INCEPTION MINING INC. - Quarter Report: 2014 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 30, 2014

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

For the transition period from _____ to _____.

Commission File No. 333-147056

Inception Mining, Inc.

(Exact Name of Registrant as Specified in Its Charter)

801-428-9703

(Registrant’s telephone number, including area code)

Copies to:

Fleming PLLC

49 Front Street, Suite 206

Rockville Centre, New York 11570

Phone: (516) 833-5034

Fax: (516) 977-1209

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. Yes [X] No [  ]

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-3 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 [  ] No [X]

As of June 13, 2014, there were 21,726,237 shares of the registrant’s common stock issued and outstanding.

INCEPTION MINING, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Inception Mining, Inc.

(An Exploration Stage Company)

Condensed Balance Sheets

See accompanying notes to the condensed financial statements.

Inception Mining, Inc.

(An Exploration Stage Company)

Condensed Statements of Operations

(Unaudited)

See accompanying notes to the condensed financial statements.

Inception Mining, Inc.

(Formerly known as Gold American Mining Corp.)

(An Exploration Stage Company)

Statement of Changes in Stockholders’ Equity (Deficit)

For the Period from July 2, 2007 (Inception) to April 30, 2014

(Unaudited)

See accompanying notes to the condensed financial statements.

Inception Mining, Inc.

(An Exploration Stage Company)

Condensed Statements of Cash Flows

(Unaudited)

See accompanying notes to the condensed financial statements.

Inception Mining, Inc.

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X and with the instructions to Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at April 30, 2014 and 2013 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. Management suggests these condensed financial statements be read in conjunction with the July 31, 2013 audited financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended April 30, 2014 and 2013 are not necessarily indicative of the operating results for the full year.

On May 1, 2013, the Company filed Articles of Merger with the Secretary of State of the State of Nevada pursuant to which its wholly-owned subsidiary, Inception Mining Inc., a Nevada Corporation, was merged into the Company effective May 1, 2013. As a result of the filing of the Articles of Merger, the Company’s corporate name was changed from Gold American Mining Corp. to Inception Mining Inc.

(B) Going Concern

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company is in the exploration stage with minimal operations, has a net loss since inception of $5,795,895 and used cash in operations of $1,945,103 from inception. In addition, there is a working capital deficiency (excess of current liabilities over current assets) of $876,987 as of April 30, 2014. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

(C) Fair Value of Financial Instruments

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

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

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

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

Inception Mining, Inc.

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

As of April 30, 2014 or July 31, 2013, the Company did not have any items that would be classified as level 1 or 2 disclosures.

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.

As of April 30, 2014 and July 31, 2013, the Company did not have any derivative instruments that were designated as hedges.

The derivative liability as of April 30, 2014, in the amount of $137,138 has a level 3 classification.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of April 30, 2014:

The fair value of the embedded derivatives at April 30, 2014, in the amount of $137,138, was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 74.94 to 110.62%, (3) weighted average risk-free interest rate of 0.01 to 0.12%, (4) expected life of 0.81 to 0.97 years, and (5) estimated fair value of the Company’s common stock of $0.94 per share. The Company recorded a loss on change in derivative liabilities of $12,267 during the three months ended April 30, 2014.

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

Inception Mining, Inc.

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

NOTE 2 CONVERTIBLE NOTES PAYABLE

UP and Burlington Gold Mine

On February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of $0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and $150,000 and the assignment of a 3% net royalty. The Asset Purchase Agreement closed on February 25, 2013. As of April 30, 2014, the outstanding balances on these notes were $630,000 and $30,000, respectively. On November 1, 2013, one of the notes was renegotiated with the note holder. The original note was restructured and treated as an extinguishment and as such is now convertible into shares of the Company’s common stock at $0.45 per share. All the other points of the note remained the same. A beneficial conversion feature on the new note was recorded for $630,000. On February 11, 2014, the Company converted $130,000 of principal into 288,888 shares of common stock.

