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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☒   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

 

☐    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

 

Commission file number 000-54658

 

              MAGELLAN GOLD CORPORATION            
(Name of Registrant in its Charter)

 

         Nevada       
(State or other jurisdiction
of incorporation or organization)
        27-3566922         
I.R.S. Employer
Identification Number

 

2010A Harbison Dr., #312 Vacaville, CA 95687
(Address of principal executive offices)         (Zip Code)

 

Registrant's telephone number, including area code:   (707) 291-6198

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act: None

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☒

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller Reporting Company ☒
  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  ☐ No  ☒

 

The aggregate market value of the 1,654,671 shares of voting and non-voting common equity held by non-affiliates of the Company calculated by taking the last sales price of the Company's common stock of $1.90 on June 28, 2019 was $3,143,873.

 

The number of shares outstanding of the registrant’s common stock, as of May 27, 2020 is 3,651,042.

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K ( e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes:

 

None.

 

 

 

   

 

 

TABLE OF CONTENTS

 

    Page No.
Forward-looking Statements ii
     
PART I    
Item 1. Description of Business 1
Item 1A. Risk Factors 30
Item 1B. Unresolved Staff Comments 43
Item 2 Properties 43
Item 3. Legal Proceedings 43
     
PART II    
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters 44
Item 6. Selected Financial Data 47
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 48
Item 8. Financial Statements and Supplementary Data 55
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure 55
Item 9A. Controls and Procedures 55
Item 9B. Other Information 57
     
PART III    
Item 10. Directors, Executive Officers and Corporate Governance 58
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 63
Item 13. Certain Relationships and Related Transactions, and Director Independence 65
Item 14. Principal Accounting Fees and Services 69
     
PART IV    
Item 15. Exhibits and Financial Statement Schedules 70
     
  Signatures 75

 

 

 

 i 

 

 

Forward-looking Statements

 

In General

 

This report contains statements that plan for or anticipate the future. In this report, forward-looking statements are generally identified by the words "anticipate," "plan," "believe," "expect," "estimate," and the like.

 

With respect to our mineral exploration business, these forward-looking statements include, but are not limited to, statements regarding the following:

 

  * the risk factors set forth below under “Risk Factors”;
     
  * risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions);
     
  * uncertainties inherent in our exploratory and developmental activities, including risks relating to permitting and regulatory delays;
     
  * our future business plans and strategies;
     
  * our ability to commercially develop our mining interests.;
     
  * changes that could result from our future acquisition of new mining properties or businesses;
     
  * expectations regarding competition from other companies;
     
  * effects of environmental and other governmental regulations;
     
  * the worldwide economic downturn and difficult conditions in the global capital and credit markets; and
     
  * our ability to raise additional financing necessary to conduct our business.

 

Forward looking statements may include estimated mineral reserves and resources which could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include:

 

  * the risk factors set forth below under “Risk Factors”;
     
  * changes in the market prices of precious minerals, including gold; and
     
  * uncertainties inherent in the estimation of ore reserves.

 

Readers are cautioned not to put undue reliance on forward-looking statements. We disclaim any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

 

In light of the significant uncertainties inherent in the forward-looking statements made in this Report, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

 

 

 

 ii 

 

 

PART I

 

ITEM 1.       DESCRIPTION OF BUSINESS

 

INTRODUCTION

 

About Our Company

 

Magellan Gold Corporation (“Magellan”, “the Company”, “our” or “we”) was formed and organized effective 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 Arizona, Nevada and Mexico. We have not presently determined whether the properties to which we have mining rights contain mineral deposits that are economically recoverable.

 

We were formed and organized by Athena Silver Corporation (“Athena”), a Delaware corporation, and by John C. Power and John D. Gibbs, two of the control persons and principal shareholders of Athena. Effective September 2010, we issued an aggregate of 660,000 shares of common stock to our founders in consideration of $0.125 per share:  600,000 shares were issued to Messrs. Power and Gibbs and 60,000 shares were issued to Athena. During 2011, the majority of the shares issued to Athena were distributed, in the nature of a spin-off dividend of such shares, to the shareholders of Athena, as of a Record Date of December 31, 2010, pro rata.

 

Our focus is on projects in Arizona and Mexico.

 

Silver District, La Paz County, Arizona

 

In August 2012, we entered into an Option Agreement with Columbus Silver (US) Corporation (“Columbus”) to purchase “The Silver District Claims” consisting of 85 unpatented lode mining claims, 4 patented lode claims, an Arizona State Exploration Permit of 154.66 acres and 23 unpatented mill site claims, totaling over 2,000 acres in La Paz County, Arizona. The underlying claims are subject to third party lease and or purchase obligations and net smelter royalties of varying percentages. In June and July 2013, Magellan staked 9 additional unpatented lode mining claims in the Silver District adjacent to the land package under option from Columbus; the Company currently retains 2 of these original 9 claims. Effective September 29, 2014, we entered into a Purchase Agreement with Columbus Silver (US) Corporation, a wholly-owned subsidiary of Columbus Exploration Corporation to purchase the patented and unpatented mining claims that had been covered by the Option Agreement. The Purchase Agreement superseded the Option Agreement and conveyed the Silver District Claims to the Company. In consideration of the Silver District Claims, we made a one-time payment to Columbus in the amount of $100,000. Following our purchase of the Silver District Claims, we formed a new wholly-owned subsidiary “Gulf + Western Industries, Inc.” (“Gulf + Western”) and transferred our interest in the Silver District Claims to Gulf + Western.

