EDGAR 10-K Filing

Company CIK: 1515317
Filing Year: 2021
Filename: 1515317_10-K_2021_0001683168-21-001444.json

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ITEM 1. BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The Company was formed and organized on September 28, 2010 under the laws of the State of Nevada. We are an exploration stage company and our principal business is the acquisition and exploration of mineral resources in Idaho initially, and elsewhere in the future. We have not presently determined whether the property to which we have mining rights contain mineral deposits that are economically recoverable.
The Company's head office is located at 602 Cedar Street, Suite 205, Wallace, Idaho 83873.
Center Star Mine Project
Background
Effective July 1, 2020, Magellan entered into a stock purchase agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County. Idaho that include the historic Center Star Gold Mine near Elk City, Idaho. The Center Star Mine hosts high grade gold mineralization that was discovered in the early 1900’s. There was periodic historic production and development work done under different ownership through the 1980s. With the high-grade gold mineralization present, Magellan will be evaluating the historic mine data to assess the potential to develop a gold resource at Center Star. The project area is located 45 miles from Grangeville, Idaho and near the town of Elk City, Idaho.
In consideration for 100% of the issued and outstanding shares of Clearwater, Magellan has agreed to pay its sole shareholder 1,000,000 shares of Magellan common stock and $150,000 in cash. Of the 1,000,000 shares, 750,000 shares have been issued and 250,000 shares will be issued two years from the closing concurrent with the pay-off of the secured promissory note. The cash consideration of $25,000 was paid and the balance of $125,000 is evidenced by a secured promissory note due in two years. The Note is secured by the Clearwater shares and assets.
Based upon our research, gold mineralization at Center Star Mine is hosted in multiple parallel quartz veins in a banded gneiss. Like many of the historic mines in the Elk City area the gold is present in steeply dipping quartz veins. The gold at the Center Star Mine occurs in high grade veins that trend north-easterly and dip steeply to the south east. These veins are present in a 75’ to 100’ wide sheer zone hosting quartz veins and breccia. It is believed the gold bearing veins vary from inches to 20 feet in width and contain gold from .35 ounce per ton gold to multi ounce per ton gold based on historic mine data. The property was historically developed by various owners and has had some production history of gold and silver production. The Center Star Mine has not had any exploration or development work conducted in the last 35 years.
The BLM Mining Claims
The following table contains a description of our BLM unpatented mining claims which comprise the Center Star Mine;
Center Star Unpatented Mining Claims
Claim Name BLM Serial No.
DORE 3 IMC 200 854
DORE 4 IMC 200 855
DORE 5 IMC 200 856
DORE 6 IMC 200 857
DORE 7 IMC 231 494
DORE 8 IMC 231 495
DORE 9 IMC 231 496
DORE 10 IMC 231 499
DORE 13 IMC 200 864
DORE 14 IMC 200 865
DORE 15 IMC 200 866
DORE 16 IMC 200 867
DORE 17 IMC 200 868
DORE 18 IMC 200 869
DORE 19 IMC 231 498
DORE 20 IMC 231 499
DORE 21 IMC 200 872
DORE 22 IMC 200 873
DORE 23 IMC 200 874
DORE 24 IMC 200 875
DORE 25 IMC 200 876
DORE 26 IMC 231 500
DORE 27 IMC 231 501
DORE 28 IMC 231 502
DORE 29 IMC 231 503
DORE 30 IMC 231 504
DORE 31 IMC 231 505
DORE 32 IMC 231 506
DORE 33 IMC 231 507
DORE 34 IMC 231 508
DORE 35 IMC 231 509
The following topographical map shows the location of the BLM claims:
Unpatented Mining Claims: The Mining Law of 1872
Except for the Langtry Property, our mineral rights consist of leases covering "unpatented" mining claims created and maintained in accordance with the U.S. General Mining Law of 1872, or the “General Mining Law.” Unpatented mining 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 mining claims is often uncertain. The validity of an unpatented mining claim, in terms of both its location and its maintenance, is dependent on strict compliance with a complex body of federal and state statutory and decisional law that supplement the General Mining Law. Also, unpatented mining claims and related rights, including rights to use the surface, are subject to possible challenges by third parties or contests by the federal government. In addition, there are few public records that definitively control the issues of validity and ownership of unpatented mining claims. We have not filed a patent application for any of our unpatented mining claims that are located on federal public lands in the United States and, under possible future legislation to change the General Mining Law, patents may be difficult to obtain.
Location of mining claims under the General Mining Law, is a self-initiation system under which a person physically stakes an unpatented mining claim on public land that is open to location, posts a location notice and monuments the boundaries of the claim in compliance with federal laws and regulations and with state location laws, and files notice of that location in the county records and with the BLM. Mining claims can be located on land as to which the surface was patented into private ownership under the Stockraising Homestead Act of 1916, 43 U.S.C. §299, but the mining claimant cannot injure, damage or destroy the surface owner's permanent improvements and must pay for damage to crops caused by prospecting. Discovery of a valuable mineral deposit, as defined under federal law, is essential to the validity of an unpatented mining claim and is required on each mining claim individually. The location is made as a lode claim for mineral deposits found as veins or rock in place, or as a placer claim for other deposits. While the maximum size and shape of lode claims and placer claims are established by statute, there are no limits on the number of claims one person may locate or own. The General Mining Law also contains provision for acquiring five-acre claims of non-mineral land for millsite purposes. A mining operation typically is comprised of many mining claims.
The holder of a valid unpatented mining claim has possessory title to the land covered thereby, which gives the claimant exclusive possession of the surface for mining purposes and the right to mine and remove minerals from the claim. Legal title to land encompassed by an unpatented mining claim remains in the United States, and the government can contest the validity of a mining claim. The General Mining Law requires the performance of annual assessment work for each claim, and subsequent to enactment of the Federal Land Policy and Management Act of 1976, 43 U.S.C. §1201 et seq., mining claims are invalidated if evidence of assessment work is not timely filed with BLM. However, in 1993 Congress enacted a provision requiring payment of $140 per year claim maintenance fee in lieu of performing assessment work, subject to an exception for small miners having less than 10 claims. No royalty is paid to the United States with respect to minerals mined and sold from a mining claim.
The General Mining Law provides a procedure for a qualified claimant to obtain a mineral patent (i.e., fee simple title to the mining claim) under certain conditions. It has become much more difficult in recent years to obtain a patent. Beginning in 1994, Congress imposed a funding moratorium on the processing of mineral patent applications which had not reached a designated stage in the patent process at the time the moratorium went into effect. Additionally, Congress has considered several bills in recent years to repeal the General Mining Law or to amend it to provide for the payment of royalties to the United States and to eliminate or substantially limit the patent provisions of the law.
Mining claims are conveyed by deed, or leased by the claimant to the party seeking to develop the property. Such a deed or lease (or memorandum of it) needs to be recorded in the real property records of the county where the property is located, and evidence of such transfer needs to be filed with BLM. It is not unusual for the grantor or lessor to reserve a royalty, which as to precious metals often is expressed as a percentage of net smelter returns.
Location, History and Geology of our Property
Center Star Mine
The property is located near Elk City, Idaho on the south side of the Clearwater River about 42 miles southeast of Grangeville, Idaho. The property consists of 31 unpatented lode claims totaling 620 acres. The company owns 100% of the property.
Location and Access
The property, Center Star Mine, is located 42 miles southeast of Grangeville, Idaho in Section 26 and 35 of Township 29 N, Range 7 E.B.M. in the Ten Mile Mining District.
Access to the property is gained by a paved state highway connecting Grangeville and Elk City. A good mountain road approximately 5 miles in length extends from the highway to the mine. The mountain road is of a sufficient quality to transport equipment and materials to the mine. The road is typically snowed in during certain winter months but could be maintained to allow for year-round access.
The Center Star Mine is located in an area that currently has significant interest from other junior exploration companies, as shown in the map below:
History
The Center Star deposit was discovered by Jim Murphy, a pocket hunter, who found rich float in the gulch below the mine. Herman Brown and later Charles Tiedeman acquired interests in the property. These men did the first development work on the property by first trenching on the hillsides and then driving the Murphy crosscut. They encountered a mineralized zone about 30 feet wide which contained veins of varying width and which averaged from 0.8 to 1 ounce of gold per ton. In 1915, Tiedeman installed a 1-stamp mill and milled some ore from the Murphy crosscut but he netted only about a 50% recovery. About 1917, an interested party including one Mr. Weiss drove a crosscut into the ore zone about 100 feet below the Murphy level and did some drifting. Here they found the ore contained more sulfides with an increase of silver and copper. H. L. Day and associates on their own account did additional exploratory work in 1930 and 1931 which included the sinking of an incline winze to a depth of 150 feet. Because there was no road to or mill on the property plus the fact that the price of gold was only $20.00 an ounce, Mr. Day abandoned the project in 1931.
In 1934 Mr. and Mrs. M. F. Ward of Lewiston, Idaho acquired an option on the property and built the present road to the mine. In 1938 they purchased a 1/ 3 interest in the property and financed the construction of the mill and other buildings. During the period 1939 to 1942, Messrs. Ward and William Walker leased the remaining two-thirds interest in the mine from Brown and Tiedeman.
The first production of concentrates from this mill was made late in 1939 and was continued on a limited basis until the Gold Closing Order L-208 forced the stoppage of operations in 1942. During this period there was considerable development work done.
During a roughly 33-month time frame from 1939 to 1942 the mine produced about 5,000 ounces of gold and 6,000 ounces of silver.
In 1946 and 1947, Mr. and Mrs. Ward purchased the remaining 2/ 3 interest in the claims and continued to maintain the property. Except for 1959-1960 when about $5,000.00 worth of concentrates were produced there has been no other production since 1946. Following Mr. Ward's death in November 1958, a rehabilitation and modernization program was planned by Mrs. Ward with the assistance of Harold C. Lynch.
In 1961 the Center Start Gold Mine, Inc was incorporated, and the property was acquired from Mrs. Genevieve (Ward) Lynch.
In 1968 Center Star Gold Mines, Inc. completed a public offering and the Center Star Mine was reactivated. Also, in 1968 a 6,800-foot power line was constructed and put into operation bringing electric power to the site.
From 1968 to 1970 the underground workings were advanced an additional 500 feet. In 1971 the Center Mine was placed on standby awaiting more favorable gold prices.
In 1980 the Center Star Mine was reopened. Between 1980 and 1981 the Center Star completed a $500,000 mine renovation, sampling and drilling program. Over 2,000 samples were taken from various areas of the mine and the drill program resulted in defining an ore block estimated at 30,000 tons with grades between .46 and .63 ounces to the ton.
At some point between 1983 and 1984 the Center Star was once a gain placed on standby due to low gold prices.
In 1985 mill and equipment and several buildings on the property were removed and salvaged.
At some point between 1986 and 1987 the property was acquired by Mariner Explorations, Inc. Mariner Explorations did an extensive sapling and mapping of the area on the property adjacent to existing working.
At some point subsequent to Mariner Explorations surface exploration work the property was acquired by Gregory Schifrin, who sold the property to Magellan Gold in 2020.
Power and Water
Power to the mine site will initially be provided by a diesel generator and a diesel compressor. In 1968 the mine site was connected to a 3-phase electrical power line. The power line is no longer operable but can be replaced in the future.
Water to the site is available from a year-round mountain stream that should be adequate to meet the properties’ needs.
Geology
The Center Star Mine is located in Idaho about midway between Golden and Elk City. It appears to be in the Central Idaho Belt series and is in the Ten-mile Mining District. The mine area is composed of banded Pre-Cambrian Belt gneisses and schists. The general area has been faulted; intrusions of granite dikes and hornblendite sills are prominent.
The following composite level map shows the extent of known historical workings at the mine:
The country rock is well-banded quartz biotite gneiss. Near quartz intrusions the country rock is highly silicified and in fractured zones is brecciated. The regional trend of the county rock foliation is approximately north and south.
A series of faults and brecciated zones cuts through the country rock. The general trend of the faulted areas is approximately north 70 degrees east and dips 40 degrees or more to the southeast.
Quartz follows faulted zones, forming elongated veins and is also found as a replacement of gneiss. However, gneissic banding is preserved in the quartz and the wall rock is not easily distinguished from the quartz in the replacement zones. These zones show a gradation from quartz, to gneissic banded quartz to silicified gneiss, to gneiss. Along some faults, gouge and brecciated wall rock is more than two feet thick. Quartz usually shows more brecciation than silicified gneiss. Quartz is also greatly shattered in the fractured zones.
Sulfides are disseminated in the vein quartz and silicified wall rock and fill small fractures and shattered zones. The most abundant of these are pyrite and chalcopyrite. However, galena and sphalerite are commonly exposed in brecciated zones of quartz and wall rock.
The ore is found as irregular and generally elongated bodies following faults which strike approximately N 70 degrees E. A shear zone 100 feet wide, extending from about 240 feet in the Weiss tunnel contains all the ore to be seen in the present mine workings. A series of faults parallel each other within this zone. The country rock, surrounding the shear zone, is composed of schist and gneiss. Intrusions of granite cutting the country rock are exposed in the Weiss tunnel. The schists and gneisses grade into silicified rock at the contact of the shear zone.
Drifting followed quartz veins which vary in thickness from one inch to ten feet, averaging about five feet. The quartz veins pinch and swell throughout their exposed length with alternate brecciation. Gouge of varying thickness follows both walls of the quartz veins. Brecciation of the quartz and silicification of the gneisses and schists presumably took place at the time of later faulting and fracturing. Later quartz introduction apparently occurred periodically; this later quartz contains most of the sulfides and gold. Quartz in some zones grades gradually into silicified all rock; in these zones no contact can be established between silicified wall rock and quartz. However, quartz veinlets were observed extending into the wall rock. These veinlets contain sulfides and some gold.
No Proven or Probable Mineral Reserves/Exploration Stage Company
We are considered an exploration stage company under SEC criteria since we have not demonstrated the existence of proven or probable mineral reserves at any of our properties. In Industry Guide 7, the SEC defines a “reserve” as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Proven or probable mineral reserves are those reserves for which (a) quantity is computed and (b) the sites for inspection, sampling, and measurement are spaced so closely that the geologic character is defined and size, shape and depth of mineral content can be established (proven) or the sites are farther apart or are otherwise less adequately spaced but high enough to assume continuity between observation points (probable).
Mineral Reserves cannot be considered proven or probable unless and until they are supported by a feasibility study, indicating that the mineral reserves have had the requisite geologic, technical and economic work performed and are economically and legally extractable.
We have not completed a feasibility study with regard to all or a portion of any of our properties to date. Any mineralized material discovered or extracted by us should not be considered proven or probable mineral reserves. As of the date of this Memorandum, none of our mineralized material met the definition of proven or probable mineral reserves. We expect to remain an exploration stage company for the foreseeable future, even though we were extracting and processing mineralized material. We will not exit the exploration stage until such time, if ever, that we demonstrate the existence of proven or probable mineral reserves that meet the guidelines under SEC Industry Guide
OUR EXPLORATION PROCESS
Our exploration program is designed to acquire, explore and evaluate exploration properties in an economically efficient manner. We have not at this time identified or delineated any mineral reserves on any of our properties.
We expect our exploration work on a given property to proceed generally in three phases. Decisions about proceeding to each successive phase will take into consideration the completion of the previous phases and our analysis of the results of those phases.
The first phase is intended to determine whether a prospect warrants further exploration and involves:
· researching the available geologic literature;
· interviewing geologists, mining engineers and others familiar with the prospect sites;
· conducting geologic mapping, geophysical testing and geochemical testing;
· examining any existing workings, such as trenches, prospect pits, shafts or tunnels;
· digging trenches that allow for an examination of surface vein structures as well as for efficient reclamation, contouring and re-seeding of disturbed areas; and,
· analyzing samples for minerals that are known to have occurred in the test area.
Subject to obtaining the necessary permits in a timely manner, the first phase can typically be completed on an individual property in several months at a cost of less than $200,000.
The second phase is intended to identify any mineral deposits of potential economic importance and would involve:
· examining underground characteristics of mineralization that were previously identified;
· conducting more detailed geologic mapping;
· conducting more advanced geochemical and geophysical surveys;
· conducting more extensive trenching; and
· conducting exploratory drilling.
Subject to obtaining the necessary permits in a timely manner, the second phase can typically be completed on an individual property in nine to twelve months at a cost of less than $1 million. None of our properties has reached the second phase.
The third phase is intended to precisely define depth, width, length, tonnage and value per ton of any deposit that has been identified and would involve:
· drilling to develop the mining site;
· conducting metallurgical testing; and
· obtaining other pertinent technical information required to define an ore reserve and complete a feasibility study depending upon the nature of the particular deposit, the third phase on any one property could take one to five years or more and cost well in excess of $1 million. None of our properties has reached the third phase.
We intend to explore and develop our properties ourselves, although our plans could change depending on the terms and availability of financing and the terms or merits of any joint venture proposals.
Our Exploration Plans
Past exploration, development and production on the property has identified a number of ore bodies and targets for future exploration. Potential for additional mineralization is very good as known veins and ore bodies appear to be open in all directions. We will use known mineralization areas from previous geological reports to identify exploration targets.
We are developing a geological mapping, with rock sampling and assaying programs that will focus on taking samples from previously sampled high-grade areas to test and verify historical geological reports. Successful completion of the mapping and sampling program will help guide a drilling program to better define historically reported ore blocks and resource estimates.
Subject to securing the necessary, we have budgeted $500,000 for exploration work over the next 6 to 12 months. Comprising of $150,000 for sampling, assaying, mapping and computer modeling and $300,000 for diamond drilling, assaying and mapping.
We anticipate the exploration program will be supervised by Gregory Schifrin, a director of the company.
MARKETING
All of our mining operations, if successful, will produce gold or silver in doré form or a concentrate that contains gold or silver.
We plan to market our refined metal and doré to credit worthy bullion trading houses, market makers and members of the London Bullion Market Association, industrial companies and sound financial institutions. The refined metals will be sold to end users for use in electronic circuitry, jewelry, silverware, and the pharmaceutical and technology industries. Generally, the loss of a single bullion trading counterparty would not adversely affect us due to the liquidity of the markets and the availability of alternative trading counterparties.
We plan to refine and market its precious metals doré and concentrates using a geographically diverse group of third party smelters and refiners. The loss of any one smelting and refining client may have a material adverse effect if alternate smelters and refiners are not available. We believe there is sufficient global capacity available to address the loss of any one smelter.