Iconic Holdings

On February 18, 2014, the Company entered into a unsecured Note Purchase Agreement for the sale of an 10% convertible promissory note in which the Company will receive advances up to the principal amount of $220,000 with an original issue discount of 10% of loaned funds. Through April 30, 2014, the Company has received funds totaling $75,000 and recorded additional principal due to the original issue discount totaling $7,500. The note bears interest at the rate of 10% per annum and all interest and principal must be repaid on February 18, 2015. The note is convertible into common stock, at the holder’s option, at the lower of $0.45 or 60% of the lowest three daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days prior to the date of conversion. If the Company is placed on “chilled” status with the Depository Trust Company, the discount will be increased by 10% until such chill is remedied. The note may not be prepaid in whole or in part by the Company. All of the proceeds received from the note have been allocated to the embedded derivative and the Company recorded an additional $42,371 as interest expense from the amount of the initial derivative fair value in excess of proceeds received. Due to the allocation of proceeds, the Company recorded discounts on the note totaling $82,500 through April 30, 2014. During the nine months ended April 30, 2014 and 2013, respectively, the Company recorded interest expense of $9,451 and $0 for accretion of the discounts on the note. As of April 30, 2014, accrued interest on the note was $919.

During the nine months ended April 30, 2014 $639,000 of debt discount was amortized for the above notes.

NOTE 3 COMMON STOCK-(tie to equity rollforward)

(A) Common Stock Issuances

Effective August 1, 2013, the Company issued 15,000 shares of common stock for services valued at $6,750. These shares were issued for the settlement of accounts payable.

On August 5, 2013, the Company issued 295,611 shares of common stock and 112,250 common stock purchase warrants for aggregate consideration of $101,025 in cash. The cash for these shares and warrants was received prior to July 31, 2013 and had been recorded as common stock subscribed.

On October 30, 2013, the Company entered into a retainer agreement with a law firm in exchange for legal services pursuant to which the law firm was issued an aggregate of 211,111 shares of common stock of the Company in consideration of legal services valued at $242,778. This transaction satisfied accounts payable of $80,000 with $15,000 recorded as prepaid legal fees. The prepaid legal fees were expensed during the three months ended October 31, 2013 and a loss on settlement of accounts payable was recognized of $147,778. There shares were issued for the settlement of accounts payable.

On January 31, 2014, the Company entered into a consulting services agreement with an individual in exchange for 50,000 shares of common stock for services to be rendered over the next 12 months. These services were valued at $25,500 based on the quoted market price of the stock on that day. These shares have yet to be issued.

In January 2014, the Company issued 258,887 shares of common stock and 129,445 common stock purchase warrants for aggregate consideration of $116,500 in cash.

In January 2014, the Company issued 150,000 shares of common stock for services valued at $76,500. The services are being provided over a 12-month period.

In February 2014, the Company issued 288,889 shares of common stock upon the conversion of $130,000 of note payable principal.

In February and March 2014, the Company issued 100,000 shares of common stock and 104,000 common stock purchase warrants for aggregate consideration of $51,000 in cash.

In March 2014, the Company issued 100,000 shares of common stock for services valued at $102,000. The services are being provided over a 12-month period.

In April 2014, the Company issued 40,000 shares of common stock for services valued at $46,000.

Inception Mining, Inc.

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

NOTE 3 COMMON STOCK (CONTINUED)

(B) Warrants

The following tables summarize the warrant activity during the nine months ended April 30, 2014:

NOTE 4 RELATED PARTY TRANSACTIONS

(A) Acquisition of Mining Rights

On February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of $0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and $150,000 and the assignment of a 3% net royalty. The Asset Purchase Agreement closed on February 25, 2013. As of April 30, 2014, the outstanding balances on these notes were $500,000 and $30,000, respectively. On November 1, 2013, one of the notes was renegotiated with the note holder. The original note was restructured and treated as an extinguishment and as such is now convertible into shares of the Company’s common stock at $0.45 per share. All the other points of the note remained the same. A beneficial conversion feature on the new note was recorded for $630,000. During the nine and three months ended April 30, 2014, $630,000 and 0, respectively, of the beneficial conversion feature was accreted as interest expense.

(B) Advances

Through April 30, 2014, a stockholder/director has loaned to the Company or paid expenses on behalf of the Company. The advances are unsecured, due on demand, and bear interest at a rate of 15% per annum. As of April 30, 2014, the Company owes $274,886 for loans and payments, plus an additional $9,803 in accrued interest. During the nine months ended April 30, 2014, the Company recorded interest expense on the advances of $28,588.