 

In November 2015 we were granted a new Arizona State Exploration Permit that effectively increases the size of our exploration permit in the Silver District from 154.66 acres to 334.85 acres.

 

The Company continues to pursue the Silver District property but fully impaired the capitalized value of $323,200 during the year ended December 31, 2018.

 

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.

 

 

 

 1 

 

 

 

In January 2020, NVX accepted the terms of the LOI and paid the Company $25,000. NVX did not exercise their option on May 11, 2020 and Magellan retained the $25,000 option payment as liquidated damages.

 

SDA Mill Acquisition

 

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 had 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 option-to-purchase payment, and 284,017 shares of common stock (the “Shares”) with a fair value of $426,025 on the date of acquisition. The note was 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.

 

Rose owned one share of Series A capital stock of Minerales Vane S.A. de C.V. (“Minerales Vane 1”) and Vane Minerals (UK) Limited (“Vane UK”) owned 49,999 shares of Series A capital stock and 26,524,000 shares of Series B capital stock of Minerales Vane 1.

 

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 SDA Mill) for $2,500 as soon as practicable following the Closing Date, rather than prior to the Closing Date. At December 31, 2017, the Company had not obtained control of MVO. Magellan subsequently acquired control of MVO in January 2018 and paid for it in April 2018.

  

Subsequent to the closing, Rose and Magellan entered into an IVA Agreement pursuant to the provisions of the definitive Purchase Agreement. Under the terms of the IVA Agreement, Rose advanced the sum of MXN 4,251,840 which was used to pay the IVA tax assessed by the Mexican taxing authorities on the acquisition transaction. Magellan has agreed that Rose is entitled to any future credits or rebates of IVA tax that Magellan may be entitled to until the advance is fully recouped.

 

 

 

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El Dorado Acquisition

 

In August, 2018, 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 Company has initiated permitting and is in the process of selecting an underground mining contractor. The project has excellent road and rail infrastructure, and the Company plans to truck the mineralized material 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.

 

Commencement of mining will depend on a number of preconditions, the most important of which include obtaining environmental and blasting permits, selecting and mobilizing a mining contractor and procuring financing. An access and land use agreement with the local ejido already is in place. Once development begins, mineralized material will be accessible with a minimal amount of underground development. Mineralized material will be sourced initially from the shallow, upper portions of the mineralized veins.

 

Drilling on the El Dorado vein system was conducted by a TSX.V-listed company in 2010-2011 and comprised 28 diamond core holes totaling 4,950 meters. Two veins appear to offer particular promise for mining, namely the Hundido and Intermedia veins. These veins lie adjacent to and along strike from the old Hundido Mine, which from 1900-1927 produced an estimated 50,000 tonnes of high-grade gold-silver ore. The veins are steeply-dipping, highly silicified structures cutting volcanic rocks. Polygonal resource calculations for the two veins, based on intersections in 10 core holes and after applying a 25% tonnage deduction for dilution and recovery factors, yielded respectively 89,000 tonnes grading 7.01 g/t gold equivalent (Au+Ag) over a true width of 2.3 meters (Hundido Vein); and 91,000 tonnes grading 15.17 g/t gold equivalent (Au+Ag) over a true width of 8.3 meters (Intermedia Vein). These mineralized materials do not constitute ore reserves under SEC Industry Guide 7, The mineralization extends from near surface to a drilled depth of 150 meters and is open at greater depth.

 

The El Dorado vein system can be traced on the surface for a distance greater than three kilometers and exhibits structural complexity with numerous conjugate vein splits both in the hangingwall and footwall. This complex structure hosts multiple mineralized zones including high-grade veins potentially minable underground, and lower-grade open-pittable stockwork zones that are observed to extend over tens of meters in width in both the hangingwall and footwall of the El Dorado vein system.

 

Magellan has concluded an agreement with Ingenieros Mineros, S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making staged six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable. Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of $50,000 (plus 16% IVA) during the year ended December 31, 2018. An additional $60,500 was paid during the year ended December 31, 2019. The Company’s next installment payment of $75,000 was due on August 15, 2019. The Company negotiated a new agreement in January 2020 to replace the prior agreement. The $75,000 payment that was due on August 15, 2019 is no longer due. The Company is now obligated to pay $20,000 in 2020 and $25,000 in 2021 and a 3.5% Net Smelter Return (“NSR”) on any production from the concession. The Company is current on its obligations under this new agreement.

 

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.

 

 

 

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Conflicts of Interests

 

Athena Silver Corporation is a company under common control. Mr. Power is a director and is also a director and CEO of Athena. Mr. Power and Mr. Gibbs are significant investors in both Magellan and Athena.