GOVERNMENT REGULATION
General
Our activities are and will be subject to extensive federal, state and local laws governing the protection of the environment, prospecting, mine development, production, taxes, labor standards, occupational health, mine safety, toxic substances and other matters. The costs associated with compliance with such regulatory requirements are substantial and possible future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development and continued operation of our properties, the extent of which cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, we must comply with known standards and regulations which may entail significant costs and delays.
Although we are committed to environmental responsibility and believe we are in substantial compliance with applicable laws and regulations, amendments to current laws and regulations, more stringent implementation of these laws and regulations through judicial review or administrative action or the adoption of new laws could have a materially adverse effect upon our results of operations.
Federal Environmental Laws
Certain mining wastes from extraction and beneficiation of ores are currently exempt from the extensive set of Environmental Protection Agency (“EPA”) regulations governing hazardous waste, although such wastes may be subject to regulation under state law as a solid or hazardous waste. The EPA has worked on a program to regulate these mining wastes pursuant to its solid waste management authority under the Resource Conservation and Recovery Act (“RCRA”). Certain ore processing and other wastes are currently regulated as hazardous wastes by the EPA under RCRA. If our future mine wastes, if any, were treated as hazardous waste or such wastes resulted in operations being designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) for cleanup, material expenditures would be required for the construction of additional waste disposal facilities or for other remediation expenditures. Under CERCLA, any present owner or operator of a Superfund site or an owner or operator at the time of its contamination generally may be held liable and may be forced to undertake remedial cleanup action or to pay for the government’s cleanup efforts. Such owner or operator may also be liable to governmental entities for the cost of damages to natural resources, which may be substantial. Additional regulations or requirements may also be imposed upon our future tailings and waste disposal, if any, in Nevada under the Federal Clean Water Act (“CWA”) and state law counterparts. We have reviewed and considered current federal legislation relating to climate change and we do not believe it to have a material effect on our operations. Additional regulation or requirements under any of these laws and regulations could have a materially adverse effect upon our results of operations.

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ITEM 1A. RISK FACTORS
ITEM 1A RISK FACTORS.
Our business faces many risks. Any of the risks discussed below, or elsewhere in this report or in our other filings with the SEC, could have a material impact on our business, financial condition, or results of operations.
An investment in our securities is speculative and involves a high degree of risk. Please carefully consider the following risk factors, as well as the possibility of the loss of your entire investment, before deciding to invest in our securities.
Risks Related to our Business
Due to our history of operating losses our auditors are uncertain that we will be able to continue as a going concern.
Our financial statements have been prepared assuming that we will continue as a going concern. Due to our continuing operating losses and negative cash flows from our operations, the reports of our auditors issued in connection with our consolidated financial statements for the fiscal years ended December 31, 2020 and 2019, contain explanatory paragraphs indicating that the foregoing matters raised substantial doubt about our ability to continue as a going concern. We cannot provide any assurance that we will be able to continue as a going concern.
Uncontrollable events like the COVID-19 pandemic may negatively impact our operations.
The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.
We have no history of and limited experience in mineral production.
We have no history of and limited experience in producing gold or other metals. In addition, our management has limited technical training and experience with exploring for, starting and/or operating a mine. Our management may not be fully aware of many of the specific requirements related to working within this industry. Their decisions and choices may not take into account standard engineering or managerial approaches mineral exploration companies commonly use. Our operations, earnings and ultimate financial success could suffer due to our management’s limited experience in this industry. As a result, we would be subject to all of the risks associated with establishing a new mining operation and business enterprise. We may never successfully establish mining operations, and any such operations may not achieve profitability.
We have no proven or probable reserves.
We are currently in the exploration stage and have no proven or probable reserves, as those terms are defined by the Securities and Exchange Commission (“SEC”) on any of our properties.
In order to demonstrate the existence of proven or probable reserves under SEC guidelines, it would be necessary for us to advance the exploration of our Properties by significant additional delineation drilling to demonstrate the existence of sufficient mineralized material with satisfactory continuity which would provide the basis for a feasibility study which would demonstrate with reasonable certainty that the mineralized material can be economically extracted and produced. We do not have sufficient data to support a feasibility study with regard to the Properties, and in order to perform the drill work to support such feasibility study, we must obtain the necessary permits and funds to continue our exploration efforts. It is possible that, even after we have obtained sufficient geologic data to support a feasibility study on the Properties, such study will conclude that none of the identified mineral deposits can be economically and legally extracted or produced. If we cannot adequately confirm or discover any mineral reserves of precious metals on the Properties, we may not be able to generate any revenues. Even if we discover mineral reserves on the Properties in the future that can be economically developed, the initial capital costs associated with development and production of any reserves found is such that we might not be profitable for a significant time after the initiation of any development or production. The commercial viability of a mineral deposit once discovered is dependent on a number of factors beyond our control, including particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as metal prices. In addition, development of a project as significant as the ones we might be planning will likely require significant debt financing, the terms of which could contribute to a delay of profitability.
The exploration of mineral properties is highly speculative in nature, involves substantial expenditures and is frequently non-productive.
Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:
· establish ore reserves through drilling and metallurgical and other testing techniques;
· determine metal content and metallurgical recovery processes to extract metal from the ore; and,
· design mining and processing facilities.
If we discover ore at the Properties, we expect that it would be several additional years from the initial phases of exploration until production is possible. During this time, the economic feasibility of production could change. As a result of these uncertainties, there can be no assurance that our exploration programs will result in proven and probable reserves in sufficient quantities to justify commercial operations.
Even if our exploration efforts at the Properties are successful, we may not be able to raise the funds necessary to develop the Properties.
If our exploration efforts at our prospects are successful, of which there can be no assurance, our current estimates indicate that we may be required to raise substantial external financing to develop and construct the mines. Sources of external financing could include bank borrowings and debt and equity offerings, but financing has become significantly more difficult to obtain in the current market environment. The failure to obtain financing would have a material adverse effect on our growth strategy and our results of operations and financial condition. We currently have no specific plan to obtain the necessary funding and there exist no agreements, commitments or arrangements to provide us with the financing that we may need. There can be no assurance that we will commence production at any of our Properties or generate sufficient revenues to meet our obligations as they become due or obtain necessary financing on acceptable terms, if at all, and we may not be able to secure the financing necessary to begin or sustain production at the Properties. Our failure to raise needed funding could also result in our inability to meet our future royalty and work commitments under our mineral leases, which could result in a forfeiture of our mineral interest altogether and a default under other financial commitments. In addition, should we incur significant losses in future periods, we may be unable to continue as a going concern, and we may not be able to realize our assets and settle our liabilities in the normal course of business at amounts reflected in our financial statements included or incorporated herein by reference.
We may not be able to obtain permits required for development of the Properties.
In the ordinary course of business, mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new operations. We will be required to obtain numerous permits for our Properties. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings. Our efforts to develop the Properties may also be opposed by environmental groups. In addition, mining projects require the evaluation of environmental impacts for air, water, vegetation, wildlife, cultural, historical, geological, geotechnical, geochemical, soil and socioeconomic conditions. An Environmental Impact Statement would be required before we could commence mine development or mining activities. Baseline environmental conditions are the basis on which direct and indirect impacts of the Properties are evaluated and based on which potential mitigation measures would be proposed. If the Properties were found to significantly adversely impact the baseline conditions, we could incur significant additional costs to avoid or mitigate the adverse impact, and delays in the development of Properties could result.
Permits would also be required for, among other things, storm-water discharge; air quality; wetland disturbance; dam safety (for water storage and/or tailing storage); septic and sewage; and water rights appropriation. In addition, compliance must be demonstrated with the Endangered Species Act and the National Historical Preservation Act.
The mining industry is intensely competitive.
The mining industry is intensely competitive. We may be at a competitive disadvantage because we must compete with other individuals and companies, many of which have greater financial resources, operational experience and technical capabilities than we do. Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future. We may also encounter increasing competition from other mining companies in our efforts to locate acquisition targets, hire experienced mining professionals and acquire exploration resources.
Our future success is subject to risks inherent in the mining industry.
Our future mining operations, if any, would be subject to all of the hazards and risks normally incident to developing and operating mining properties. These risks include:
· insufficient ore reserves;
· fluctuations in metal prices and increase in production costs that may make mining of reserves uneconomic;
· significant environmental and other regulatory restrictions;
· labor disputes; geological problems;
· failure of underground stopes and/or surface dams;
· force majeure events; and
· the risk of injury to persons, property or the environment.
Our future profitability will be affected by changes in the prices of metals.
If we establish reserves, and complete development of a mine, our profitability and long-term viability will depend, in large part, on the market price of gold. The market prices for metals are volatile and are affected by numerous factors beyond our control, including:
· global or regional consumption patterns;
· supply of, and demand for, gold and other metals;
· speculative activities;
· expectations for inflation; and,
· political and economic conditions.
The aggregate effect of these factors on metals prices is impossible for us to predict. Decreases in metals prices could adversely affect our ability to finance the exploration and development of our properties, which would have a material adverse effect on our financial condition and results of operations and cash flows. There can be no assurance that metals prices will not decline.
The price of gold may decline in the future. If the price of gold and silver is depressed for a sustained period, we may be forced to suspend operations until the prices increase, and to record asset impairment write-downs. Any continued or increased net losses or asset impairments would adversely affect our financial condition and results of operations.
We are subject to significant governmental regulations.
Our operations and exploration and development activities are subject to extensive federal, state, and local laws and regulations governing various matters, including:
· environmental protection;
· management and use of toxic substances and explosives;
· management of natural resources;
· exploration and development of mines, production and post-closure reclamation;
· taxation;
· labor standards and occupational health and safety, including mine safety; and
· historic and cultural preservation.
Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which could result in us incurring significant expenditures. We may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or a more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of any future operations and delays in the exploration of our properties.
Changes in mining or environmental laws could increase costs and impair our ability to develop our properties.
From time to time the U.S. government may determine to revise U.S. mining and environmental laws. It remains unclear to what extent new legislation or regulations may affect existing mining claims or operations. The effect of any such revisions on our operations cannot be determined conclusively until such revision is enacted; however, such legislation could materially increase costs on properties located on federal lands, such as ours, and such revision could also impair our ability to develop the Properties and to explore and develop other mineral projects.
Compliance with environmental regulations and litigation based on environmental regulations could require significant expenditures.
Mining exploration and mining are subject to the potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mineral exploration and production. Insurance against environmental risk (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) is not generally available to us (or to other companies in the minerals industry) at a reasonable price.
Environmental 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. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees.
To the extent we are subject to environmental liabilities, the settlement of such liabilities or the costs that we may incur to remedy environmental pollution would reduce funds otherwise available to us and could have a material adverse effect on our financial condition and results of operations. If we are unable to fully remedy an environmental problem, it might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. The environmental standards that may ultimately be imposed at a mine site impact the cost of remediation and may exceed the financial accruals that have been made for such remediation. The potential exposure may be significant and could have a material adverse effect on our financial condition and results of operations.
Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of our operations, which could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions. Substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in our proposed operations
Some mining wastes are currently exempt to a limited extent from the extensive set of federal Environmental Protection Agency (“EPA”) regulations governing hazardous waste under the Resource Conservation and Recovery Act (“RCRA”). If the EPA designates these wastes as hazardous under RCRA, we may be required to expend additional amounts on the handling of such wastes and to make significant expenditures to construct hazardous waste disposal facilities. In addition, if any of these wastes causes contamination in or damage to the environment at a mining facility, such facility may be designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). Under CERCLA, any owner or operator of a Superfund site since the time of its contamination may be held liable and may be forced to undertake extensive remedial cleanup action or to pay for the government’s cleanup efforts. Such owner or operator may also be liable to governmental entities for the cost of damages to natural resources, which may be substantial. Additional regulations or requirements are also imposed under the federal Clean Water Act (“CWA”). The Company considers the current proposed federal legislation relating to climate change and its potential enactment may have future impacts to the Company’s operations in the United States.
In addition, there are numerous legislative and regulatory proposals related to climate change, including legislation pending in the U.S. Congress to require reductions in greenhouse gas emissions. The Company has reviewed and considered current federal legislation relating to climate change and does not believe it to have a material effect on its operations, however, additional regulation or requirements under any of these laws and regulations could have a materially adverse effect upon the Company and its results of operations.
Compliance with CERCLA, the CWA and state environmental laws could entail significant costs, which could have a material adverse effect on our operations.
In the context of environmental permits, including the approval of reclamation plans, we must comply with standards and regulations which entail significant costs and can entail significant delays. Such costs and delays could have a dramatic impact on our operations. There is no assurance that future changes in environmental regulation, if any, will not adversely affect our operations. We intend to fully comply with all applicable environmental regulations.
We are required to obtain government permits to begin new operations. The acquisition of such permits can be materially impacted by third party litigation seeking to prevent the issuance of such permits. The costs and delays associated with such approvals could affect our operations, reduce our revenues, and negatively affect our business as a whole.
Mining companies are required to seek governmental permits for the commencement of new operations. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings. The duration and success of permitting efforts are contingent on many factors that are out of our control. The governmental approval process may increase costs and cause delays depending on the nature of the activity to be permitted, and could cause us to not proceed with the development of a mine. Accordingly, this approval process could harm our results of operations.
Mineral exploration and development inherently involves significant and irreducible financial risks. We may suffer from the failure to find and develop profitable mineral deposits.
The exploration for and development of mineral deposits involves significant financial risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Unprofitable efforts may result from the failure to discover mineral deposits. Even if mineral deposits are found, such deposits may be insufficient in quantity and quality to return a profit from production, or it may take a number of years until production is possible, during which time the economic viability of the project may change. Few properties which are explored are ultimately developed into producing mines. Mining companies rely on consultants and others for exploration, development, construction and operating expertise.
Substantial expenditures are required to establish ore reserves, extract metals from ores and, in the case of new properties, to construct mining and processing facilities. The economic feasibility of any development project is based upon, among other things, estimates of the size and grade of ore reserves, proximity to infrastructures and other resources (such as water and power), metallurgical recoveries, production rates and capital and operating costs of such development projects, and metals prices. Development projects are also subject to the completion of favorable feasibility studies, issuance and maintenance of necessary permits and receipt of adequate financing.
Once a mineral deposit is developed, whether it will be commercially viable depends on a number of factors, including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; government regulations including taxes, royalties and land tenure; land use, importing and exporting of minerals and environmental protection; and mineral prices. Factors that affect adequacy of infrastructure include: reliability of roads, bridges, power sources and water supply; unusual or infrequent weather phenomena; sabotage; and government or other interference in the maintenance or provision of such infrastructure. All of these factors are highly cyclical. The exact effect of these factors cannot be accurately predicted, but the combination may result in not receiving an adequate return on invested capital.
Significant investment risks and operational costs are associated with our exploration activities. These risks and costs may result in lower economic returns and may adversely affect our business.
Mineral exploration, particularly for gold, involves many risks and is frequently unproductive. If mineralization is discovered, it may take a number of years until production is possible, during which time the economic viability of the project may change.
Development projects may have no operating history upon which to base estimates of future operating costs and capital requirements. Development project items such as estimates of reserves, metal recoveries and cash operating costs are to a large extent based upon the interpretation of geologic data, obtained from a limited number of drill holes and other sampling techniques, and feasibility studies. Estimates of cash operating costs are then derived based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other factors. As a result, actual cash operating costs and economic returns of any and all development projects may materially differ from the costs and returns estimated, and accordingly, our financial condition and results of operations may be negatively affected.
Our failure to satisfy the financial commitments under the agreements controlling our rights to explore on our current prospects could result in our loss of those potential opportunities.
We hold all of our mineral interests under agreements and commitments that require ongoing financial obligations, including work commitments. Our failure to satisfy those obligations could result in a loss of those interests. In such an event, we would be required to recognize an impairment of the assets currently reported in our financial statements.
We are required to obtain government permits to begin new operations. The acquisition of such permits can be materially impacted by third party litigation seeking to prevent the issuance of such permits. The costs and delays associated with such approvals could affect our operations, reduce our revenues, and negatively affect our business as a whole.
Mining companies are required to seek governmental permits for the commencement of new operations. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings. The duration and success of permitting efforts are contingent on many factors that are out of our control. The governmental approval process may increase costs and cause delays depending on the nature of the activity to be permitted, and could cause us to not proceed with the development of a mine. Accordingly, this approval process could harm our results of operations.
Any of our future acquisitions may result in significant risks, which may adversely affect our business.
An important element of our business strategy is the opportunistic acquisition of operating mines, properties and businesses or interests therein within our geographical area of interest. While it is our practice to engage independent mining consultants to assist in evaluating and making acquisitions, any mining properties or interests therein we may acquire may not be developed profitably or, if profitable when acquired, that profitability might not be sustained. In connection with any future acquisitions, we may incur indebtedness or issue equity securities, resulting in increased interest expense, or dilution of the percentage ownership of existing shareholders. We cannot predict the impact of future acquisitions on the price of our business or our common stock. Unprofitable acquisitions, or additional indebtedness or issuances of securities in connection with such acquisitions, may impact the price of our common stock and negatively affect our results of operations.
Our ability to find and acquire new mineral properties is uncertain. Accordingly, our prospects are uncertain for the future growth of our business.
Because mines have limited lives based on proven and probable ore reserves, we may seek to replace and expand our future ore reserves, if any. Identifying promising mining properties is difficult and speculative. Furthermore, we encounter strong competition from other mining companies in connection with the acquisition of properties producing or capable of producing gold. Many of these companies have greater financial resources than we do. Consequently, we may be unable to replace and expand future ore reserves through the acquisition of new mining properties or interests therein on terms we consider acceptable. As a result, our future revenues from the sale of gold or other precious metals, if any, may decline, resulting in lower income and reduced growth.
Corporate and securities laws and regulations are likely to increase our costs.
The Sarbanes-Oxley Act of 2002 (“SOX”), which became law in July 2002, has impacted our corporate governance, securities disclosure and compliance practices. In response to the requirements of SOX, the SEC and major stock exchanges have promulgated rules and listing standards covering a variety of subjects. Compliance with these rules and listing standards are likely to increase our general and administrative costs, and we expect these to continue to increase in the future. In particular, we are required to include the management report on internal control as part of our annual reports pursuant to Section 404 of SOX. We have evaluated our internal control systems in order (i) to allow management to report on our internal controls, as required by these laws, rules and regulations, (ii) to provide reasonable assurance that our public disclosure will be accurate and complete, and (iii) to comply with the other provisions of Section 404 of SOX. We cannot be certain as to the timing of the completion of our evaluation, testing and remediation actions or the impact these may have on our operations. Furthermore, there is no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements relating to internal controls and all other provisions of Section 404 in a timely fashion or achieve adequate compliance with these requirements or other requirements of SOX, we might become subject to sanctions or investigation by regulatory authorities such as the SEC or FINRA. Any such action may materially adversely affect our reputation, financial condition and the value of our securities, including our common stock. SOX and these other laws, rules and regulations have increased legal and financial compliance costs and have made our corporate governance activities more difficult, time-consuming and costly.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, this would harm our business and the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide financial reports or prevent fraud, our business reputation and operating results could be harmed. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Nevada law and our by-laws protect our directors from certain types of lawsuits.
