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IMII > SEC Filings for IMII > Form 10-Q on 16-Dec-2013All Recent SEC Filings

Show all filings for INCEPTION MINING INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for INCEPTION MINING INC.


16-Dec-2013

Quarterly Report


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

Forward Looking Statements

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

Overview (Plan of Operation)

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

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

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

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

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

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 2013 and the Company intends to continue drilling, metallurgical testing, engineering and environmental programs and studies during 2013 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

Three-months ended October 31, 2013 compared to the three-months ended October 31, 2012

We had a net loss of $230,095 for the three-months ended October 31, 2013, and a net loss of $35,174 for the three-months ended October 31, 2012. This change in our results over the two periods is primarily the result of the new professional and consulting agreements entered into during 2013 as well as the increase in exploration costs and a loss on settlement of accounts payable. The following table summarizes key items of comparison and their related increase (decrease) for the three-months ended October 31, 2013 and 2012:

                                             Three-Months Ended October 31,           Increase/
                                               2013                  2012             (Decrease)
Revenues                                 $              -       $             -     $            -
Exploration Costs                                   8,020                     -              8,020
General and Administrative                         64,774                33,782             30,992
Total Operating Expenses                          220,572                33,782            186,790
(Loss) from Operations                           (220,572 )             (33,782 )          186,790
Total Other Income/(Expense)                       (9,523 )              (1,392 )            8,131
Loss from Operations Before Taxes                (230,095 )             (35,174 )          194,921
Net Loss                                 $       (230,095 )     $       (35,174 )   $      194,921

The Company had no revenues in both periods.

Liquidity and Capital Resources

Our balance sheet as of October 31, 2013 reflects assets of $1,009,352. We had cash in the amount of $30,729 and working capital deficit in the amount of $914,123 as of October 31, 2013. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months. We will need to raise approximately $2,000,000 in order to fully implement our business plan.

Working Capital



                                      October 31, 2013       July 31, 2013
           Current assets            $           59,192     $        65,959
           Current liabilities                  973,315           1,054,765
           Working capital deficit   $         (914,123 )   $      (988,806 )

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 unaudited condensed consolidated financial statements, the Company is in the exploration stage with no revenue generating operations and has a net loss since inception of $4,658,783 and used cash in operations of $1,798,104 from inception. In addition, there is working capital deficit of $914,123 as of October 31, 2013. 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.

                                                 Three-months Ended October 31,
                                                   2013                  2012
  Net Cash Used in Operating Activities       $       (35,423 )     $       (46,563 )
  Net Cash Used in Investing Activities                     -                     -
  Net Cash Provided by Financing Activities            35,027                43,650
  Net Increase (Decrease) in Cash             $          (396 )     $        (2,913 )

Operating Activities

Net cash flow used in operating activities during the three-months ended October 31, 2013 was $35,423 - a decrease of $11,140 from the $45,563 net cash outflow during the three-months ended October 31, 2012. This decrease in the cash used in operating activities was primarily due to the change in payables during the quarter.

Financing Activities

Financing activities during the three-months ended October 31, 2013 provided $35,027 an decrease of $8,623 from the $43,650 provided by financing activities during the three-months ended October 31, 2012. During the three-months ended October 31, 2013, the company received $73,027 as loans from related parties and $62,000 towards the purchase of common stock. The Company also made $100,000 payment on a note payable.

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

Critical Accounting Policies

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

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

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain. As of October 31, 2013, none of our properties have proven reserves.

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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

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