MAGE 10-Q
MAGELLAN COPPER & GOLD Corp (MAGE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from ____________ to ____________
Commission file number:
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
On November 21, 2022, there were shares of the registrant’s common stock, $.001 par value, issued and outstanding.
MAGELLAN GOLD CORPORATION
Form 10-Q September 30, 2022
Table of Contents
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAGELLAN GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Mineral rights and properties | ||||||||
| Development costs | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Accrued liabilities | ||||||||
| Convertible note payable, net - related party | ||||||||
| Convertible note payable, net | ||||||||
| Accrued interest - related parties | ||||||||
| Accrued interest | ||||||||
| Advances payable - related party | ||||||||
| Advances payable | ||||||||
| Notes payable | ||||||||
| Notes payable - related party | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders' deficit: | ||||||||
| Preferred shares, shares Series A preferred stock - $ stated value; authorized; shares issued and outstanding | ||||||||
| Common shares, $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Shareholders' deficit: | ( | ) | ( | ) | ||||
| Total liabilities and shareholders' deficit | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements
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MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ||||||||||||||||
| Other expense: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on change in derivative liability | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Series A preferred stock dividend | ( | ) | ||||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic net loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted net loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic weighted-average | ||||||||||||||||
| Diluted weighted-average | ||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements
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MAGELLAN GOLD CORPORATION
Consolidated Statements of Shareholders' Deficit
For the nine months ended September 30, 2022 and 2021
(Unaudited)
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid - in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Par Value | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued as deferred finance costs | – | |||||||||||||||||||||||||||
| Stock based compensation | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued as deferred finance costs | – | |||||||||||||||||||||||||||
| Stock based compensation | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued as deferred finance costs | – | |||||||||||||||||||||||||||
| Stock based compensation | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Exercise of warrants | – | |||||||||||||||||||||||||||
| Common stock issued for settlement liabilities | – | |||||||||||||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||
| Series A preferred stock dividend | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Exercise of warrants | – | |||||||||||||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||
| Series A preferred stock dividend | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion of Series A preferred stock and accrued dividend | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ||||||||||||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements
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MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Accretion of discounts on notes payable | ||||||||
| Stock based compensation | ||||||||
| Loss on change in derivative liability | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Accrued interest | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Cash paid for development costs | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from convertible debt from third parties | ||||||||
| Payments on advances from related parties | ( | ) | ||||||
| Payments on advances from third parties | ( | ) | ||||||
| Proceeds from notes payable from third parties | ||||||||
| Proceeds from notes payable from related parties | ||||||||
| Proceeds from advances from third parties | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash financing and investing activities: | ||||||||
| Series A preferred stock dividend | $ | $ | ||||||
| Expenses paid on behalf of the Company | $ | $ | ||||||
| Common stock and warrants issued for settlement liabilities | $ | $ | ||||||
| Debt discount created by derivative liability | $ | $ | ||||||
| Conversion of Series A preferred stock and accrued dividend | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements
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MAGELLAN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization, Basis of Presentation, 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.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results for the full year. While we believe that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto contained in our annual report on Form 10-K for the year ended December 31, 2021.
Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiaries, 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”).
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 nine months ended September 30, 2022, of stock options, of warrants, and shares issuable from convertible notes were considered for their dilutive effects. For the nine months ended September 30, 2021, of stock options, of warrants, and shares issuable from convertible notes were considered for their dilutive effects.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification. The Company’s sequencing policy is to evaluate for reclassification contracts with the earliest maturity date first.
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Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
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.
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 September 30, 2022, we had a working capital deficit of $
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 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 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 September 30, 2022 and December 31,
2021, the mineral rights and properties balance totaled $
As of September 30, 2022 and December 31, 2021,
the Company had $
Note 4 – 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.
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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.
Fair Value Measurements
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy.
The following table presents information about the Company’s liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of September 30, 2022 and December 31, 2021:
| Level 1 | Level 2 | Level 3 | Fair value at September 30, 2022 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Level 1 | Level 2 | Level 3 | Fair value at December 31, 2021 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
There were no transfers between Level 1, 2 or 3 during the period.
The table below presents the change in the fair value of the derivative liability during the nine months ended September 30, 2022:
| Fair value as of December 31, 2021 | $ | |||
| Loss on change in fair value of derivatives | ||||
| Fair value as of September 30, 2022 | $ |
Note 5 – Notes payable, Convertible Note Payable and Derivative Liability
Notes payable
During the nine months
ended September 30, 2022, the Company entered into five unsecured promissory notes totaling $
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Series 2019A 10% Unsecured Convertible Notes
In 2019, the Company sold $
On October 1, 2019, the Company sold a
Series 2020A 8% Unsecured Convertible Notes
In 2020, the Company sold $
3% Secured Convertible Note
On July 1, 2020, the Company issued a $
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AJB Convertible Note
On February 10, 2021, the Company entered
into a debt agreement to borrow $
As of September 30, 2022, the total derivative
liability on the above note was adjusted to a fair value of $
Note 6 – Stockholders’ Deficit
Common Stock
On February 9, 2022, the Company extended
the maturity of a convertible note to
On May 11, 2022, the Company agreed to a second
amendment to extend the maturity of the AJB note to August 10, 2022. In consideration for the extension, the Company issued shares
of common stock at a price of $ per share for a total value of $
On August 9, 2022, the Company agreed to a third
amendment to extend the maturity of the AJB note to November 9, 2022. In consideration for the extension, the Company issued shares
of common stock at a price of $ per share for a total value of $
Stock Warrants, 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 September 30, 2022, the Company had shares available for future grant.