Nevada law provides that our directors will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as directors. Our by-laws require us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing shareholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
The Company is subject to extensive government regulations and permit requirements.
Operations, development and exploration on the Company’s properties are affected to varying degrees by political stability and government regulations relating to such matters as environmental protection, health, safety and labour, mining law reform, restrictions on production, price controls, tax increases, maintenance of claims, tenure, and expropriation of property. Failure to comply with applicable laws and regulations may result in fines or administrative penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which could result in the Company incurring significant expenditures.
The activities of the Company require licenses and permits from various governmental authorities. The Company currently has been granted the requisite licenses and permits to enable it to carry on its existing business and operations. There can be no assurance that the Company will be able to obtain all the necessary licenses and permits which may be required to carry out exploration, development and mining operations for its projects in the future. The Company might find itself in situations where the state of compliance with regulation and permits can be subject to interpretation and challenge from authorities that could carry risk of fines or temporary stoppage.
Opposition of the Company’s exploration, development and operational activities may adversely affect the Company’s reputation, its ability to receive mining rights or permits and its current or future activities.
Maintaining a positive relationship with the communities in which the Company operates is critical to continuing successful exploration and development. Community support for operations is a key component of a successful exploration or development project. Various international and national laws, codes, resolutions, conventions, guidelines and other materials relating to corporate social responsibility (including rights with respect to health and safety and the environment) may also require government consultation with communities on a variety of issues affecting local stakeholders, including the approval of mining rights or permits.
The Company may come under pressure in the jurisdictions in which it explores or develops to demonstrate that other stakeholders benefit and will continue to benefit from its commercial activities. Local stakeholders and other groups may oppose the Company’s current and future exploration, development and operational activities through legal or administrative proceedings, protests, roadblocks or other forms of public expression against the Company’s activities. Opposition by such groups may have a negative impact on the Company’s reputation and its ability to receive necessary mining rights or permits. Opposition may also require the Company to modify its exploration, development or operational plans or enter into agreements with local stakeholders or governments with respect to its projects, in some cases causing considerable project delays. Any of these outcomes could have a material adverse effect on the Company’s business, financial condition, results of operations and Common Share price.
The title to the Company’s properties could be challenged or impugned.
Although the Company has or will receive title opinions for any properties in which it has a material interest, there is no guarantee that title to such properties will not be challenged or impugned. The Company has not conducted surveys of the claims in which it holds direct or indirect interests and, therefore the precise area and location of the properties may be in doubt. The Company’s properties may be subject to prior unregistered agreements or transfers or native land claims and title may be affected by unidentified or unknown defects. Title insurance is generally not available for mineral properties and the Company’s ability to ensure that it has obtained secure claims to individual mineral properties or mining concessions may be constrained. A successful challenge to the Company’s title to a property or to the precise area and location of a property could cause delays or stoppages to the Company’s exploration, development or operating activities without reimbursement to the Company. Any such delays or stoppages could have a material adverse effect on the Company’s business, financial condition and results of operations.
Risks Related to Our Stock
Future issuances of our common stock could dilute current shareholders and adversely affect the market if it develops.
We have the authority to issue up to one billion shares of common stock and 25 million shares of preferred stock and to issue options and warrants to purchase shares of our common stock, without shareholder approval. Future share issuances are likely due to our need to raise additional working capital in the future. Those future issuances will likely result in dilution to our shareholders. In addition, we could issue large blocks of our common stock to fend off unwanted tender offers or hostile takeovers without further shareholder approval, which would not only result in further dilution to investors in this offering but could also depress the market value of our common stock, if a public trading market develops.
We may issue preferred stock that would have rights that are preferential to the rights of our common stock that could discourage potentially beneficial transactions to our common shareholders.
An issuance of shares of preferred stock could result in a class of outstanding securities that would have preferences with respect to voting rights and dividends and in liquidation over our common stock and could, upon conversion or otherwise, have all of the rights of our common stock. Our Board of Directors' authority to issue preferred stock could discourage potential takeover attempts or could delay or prevent a change in control through merger, tender offer, proxy contest or otherwise by making these attempts more difficult or costly to achieve. The issuance of preferred stock could impair the voting, dividend and liquidation rights of common stockholders without their approval.
There is currently an illiquid market for our common shares, and shareholders may be unable to sell their shares for an indefinite period of time.
There is presently an illiquid market for our common shares. There is no assurance that a liquid market for our common shares will ever develop in the United States or elsewhere, or that if such a market does develop that it will continue.
Over-the-counter stocks are subject to risks of high volatility and price fluctuation.
We have not applied to have our shares listed on any stock exchange or on the NASDAQ Capital Market, and we do not plan to do so in the foreseeable future. The OTC market for securities has experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as commodity prices and the investment markets generally, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market price of our common stock and make it more difficult for investors to sell their shares.
Trading in our securities is on an electronic bulletin board established for securities that do not meet NASDAQ listing requirements. As a result, investors will find it substantially more difficult to dispose of our securities. Investors may also find it difficult to obtain accurate information and quotations as to the price of, our common stock.
Our stock price may be volatile and as a result, shareholders could lose all or part of their investment. The value of our shares could decline due to the impact of any of the following factors upon the market price of our common stock:
· failure to meet operating budget;
· decline in demand for our common stock;
· operating results failing to meet the expectations of securities analysts or investors in any quarter;
· downward revisions in securities analysts' estimates or changes in general market conditions;
· investor perception of the mining industry or our prospects; and
· general economic trends.
In addition, stock markets have experienced extreme price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock.
Outstanding shares that are eligible for future sale could adversely impact a public trading market for our common stock.
All of the shares of common stock that were distributed under the Athena spin-off dividend are free-trading shares. In addition, in the future, we may offer and sell shares without registration under the Securities Act. All of such shares will be "restricted securities" as defined by Rule 144 ("Rule 144") under the Securities Act and cannot be resold without registration except in reliance on Rule 144 or another applicable exemption from registration. Under Rule 144, our non-affiliates (who have not been affiliates within the past 90 days) can sell restricted shares held for at least six months, subject only to the restriction that we made available public information as required by Rule 144 (which restriction is not applicable after the shares have been held by non-affiliates for at least 12 months). Our affiliates can sell restricted securities after they have been held for six months, subject to compliance with manner of sale, volume restrictions, Form 144 filing and current public information requirements.
No prediction can be made as to the effect, if any, that future sales of restricted shares of common stock, or the availability of such common stock for sale, will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of such common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing market price of the common stock.
Owners of our common stock are subject to the “penny stock” rules.
Since our shares are not listed on a national stock exchange or quoted on the Nasdaq Market within the United States, trading in our shares on the OTC market is subject, to the extent the market price for our shares is less than $5.00 per share, to a number of regulations known as the "penny stock rules". The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide the customer with additional information including current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer's account, and to make a special written determination that the penny stock is a suitable investment for the investor and receive the investor’s written agreement to the transaction. To the extent these requirements may be applicable they will reduce the level of trading activity in the secondary market for our shares and may severely and adversely affect the ability of broker-dealers to sell our shares, if a publicly traded market develops.
We do not expect to pay cash dividends in the foreseeable future. Any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on any shares of our capital stock, and we do not anticipate that we will pay any dividends in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion of our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors, and will be dependent upon our financial condition, results of operations, capital requirements and other factors as our board of directors may deem relevant at that time. If we do not pay cash dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
Nevada law and our by-laws protect our directors from certain types of lawsuits.
Nevada law provides that our directors will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as directors. Our by-laws require us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
Risk Factors Related to the COVID-10 Pandemic
An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Mining Properties
Descriptions of our mining properties are contained in the Business discussion in this Report.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
None

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. REMOVED AND RESERVED
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective May 2012, our common stock was approved for quotation on the OTC Bulletin Board under the ticker symbol “MAGE.” The Company’s shares are now quoted on the OTCQB of the OTC Markets Group, Inc. The following sets forth the high and low trading prices for the periods shown:
High Low High Low
First quarter ended March 31 $ 3.05 $ 1.10 $ 1.49 $ 0.25
Second quarter ended June 30 $ 2.18 $ 1.21 $ 0.87 $ 0.20
Third quarter ended September 30 $ 2.50 $ 1.70 $ 1.65 $ 0.85
Fourth quarter ended December 31 $ 2.30 $ 1.04 $ 1.15 $ 0.86
The closing price of the Company's common stock as of April 12, 2021 was $1.07, as reported on the OTC.QB. The OTC.QB prices are bid and ask prices which represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commissions to the broker-dealer. The prices do not reflect prices in actual transactions. As of April 9, 2021 there were approximately 82 record owners of the Company's common stock.
The OTC.QB is a registered quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter (OTC) securities. An OTC equity security generally is any equity that is not listed or traded on NASDAQ or a national securities exchange. The OTCQB is not an issuer listing service, market or exchange. Although the OTCQB does not have any listing requirements, per se, to be eligible for quotation on the OTCQB, issuers must remain current in their filings with the SEC or applicable regulatory authority.
Our Board of Directors may declare and pay dividends on outstanding shares of common stock out of funds legally available therefore in its sole discretion; however, to date, no dividends have been paid on common stock and we do not anticipate the payment of dividends in the foreseeable future.
Trading in our common stock is subject to rules adopted by the SEC regulating broker dealer practices in connection with transactions in "penny stocks." Those disclosure rules applicable to penny stocks 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 prepared by the SEC. That disclosure document advises an investor that investment in penny stocks can be very risky and that the investor's salesperson or broker is not an impartial advisor but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in penny stocks, to independently investigate the security, as well as the salesperson with whom the investor is working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and 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. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.
Recent Sales of Unregistered Securities
The following is a summary of sales of unregistered securities undertaken by the Company. The share, per share and price per share information have been adjusted to give retroactive effect to the Reverse Split.
(a) Effective February 19, 2018, the Company completed the sale of Units, each Unit consisting of one share of common stock and one Warrant. The securities were sold exclusively to persons who qualified as “accredited investors” within the meaning of Rule 501(a) of Regulation D under the Securities Act. There were a total of 10 accredited investors who participated in the offering. The sale of the securities was undertaken without registration under the Securities Act in reliance upon an exemption from registration requirements under Regulation D of the Securities Act. The securities were purchased for investment purposes, not with a view to distribution and were subject to restrictions on transfer.
(b) On May 18, 2018, the Company issued 100,000 shares of common stock to the Company’s principal shareholder and creditor as repayment in full of $100,000 in principal advances made to the Company pursuant to an Agreement to Convert Debt. The individual qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 of the Securities Act.
(c) Effective June 1, 2018, the Company completed the sale of 250,000 Units, each Unit consisting of one share of common stock and one Warrant. The securities were sold exclusively to persons who qualified as “accredited investors” within the meaning of Rule 501(a) of Regulation D under the Securities Act. There were a total of six accredited investors who participated in the offering. The sale of the securities was undertaken without registration under the Securities Act in reliance upon an exemption from registration requirements under Rule 506 of Regulation D of the Securities Act. The securities were purchased for investment purposes, not with a view to distribution and were subject to restrictions on transfer.
(d) On June 20, 2018, the Company issued 60,000 shares of common stock to one investor pursuant to the exercise of issued and outstanding warrants. The securities were issued without registration under the Securities Act in reliance upon an exemption from registration requirements under Section 4(a)(2) of the Securities Act. The securities were purchased for investment purposes, not with a view to distribution and were subject to restrictions on transfer.
(e) On June 20, 2018, the Company issued 20,000 shares of common stock pursuant to the exercise of issued and outstanding warrants by one warrant holder. The securities were issued without registration under the Securities Act in reliance upon an exemption from registration requirements under Section 4(a)(2) of the Securities Act. The securities were purchased for investment purposes, not with a view to distribution and were subject to restrictions on transfer.
(f) On July 25, 2018, the Company issued 98,100 shares of common stock to its CEO as repayment in full of $90,000 in accrued but unpaid compensation and $8,100 in cash advances made to the Company pursuant to an Agreement to Convert Debt. The individual qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 of the Securities Act.
(g) On August 13, 2018, the Company issued 20,000 shares of common stock to its CEO pursuant to a Restricted Stock Award Agreement. The 20,000 shares were issued as a result of meeting certain vesting requirements contained in the Restricted Stock Award Agreement. The individual qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 of the Securities Act.
(h) On August 30, 2018 the Company completed the sale of 90,000 Units at a price of $1.00 per Unit. Each Unit consisted of one share of Common Stock and one Warrant. There was a total of one accredited investor who participated in the offering. The sale of the securities was undertaken without registration under the Securities Act in reliance upon an exemption from registration requirements under Rule 506 of Regulation D of the Securities Act. The securities were purchased for investment purposes, not with a view to distribution and were subject to restrictions on transfer.
(i) On August 29, 2018, the Company issued 40,000 shares of common stock to one investor pursuant to the exercise of an issued and outstanding Warrant. The securities were issued without registration under the Securities Act in reliance upon an exemption from registration requirements under Section 4(a)(2) of the Securities Act. The securities were purchased for investment purposes, not with a view to distribution and were subject to restrictions on transfer.
(j) On September 25, 2018, the Company issued 20,261 shares of common stock as partial consideration under a data share agreement. The shares were valued at $1.00 per share. The individual qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 of the Securities Act.
(k) On various dates between July and October, 2018, the Company issued an aggregate of 236,000 shares to two institutional investors pursuant to the partial conversion of convertible promissory notes. The two institution investors each qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 of the Securities Act.
(l) In November and December, 2018, the Company sold an aggregate of $120,000 in Units, each Unit consisting of one share of Common Stock, one Warrant exercisable to purchase two shares of Common stock at a price of $2.00 per share, and one Warrant exercisable to purchase two shares of Common Stock at a price of $3.00 per shares. The Units were sold to two investors, each of whom qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 and Rule 506(b) of Regulation D under the Securities Act.
(m) In October 2018, the Company sold an aggregate of $205,000 in convertible notes (the “Series 2018 Notes”). The Series 2018A Notes were sold to five investors, each of whom qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 and Rule 506(b) of Regulation D under the Securities Act.
(n) In December 2018, the Company sold an aggregate of $150,000 in convertible notes (the “Series 2018B Notes”). The Series 2018A Notes were sold to 2 investors, each of whom qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 and Rule 506(b) of Regulation D under the Securities Act.
(o) In October 2018, the Company sold an aggregate of $160,700 in bridge notes (the “Bridge Notes”). The Bridge Notes were sold to two investors, each of whom qualified as an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act. The securities, which were taken for investment and were subject to appropriate transfer restrictions, were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(a)2 and Rule 506(b) of Regulation D under the Securities Act.
(p) During the year ended December 31, 2019, the Company raised $30,000 through the sale of 30,000 Units at a price of $1.00 per Unit. Each unit consists of one share of common stock and four common stock warrants. Two of the warrants expire on May 8, 2019 and are exercisable at $2.00. The other two warrants expire on August 8, 2019 and are exercisable at $3.00. The warrants expiring on May 8, 2019 were extended until May 28, 2019 and the exercise price was reduced to $1.00 per share. On July 31, 2019 all of the stock warrants were extended until October 31, 2019 and they all expired unexercised.
INCENTIVE COMPENSATION
2017 Equity Incentive Plan
Effective September 1, 2017, the 2017 Equity Incentive Plan was approved by written consent of stockholders holding 75% of the Company’s outstanding common stock, and was adopted by the Board of Directors. The Company is authorized to grant rights to acquire up to a maximum of 200,000 shares of common stock under the Plan, giving retroactive effect to the Reverse Split. The Plan is authorized to grant incentive stock options that qualify under Section 422 of the Internal Revenue Code of 1986, as amended.
The 2017 Plan provides for the grant of (1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation rights (collectively, "Stock Awards"). Incentive stock options granted under the 2017 Plan are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code. Nonstatutory stock options granted under the 2017 Plan are intended not to qualify as incentive stock options under the Code.
Arrangements with CEO
When he was first engaged as President, CEO and Director of G+W in June 2015, W. Pierce Carson was granted shares of G+W representing 15% of the total issued and outstanding shares of G+W.
In July 2016, we completed a reverse triangular merger pursuant to which a newly formed merger subsidiary was merged into Gulf + Western, and the 15% equity interest in Gulf + Western owned by Mr. Carson was converted into 172,479 shares of Magellan common stock. As a result of the merger, Gulf + Western became a wholly-owned subsidiary of Magellan.
On June 1, 2016 we executed an employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, and effective June 30, 2016, Dr. Carson was appointed a Director of Magellan.
This agreement was further extended in 2017 and 2018.
In June 2019, Dr. Carson resigned as the President and Chief Executive Officer of Magellan Gold Corporation. Dr. Carson also resigned from all other positions with the Company and its affiliates and subsidiaries.
At December 31, 2019 a total of $110,000 and $18,469 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities on the accompanying consolidated balance sheets.
Effective June 1, 2019, the Company and David E. Drips, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Drips, in consideration of services to be rendered as President, CEO and Director, restricted stock units consisting of 10,000 units for each month of service. The units will vest upon successful completion of a $1.25 million financing on or before November 30, 2019. Upon settlement if the common stock is less than $1.50 addition shares will be issued such that each month of service will have a value of $15,000. The completion of a $1.25 million financing did not happen as of November 30, 2019 and as such the Company is working to negotiate fair settlement and payment for Mr. Drips providing services. As of December 31, 2019, $92,000 has been accrued under this arrangement.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by the Exchange Act and are not required to provide the information required under this item.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We use the terms “Magellan,” “we,” “our,” and “us” to refer to Magellan Gold Corporation.
The following discussion and analysis provides information that management believes is relevant for an assessment and understanding of our results of operations and financial condition. This information should be read in conjunction with our audited financial statements, which are included in our Annual Report on Form 10-K for the fiscal years ended December 31, 2019 and 2018.
Forward-Looking Statements
Some of the information presented in this Form 10-K constitutes “forward-looking statements”. These forward-looking statements include, but are not limited to, statements that include terms such as “may,” “will,” “intend,” “anticipate,” “estimate,” “expect,” “continue,” “believe,” “plan,” or the like, as well as all statements that are not historical facts. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from current expectations. Although we believe our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from expectations.
All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.
Overview
We were incorporated on September 28, 2010, in Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which we have mineral rights contain mineral reserves that are economically recoverable.