(C) Consulting Agreement

In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $18,000 per month for twelve months. As of April 30, 2014, the Company owed $72,000 to the stockholder/director in accrued consulting fees.

Inception Mining, Inc.

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

NOTE 4 RELATED PARTY TRANSACTIONS (CONTINUED)

(D) Employment Agreements

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

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

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

NOTE 5 AGREEMENTS AND COMMITMENTS

Crawford Agreement

On August 30, 2013, the Company entered into an Agreement (the “Crawford Agreement”) with Crawford Cattle Company LLC (“Crawford”), a Nevada limited liability company, pursuant to which the Company was to acquire from Crawford certain mineral rights including the right to extract gold, silver and other minerals, but excluding oil, gas and coal (the “Mineral Rights”) contained in approximately 16,183 acres located in Humboldt and Elko Counties, Nevada (the “Mineral Properties”). Crawford advised that it owns a portion of the Mineral Properties and was in the process of acquiring the balance of the Mineral Properties. Under the terms of the Crawford Agreement, Crawford granted the Company an exclusive, three month evaluation period in order to perform due diligence on the Mineral Properties. The Crawford Agreement has expired and the parties are presently in discussions to amend the Crawford Agreement of which there is no guarantee. In the event the Company elects to purchase the Mineral Rights from Crawford after amending the Crawford Agreement, the Company would purchase the Mineral Rights for a to-be-determined purchase price to be paid to Crawford in the form of shares of restricted common stock of the Company at a to-be determined per share price.

On April 8, 2014, the Company informed Crawford that the Crawford Agreement terminated on November 30, 2013, that the Company has elected to terminate all discussions with Crawford and that the Company will not be pursuing any transaction with Crawford as contemplated in the Crawford Agreement or otherwise.

Barwicki Investor Relations Agreement

On September 26, 2013,the Company entered into a Letter of Agreement with Andrew Barwicki Incorporated (“Barwicki”), pursuant to which Barwicki was retained for the purposes of providing investor relations services, for 3 month, in consideration of $3,600 per month.

Rick Thurman Consulting Agreement

On November 5, 2013, the Company entered into an Advisory Agreement with Rick Thurman pursuant to which Mr. Thurman was issued 20,000 shares of common stock of the Company in consideration of corporate advisory services. The Agreement with Mr. Thurman was 45-days, originally, but extended through April 1, 2014.

Inception Mining, Inc.

(An Exploration Stage Company)

Notes to Condensed Consolidated Financial Statements

David Rees Agreement

On January 31, 2014, the Company entered into a Consulting Agreement with David Rees pursuant to which Mr. Rees will receive 50,000 shares of common stock of the Company, which such shares have been registered on a Registration Statement File No. 333-191244 in consideration of providing general corporate advisory and M&A services. The term of the Agreement is for 1 year.

Chienn Consulting Agreement

On January 31, 2014, the Company entered into a Consulting Agreement with Chienn Consulting Company, LLC (“Chienn”) pursuant to which Chienn will receive 100,000 shares of restricted common stock of the Company in consideration of providing marketing, sales and business development services for a period of one year

Elliott Foxcroft Agreement

On March 27, 2014, the Company entered into an Advisory Agreement with Elliott Foxcroft (“Forcroft”) pursuant to which Foxcroft will receive 300,000 shares of restricted common stock of the Company, of which 100,000 shares have been issued, in consideration for providing/assist the Company with general legal, corporate advisory and M&A matters. Mr. Foxcroft will help the Company source, identify and evaluate potential acquisition targets (the “Target Acquisitions”) for a period of 90 days.

NOTE 6 CONCENTRATION OF RISK

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

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

Forward Looking Statements

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

Overview (Plan of Operation)

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

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

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

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

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

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

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

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

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

Results of Operations

Three-months ended April 30, 2014 compared to the three-months ended April 30, 2013

We had a net loss of $611,745 for the three-months ended April 30, 2014, and a net loss of $178,997 for the three-months ended April 30, 2013. This change in our results over the two periods is primarily the result of the new professional and consulting agreements, where the company utilizes the expertise, professional relationships, and knowledge of said consultants, are classified as general and administrative expenses entered into during the quarter ended April 30, 2014 as well as the increase in exploration costs, a loss on derivatives and the changes in debt discounts which are included in other Income/Expense. The following table summarizes key items of comparison and their related increase (decrease) for the three-months ended April 30, 2014 and 2013:

The Company had no revenues in both periods.