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Stock option activity within the 2017 Equity Incentive Plan and warrant activity outside the plan, for the nine months ended September 30, 2022 is as follows:
| Stock Options | Stock Warrants | |||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Cancelled | ||||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding at September 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2022 | $ | $ | ||||||||||||||
As of September 30, 2022, the outstanding stock options have a weighted average remaining term of years and have no intrinsic value, and the outstanding stock warrants have a weighted average remaining term of years and have intrinsic value.
Note 7 – Commitments and Contingencies
Mining Claims
As part of our acquisition of the Center Star gold mine project, we acquired 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 September 30, 2022, all of these claims are in good standing.
Note 8 – Executive Employment Agreement
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 September 30, 2022, restricted stock units may be settled in shares of common stock. During the nine months ended September 30, 2022, the Company recognized $ of stock-based compensation related to the agreement.
Note 9 – Related Party Transactions
Advances- Related Parties
During the nine months ended September 30, 2022,
the CEO paid $
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Accrued Interest - Related Parties
Accrued interest due to related parties is included in our consolidated balance sheets as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Accrued interest payable – Mr. Gibbs | $ | $ | ||||||
| Accrued interest payable – Mr. Schifrin | ||||||||
| Accrued interest payable – Mr. Malhotra | ||||||||
| Accrued interest payable – Mr. Lavigne | ||||||||
| $ | $ | |||||||
Notes Payable - Related Parties
During the nine months
ended September 30, 2022, the Company entered into four unsecured promissory notes with related parties totaling $
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ITEM 2. 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 year ended December 31, 2021, and our interim unaudited financial statements and notes thereto included with this report in Part I, Item 1.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak has now spread to the United States and infections have been reported globally.
The COVID-19 pandemic is rapidly evolving. The information in this Quarterly Report is based on data currently available to us and will likely change as the pandemic progresses. As COVID-19 continues to spread throughout areas in which we operate, we believe the outbreak has the potential to have a material negative impact on our operating results and financial condition. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operators, employees and vendors, and the impact on the Company’s ability to obtain debt and equity financing to fund ongoing exploration activities, all of which are uncertain and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results and financial condition.
We expect the trends highlighted above with respect to the impact of the COVID-19 pandemic to continue and, in some cases, accelerate. The extent of the COVID-19 pandemic’s continued effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift, the availability of government financial support to our business, tenants and operators and whether a resurgence of the outbreak occurs. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows but it could be material.
Forward-Looking Statements
Some of the information presented in this Form 10-Q 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 properties in the United States. We have not presently determined whether the properties to which we have mineral rights contain mineral reserves that are economically recoverable.
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We have only had exploration and project development operations to date, and we rely upon the sale of our securities and borrowings from officers, directors and other significant investors to fund our operations, as we have not generated any revenue.
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 includes 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. The 1,000,000 shares have or will be issued (i) 250,000 shares at closing (ii) 250,000 shares at the time the Center Mine receives its permit to reopen the main portal of the mine, (iv) 250,000 shares at the point the main portal has been reopened and (iv) 250,000 shares two years from the closing concurrent with the pay-off of the secured promissory note. The cash consideration of $25,000 will be paid within 30 days of closing and the balance of $125,000 to be evidenced by a secured promissory note due in two years. The Note will be secured by the Clearwater shares and assets. Magellan has issued 750,000 of the 1,000,000 shares and has paid $12,500 of the required $25,000 payment.
Results of Operations for the three months ended September 30, 2022 and 2021
| Three months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating expenses: | ||||||||
| General and administrative expenses | $ | 33,313 | $ | 392,852 | ||||
| Total operating expenses | 33,313 | 392,852 | ||||||
| Operating loss | (33,313 | ) | (392,852 | ) | ||||
| Other expense: | ||||||||
| Interest expense | (81,789 | ) | (53,324 | ) | ||||
| Gain (loss) on change in derivative liability | 38,372 | (14,977 | ) | |||||
| Total other expense | (43,417 | ) | (68,301 | ) | ||||
| Net loss | $ | (76,730 | ) | $ | (461,153 | ) | ||
Operating expenses
During the three months ended September 30, 2022, our total operating expenses included general and administrative expenses of $33,313 as compared to $392,852 during the three months ended September 30, 2021. The $359,539 decrease is primarily associated with decreases in stock-based compensation and investor relation expenses.