We have only had limited operations to date and we rely upon the sale of our securities and borrowings from significant investors to fund our operations, as we have not generated any revenue.
In August 2012, we entered into an option agreement and subsequently purchased the “Silver District” project consisting of 85 unpatented lode mining claims, 4 patented lode claims, a Arizona State Exploration Permit of 154.66 acres and 23 unpatented mill site claims, totaling over 2,000 acres in La Paz County, Arizona. Since our acquisition, we have increased our land position in the Silver District by staking two unpatented lode mining claims, leased two additional patented claims and have increased our Arizona State Exploration Permit to 334.85 acres.
On September 30, 2014, we formed and organized a new wholly-owned subsidiary, Gulf + Western Industries, Inc., a Nevada corporation (“Gulf+Western” or “G+W”), to own our Silver District mining interests. On October 1, 2014 we completed the transfer of those assets from Magellan to G+W. At the time of the transfer, Magellan owned all the outstanding common stock of G+W. Effective December 31, 2014, Magellan pledged all its ownership interest in G+W to Mr. John D. Gibbs, a significant shareholder in the Company, as security for outstanding amounts under a line of credit agreement between Magellan and Mr. Gibbs. During the year ended December 31, 2019, the total amount owed under the credit agreement was $1,174,188, which includes $869,550 of principal and $304,638 of accrued interest was settled with the issuance of Series A Preferred Stock.
On October 24, 2016, the Company entered into a Mining Option Agreement (“Agreement”) between and among Rio Silver Inc., a Canadian company (“Rio Silver”), Minera Rio Plata S.A.C., a Peruvian company and subsidiary of Rio Silver (“Minera”), and Magellan Gold Peru S.A.C., a Peruvian company and wholly owned subsidiary of the Company (“Magellan Peru”) pursuant to which Rio Silver through Minera, granted to the Company the sole and exclusive option to acquire an undivided 50% interest in and to property located in central Peru. Under the terms of the Agreement, the Company has the right to earn an undivided 50% interest in the Niñobamba Silver/Gold Project in central Peru. To earn its 50% interest, the Company must spend $2.0 million in exploration activities in the project over three years. The Niñobamba project is comprised of five concessions that total 36.5 square kilometers (9.026 acres). Effective December 31, 2017, the Company agreed with Rio Silver to terminate the option agreement, thereby terminating the Company’s option to earn an interest in the Niñobamba Silver/Gold Project. The Company retained its ownership of Rio Silver stock.
On November 30, 2017, the Company purchased from Rose Petroleum plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA Mill”) as well as its associated assets, licenses and agreements. Magellan previously paid a $50,000 option payment, and an additional $100,000 option-to-purchase extension. The $100,000 option extension payment was applied against the cash portion of the purchase price.
The purchase price for the SDA Mill consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 for the option-to-purchase payment, and 284,017 shares of common stock (the “Shares”). The note is non-interest bearing and has been paid in full. The Shares will be held in escrow for a period of 12 months and the Company has the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months and $550,000 in months seven to twelve.
Prior to closing, all of the assets and operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2.
On October 17, 2017, the Company amended the agreement to include the acquisition of Minerales Vane Operaciones ("MVO") (the entity that provides labor to the Mill) for $2,500. In January 2018 the Company paid the purchase price and obtained legal control of MVO. MVO is the sister entity which was organized for the purpose of employing all personnel of the SDA mill. The acquisition of MVO will not result in the acquisition of any additional assets or liabilities.
The Company entered into an agreement giving it the right to acquire the El Dorado Gold-Silver Property, a 50 hectare mining concession located near the village of Las Minitas, which lies 50 kilometers south of Magellan’s SDA Flotation Plant at Acaponeta, Nayarit State. Magellan intends to advance El Dorado towards production as a matter of priority. The project has excellent road and rail infrastructure, and the Company plans to truck the ore from El Dorado to the SDA Plant for processing. El Dorado is situated within a district of epithermal vein systems from which historic mining produced high grades.
Effective March 31, 2020 Magellan Gold Corporation, a Nevada corporation (the “Company”) entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with certain holders of Promissory Notes (the “Lenders”) due December 31, 2019 (the “Notes”) in the aggregate principal amount of $1.05 million. The Company is indebted under the Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of Magellan Acquisition Corporation and one (1) share of Minerales Vane 2 S.A. de CV (“MV2”) (the “Collateral”) held under a Collateral Agent Agreement. Magellan Acquisition Corp. and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Notes matured on December 31, 2019 an remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.
Effective July 1, 2020, Magellan entered into a stock purchase agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County, Idaho that include the historic Center Star Gold Mine near Elk City, Idaho. The Center Star Mine hosts high grade gold mineralization that was discovered in the early 1900’s. There was periodic historic production and development work done under different ownership through the 1980s. With the high-grade gold mineralization present, Magellan will be evaluating the historic mine data to assess the potential to develop a gold resource at Center Star. The project area is located 45 miles from Grangeville, Idaho and near the town of Elk City, Idaho.
In consideration for 100% of the issued and outstanding shares of Clearwater, Magellan has agreed to pay its sole shareholder 1,000,000 shares of Magellan common stock and $150,000 in cash. Of the 1,000,000 shares, 750,000 have been issued and 250,000 shares will be issued two years from the closing concurrent with the pay-off of the secured promissory note. The cash consideration of $25,000 was paid and the balance of $125,000 is evidenced by a secured promissory note due in two years. The Note is secured by the Clearwater shares and assets.
Our primary focus is to advance our Idaho gold project towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities. Our permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any significant revenue.
Results of Operations for the Years Ended December 31, 2020 and 2019
Years ended December 31,
Operating expenses:
General and administrative expenses $ 1,175,110 $ 1,008,917
Total operating expenses 1,175,110 1,008,917
Operating loss (1,175,110 ) (1,008,917 )
Other income (expense):
Interest expense (424,858 ) (526,273 )
Other income 26,980 -
Loss on extinguishment of debt - (3,151,314 )
Loss on settlement of liabilities (2,110,047 ) -
Change in derivative liability - 12,457
Total other income (expense) (2,507,925 ) (3,665,130 )
Net loss from continuing operation (3,683,035 ) (4,674,047 )
Net loss from discontinued operation (31,599 ) (461,753 )
Net loss $ (3,714,634 ) $ (5,135,800 )
Operating expenses
During the year ended December 31, 2020, our total operating expenses included general and administrative expenses of $1,175,110 as compared to $1,008,917 during the year ended December 31, 2019. The $166,193 increase is primarily associated with increases in investor relations, stock based compensation and legal fees offset with decreases in travel expenses
Other income (expenses)
Interest expense for the year ended December 31, 2020 and 2019 totaled $424,858 and $526,273, respectively. The decrease in interest expense is related to the conversion of debt to equity during the year ended December 31, 2020.
Loss on settlement of liabilities for the year ended December 31, 2020 totaled $2,110,047. The loss on settlement was a result of settlement of convertible debt and advances for common shares and warrants during the year ended December 31, 2020.
Loss on extinguishment of debt for the year ended December 31, 2019 totaled $3,151,314. The loss on extinguishment of debt was a result of settlement of debt on September 30, 2019, which is discussed in detail in the footnotes.
Other income for the year ended December 31, 2020 of $26,980 was related to the NVX option and Small Business Administration Economic Injury Disaster Loan Grant.
Discontinued operations
The net loss from discontinued operations during the years ended December 31, 2020 and 2019 totaled $31,599 and $461,753, respectively. Net loss from discontinued operations represent the Mexico operations and Gulf+Western that were disposed of in March 2020 and July 2020, respectively. The $430,154 change is due to the limited operations of the Mexico and Gulf+Western assets in 2020.
Liquidity and Capital Resources:
Our audited consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At December 31, 2020, we had not yet generated any significant revenues or achieved profitable operations and we have accumulated losses of $15,832,969. We expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.
During the year ended December 31, 2020, the Company sold $285,000 of Series 2020A 8% Unsecured Convertible Notes with a maturity date of November 30, 2020. The purchase price of the Note is equal to the principal amount of the Note. The Series 2020A Notes are convertible into shares of Common Stock at a conversion price of $0.50 during the life of the Note. The lenders were issued 142,500 common stock warrants with an exercise price of $0.50 per share for a term of 5 years.
During the year ended December 31, 2019, the Company raised $30,000 through the sale of 30,000 units at a price of $1.00 per unit. Each unit consists of one share of common stock and four common stock warrants. Two of the warrants expire on May 8, 2019 and are exercisable at $2.00. The other two warrants expire on August 8, 2019 and are exercisable at $3.00. In April 2019 the warrants expiring on May 8, 2019 were extended until May 28, 2019 and the exercise price was reduced to $1.00 per share. As of May 31, 2019 these warrants were extended to July 31, 2019. On July 31, 2019, these warrants were extended to October 31, 2019 and expired unexercised.
Effective March 31, 2020 the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with certain holders of Promissory Notes (the “Lenders”) due December 31, 2019 (the “Notes”) in the aggregate principal amount of $1.05 million. The Company is indebted under the Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of Magellan Acquisition Corporation and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. Magellan Acquisition Corp. and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Notes matured on December 31, 2019 and remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.
On July 21, 2020, the Company entered into a Stock Purchase agreement with Tri Power Resources, LLC to sell 1,000 shares representing 100% ownership of Gulf+Western Industries, Inc (“Gulf+Western”) to Tri Power in consideration for the return and cancellation of 50,000 shares of the Company’s Series A Preferred Stock with a stated value of $10 per share. John Gibbs, a majority shareholder in the Company, is the Managing Member and Chief Executive Officer of Tri Power Resources, LLC
During the year ended December 31, 2019, the Company sold $135,000 of Series 2019A 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal amount of the Note. The Series 2019A Notes are convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. The lenders were issued 100,000 common stock warrants with an exercise price of $2.00 per share. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in August and December 2019. The $135,000 debt discount is amortized over the term of the loan. The Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes mature twelve (12) months from the date of issue. The maturity date can be extended at the option of the Company for an additional one (1) year.
Additionally, the Company received $514,955 of proceeds from advances from related and third parties, of which $345,450 was settled with the issuance Series A Preferred Stock in September 2019.
We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure that any future financings will occur.
Cash Flows
A summary of our cash provided by and used in operating, investing and financing activities is as follows:
Years ended December 31,
Net cash used in operating activities from continuing operations $ (136,803 ) $ (221,970 )
Net cash used in operating activities from discontinued operations (51,491 ) (207,034 )
Net cash used in operating activities (188,294 ) (429,004 )
Net cash used in investing activities from continuing operations (113,828 )
Net cash used in investing activities from discontinued operations - (75,000 )
Net cash used in investing activities (113,828 ) (75,000 )
Net cash provided by financing activities from continuing operations 233,319 457,246
Net cash provided by financing activities from discontinued operations - -
Net cash used in financing activities 233,319 457,246
Effect of foreign currency exchange 68,636 42,489
Net change in cash and cash equivalents (167 ) (4,269 )
Cash and cash equivalents beginning of period 4,436
Cash and cash equivalents end of period $ - $ 167
At December 31, 2020, we had a $1,476,062 working capital deficit. This compares to cash of $167 and a working capital deficit of $2,494,426 at December 31, 2019.
At December 31, 2020, we had $1 in cash and a $1,476,062 working capital deficit. This compares to cash of $167 and a working capital deficit of $2,494,426 at December 31, 2019.
Net cash used in operating activities from continuing operations during the year ended December 31, 2020 was $136,802 and was mainly comprised of our $3,683,035 net loss during the year, adjusted by a non-cash charges of $2,153,183 for loss on settlement of liabilities, $634,921 of stock compensation and accretion of discounts on notes payable of $346,781. In addition, it reflects changes in operating assets and liabilities of $411,348.
Net cash used in operating activities from continuing operations during the year ended December 31, 2019 was $221,970 and was mainly comprised of our $4,674,047 net loss during the year, adjusted by a non-cash charges of $12,457 gain on investment, $3,259,365 for loss on extinguishment of debt, $423,399 of stock compensation and accretion of discounts on notes payable of $210,445. In addition, it reflects changes in operating assets and liabilities of $571,325.
Net cash used in operating activities from discontinued operations of during the years ended December 31, 2020 and 2019 of $51,491 and $207,034, respectively, are related to the disposal of the Mexico and Gulf+Western operations.
Net cash used in investing activities from continuing operations during the year ended December 31, 2020 was $113,828 and was comprised of cash payments of $101,328 in development costs and $12,500 for mineral rights for Clearwater Mining Corporation.
Net cash used in investing activities from discontinued operations during the year ended December 31, 2019 was $75,000 related to the disposal of Mexico operations.
Net cash provided by financing activities from continuing operations during the year ended December 31, 2020 was $233,319 comprised $38,500 proceeds from the sale of common stock and warrants, $235,000 proceeds from convertible debt from third parties, $60,000 proceeds from convertible debt from related parties, $45,830 proceeds from advances from related parties, $20,000 proceeds on advances from third parties, offset by $10,000 payments on convertible notes from third parties and $156,011 payments on advances from related parties.
Net cash provided by financing activities from continuing operations during the year ended December 31, 2019 was $457,246 comprised $30,000 proceeds from the sale of common stock and warrants, $135,000 proceeds from convertible debt from third parties, $482,455 proceeds from advances from related parties, $32,500 proceeds on advances from third parties, offset by $222,709 payments on advances from related parties.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are located in Item 15 beginning on page of this Annual Report on Form 10-K and are incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring every company that files reports with the SEC to include a management report on the effectiveness of disclosure controls and procedures in its periodic reports and an annual assessment of the effectiveness of its internal control over financial reporting in its annual report.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures. Our management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.
Our management, with the participation of our CEO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based upon this evaluation, our CEO concluded that our disclosure controls and procedures were not effective because of the identification of material weaknesses in our internal control over financial reporting which are described below.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. GAAP.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. 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 of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on this evaluation, management concluded that that our internal control over financial reporting was not effective as of December 31, 2020. Our CEO concluded we have a material weakness due to lack of segregation of duties and a limited corporate governance structure. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our system of internal control. Therefore while there are some compensating controls in place, it is difficult to ensure effective segregation of accounting and financial reporting duties. Management reported material weaknesses related to the following:
· Lack of segregation of duties in certain accounting and financial reporting processes including the initiation, processing, recording and approval of disbursements;
· Lack of a formal review process that includes multiple levels of review.
· Lack of independent directors.
While we strive to segregate duties as much as practicable, there is an insufficient volume of transactions at this point in time to justify additional full time staff. We believe that this is typical in many exploration stage companies. We may not be able to fully remediate the material weakness until we commence mining operations at which time we would expect to hire more staff. We will continue to monitor and assess the costs and benefits of additional staffing.
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 the SEC rules that permit us to provide only management's report in this Annual Report.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.
Our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, Mr. Martinez concluded that the design and operation of our disclosure controls and procedures were not effective as of such date to provide assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our current executive officers and directors are:
Name Age Position
Michael Lavigne CEO & Director
Mark Rodenbeck Director
Deepak Malhotra Director
Greg Schifrin Director
Mark Rodenbeck, age 72, was appointed Director on June 16, 2020.
Mr. Rodenbeck, age 72, served as an officer and director of Mascota Resources, a Nevada mining Company, from February 2015- October 2019. He graduated (cum laude with Dean's List honors) from Northwood Institute with a B.S. Degree in Business Administration in 1970. Between 1970 and 1976, Mark worked as General Manager, and then District Manager, for Foodplex Inc., a large operator of fast food restaurants. In 1976 he became President and 50% owner of Damark Inc. which owned and operated 6 fast food restaurants in Michigan. In 1981, Mr. Rodenbeck sold his restaurants and moved to Denver, Colorado, and became a stockbroker. In 1984, he was promoted to Branch Manager of Engler & Budd, a Minneapolis-based brokerage firm. In 1995, he co-founded Colorado Ceramic Tile, Inc. as a 50% owner and officer. Mr. Rodenbeck retired from Colorado Ceramic Tile in 2012.
Gregory Schifrin, age 61, was appointed Director on July 1, 2020.
Mr. Schifrin, age 61, has been a Geologist for more than 35 years, specializing in precious, base metals, rare earth and uranium exploration and development. Previously he served as the CEO and a member of the Board of Director at Blackrock Gold Corp.
Michael Lavigne, age 64, was appointed CEO and Director on August 1, 2020.
Mr. Lavigne has been involved in the mining industry since 1975, when he worked underground for Hecla Mining Company. After completing law school, Mr. Lavigne started a registered broker-dealer specializing in mining and resource companies. He was a member and on the board of directors for the Spokane Stock Exchange and was involved in a number of financings for exploration-stage companies. Mr. Lavigne has served in management and board positions for a number of exploration companies with projects in Idaho, Montana, Nevada, Utah, Wyoming and Alaska. Additionally, Mr. Lavigne is owner and Managing Partner of Capital Peak Partners, LLC, which provides consulting services in the area of corporate and business development to a number of mining companies. Mr. Lavigne received his BA in Accounting from the University of Idaho and JD from the Gonzaga University School of Law.
Deepak Malhotra, age 72, was appointed Director on September 1, 2020.
Dr. Malhotra, age 72, is a world-renowned processing expert, with over 48 years of mining industry experience, with expertise in process design, process development, plant auditing and troubleshooting, detailed engineering, and capital and operating cost management. His process work with mining organizations worldwide has led to the commercialization of about 15 plants, with capital ranging from $50 million to $750 million.
After working for AMAX Inc. for 17 years, Dr. Malhotra founded Resource Development Inc. (RDI), a metallurgical testing and consulting company, in 1990. His clients include World Bank/IFC, international financial institutions, mining companies, and governments. The consulting business of RDI was later spun off as an independent company, Pro Solv Consulting LLC, where Dr. Malhotra is currently serving as President.
Dr. Malhotra has a Ph.D. in Mineral Economics (1978) and M.S., Metallurgical Engineering (1973) from the Colorado School of Mines and B.S., Metallurgical Engineering (1970) from the Indian Institute of Technology. He is a Registered Member of Society of Mining Engineers, Member of Canadian Institute of Mining and Metallurgical Engineering, and a Qualified Person (QP) under National Instrument 43-101 in Canada. He has been awarded the Gaudin Award and Arthur C. Daman Lifetime Achievement Award by the Society of Mining and Metallurgy and Exploration Engineers. Dr. Malhotra is also currently Director at Canarc Resource Corp. and Cardero Resource Corp., and Consultant at RDI. He holds four patents and has published over 80 articles and edited several books.
