTIFICATE

PURSUANT TO SECTION 302

 

I, Trent D’Ambrosio, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Inception Mining, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 23, 2015 By: /s/ Trent D’Ambrosio
  Name: Trent D’Ambrosio
  Title: Chief Financial Officer (Principal Accounting Officer)

 

   
   

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report on Form 10-K of Inception Mining, Inc. (the “Company”) for the period ended July 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Ahlin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

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

 

Date: November 23, 2015 By: /s/ Michael Ahlin
  Name: Michael Ahlin
  Title: Chief Executive Officer (Principal Executive Officer)

 

   
   

 

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report on Form 10-K of Inception Mining, Inc. (the “Company”) for the period ended July 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Trent D’Ambrosio, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

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

 

Date: November 23, 2015 By: /s/ Trent D’Ambrosio
  Name: Trent D’Ambrosio
  Title: Chief Financial Officer (Principal Accounting Officer)