Other expense
During the three months ended September 30, 2022, total other expense was $43,417 as compared to $68,301 during the three months ended September 30, 2021. The $24,884 change was mainly related to the change in derivative liability.
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Results of Operations for the nine months ended September 30, 2022 and 2021
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating expenses: | ||||||||
| General and administrative expenses | $ | 133,121 | $ | 1,643,839 | ||||
| Total operating expenses | 133,121 | 1,643,839 | ||||||
| Operating loss | (133,121 | ) | (1,643,839 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (241,796 | ) | (201,818 | ) | ||||
| Loss on change in derivative liability | (238,640 | ) | (22,369 | ) | ||||
| Total other expense | (480,436 | ) | (224,187 | ) | ||||
| Net loss | $ | (613,557 | ) | $ | (1,868,026 | ) | ||
Operating expenses
During the nine months ended September 30, 2022, our total operating expenses included general and administrative expenses of $133,121 as compared to $1,643,839 during the nine months ended September 30, 2021. The $1,510,718 decrease is primarily associated with decreases in stock-based compensation and investor relation expenses.
Other expense
During the nine months ended September 30, 2022, total other expense was $480,436 as compared to $224,187 during the nine months ended September 30, 2021. The $256,249 change was mainly related to related to the loss on change in derivative liability.
Liquidity and Capital Resources
Our unaudited 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 September 30, 2022, we had not yet generated sufficient revenues or achieved profitable operations and we have accumulated losses of $18,583,370. We expect to incur further losses in the development of our business, all of which raises 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, of which there can be no assurance.
During the nine months ended September 30, 2022, the Company entered into five unsecured promissory notes totaling $63,000 and four unsecured promissory notes with related parties totaling $53,000.
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.
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Cash Flows
A summary of our cash provided by and used in operating, investing and financing activities is as follows:
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (131,853 | ) | $ | (259,642 | ) | ||
| Net cash used in investing activities | (769 | ) | (80,537 | ) | ||||
| Net cash provided by financing activities | 116,000 | 412,185 | ||||||
| Net change in cash | (16,622 | ) | 72,006 | |||||
| Cash beginning of period | 18,766 | – | ||||||
| Cash end of period | $ | 2,144 | $ | 72,006 | ||||
At September 30, 2022, we had $2,144 in cash and a $1,864,659 working capital deficit. This compares to cash of $18,766 and a working capital deficit of $1,459,741 at December 31, 2021.
Net cash used in operating activities during the nine months ended September 30, 2022 was $131,853 and was mainly comprised of our $613,557 net loss during the period, adjusted by a non-cash charges of $29,408 of stock compensation, loss on change in derivative liability of $238,640 and accretion of discounts on notes payable of $183,147. In addition, it reflects changes in operating assets and liabilities of $30,509.
Net cash used in operating activities from continuing operations during the nine months ended September 30, 2021 was $259,642 and was mainly comprised of our $1,868,026 net loss during the period, adjusted by a non-cash charges of $1,426,078 of stock compensation, loss on change in derivative liability of $22,369 and accretion of discounts on notes payable of $153,438. In addition, it reflects changes in operating assets and liabilities of $6,499.
Net cash used in investing activities during the nine months ended September 30, 2022 was $769 which was comprised of cash payments for development costs.
Net cash used in investing activities during the nine months ended September 30, 2021 was $80,537 which was comprised of cash payments for development costs.
During the nine months ended September 30, 2022, net cash provided by financing activities was $116,000 comprised of $63,000 proceeds from notes payable and $53,000 proceeds from notes payable from related parties.
During the nine months ended September 30, 2021, net cash provided by financing activities from continuing operations was $412,185 comprised of $175,000 proceeds from convertible debt from third parties, $287,000 proceeds from exercise of warrants, $605 proceeds on advances from third parties, offset by $30,420 payments on advances from third parties and $20,000 payments on advances from related parties.
Off Balance Sheet Arrangements
We do not have and have never had any off-balance sheet arrangements.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements, including the notes thereto. We consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our financial statements, including the following: long lived assets; intangible assets valuations; and income tax valuations. Management relies on historical experience and other assumptions believed to be reasonable in making its judgment and estimates. Actual results could differ materially from those estimates.
Management believes its application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
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 Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to management, including Michael Lavigne, our Principal Accounting Officer, as appropriate, 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, with the participation of our CEO and CFO, 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 and CFO concluded that our disclosure controls and procedures were not effective as of such date as a result of material weaknesses in our internal control over financial reporting due to lack of segregation of duties, a limited corporate governance structure, and lack of a formal review process that includes multiple levels of review as discussed in Item 9A of our Form 10-K for the fiscal year ended December 31, 2021.
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.
Changes in Internal Control Over Financial Reporting:
There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in Item 1A. to Part I. of our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None, except as previously reported.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
Exhibit Number |
Exhibit Description | |
| 31* | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32* | Certification of the President, Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
_____________
* Filed or furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 21, 2022
|
MAGELLAN GOLD CORPORATION
By: /s/ Michael Lavigne Michael Lavigne Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer) |
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