Involvement in Certain Legal Proceedings
During the last 10 years, none of our directors or officers has:
a. had 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;
b. been convicted in a criminal proceeding or subject to a pending criminal proceeding;
c. been 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
d. been found by a court of competent jurisdiction in a civil action, the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Family Relationships
No family relationships exist among our directors. Additionally, there do not exist any arrangements or understandings between any director and any other person pursuant to which any director was elected as such.
Director Independence
Our common stock is listed on the OTC.QB of the OTC Markets Group, Inc. inter-dealer quotation systems, which does not have director independence requirements. Nevertheless, for purposes of determining director independence, we have applied the definition set forth in NASDAQ Rule 4200(a)(15). One of our four directors is an officer of the corporation and is not considered independent.
Board Meetings
During the years ended December 31, 2019 and 2020, our Board members engaged in frequent informal discussions; and all Board actions have been undertaken by unanimous written consent.
Committees of the Board of Directors
We currently do not have standing audit, compensation or nominating committees of the Board of Directors. We plan to form audit, compensation and nominating committees when it is necessary to do so to comply with federal securities laws or to meet listing requirements of a stock exchange or the Nasdaq Capital Market.
Compliance with Section 16(a), Beneficial Ownership
Under the Securities Laws of the United States, our directors, executive (and certain other) officers, and any persons holding more than ten percent (10%) of our common stock during any part of our most recent fiscal year are required to report their ownership of common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established and we are required to report in this Report any failure to file by these dates. During the year ended December 31, 2020, all of these filing requirements were satisfied by our officers, directors, and ten-percent holders except that Mr. Power failed to file one report covering one transaction in a timely fashion. In making these statements, we have relied on the written representation of our directors and officers or copies of the reports that they have filed with the Commission.
Code of Ethics
We have adopted a Code of Ethics that apples to, among other persons, our company’s principal executive officer, as well as persons performing similar functions. As adopted, our Code of Ethics sets forth written guidelines to promote:
· honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
· full, fair, accurate, timely and understandable disclosure in all reports and documents that we file with, or submit to, the SEC and in other public communications made by us that are within the executive officer’s area of responsibility;
· compliance with applicable governmental laws, rules and regulations;
· the prompt internal reporting of violations of the Code; and
· accountability for adherence to the Code.
Our Code of Ethics is on file with the SEC. We will provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent to: Magellan Gold Corporation, 602 Cedar St., Ste. 205, Wallace, ID 83873.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
Our directors receive no compensation for their services as director.
Executive Compensation
The following table sets forth all compensation paid to our Named Executive Officers for the years ended December 31, 2020 and 2019 :
SUMMARY COMPENSATION TABLE
Salary
Bonus
Stock Awards
Option Awards
Non equity Incentive Plan Compensation
Nonqualified Deferred Compensation Earnings
All Other Compensation
Total
Name and Principal Position
Year
($)
($)
($)
($)
($)
($)
($)
($)
Michael Lavigne CEO and Director
2020 (partial)
-
-
84,500
-
-
-
-
84,500
John Power
CFO and Director
2020 (partial)
-
-
-
-
-
-
-
-
2019 (partial)
-
-
-
-
-
-
-
-
Employment Agreements
2017 Equity Incentive Plan
We have not adopted any equity compensation or stock option plans, except as follows:
The Board of Directors of the Company concluded, in order to attract and hire key technical personnel and management as our Company grows, it will be necessary to offer option packages in order to compete effectively with other companies seeking the support of these highly qualified individuals. After careful consideration, the Board recommended the approval of the Company’s 2017 Equity Incentive Plan as being in the best interests of Stockholders.
Effective September 1, 2017, the 2017 Equity Incentive Plan was approved by written consent of stockholders holding 75% of the Company’s outstanding common stock, and was adopted by the Board of Directors. The Company is authorized to grant rights to acquire up to a maximum of 200,000 shares of common stock under the Plan. The Plan is authorized to grant incentive stock options that qualify under Section 422 of the Internal Revenue Code of 1986, as amended.
The 2017 Plan provides for the grant of (1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation rights (collectively, "Stock Awards"). Incentive stock options granted under the 2017 Plan are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code. Nonstatutory stock options granted under the 2017 Plan are intended not to qualify as incentive stock options under the Code.
As of the date of this Annual Report, there have been no grants made under the Plan.
Indemnification of Directors and Officers
Nevada Revised Statutes provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Nevada Revised Statutes also provide that to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense.
Our Articles of Incorporation authorize us to indemnify our directors and officers to the fullest extent permitted under Nevada Revised Statutes. Our bylaws set forth the procedures that must be followed in order for directors and officers to receive indemnity payments from us.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to beneficial ownership of our common stock by:
* each person who beneficially owns more than 5% of our common stock;
* each of our executive officers named in the Management section;
* each of our directors; and
* all executive officers and directors as a group.
The following table shows the number of shares owned and the percentage of outstanding common stock owned as of April 9, 2021. Each person has sole voting and investment power with respect to the shares shown, except as noted.
Name and Address of Beneficial Owner (1)
Amount and Nature of Beneficial Ownership (2)
Ownership as a Percentage of Outstanding Common Shares (3)
John Gibbs
807 Wood N Creek
Ardmore, OK 73041
3,899,359 (4)
51.00%
John C. Power
664,423 (5)
8.71%
Michael Lavigne
Mark Rodenbeck
nil
Greg Schifrin
750,000
9.83%
Deepak Malhotra
250,000 (6)
3.28%
Stephen Calandrella
6547 N. Academy Blvd.
Colorado Springs, CO 80918
455,195
5.97%
Ronald and Paula Lavigne
PO Box 698
Osburn, ID 83809
573,560
7.52%
W. Pierce Carson
PO Box 831
Cedar Crest, NM 87008
390,580
5.12%
All officers and directors as a group
(four persons)
1,000,000
13.11%
(1) Unless otherwise stated, address is 602 Cedar St., Ste. 205, Wallace, ID 83873
(2) Under SEC Rules, we include in the number of shares owned by each person, the number of shares issuable under outstanding options or warrants if those options or warrants are exercisable within 60 days of the date of this Annual Report. In calculating percentage ownership, we calculate the ownership of each person who owns exercisable options by adding (i) the number of exercisable options for that person only to (ii) the number of total shares outstanding and dividing that result into (iii) the total number of shares and exercisable options owned by that person.
(3) Shares and percentages beneficially owned are based upon 7,626,599 shares outstanding on April 9, 2021.
(4)
Includes 1,802,739 shares owned individually, warrant exercisable to purchase 95,000 shares of Common Stock at $0.20 per share, Series A Preferred Shares convertible into a total of 1,991,290 shares of Preferred Stock (excluding any future accrued interest that may be convertible), 1,000 shares owned by Redwood Microcap Fund, Inc. controlled by Mr. Gibbs. and 9,330 shares owned by Tri Power Resources, Inc., controlled by Mr. Gibbs.
(5) Includes 238,019 shares owned individually, Series A Preferred Shares convertible into 401,404 shares of Common Stock, and Series A Preferred Shares held by Lambeau Financial, LLC of which Mr. Power is a Control Person, convertible into 25,000 shares of Common Stock.
(6) Includes 50,000 shares owned individually and a warrant exercisable to purchase 250,000 shares of Common Stock at $0.20 per share.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Except as disclosed herein, there have been no transactions or proposed transactions in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years in which any of our directors, executive officers or beneficial holders of more than 5% of the outstanding shares of our common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest.
Management Fees
The Company previously maintained a month-to-month management agreement with Mr. Power requiring a monthly payment, in advance, of $2,500 as consideration for his services as CFO to Magellan. Effective August 31, 2017, Mr. Power resigned as CFO and Secretary of the Company and was replaced by Michael P. Martinez on September 18, 2017 to serve as CFO, Secretary and Treasurer.
Management fees to Mr. Martinez for the years ended December 31, 2020 and 2019, are $0 and $4,500, respectively. These fees are included in general and administrative expenses in our consolidated statements of operations and comprehensive loss. At December 31, 2020 and 2019, $0 and $7,000 of the fees had not been paid and are included in accounts payable on the accompanying consolidated balance sheets.
Accrued Interest - Related Parties
Accrued interest due to related parties is included in our consolidated balance sheets as follows:
December 31, 2020 December 31, 2019
Accrued interest payable - Mr. Gibbs $ 2,597 $ -
Accrued interest payable - Dr. Carson
Accrued interest payable - Mr. Schifrin 1,880 -
Accrued interest payable - Mr. Malhotra -
$ 5,470 $ 752
Advances Payable - Related Party
We borrowed and repaid non-interest bearing advances from/to related parties as follows:
Year Ended December 31, 2020
Advances Repayments
Mr. Power $ 15,830 $ (156,011 )
Mr. Schifrin 10,000 -
Mr. Gibbs 20,000 -
Totals $ 45,830 $ (156,011 )
Year Ended December 31, 2019
Advances Repayments
Mr. Power $ 130,455 $ (222,709 )
Mr. Carson 352,000 -
Totals $ 482,455 $ (222,709 )
During the year ended December 31, 2020, Mr. Gibbs advanced $20,000 and Mr. Schifrin advanced $10,000 to the Company. During the year ended, Mr. Power advanced $15,830 cash and paid expenses using his personal credit card on behalf of the Company of $118,384, and the Company made repayments to Mr. Power and/or his credit card of $156,011. On May 31, 2020, the Company issued 475,000 shares of common stock to Mr. Gibbs with a fair value of $332,500 for the settlement of advances in the amount of $95,000, resulting in a loss on settlement of $237,500. In addition, the Company issued 475,000 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share. The Company recognized an additional $288,046 loss related to the issuance of warrants for the settlement of liabilities. Amounts due to related parties was $47,762 and $134,559 as of December 31, 2020 and December 31, 2019, respectively.
Notes Payable - Related Parties
On May 31, 2017 we entered into three short-term notes with Mr. Gibbs, Dr. Carson and Mr. Power in the principal amounts of $100,000, $25,000 and $25,000, respectively. The notes bear interest at 6% and matured on November 15, 2017. The note balances were subsequently rolled into the Series 2017 Notes. A total of $752 of interest is accrued on these notes as of December 31, 2020 and December 31, 2019, respectively.
On November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes. During the year ended December 31, 2019, a total of $57,750 of additional fees were added to the principal amount and recorded as a discount to the notes related of an extension of the maturity date to December 31, 2019. Of the additional fees $52,250 was related to the related party portion of these notes and $5,500 was related to their third party portion. The balance on these notes, net of discount of $0, was $1,069,376 as of December 31, 2019. During the year ended December 31, 2019 $ 57,750 of debt discount related to the above notes was amortized to interest expense. The notes are secured by a stock pledge agreement covering 100% of the outstanding common stock of Magellan Acquisition Corporation, bear interest at 10%.
The total of portion of the Series 2017 Notes from related parties totaled $1,045,000, including financing fees of $95,000 recorded as discount to the notes. Mr. Gibbs, Dr. Carson, and Mr. Power transferred $100,000, $25,000, and $25,000, respectively, from the May 31, 2017 short term related party notes into the Series 2017 Notes.
The Series 2017 Notes were in default as of December 31, 2019. Consequently, on March 31, 2020, the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with the holders of the Series 2017 Notes (the “Lenders”) due December 31, 2019 in the aggregate principal amount of $1.14 million. The Company is indebted under the Series 2017 Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of MAC and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. MAC and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Series 2017 Notes matured on December 31, 2019 and remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Series 2017 Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020
Line of Credit - Related Party
Effective December 31, 2012, we entered into a line of credit arrangement with John D. Gibbs, a significant investor, to facilitate timely cash flows for the Company’s operations. The line of credit originally provided for a maximum balance of $250,000, accrued interest at 6% annually, and matured on December 31, 2014.
On December 31, 2013 we amended our credit agreement with Mr. Gibbs to increase the borrowing limit under the line of credit to $750,000. All other terms of the credit agreement, including the interest rate and maturity date remained unchanged.
On December 31, 2014, we again amended the credit agreement to increase the borrowing limit to $900,000 and extend the maturity date to December 31, 2015. As part of the 2014 amendment and the subsequent appointment of Dr. Pierce Carson as the President, CEO and Director of G+W effective June 1, 2015, we had pledged all of our 85% equity interest in G+W, which owned the Silver District properties, as security for all amounts outstanding under the credit agreement. In July 2016, we completed a share exchange with Dr. Carson to re-acquire the 15% interest in G+W, and therefore at December 31, 2017 our entire 100% interest in G+W was pledged as security for outstanding amounts under this credit agreement.
On December 31, 2015 we again amended the credit agreement to increase the borrowing limit to $1,000,000 and extended the maturity date to December 31, 2016. Finally, on March 31, 2017 with an effective date of December 31, 2016 we again amended the credit agreement to extend the maturity date to December 31, 2018 and later extended to March 31, 2019. In April 2019 this credit facility was extended until December 31, 2019 in exchange for a fee equal to 2% of the outstanding balance. All other terms of the agreement were unchanged. The 2% fee of $17,050 was recorded as a debt discount and fully amortized with settlement of debt in September 2019.
In 2018, $20,000 was received under this agreement. During the same period Mr. Gibbs converted $100,000 of the outstanding balance on the line of credit into 100,000 shares of common stock at $1.00 per share.
In September 2019, the Company established a Series A Convertible Preferred Stock (“Series A Preferred Stock”) to convert debt by and between the Company. The Company authorized an aggregate 2,500,000 shares of Series A Preferred Stock to be issued.
At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $1,174,188 to settle the outstanding line of credit balance including accrued interest. See Note 10.
The outstanding balance under the line of credit was $0 at December 31, 2019. In addition, no interest was accrued on this obligation and is included in accrued interest - related parties on the accompanying consolidated balance sheets at December 31, 2019.
10% Unsecured Convertible Note
On October 1, 2019, the Company issued a 10% Unsecured Convertible Note in the principal amount of $145,977.65 to evidence accrued and unpaid legal fees owed to the Company’s attorney. The note is due on demand, and is convertible into shares of common stock at a conversion price of $1.00 per share.
Gulf + Western Industries.
Effective July 1, 2020, Magellan Gold Corporation, a Nevada corporation (the “Company”), executed a Stock Purchase Agreement with Tripower Resources, Inc. (“Tripower”) pursuant to which the Company sold 100% of the issued and outstanding stock of its wholly-owned subsidiary Gulf + Western Industries, Inc. (“GW”) in consideration of the surrender for cancellation of an aggregate of 50,000 shares of Series A Preferred Stock owned by John Gibbs, who is a control person of Tripower. GW owns a portfolio of mining claims comprising the Silver District Project in Arizona.
Deferred Compensation
On June 1, 2016 we executed an employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, and effective June 30, 2016, Dr. Carson was appointed a Director of Magellan. The term of the agreement covered the period from June 1, 2016 to May 31, 2017 and is subject to annual renewal. The agreement has subsequently been renewed each year and is currently effective from June 1, 2018 to May 31, 2019, with all terms of the original agreement remaining unchanged.
During the term of the agreement, Magellan agreed to pay Dr. Carson a base salary in equal semi-monthly installments less required withholding and other applicable taxes. Dr. Carson’s salary was set at $6,667 per month during the three-month period from June 1, 2016 through August 31, 2016, and thereafter at $10,000 per month.
In June 2019, Dr. Carson resigned as the President and Chief Executive Officer of Magellan Gold Corporation. Dr. Carson also resigned from all other positions with the Company and its affiliates and subsidiaries.
At December 31, 2019 a total of $110,000 and $18,469 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities on the accompanying consolidated balance sheets.
Director Independence
Our common stock is not listed on a national securities exchange or inter-dealer quotation system. Under NASDAQ Rule 5605(a)(2) and Item 407(a) of Regulation S-K, a director is not considered to be independent if he or she is also an executive officer of the corporation. Our director is considered an executive officer under Rule 3b-7 of the Exchange Act. Therefore, our director is not independent.
As a result of our limited operating history and minimal resources, we believe that we will have difficulty in attracting independent directors. In addition, we would likely be required to obtain directors’ and officers’ insurance coverage in order to attract and retain independent directors. We believe that the costs associated with maintaining such insurance is prohibitive at this time.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
We understand the need for our principal accountants to maintain objectivity and independence in their audit of our financial statements. To minimize relationships that could appear to impair the objectivity of our principal accountants, our Board of Directors has restricted the non-audit services that our principal accountants may provide to us primarily to tax services and audit-related services. We are only to obtain non-audit services from our principal accountants when the services offered by our principal accountants are more effective or economical than services available from other service providers, and, to the extent possible, only after competitive bidding. These determinations are among the key practices adopted by the Board of Directors. Our Board has adopted policies and procedures for pre-approving work performed by our principal accountants.