Nine-months ended April 30, 2014 compared to the nine-months ended April 30, 2013

We had a net loss of $1,367,207 for the nine-months ended April 30, 2014, and a net loss of $230,468 for the nine-months ended April 30, 2013. This change in our results over the two periods is primarily the result of the new professional and consulting agreements classified as general and administrative expenses entered into during the nine months ended April 30, 2014 as well as the increase in exploration costs, a loss on settlement of accounts payable, a loss on derivatives, and the changes in debt discounts which is included in other Income/Expense. The following table summarizes key items of comparison and their related increase (decrease) for the nine-months ended April 30, 2014 and 2013:

The Company had no revenues in both periods.

Liquidity and Capital Resources

Our balance sheet as of April 30, 2014 reflects assets of $1,135,762. We had cash in the amount of $30,258 and working capital deficit in the amount of $876,987 as of April 30, 2014. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months. We will need to raise approximately $2,000,000 in order to fully implement our business plan.

Working Capital

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

Going Concern Consideration

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company is in the exploration stage with no revenue generating operations and has a net loss since inception of $5,795,895 and used cash in operations of $1,945,103 from inception. In addition, there is a working capital deficit of $876,987 as of April 30, 2014. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

Operating Activities

Net cash flow used in operating activities during the nine-months ended April 30, 2014 was $182,422 an increase of $55,303 from the $127,119 net cash outflow during the nine-months ended April 30, 2013. This increase in the cash used in operating activities was primarily due to increased operating activities of the Company.

Financing Activities

Financing activities during the nine-months ended April 30, 2014 provided $181,555, an increase of $53,437 from the $128,118 provided by financing activities during the nine-months ended April 30, 2013. During the nine-months ended April 30, 2014, the company received $71,000 in advances from related parties and $168,500 towards the purchase of common stock. The Company also made $130,000 in payments on notes payable.

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

Critical Accounting Policies

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

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

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain. As of April 30, 2014, none of our properties have proven reserves.

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to include disclosure under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of April 30, 2014.

Management has identified control deficiencies regarding the lack of segregation of duties, tax compliance issues and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff and reliance on outside consultants for external reporting. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

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

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

Limitations on Effectiveness of Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to include disclosure under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On August 5, 2013, the Company issued 224,500 shares of common stock and 112,250 common stock purchase warrants for an aggregate consideration of $101,025 in cash. The cash for these shares and warrants was received prior to July 31, 2013 and had been recorded as common stock subscribed.

During January 2014, the Company issued 258,887 shares of common stock and 129,445 common stock purchase warrants for an aggregate consideration of $116,500 in cash.

During February 2014, the Company entered into subscription agreements with various investors (the “2014 Investors”) pursuant to which the 2014 Investors purchased an aggregate of 71,111 shares of the Company’s common stock (the “2014 Subscription Shares”) for an aggregate purchase price of $32,000, together with common stock purchase warrants to acquire 35,555 shares of common stock at $0.90 per share for a period of three years.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

On August 30, 2013, the Company entered into an Agreement (the “Crawford Agreement”) with Crawford Cattle Company LLC (“Crawford”), a Nevada limited liability company, pursuant to which the Company was to acquire from Crawford certain mineral rights including the right to extract gold, silver and other minerals, but excluding oil, gas and coal (the “Mineral Rights”) contained in approximately 16,183 acres located in Humboldt and Elko Counties, Nevada (the “Mineral Properties”). Crawford advised that it owns a portion of the Mineral Properties and was in the process of acquiring the balance of the Mineral Properties.

Under the terms of the Crawford Agreement, Crawford granted the Company an exclusive, three month evaluation period in order to perform due diligence on the Mineral Properties. The Crawford Agreement has expired and the parties are presently in discussions to amend the Crawford Agreement of which there is no guarantee. In the event the Company elects to purchase the Mineral Rights from Crawford after amending the Crawford Agreement, the Company would purchase the Mineral Rights for a to-be-determined purchase price to be paid to Crawford in the form of shares of restricted common stock of the Company at a to-be determined per share price.

ITEM 6. EXHIBITS

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.