The aggregate fees billed for the fiscal years 2020 and 2019 for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by our accountants in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Audit fees - audit of annual financial statements and review of financial statements included in our quarterly reports, services normally provided by the accountant in connection with statutory and regulatory filings $ 50,000 $ 55,000
Audit-related fees - related to the performance of audit or review of financial statements not reported under "audit fees" - -
Tax fees - tax compliance, tax advice and tax planning 4,500 5,600
All other fees - services provided by our principal accountants other than those identified above - -
Total fees $ 54,500 $ 60,600
After careful consideration, the Board of Directors has determined that payment of the audit fees is in conformance with the independent status of our principal independent accountants.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Ex. No. Title
(1) 3.1 Certificate of Incorporation filed September 28, 2010
(1) 3.2 Bylaws
(4) 3.3 Amended and Restated Bylaws
(6) 3.4 Second Amended and Restated Bylaws
(1) 4.1 Specimen Common Stock Certificate
(1) 10.1 Cowles’ Option and Mining Lease
(1) 10.2 Mining Lease - Randall Claims
(1) 10.3 Assignment of Randall Mining Lease Agreement
(1) 10.4 Mining Lease - Secret Claims
(1) 10.5 Consulting Agreement
(2) 10.6 Promissory Note Dated August 23, 2011, in favor of John C. Power
(2) 10.7 Promissory Note Dated August 23, 2011, in favor of John D. Gibbs
(3) 10.8 First Amendment to Mining Lease - Secret Claims
(3) 10.9 Second Amendment to Mining Lease - Randall Claims
(5) 10.10 Promissory Note Dated February 28,2012, in favor of John D. Gibbs
(7) 10.11 Third Amendment to Mining Lease - Randall Claims
(8) 10.12 Option Agreement - Columbus Silver
(9) 10.13 Amendment No. 1 to Promissory Note in favor of John C. Power
(10) 10.14 Credit Agreement dated December 31, 2012 in favor of John D. Gibbs
(11) 10.15 Amendment No. 1 to Silver District Option Agreement
(12) 10.16 Allonge and Modification Agreement with John D. Gibbs
(13) 10.17 Promissory Note in favor of John Power
(14) 10.18 Silver District / Columbus Silver Purchase Agreement
(14) 10.19 Promissory Note in favor of Clifford Neuman
(15) 10.20 Second Allonge and Modification Agreement with John D. Gibbs
(16) 10.21 Employment Agreement - W. Pierce Carson
(17) 10.22 Employment Agreement - W. Pierce Carson (Magellan)
(18) 10.23 Agreement and Plan of Merger
(19) 10.24 Mining Option Agreement
(19) 10.25 Lock-Up/Voting Trust Agreement
(19) 10.26 Intuitive Pty, Ltd. Agreement
(19) 10.27 Mining Clip LLC Agreement
(19) 10.28 Promissory Note
(20) 10.29 Memorandum of Understanding
(7) 14.1 Code of Ethics
(21) 10.30 Consulting Agreement
(21) 10.31 Promissory Note in favor of W. Pierce Carson
(21) 10.32 Promissory Note in favor of John Power
(21) 10.33 Promissory Note in favor of John Gibbs
(22) 10.34 Promissory Note in favor of John Power
(22) 10.35 Stock Pledge Agreement
(23) 10.36 Amendment No. 1 to Memorandum of Understanding
(24) 10.37 Stock Purchase Agreement
(25) 10.38 Confirmation Letter
(26) 10.39 Amendment to Stock Purchase Agreement
(27) 10.40 Certificate of Amendment
(28) 10.41 Securities Purchase Agreement
(28) 10.42 Promissory Note
(29) 10.43 Securities Purchase Agreement
(29) 10.44 Promissory Note
(30) 10.45 Interim Milling Agreement
(31) 10.46 Amendment No. 2 to Stock Purchase Agreement
(31) 10.47 Closing Escrow Agreement
(31) 10.48 Form of Secured Note
(31) 10.49 Form of Stock Pledge Agreement
(31) 10.50 Form of Security Agreement
(31) 10.51 Form of Collateral Agent Agreement
(32) 10.52 Termination Agreement
(33) 10.53 Combined financial statements of SDA Mill as of and for the periods ended November 30, 2017 and December 31, 2016
(33) 10.54 Magellan Gold Corporation Unaudited Pro Forma Condensed Combined Financial Information
(34) 10.55 Amendment No. 1 to EMA Financial Note
(35) 10.56 Amendement No. 1 to Auctus Fund Note
(36) 10.57 Agreement to Convert Debt
(37) 10.58 Restricted Stock Award Agreement
(38) 10.59 Convertible Promissory Note
(39) 10.60 Securities Purchase Agreement
(40) 10.61 Agreement for Exploration
(41) 10.62 Amendment to Agreement for Exploration
(42) 10.63 EMA Amendment
(43) 10.64 Auctus Amendment
(44) 10.65 Promissory Note
(45) 10.66 Securities Purchase Agreement
(46) 10.67 Amendment No. 1 Convertible Promissory Note
(47) 10.68 Letter Agreement
(48) 10.69 Form of 10% Convertible Promissory Note - Note Offering
(49) 10.70 Form of 36% Convertible Promissory Note - Bridge Note Offering
(50) 10.71 Restricted Stock Unit Agreement
(51) 10.72 Deferred Compensation and Equity Award Plan
(52) 10.73 Certificate of Designations - Series A Convertible Preferred Stock
(53) 10.74 Option to Purchase Agreement
(54) 10.75 Letter of Intent
(55) 10.76 Agreement to Accept Collateral in Full Satisfaction of Obligations
(56) 10.77 Share Purchase Agreement
(57) 10.78 Promissory Note
(58) 10.79 Stock Pledge Agreement
(59) 10.80 Security Agreement
(60) 10.81 Stock Purchase Agreement
(61) 10.82 Restricted Stock Unit Agreement
(62) 10.83 Restricted Stock Unit Agreement
* Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
* Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance*
101.SCH XBRL Taxonomy Extension Schema**
101.CAL XBRL Taxonomy Extension Calculation**
101.DEF XBRL Taxonomy Extension Definition**
101.LAB XBRL Taxonomy Extension Labels**
101.PRE XBRL Taxonomy Extension Presentation**
(1) Incorporated by reference as an Exhibit to Form S-1 as filed with the Commission on May 18, 2011.
(2) Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on August 25, 2011.
(3) Incorporated by reference as an Exhibit to Quarterly Report on Form 10-Q as filed with the Commission on November 14, 2011.
(4) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on February 7, 2012.
(5) Incorporated by reference as an Exhibit to Current Report on Form 8-K/A-1 as filed with the Commission on March 29, 2012.
(6) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on March 30, 2012.
(7) Incorporated by reference as an Exhibit to Annual Report on Form 10-K as filed with the Commission on March 30, 2012.
(8) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 30, 2012.
(9) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on February 4, 2013.
(10) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on February 4, 2013.
(11) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 23, 2013.
(12) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on January 2, 2014.
(13) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on April 29, 2014.
(14) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on October 2, 2014.
(15) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on February 3, 2015.
(16) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on June 11, 2015.
(17) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on June 2, 2016.
(18) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on July 27, 2016.
(19) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on October 27, 2016.
(20) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on March 7, 2017.
(21) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on June 20, 2017.
(22) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on July 21, 2017.
(23) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 1, 2017.
(24) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on September 12, 2017.
(25) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on October 11, 2017.
(26) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on October 18, 2017.
(27) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on October 30, 2017.
(28) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on November 6, 2017.
(29) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on November 7, 2017.
(30) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on November 8, 2017.
(31) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on December 6, 2017.
(32) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on January 10, 2018.
(33) Incorporated by reference as an Exhibit to Current Report on Form 8-K/A as filed with the Commission on April 24, 2018.
(34) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on June 19, 2018.
(35) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on June 19, 2018.
(36) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on July 30, 2018.
(37) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on July 30, 2018.
(38) Incorporated by reference as an Exhibit to Current Report on Form 8-K/A as filed with the Commission on August 1, 2018.
(39) Incorporated by reference as an Exhibit to Current Report on Form 8-K/A as filed with the Commission on August 1, 2018.
(40) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 20, 2018.
(41) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 20, 2018.
(42) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 24, 2018.
(43) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 24, 2018.
(44) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 24, 2018.
(45) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on August 24, 2018.
(46) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on September 5, 2018.
(47) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on September 25, 2018.
(48) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on November 6, 2018.
(49) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on November 6, 2018.
(50) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on June 26, 2019.
(51) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on June 26, 2019.
(52) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on October 7, 2019.
(53) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on October 18, 2019.
(54) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on January 15, 2020.
(55) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on May 7, 2020.
(56), (57), (58), (59) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on July 20, 2020.
(60), (61) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on July 30, 2020.
(62) Incorporated by reference as an Exhibit to Current Report on Form 8-K as filed with the Commission on November 12, 2020.
* Filed herewith.
** Furnished, not filed.
MAGELLAN GOLD CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND
MAGELLAN GOLD CORPORATION
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Shareholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Magellan Gold Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Magellan Gold Corporation and its subsidiary (collectively, the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2011.
Houston, Texas
April 15, 2021
MAGELLAN GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2020 December 31, 2019
ASSETS
Current assets
Cash $ - $ 167
Prepaid expenses and other current assets 2,168 18,667
Current assets of discontinued operations - 42,379
Total current assets 2,168 61,213
Mineral rights and properties 1,000,000 -
Development costs 112,968 -
Other assets of discontinued operations - 1,464,070
Total assets $ 1,115,136 $ 1,525,283
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 195,951 $ 105,792
Accounts payable - related party 25,139 -
Accrued liabilities 618,480 280,870
Convertible note payable, net - related party 119,435 -
Convertible note payable, net - third party 420,978 373,395
Accrued interest - related parties 5,470
Accrued interest 35,015 25,305
Advances payable - related party 47,762 134,559
Advances payable - third party 10,000 32,500
Current liabilities of discontinued operations - 1,602,466
Total current liabilities 1,478,230 2,555,639
Long term liabilities:
Long term liabilities of discontinued operations - 130,735
Total liabilities 1,478,230 2,686,374
Commitments and contingencies
Shareholders' deficit:
Preferred shares, 25,000,000 shares
Series A preferred stock - $10.00 stated value; 2,500,000 authorized; 192,269 and 242,269 shares issued and outstanding, respectively 1,922,690 2,422,690
Series B preferred stock - $1,250.00 stated value; 5,000 authorized; none shares issued and outstanding - -
Common shares, $0.001 par value; 1,000,000,000 shares authorized; 7,098,394 and 3,651,042 shares issued and outstanding, respectively 7,099 3,651
Additional paid-in capital 13,540,086 8,383,929
Accumulated other comprehensive loss - (68,636 )
Accumulated deficit (15,832,969 ) (11,902,725 )
Shareholders' equity deficit: (363,094 ) (1,161,091 )
Total liabilities and shareholders' deficit $ 1,115,136 $ 1,525,283
See accompanying notes to the consolidated financial statements
MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years Ended
December 31,
Operating expenses:
General and administrative expenses $ 1,175,110 $ 1,008,917
Total operating expenses 1,175,110 1,008,917
Loss from continuing operations 1,175,110 1,008,917
Other income (expense):
Interest expense (424,858 ) (526,273 )
Other income 26,980 -
Loss on extinguishment of debt - (3,151,314 )
Loss on settlement of liabilities (2,110,047 ) -
Gain on change in fair value - 12,457
Total other income (expense) (2,507,925 ) (3,665,130 )
Net loss from continuing operations (3,683,035 ) (4,674,047 )
Net loss from discontinued operations, net of tax (31,599 ) (461,753 )
Net loss (3,714,634 ) (5,135,800 )
Series A preferred stock dividend (215,610 ) (60,401 )
Net loss attributable to common shareholders (3,930,244 ) (5,196,201 )
Other comprehensive income:
Foreign currency translation 68,636 40,222
Total other comprehensive income 68,636 40,222
Net comprehensive loss $ (3,861,608 ) $ (5,155,979 )
Basic and diluted net loss per common share:
Continuing operations $ (0.73 ) $ (1.35 )
Discontinued operations $ (0.01 ) $ (0.13 )
Net loss attributable to common shareholders $ (0.74 ) $ (1.48 )
Basic and diluted weighted-average:
common shares outstanding 5,328,740 3,519,308
See accompanying notes to the consolidated financial statements
MAGELLAN GOLD CORPORATION
Consolidated Statements of Shareholders' Deficit
For the years ended December 31, 2020 and 2019
Additional Accumulated Other
Series A Preferred Stock Common Stock Paid - in Comprehensive Accumulated
Shares Amount Shares Par Value Capital Income (Loss) Deficit Total
Balance, December 31, 2018 - $ - 3,264,752 $ 3,265 $ 4,310,699 $ (108,858 ) $ (6,706,524 ) $ (2,501,418 )
Sales of common stock and warrants - - 30,000 29,970 - - 30,000
Stock issued for services - - 237,000 398,363 - - 398,600
Stock and warrants issued for liabilities 242,269 2,422,690 46,692 3,312,153 - - 5,734,890
Stock issued for deemed dividend - - 45,559 (45 ) - - -
Conversion of debt - - 27,039 27,012 - - 27,039
Debt discount from warrants and beneficial conversion feature - - - - 280,978 - - 280,978
Stock based compensation - - - - 24,799 - - 24,799
Series A preferred stock dividend - - - - - - (60,401 ) (60,401 )
Net loss - - - - - - (5,135,800 ) (5,135,800 )
Other comprehensive loss - - - - - 40,222 - 40,222
Balance, December 31, 2019 242,269 2,422,690 3,651,042 3,651 8,383,929 (68,636 ) (11,902,725 ) (1,161,091 )
Stock and warrants issued for cash - - 155,000 38,345 - - 38,500
Stock issued for services - - 500,000 344,250 - - 344,750
Stock based compensation - - - - 290,171 - - 290,171
Stock and warrants issued for liabilities - - 773,770 962,774 - - 963,548
Stock and warrants issued for convertible notes and accrued interest - - 1,268,582 1,269 1,639,744 - - 1,641,013
Stock issued for purchase of Clearwater Gold Mining Corp - - 750,000 849,250 - - 850,000
Debt discount from warrants and beneficial conversion feature - - - - 324,763 - - 324,763
Series A preferred stock dividend - - - - - - (215,610 ) (215,610 )
Disposition of assets, related party - - - - 206,860 - - 206,860
Preferred shares returned and cancelled in exchange for Gulf + Western Industries Inc. (50,000 ) (500,000 ) - - 500,000 - - -
Net loss - - - - - - (3,714,634 ) (3,714,634 )
Other comprehensive income - - - - - 68,636 - 68,636
Balance, December 31, 192,269 $ 1,922,690 7,098,394 $ 7,099 $ 13,540,086 $ - $ (15,832,969 ) $ (363,094 )
See accompanying notes to the consolidated financial statements
MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
Operating activities:
Net loss from continuing operations $ (3,683,035 ) $ (4,674,047 )
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Accretion of discounts on notes payable 346,781 210,445
Stock based compensation 634,921 423,399
Loss on extinguishment of debt - 3,259,365
Loss on settlement of liabilities 2,153,183 -
Gain on change in fair value - (12,457 )
Changes in operating assets and liabilities:
Prepaid expenses and other assets 16,499 (18,667 )
Accounts payable and accrued liabilities 318,796 427,218
Accounts payable - related party 30,000 30,000
Accrued interest 46,052 132,774
Net cash used in operating activities from continuing operations (136,803 ) (221,970 )
Net cash used in operating activities from discontinued operations (51,491 ) (207,034 )
Net cash used in operating activities (188,294 ) (429,004 )
Investing activities:
Cash paid for development costs (101,328 ) -
Cash paid for mineral rights (12,500 ) -
Net cash used in investing activities from continuing operations (113,828 ) -
Net cash used in investing activities from discontinued operations - (75,000 )
Net cash used in investing activities (113,828 ) (75,000 )
Financing activities:
Payments on convertible debt from third parties (10,000 ) -
Proceeds from convertible debt from third parties 235,000 135,000
Proceeds from convertible debt from related parties 60,000 -
Proceeds from advances from related parties 45,830 482,455
Payments on advances from related parties (156,011 ) (222,709 )
Proceeds from advances from third parties 20,000 32,500
Proceeds from sale of common stock and warrants 38,500 30,000
Net cash provided by financing activities from continuing operations 233,319 457,246
Net cash provided by financing activities from discontinued operations - -
Net cash provided by financing activities 233,319 457,246
Effect of foreign currency exchange 68,636 42,489
Net change in cash (167 ) (4,269 )
Cash at beginning of period 4,436
Cash at end of period $ - $ 167
Supplemental disclosure of cash flow information
Cash paid for interest $ 3,250 $ -
Cash paid for income taxes $ - $ -
Non-cash financing and investing activities:
Series A preferred stock dividend $ 215,610 $ 60,401
Expenses paid by related party credit cards $ 118,384 $ 195,499
Common stock and warrants issued for the settlement of liabilities $ 137,500 $ 54,652
Additions of assets under operating lease obligations $ - $ 6,968
Preferred stock issued for settlement of liabilities $ - $ 2,420,873
Transfer of investment to related party for settlement of liabilities $ - $ 83,066
Deemed dividend on true-up share issuance $ - $ 45
Disposition of assets, related party $ 206,860 $ -
Conversion of debt and accrued interest $ 296,624 $ 27,039
Debt discount from warrants and beneficial conversion feature $ 324,763 $ 280,978
Common stock issued for accounts payable $ 17,254 $ -
Convertible note issued to settle accounts payable $ - $ 145,978
Preferred stock returned and cancelled $ 500,000 $ -
Noncash consideration for purchase of Clearwater Gold Mining Corp $ 987,500 $ -
Noncash consideration for development costs $ 11,640 $ -
See accompanying notes to the consolidated financial statements
MAGELLAN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Nature of Operations
Organization and Nature of Operations
Magellan Gold Corporation (“we” “our”, “us”, the “Company” or “Magellan”) was incorporated on September 28, 2010, under the laws of the State of Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which we have mining rights contain mineral reserves that are economically recoverable.
On January 3, 2019, the Financial Industry Regulatory Authority (“FINRA”) informed Magellan Gold Corporation, a Nevada corporation (the “Company”) that a 1-for-50 reverse split of the Company’s common stock, previously disclosed in the Company’s Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2017, would be effective at the market open on January 7, 2019. The stock split has been retroactively adjusted throughout these financial statements and footnotes.
Our primary focus is to explore and develop mineral properties in the United States. Effective March 31, 2020, we divested our subsidiary holding all of our international assets and plan to advance our recently acquired Idaho Gold project towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities. Our mineral lease payments, permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any significant revenue.
Liquidity and Going Concern
Our consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At December 31, 2020, we had not yet generated any significant revenues or achieved profitable operations and we have accumulated losses of $15,832,969. We expect to incur further losses in the development of our business, all of which raises substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.
We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure than any future financings will occur.
Note 2 - Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
On July 1, 2020, the Company entered into a Stock Purchase Agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County, Idaho. The Company will be evaluating the historic mine data to assess the potential to develop a gold resource at Center Star. The project area is located 45 miles from Grangeville, Idaho and near the town of Elk City, Idaho.
On August 25, 2020, the Company, a new wholly owned subsidiary, M Gold Royalty (“M Gold”), to expand into the royalty business. M Gold Royalty will engage in organically generating royalties derived from a portfolio of mineral property interests in North America. Royalties from this portfolio will be complemented by royalties from selected acquisitions as well as income from other strategic investments.
Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Clearwater and M Gold. All intercompany transactions and balances have been eliminated. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the period presented.
We make our estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation, including the discontinued operations presentation resulting from the disposition of the Company’s Mexico operations in March 2020 and Gulf + Western Industries, Inc. in September 2020. See Note 4.
Recent Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Fair Value of Financial Instruments
We value our financial assets and liabilities using fair value measurements. Our financial instruments primarily consist of cash, prepaid expenses, other current assets, accounts payable, accrued liabilities, amounts due to related parties and notes payable to related parties. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount of cash, accounts payable, accrued liabilities, notes payable to related parties and other amounts due to related parties approximates fair value because of the short-term nature of these financial instruments.
Concentrations of Credit Risk
Our financial instruments which potentially subject us to credit risk are our cash and cash equivalents. We maintain our cash and cash equivalents at reputable financial institutions and currently, we are not exposed to significant credit risk.
Cash and Cash Equivalents
We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less to be cash equivalents at the date of purchase.
Related Parties
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Mineral Rights
We have determined that our mineral rights meet the definition of mineral rights, as defined by accounting standards, and are tangible assets. As a result, our direct costs to acquire or lease mineral rights are initially capitalized as tangible assets. Mineral rights include costs associated with: leasing or acquiring patented and unpatented mining claims; leasing mining rights including lease signature bonuses, lease rental payments and advance minimum royalty payments; and options to purchase or lease mineral properties.
If we establish proven and probable reserves for a mineral property and establish that the mineral property can be economically developed, mineral rights will be amortized over the estimated useful life of the property following the commencement of commercial production or expensed if it is determined that the mineral property has no future economic value or if the property is sold or abandoned. For mineral rights in which proven and probable reserves have not yet been established, we assess the carrying values for impairment at the end of each reporting period and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The net carrying value of our mineral rights represents the fair value at the time the mineral rights were acquired less accumulated depletion and any abandonment or impairment losses. Proven and probable reserves have not been established for mineral rights as of December 31, 2020. There were no Impairment charges recognized for during the years ended December 31, 2020 and 2019, respectively.
Impairment of Long-lived Assets and Mining Rights
We continually monitor events and changes in circumstances that could indicate that our carrying amounts of long-lived assets, including mineral rights, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flow. If the future undiscounted cash flow is less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.
Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation. Property and equipment is amortized on a straight-line basis over its estimated life:
· SDA Mill - 10 years
· Mill equipment - 10 years
· Tailings Dam - 10 years
· Office and Warehouse - 10 years
Comprehensive Income/Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive income/loss and its components in the financial statements. As of December 31, 2020 and 2019, the Company recognized $68,636 and $40,422 in comprehensive income related to foreign currency translation adjustments for the Mexico operations disposed in March 2020, respectively.
Notes Payable - Related Parties
Notes payable to related parties are classified as current liabilities as either the note holders have the ability to control the repayment dates of the notes or maturity dates are within one year of the reported balance sheet date.
Exploration Costs
Mineral exploration costs are expensed as incurred. When it has been determined that it is economically feasible to extract minerals and the permitting process has been initiated, exploration costs incurred to further delineate and develop the property are considered pre-commercial production costs and will be capitalized and included as mine development costs in our balance sheets.
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements and the effect of net operating losses based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. At December 31, 2020 and 2019, the Company had no uncertain tax positions.
Net Loss per Common Share
We compute basic net loss per common share by dividing our net loss attributable to common shareholders by our weighted-average number of common shares outstanding during the period. Computation of diluted net loss per common share adds the weighted-average number of potential common shares outstanding to the weighted-average common shares outstanding, as calculated for basic net loss per share, except for instances in which there is a net loss. For the year ended December 31, 2020, 1,858,635 of warrants, 192,269 shares issuable from Series A Preferred Stock and 990,978 shares issuable from convertible notes were considered for their dilutive effects. For the year ended December 31, 2019, 335,000 of warrants, 242,269 shares issuable from Series A Preferred Stock and 430,978 shares issuable from convertible notes were considered for their dilutive effects.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers, which was adopted on January 1, 2018 using the modified retrospective method, with no impact to the Company’s comparative financial statements. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:
· Identification of the contact with a customer
· Identification of the performance obligations in the contract
· Determination of the transaction price
· Allocation of the transaction price to the performance obligations in the contract
· Recognition of revenue when, or as, the Company satisfies a performance obligation
All of the Company’s revenue is currently generated from the sales of similar products. As such no further disaggregation of revenue information is provided.
Performance Obligations
Revenues are recognized when all the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has received the benefit of the services or when control of products has transferred to the end user. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If collectibility is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer or the services are completed. Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns. Shipping charges billed to customers are included in net sales. Various taxes on the sale of products and services to customers are collected by the Company as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted to the respective taxing authority.
Contract Costs
Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included within cost of goods and services.
Contract Liabilities
The Company may at times receive payment at the time the customer places an order or requests services. Amounts received for undelivered product are considered a contract liability and are recorded as deferred revenue. As of December 31, 2020 and 2019, the Company had no deferred revenue related to unsatisfied performance obligations included with accrued liabilities.
Stock-based Compensation
The Company determines the fair value of stock option awards granted to employees and nonemployees in accordance with FASB ASC Topic 718 - 10. Compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.
Note 3 - Mineral Rights and Properties
Center Star Gold Mine
On July 1, 2020, the Company entered into a Stock Purchase Agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County, Idaho that include the historic Center Star Gold Mine (“Center Star”) near Elk City, Idaho. As a result of the Clearwater acquisition, Gregory Schifrin, the sole shareholder of Clearwater, was appointed to serve as a member of the Company’s Board on July 1, 2020. In consideration for 100% of the issued and outstanding shares of Clearwater, the Company has agreed to pay Clearwater’s sole shareholder 1,000,000 shares of Magellan common stock, $125,000 convertible note and $25,000 in cash. The 1,000,000 shares are to be issued to the shareholder on and under the terms as follows: 250,000 shares at the time of closing, 250,000 shares at the time the Center Mine receives its permit to reopen the main portal of the mine, 250,000 shares at the point the main portal has been reopened and 250,000 shares two-years from closing concurrent the pay-off of the $125,000 convertible note. As of December 31, 2020, the total purchase price for the Clearwater was determined to be $1,000,000 which consisted of $12,500 cash paid, $12,500 accrued in accounts payable - related party, a $125,000 convertible promissory note, and 1,000,000 shares of common stock with a fair value of $850,000. The Company concluded the transaction qualified as an asset acquisition and all such acquisition costs have been capitalized.
During the year ended December 31, 2020, the Company has paid $77,916 and accrued $35,052 in capitalized development cost to develop gold resources at Center Star.
Silver District
In August 2012, we entered into an option agreement with Columbus Exploration f/k/a Columbus Silver Corporation, which granted us the right to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. We paid Columbus an initial $63,200 on signing of the option and a further $50,000 in December 2012. We paid other patented and unpatented mining claim purchase and lease obligations in 2013 and 2014 to maintain the project claims and leases in good standing. On December 31, 2014, we paid an additional $100,000 to Columbus Exploration to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. The properties acquired from Columbus were assigned into our subsidiary Gulf+Western Industries, Inc. and our total acquisition cost capitalized was $323,200.
The Silver District property consists of 110 unpatented lode and mill site mining claims, six patented lode claims, and an Arizona State Exploration Permit, all of which are held directly or under lease agreements, totaling over 2,000 acres. Certain of the claims are subject to third party net smelter royalties and/or net profits of varying percentages.
On July 9, 2015, G+W entered into two Lease and Purchase Agreements (“Agreements”) with an individual that grant the Company certain exploration and mining rights for two patented lode claims located in the Silver District, La Paz County, Arizona. The Agreements provide for scheduled variable annual advance minimum royalty payments to the lessor. In addition, the Agreements have an initial term of 20 years, and provide for the purchase of the properties for $125,000 each during the term of the lease, net of any advance royalty payments made up to the date of the purchase. The Company paid the initial advance royalty payments totaling $3,000 and advance royalty payments of $3,000 to maintain these Agreements. Due to an uncertainty associated with the clarification of the legal title for these two patented lode claims, these payments have not been capitalized as mining rights, and therefore are included in exploration costs during the period in which the obligation was due. The lease requires annual payments totaling $1,000 until the legal title can be perfected.
In January 2020, the Company and NV Gold Corporation (“NVX”) and its wholly-owned subsidiary NV Gold Corporation (USA) (“NV Gold”) entered into a binding letter of intent (“LOI”), whereby NV Gold has the exclusive right to purchase an undivided 100% right, title and interest in and to the Silver District Property and the Property Data in consideration of NV Gold completing certain payments and work commitments. In January 2020, NVX accepted the terms of the LOI and paid the Company $25,000. NVX had until May 11, 2020 to exercise their option to acquire the Silver District project under these terms. NVX did not exercise their option on May 11, 2020 and Magellan retained the $25,000 payment as liquidated damages which was recorded in other income.
In July 2020 G + W was disposed of as further discussed in Note 4.
Note 4 - Disposition of Business
Mexico Operations
On March 3, 2017 the Company entered into a Memorandum of Understanding (“MOU”) with Rose Petroleum plc (“Rose”), a multi-asset natural resource business, to purchase an operating floatation plant that also includes a precious metals leach circuit and associated assets, licenses and agreements (together, the “SDA Mill”) located in the State of Nayarit, Mexico.
Prior to closing, all of the assets and operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2 (“MV2”).
Effective March 31, 2020 the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with certain holders of Promissory Notes (the “Lenders”) due December 31, 2019 (the “Notes”) in the aggregate principal amount of $1.05 million. The Company is indebted under the Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of Magellan Acquisition Corporation and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. Magellan Acquisition Corp. and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Notes matured on December 31, 2019 and remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.
Silver District
On July 21, 2020, the Company entered into a Stock Purchase agreement with Tri Power Resources, LLC to sell 1,000 shares representing 100% ownership of Gulf+Western Industries, Inc (“Gulf+Western”) to Tri Power in consideration for the return and cancellation of 50,000 shares of the Company’s Series A Preferred Stock with a stated value of $10 per share. John Gibbs, a majority shareholder in the Company, is the Managing Member and Chief Executive Officer of Tri Power Resources, LLC.
Due to the related party nature of the above transactions, the gain of $206,860 associated with the disposals were recorded to additional paid in capital.
Summary
As a result of the agreements above, the assets and liabilities of the Gulf+Western, MAC and MV2 operations have been reflected as assets and liabilities of discontinued operations in the Company’s consolidated balance sheets as of December 31, 2020 and December 31, 2019 as follows:
December 31,
December 31,
Cash $ - $ 5,165
Prepaid expenses and other current assets - 37,214
Current assets of discontinued operations - 42,379
Mineral rights, net of impairment - 101,672
Property, plant and equipment, net - 973,930
Prepaid expenses and other assets - 388,468
Other assets of discontinued operations - 1,464,070
Total assets of discontinued operations $ - 1,506,449
Accounts payable $ - $ 338,231
Accrued liabilities - 145,766
Accrued interest - related parties - 29,160
Accrued interest - 23,377
Notes payable, related party - 953,876
Notes payable, third party - 115,500
Current liabilities of discontinued operations - 1,605,910
Other long-term liabilities - 9,857
Asset retirement obligation - 120,878
Long term liabilities of discontinued operations - 130,735
Total liabilities of discontinued operations $ - $ 1,736,645
The agreements qualify as a discontinued operation in accordance with U.S. GAAP. As a result, operating results and cash flows related to the Gulf+Western, MAC and MV2 operations have been reflected as discontinued operations in the Company’s consolidated statements of operations and comprehensive loss and consolidated statements of cash flows.
December 31,
December 30,
Revenue $ - $ 32,500
Cost of sales - (286,085 )
Exploration costs - (10,000 )
General and administrative expenses (31,599 ) (196,227 )
Operating loss (31,599 ) (459,812 )
Other expense - (1,941 )
Net loss from discontinued operations $ (31,599 ) $ (461,753 )
Note 5 - Fair Value of Financial Instruments
Financial assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:
Level 1 - Quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level 3 - Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The carrying values for cash and cash equivalents, prepaid assets, accounts payable and accrued liabilities, related party line of credit and notes payable approximate their fair value due to their short-term maturities.
Note 6 - Notes Payable - Related Parties
On May 31, 2017 we entered into three short-term notes with Mr. Gibbs, Dr. Carson and Mr. Power in the principal amounts of $100,000, $25,000 and $25,000, respectively. The notes bear interest at 6% and matured on November 15, 2017. The note balances were subsequently rolled into the Series 2017 Notes. A total of $752 of interest is accrued on these notes as of December 31, 2020 and December 31, 2019, respectively.
On November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes. During the year ended December 31, 2019, a total of $57,750 of additional fees were added to the principal amount and recorded as a discount to the notes related of an extension of the maturity date to December 31, 2019. Of the additional fees $52,250 was related to the related party portion of these notes and $5,500 was related to their third party portion. The balance on these notes, net of discount of $0, was $1,069,376 as of December 31, 2019. During the year ended December 31, 2019 $ 57,750 of debt discount related to the above notes was amortized to interest expense. The notes are secured by a stock pledge agreement covering 100% of the outstanding common stock of Magellan Acquisition Corporation, bear interest at 10%.
The total of portion of the Series 2017 Notes from related parties totaled $1,045,000, including financing fees of $95,000 recorded as discount to the notes. Mr. Gibbs, Dr. Carson, and Mr. Power transferred $100,000, $25,000, and $25,000, respectively, from the May 31, 2017 short term related party notes into the Series 2017 Notes.
The Series 2017 Notes were in default as of December 31, 2019. Consequently, on March 31, 2020, the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with the holders of the Series 2017 Notes (the “Lenders”) due December 31, 2019 in the aggregate principal amount of $1.14 million. The Company is indebted under the Series 2017 Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of MAC and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. MAC and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Series 2017 Notes matured on December 31, 2019 and remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Series 2017 Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.
Unsecured advances - related party
During the year ended December 31, 2020, Mr. Gibbs advanced $20,000 and Mr. Schifrin advanced $10,000 to the Company. During the year ended, Mr. Power advanced $15,830 cash and paid expenses using his personal credit card on behalf of the Company of $118,384, and the Company made repayments to Mr. Power and/or his credit card of $156,011. On May 31, 2020, the Company issued 475,000 shares of common stock to Mr. Gibbs with a fair value of $332,500 for the settlement of advances in the amount of $95,000, resulting in a loss on settlement of $237,500. In addition, the Company issued 475,000 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share. The Company recognized an additional $288,046 loss related to the issuance of warrants for the settlement of liabilities. Amounts due to related parties was $47,762 and $134,559 as of December 31, 2020 and December 31, 2019, respectively.
Note 7 - Line of Credit - Related Party
Effective December 31, 2012, we entered into an unsecured line of credit arrangement with John D. Gibbs, a significant investor, to facilitate timely cash flows for the Company’s operations. The line of credit originally provided for a maximum balance of $250,000, accrued interest at 6% annually, and matured on December 31, 2014.
On December 31, 2013 we amended our credit agreement with Mr. Gibbs to increase the borrowing limit under the line of credit to $750,000. All other terms of the credit agreement, including the interest rate and maturity date remained unchanged.
On December 31, 2014, we again amended the credit agreement to increase the borrowing limit to $900,000 and extend the maturity date to December 31, 2015. As part of the 2014 amendment and the subsequent appointment of Dr. Pierce Carson as the President, CEO and Director of G+W effective June 1, 2015, we had pledged all of our 85% equity interest in G+W, which owned the Silver District properties, as security for all amounts outstanding under the credit agreement. In July 2016, we completed a share exchange with Dr. Carson to re-acquire the 15% interest in G+W, and therefore at December 31, 2017 our entire 100% interest in G+W remains pledged as security for outstanding amounts under this credit agreement.
On December 31, 2015 we again amended the credit agreement to increase the borrowing limit to $1,000,000 and extended the maturity date to December 31, 2016. Finally, on March 31, 2017 with an effective date of December 31, 2016 we again amended the credit agreement to extend the maturity date to December 31, 2018 and later extended to March 31, 2019. In April 2019 this credit facility was extended until December 31, 2019 in exchange for a fee equal to 2% of the outstanding balance. All other terms of the agreement were unchanged. The 2% fee of $17,050 was recorded as a debt discount and fully amortized with settlement of debt in September 2019.
In 2018, $20,000 was received under this agreement. During the same period Mr. Gibbs converted $100,000 of the outstanding balance on the line of credit into 100,000 shares of common stock at $1.00 per share.
In September 2019, the Company established a Series A Convertible Preferred Stock (“Series A Preferred Stock”) to convert debt by and between the Company. The Company authorized an aggregate 2,500,000 shares of Series A Preferred Stock to be issued.
At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $1,174,188 to settle the outstanding line of credit balance including accrued interest. See Note 10.
The outstanding balance under the line of credit was $0 at December 31, 2019. In addition, no interest was been accrued on this obligation and is included in accrued interest - related parties on the accompanying consolidated balance sheets at December 31, 2019.
Note 8 - Notes payable
During the year ended December 31, 2020, $20,000 in unsecured advances were received from third parties with the intention to convert to shares in the Company. On May 31, 2020, the Company converted $42,500 of advances from third parties into 212,500 shares of common stock. The common shares had a fair value of $153,750, resulting in a loss on settlement of $111,250. In addition, the Company issued 212,500 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share. The Company recognized an additional $128,863 loss related to the issuance of warrants for the settlement of liabilities.
As discussed in Note 6 - Notes Payable - Related Parties, on November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.
The portion of the Series 2017 Notes from non-related parties totaled $110,000, including financing fees of $10,000 recorded as discount to the notes. The note maturity date was extended to December 31, 2019 in exchange for an increase in the principal balance of $5,500. As of December 31, 2019, the balance on the notes from non-related parties, net of unamortized discount of $0, was $115,500 with accrued interest of $23,377. On March 31, 2020, the Series 2017 Notes were settled. See Note 6.
As of December 31, 2020 and 2019, the total advances due were $10,000 and $32,500, respectively.
10% Unsecured Convertible Note
On October 1, 2019, the Company issued a 10% Unsecured Convertible Note in the principal amount of $145,977.65 to evidence accrued and unpaid legal fees owed to the Company’s attorney. The note is due on demand, and is convertible into shares of common stock at a conversion price of $1.00 per share.
Note 9 - Convertible Note Payable
Series 2018A and 2018B 10% Unsecured Convertible Notes
In 2018, the Company sold $205,000 of Series 2018A and $150,000 of Series B 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal amount of the Note. The Series A and Series B Notes are convertible into shares of Common Stock at a conversion price of $1.00 and $1.25, respectively, during the life of the Note. The Company evaluated the conversion option and concluded it was not required to be bifurcated as a derivative. The Company also concluded that no beneficial conversion feature was present at issuance. The Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes matured twelve (12) months from the date of issue but were extended at the option of the Company for an additional one (1) year. Within thirty (30) days following the closing of an offering, the Company has agreed to prepare and file a Registration Statement on Form S-1 registering the resale of the shares of Common Stock issuable upon conversion of the Notes. Of the Series A issuance, $150,000 was sold to a related party, Mr. Gibbs. In December 2019, $25,000 of Series 2018A 10% Unsecured Convertible Notes and $2,039 of accrued interest were converted into 27,039 shares of common stock at a conversion price of $1.00 per share. As of December 31, 2019, the balance due under the Series 2018A and 2018B notes is $180,000 in principal and $18,867 in accrued interest. On May 31, 2020, the Company converted $150,000 of principal and $22,412 of accrued interest into 862,055 shares of common stock. The common shares had a fair value of $603,439, resulting in a loss on conversion of debt of $431,028. The Company issued 862,055 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share and recognized an additional $522,761 loss related to the issuance of warrants for the conversion of debt. In September 2020, the Company converted the remaining $30,000 of principal and $4,897 of accrued interest into 34,947 shares of common stock with a fair value of $34,897. The Company issued 30,000 warrants exercisable for a period of thirty days at an exercise price of $0.20 per share and recognized an additional $34,900 loss related to the issuance of warrants for the conversion of debt. As of December 31, 2020, the principal and interest balance due under the Series 2018A and 2018B notes were settled.
Series 2019A 10% Unsecured Convertible Notes
In 2019 the Company sold $135,000 of Series 2019A 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal amount of the Note. The Series 2019A Notes are convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. The lenders were issued 100,000 common stock warrants with an exercise price of $2.00 per share. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in August and December 2019. The $135,000 debt discount is amortized over the term of the loan. The Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes mature twelve (12) months from the date of issue. The maturity date can be extended at the option of the Company for an additional one (1) year. There are two Series 2019A 10% Unsecured Convertible Notes that were due and payable in August 2020 and are currently past due. If a default notice is received the interest rate will be 12%. On May 31, 2020, the Company converted $60,000 of principal and $4,316 of accrued interest into 321,580 shares of common stock. The common shares had a fair value of $225,106, resulting in a loss on conversion of debt of $160,790. In addition, the Company issued 321,580 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share. The Company recognized an additional $195,010 loss related to the issuance of warrants for the conversion of debt. Amortization expense of $87,583 and $47,417 was recognized during the years ended December 31, 2020 and 2019, respectively. As of December 31, 2019, the balance due under these notes net of unamortized discount of $87,583, is $47,417, with accrued interest of $2,799. As of December 31, 2020, the balance due under these notes net of unamortized discount of $0, is $75,000, with accrued interest of $8,481.
On October 1, 2019, the Company sold a 10% Unsecured Convertible Note for $145,978 due on demand to settle accounts payable. The purchase price of the 10% Unsecured Convertible Note is equal to the principal amount of the Note. The 10% Unsecured Convertible Note is convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature as a debt discount and additional paid in capital in October 2019. The debt discount will be amortized over the term of the loan. The 10% Unsecured Convertible Note will accrue interest at the rate of 10% per annum payable quarterly, accruing from the date of issuance. Amortization expense of $0 and $145,978 was recognized during the years ended December 31, 2020 and 2019. As of December 31, 2020 and 2019, the balance due under the note is $145,978, with accrued interest of $18,237 and $3,639, respectively.
Series 2020A 8% Unsecured Convertible Notes
During the year ended December 31, 2020, the Company sold $285,000 of Series 2020A 8% Unsecured Convertible Notes with a maturity date of November 30, 2020 and became past due. If a default notice is received the interest rate will be 12%.The purchase price of the Note is equal to the principal amount of the Note. The Series 2020A Notes are convertible into shares of Common Stock at a conversion price of $0.50 during the life of the Note. The lenders were issued 142,500 common stock warrants with an exercise price of $0.50 per share for a term of 5 years. Two related parties purchased $60,000 of the 2020A notes. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature as a debt discount and additional paid in capital as of December 31, 2020. The $237,263 debt discount will be amortized over the term of the loan. The Notes will accrue interest at the rate of 8% per annum, payable quarterly in arrears. In July 2020, $25,000 of Series 2020A 8% Unsecured Convertible Notes were converted into 50,000 shares of common stock at a conversion price of $0.50 per share. Amortization expense of $202,756 was recognized during the year ended December 31, 2020. As of December 31, 2020, the balance due to a related party under these notes net of unamortized discount of $0, is $60,000, with accrued interest of $2,838. As of December 31, 2020, the balance due to a third party under these notes net of unamortized discount of $0, is $200,000, with accrued interest of $8,297.
3% Secured Convertible Note
On July 1, 2020, the Company issued a $125,000 Secured Convertible Note to a related party for the as part of the purchase of Clearwater Mining Corporation. The secured convertible note matures on July 1, 2022 and will accrue interest at the rate of 3% per annum, payable yearly in arrears beginning July 1, 2021. The Note is convertible into shares of Common Stock at a conversion price of $0.50 during the life of the Note. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in July 2019. The $87,500 debt discount will be amortized over the term of the loan. Amortization expense of $21,935 was recognized during the year ended December 31, 2020. As of December 31, 2020, the balance due to a related party under this note net of unamortized discount of $65,592, is $59,435, with accrued interest of $1,880.
Note 10 - Stockholders’ Deficit
Common Stock
On May 31, 2020, the Company agreed to issue 86,270 common shares to settle of accounts payable related to services provided in 2019 and 2020 of $17,254. The common shares had a fair value of $60,389 resulting in a loss on settlement of accounts payable of $43,135.
On May 31, 2020, the Company agreed to issue 687,500 common shares and warrants to settle advances from third parties of $42,500 and settle advances from related parties of $95,000. Additionally, the Company issued 1,183,635 common shares and warrants to settle convertible notes payable of $236,727 including accrued interest. The common shares had a fair value of $486,250 resulting in a loss on settlement of liabilities of $348,750.
During the year ended December 31, 2020, the Company received net proceeds of $38,500 from the exercise of 155,000 warrants.
On July 15, 2020, the Company issued 500,000 shares for services rendered pursuant to two investor relations agreements: 200,000 shares under a Services Agreement and 300,000 shares under a Consulting Agreement. The shares were valued at $1.29, the closing price of the Company’s stock on July 15, 2020. The Services Agreement is $7,500 per month and has a term of twelve months The Consulting Agreement is $7,500 per month and has an initial term of six months. If the Consulting Agreement is not terminated at least thirty days prior to the end of the initial term, the term will continue for an additional six months. During the year ended December 31, 2020 the Company recognized $322,750 of expense related to these shares.
On December 9, 2019, the Company entered into a three month consulting agreement and paid $25,000. In addition, the Company issued 100,000 warrants with an exercise price of $1.00 per share that expire on December 9, 2020. During the years ended December 31, 2020 and, the Company recognized $76,650 and $24,799 of expense related to the warrants issued from this agreement, respectively.
In January 2019, 40,000 shares were issued for services rendered pursuant to an investor relations agreement. The shares were valued at $1.10, the closing price of the Company’s stock on December 31, 2018. The services will be provided over a two year service period. During the year ended December 31, 2020 and 2019 the Company recognized $22,000 of expense related to these shares.
On January 3, 2019, the Financial Industry Regulatory Authority (“FINRA”) informed Magellan Gold Corporation, a Nevada corporation that a 1-for-50 reverse split of the Company’s common stock, previously disclosed in the Company’s Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2017, would be effective at the market open on January 7, 2019. The stock split has been retroactively adjusted throughout these financial statements and footnotes.
During the year ended December 31, 2019, the Company raised $30,000 through the sale of 30,000 Units at a price of $1.00 per Unit. Each unit consists of one share of common stock and four common stock warrants. Two of the warrants expire on May 8, 2019 and are exercisable at $2.00. The other two warrants expire on August 8, 2019 and are exercisable at $3.00. The warrants expiring on May 8, 2019 were extended until May 28, 2019 and the exercise price was reduced to $1.00 per share. On July 31, 2019 all of the stock warrants were extended until October 31, 2019 and they all expired unexercised.
Effective July 24, 2018, the Company and W. Pierce Carson executed a Restricted Stock Award Agreement pursuant to which the Company granted to Carson a restricted stock award consisting of 80,000 shares of Common Stock, valued at $1.00 per share. 20,000 of the shares vested upon closing of the El Dorado agreement and were issued, and the remaining 60,000 shares are subject to ratable vesting over an 18-month period. During year ended December 31, 2019 the Company issued 20,000 of these shares and recognized expense of $10,000 related to this issuance. Mr. Carson resigned effective June 1, 2019 and no further issuances under this agreement are expected.
In March 2019, the Company entered into an agreement to issue 5,000 shares for services. These shares were issued in April 2019. The Company recognized expense of $14,000 during the year ended December 31, 2019 related to this agreement.
The Company also agreed to issue 2,000 shares for services rendered during the year ended December 31, 2019. The Company recognized expense of $5,600 related to this commitment, and the shares were issued in April 2019.
In January 2019 the Company issued Mr. Martinez 14,118 shares in settlement of liabilities for services provided in 2018 of $24,000.
During the year ended December 31, 2019, the Company also issued 7,574 shares in settlement of other liabilities of $12,875 resulting in a loss on settlement of $758.
During the year ended December 31, 2019 Mr. Gibbs was issued 30,594 and Mr. Powers was issued 14,965 shares of common stock related to the price protection feature which expired in 2018.
In April 2019, the Company entered into an investor relations agreement and issued a total of 100,000 shares in exchange for a 6 month service period. During the year ended December 31, 2019 the Company recognized $200,000 of expense related to these shares.
In May 2019, the Company issued 70,000 shares to consultants in satisfaction for services rendered in 2019. During the year ended December 31, 2019 the Company recognized $147,000 of expense related to these shares.
In September 2019, the Company established a Series A Convertible Preferred Stock (“Series A Preferred”) and authorized an aggregate of 2,500,000 shares with a par value of $0.001 per share and a stated value of $10.00 per share. The holders of outstanding Series A Preferred shall be entitled to receive dividends at the annual rate of 10% based on the stated value per share. Dividends on the share of Series A Preferred share be cumulative. During the year ended, the Company issued a total 242,269 shares of preferred stock to settle liabilities with related parties. At the time of issuance, the fair value of the Preferred Shares was determined to be $5,572,187 based on the fair value of the common shares to which the Preferred Shares are convertible into. The Series A Preferred Shares issued carry a $2.45 million liquidation preference, subject to adjustments, convertible into common stock at $1.00 per share and bear a 10% annual dividend payable in kind at the option of the Company.
In October 2019, the Company issued 25,000 shares of common stock with a fair value of $40,000 for the settlement of accounts payable related to a toll milling agreement in the amount of $17,777, resulting in a loss on settlement of $22,223. In addition, the Company issued 100,000 warrants exercisable for a period of twelve months at an exercise price of $2.00 per share. The Company recognized an additional $85,070 loss related to the issuance of warrants for the settlement of liabilities which is reported in general and administrative expenses.
A summary of the settlement of liabilities is below:
December 31, 2020 December 31, 2019
Liabilities Settled
Accounts payable and accrued expenses $ - $ 22,223
Line of credit - related party - 869,550
Notes payable - related parties - 483,375
Convertible note payable - related party 236,728 150,000
Accrued interest 53,926 603,064
Advances payable 42,500 -
Advances payable, related parties 95,000 345,150
Accrued liabilities 5,971 70,577
Total liabilities settled 434,125 2,543,939
Consideration Paid
Preferred shares - fair value - 5,572,187
Common shares and warrant- fair value 2,544,172 40,000
Investment in Rio Silver Equities - 83,066
Loss on settlement of liabilities $ (2,110,047 ) $ (3,151,314 )
Preferred Stock
In September 2019, the Company established a Series A Convertible Preferred Stock (“Series A Preferred”) and authorized an aggregate of 2,500,000 shares with a par value of $0.001 per share and a stated value of $10.00 per share. The holders of outstanding Series A Preferred shall be entitled to receive dividends at the annual rate of 10% based on the stated value per share. Dividends on the share of Series A Preferred share be cumulative. During the year ended, the Company issued a total 242,269 shares of preferred stock to settle liabilities with related parties. At the time of issuance, the fair value of the Preferred Shares was determined to be $5,572,187 based on the fair value of the common shares to which the Preferred Shares are convertible into. The Series A Preferred Shares issued carry a $2.45 million liquidation preference, subject to adjustments, convertible into common stock at $1.00 per share and bear a 10% annual dividend payable in kind at the option of the Company. During the years ended December 31, 2020 and 2019, the Company accrued $215,610 and $60,401 and for the Series A preferred stock dividend, respectively.
In September 2020, the Company established a Series B Convertible Preferred Stock (“Series B Preferred”) and authorized an aggregate of 5,000 shares with a par value of $0.001 per share and a stated value of $1,250.00 per share. The holders of outstanding Series B Preferred shall be entitled to receive dividends at the annual rate of 10% based on the stated value per share. Dividends on the share of Series B Preferred shall be cumulative.
Stock Options and the 2017 Equity Incentive Plan:
Under the 2017 Equity Incentive Plan, the Company is authorized to grant rights to acquire up to a maximum of 200,000 shares of common stock. The 2017 Plan provides for the grant of (1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation rights. As of December 31, 2020, the Company had 128,000 shares available for future grant.
During the year ended December 31, 2020, John Gibbs, a related party, transferred 380,000 warrants to purchase common stock back to the Company. Deepak Malhotra, a member of the board, received 300,000 of the transferred warrants as compensation for services to be performed over a one year term. The warrants were valued $386,764 and will recognized over the one year service period. A consultant for the Company, received $50,000 of the transferred warrants as compensation. The remaining 30,000 warrants were transferred to three 2018A 10% Unsecured Convertible noteholder as inducements to convert their notes. See Note 7 - Convertible Note Payable. During the year ended December 31, 2020, the Company recognized $128,922 of expense related to the issuance of these warrants.
Stock option activity within the 2017 Equity Incentive Plan and warrant activity outside the plan, for the nine months ended December 31, 2020 is as follows:
Stock Options Stock Warrants
Shares Weighted Average
Exercise Price Shares Weighted Average
Exercise Price
Outstanding at December 31, 2018 72,000 $ 2.00 480,000 $ 2.50
Granted - - 455,000 $ 1.78
Cancelled - - - -
Expired - - (600,000 ) $ 2.00
Exercised - - - -
Outstanding at December 31, 2019 72,000 $ 2.00 335,000 $ 1.70
Granted - - 2,393,635 $ 0.21
Cancelled - - (715,000 ) $ 0.90
Expired - - - -
Exercised - - (155,000 ) $ 0.25
Outstanding at December 31, 2020 72,000 $ 2.00 1,858,635 $ 0.67
Exercisable at December 31, 2020 72,000 $ 2.00 1,858,635 $ 0.67
The Company valued the warrants using the Black-Scholes model with the following key assumptions ranging from: Stock price, $0.85- $1.57, Exercise price, $0.20-$0.50, Term 5 years, Volatility 195.66% - 225.13%, and Discount rate 0.12% - 0.36%.
As of December 31, 2020, the outstanding stock options have a weighted average remaining term of 6.82 years and $0 intrinsic value, and the outstanding stock warrants have a weighted average remaining term of 0.22 years and an intrinsic value of $1,451,658.
Note 11 - Commitments and Contingencies
Mining Claims
As part of our acquisition of the Center Star gold mine project, we acquire 15 Bureau of Land Management (“BLM”) unpatented mining claims and subsequently staked another 16 unpatented mining claims. In order to maintain the BLM lode \ claims, annual payments are required before the end of August of each year. As of December 31, 2020, all of these claims are in good standing.
On August 6, 2020, the Company entered into a one-year investor relations consulting agreement. As consideration for its services under the Agreement, the Company agreed to pay to the consultant 261,538 restricted shares of the Company’s common stock. The shares were valued at $1.56, the closing price of the Company’s stock on August 6, 2020. As of December 31, 2020, the Company has not issued the shares and has accrued $136,000 related to this agreement.
Note 12 - Executive Employment Agreement
Effective June 1, 2019, the Company and David E. Drips, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Drips, in consideration of services to be rendered as President, CEO and Director, restricted stock units consisting of 10,000 units for each month of service. The units will vest upon successful completion of a $1.25 million financing on or before November 30, 2019. Upon settlement if the common stock is less than $1.50 addition shares will be issued such that each month of service will have a value of $15,000. The agreement was extended through May 31, 2020 and eliminated the $1.25 million in financing as a condition of vesting and clarified that a total of 120,000 shares of stock will be issued to settle all services received. As of December 31, 2020, $78,000 has been accrued under this arrangement. On June 2, 2020, the Company received the written resignation of David E. Drips as President, CEO and Director of the Company, effective May 31, 2020.
Effective August 1, 2020, the Company and Michael Lavigne, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Lavigne, in consideration of services to be rendered as President, CEO and Director, restricted stock units consisting of 15,000 units for each month of service. The vested stock units will be settled in shares of common stock upon or as soon as practicable (a) upon written request any time after December 31, 2020 or (b) following the termination date, whichever occurs first. As of December 31, 2020, 75,000 restricted stock units may be settled in shares of common stock. During the year ended December 31, 2020, the Company recognized $84,600 of expense related to the agreement.
Note 13 - Related Party Transactions
Accrued Interest - Related Parties
Accrued interest due to related parties is included in our consolidated balance sheets as follows:
December 31, 2020 December 31, 2019
Accrued interest payable - Mr. Gibbs $ 2,597 $ -
Accrued interest payable - Dr. Carson
Accrued interest payable - Mr. Schifrin 1,880 -
Accrued interest payable - Mr. Malhotra -
$ 5,470 $ 752
The accrued interest related to the Series 2017 Notes was settled on March 31, 2020. See Note 6.
Note 14 - Income Taxes
Our net operating loss carry forward as of December 31, 2020 was $3,874,000, which may be used to offset future income taxes. Our reconciliation between the expected federal income tax benefit computed by applying the federal statutory rate to our net loss and the actual benefit for taxes on net loss for 2020 and 2019 is as follows:
Years Ended December 31,
Expected federal income tax benefit at statutory rate 46,457 $ 160,292
State taxes 7,743 26,715
Change in valuation allowance (54,200 ) (187,007 )
Income tax benefit $ - $ -
Our deferred tax assets as of December 31, 2020 and 2019 were as follows:
December 31,
Deferred tax asset 949,042 $ 894,842
Valuation allowance (949,042 ) (894,842 )
Deferred tax assets, net of allowance $ - $ -
Note 15 - Subsequent Events
In February 2021, the Company entered into a debt agreement to borrow $200,000. The secured note has an original issuance discount of $16,000, which will be amortized over the life of the note. The loan bears interest at a rate of 10% and has a six-month maturity. The unpaid principal is convertible into shares of the Company’s common stock at the conversion price. The conversion price shall be the less of 90% of the lowest trading price during the previous twenty (20) trading day period ending on the issuance date, or during the previous twenty (20) trading day period ending on date of conversion of this note. The Company issued the debtholder 266,667 common shares as a commitment fee.
Subsequent to December 31, 2020, the Company issued 261,538 common shares related to a one-year investor relations consulting agreement. See Note 11.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAGELLAN GOLD CORPORATION
Date: April 15, 2021
By: /s/ Michael B. Lavigne
President, Principal Executive Officer, Principal Accounting Officer & Director
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.