 

Silver Saddle Resources, LLC (“Silver Saddle”) is a private company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle.

 

Magellan, Athena and Silver Saddle are exploration stage companies and each is involved in the business of acquisition and exploration of mineral resources.

 

The existence of common ownership and common management could result in significantly different operating results or financial position from those that could have resulted had Magellan, Athena and Silver Saddle been autonomous. In addition, the common ownership could result in significant conflicts of interest both in terms of the allocation of working capital as well as under the doctrine of corporate opportunity, inasmuch as all three entities are engaged in mineral exploration in the United States. Messrs. Power and Gibbs have not adopted any policy or guidelines to mitigate the potential adverse effects of their conflicting interests between and among, Magellan, Athena and Silver Saddle.

 

Investors in Magellan should be cognizant that the interests of Magellan may, in the future, be in conflict with the other activities of Magellan’s control persons.

 

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 December 31, 2018, 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 7.

 

On October 31, 2018, the SEC adopted final rules modernizing disclosure requirements for companies with material mining operations (excluding oil and gas). The rules will implement extensive changes to the existing disclosure regime and are intended to align US disclosure requirements more closely with current industry and global regulatory practices and standards, specifically the Committee for Mineral Reserves International Reporting Standards (“CRIRSCO”). The rules have a two year phase-in period. Companies are not required to begin to comply with the rules until their first fiscal year beginning on or after January 1, 2021.

 

 

 

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Unpatented Mining Claims:  The Mining Law of 1872

 

Except for the Arizona State Mineral Lease and patented claims held within the Silver District Claims, 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.

 

Our exploration, development and mining rights relate to patented and unpatented mining claims covering federal and State lands in Arizona and California. Most of our patented and unpatented claims are located in the Silver District in Arizona.

 

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 Bureau of Land Management (“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 mill site 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 (now $155 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.

 

 

 

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Patented Mining Claims

 

Patented mining claims, such as the ones located in our Silver District Project, are mining claims on federal lands that are held in fee simple by the owner. No maintenance fees or royalties are payable to the BLM; however lease payments and royalties with third parties are applicable on some of these claims.

 

Our Properties

 

Our primary focus during the next twelve months, and depending on available resources, will be to acquire, explore, and if warranted and feasible, permit and develop our mineral properties.

 

We have two material properties, namely the Silver District Project in southwest Arizona and the SDA Mill in Nayarit State, Mexico. We also recently acquired rights to explore the El Dorado prospect in Nayarit State, Mexico, which is in proximity to the SDA Mill. We currently intend to engage in exploration activities on the Silver District Project and, if commercially recoverable deposits are found, to conduct mineral development activities. We intend to assess and acquire mineral properties in the region of the SDA Mill with the objective of sourcing ore for processing at the mill. To date, we have only begun preliminary exploration work.

 

Silver District Project, La Paz Co., Arizona  

 

The following map illustrates the location of our Silver District Project:

 

 

 

 

 

 6 

 

 

Silver District, La Paz County, Arizona

 

Effective August 28, 2012, Magellan entered into an Option Agreement with Columbus Silver (US) Corporation, a Nevada corporation (“Columbus”), which Option Agreement granted the Company the right to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. Magellan paid Columbus an initial $63,200 on signing the Option and an additional $50,000 before December 31, 2012. An amendment was signed in August 2013 extending the payments to exercise the option.

 

During February 2014 and January 2013, we paid the final two payments of $80,000 and $30,000, respectively, towards the purchase of the James Blaine-patented claim purchase obligation entered into between Columbus and a third party. We also paid all of the costs to maintain all of the claims and leases in 2013 - 2017.

 

Effective September 29, 2014, we entered into a Purchase Agreement with Columbus to purchase the patented and unpatented mining claims that had been covered by the Option Agreement. The Purchase Agreement superseded the Option Agreement and conveyed the Silver District Claims to the Company. In consideration of the Silver District Claims, we made a one-time payment to Columbus in the amount of $100,000. Following our purchase of the Silver District Claims, we formed a new wholly-owned subsidiary “Gulf + Western Industries, Inc.” (“Gulf + Western”) and transferred our interest in the Silver District Claims to Gulf + Western.

 

The Silver District project area consists of 87 unpatented lode mining claims, 6 patented lode claims, an Arizona State Exploration Permit of 334.85 acres and 23 unpatented mill site claims, totaling over 2,000 acres. The project is located approximately 80 kilometers (50 miles) north of Yuma in southwest Arizona.

 

2014 Drilling Program

 

In May 2014, we completed the drilling of three holes at our Silver District Project. The three holes were the initial holes of a permitted 12-hole exploratory program on Magellan’s unpatented claims near the Papago and Red Cloud Mines. The drilling program was permitted and bonded with the BLM and State of Arizona. Following the drilling program, our bond with the BLM in the amount of $21,457 was refunded.

 

Two of the three holes drilled (core holes PA-01 / 336 total depth & PA-02 / 380 total depth) were designed to test the Papago target, and one hole (RC-01/ 244 total depth) was directed at the Red Cloud target. Our consulting geologist selected 52 samples that were delivered to ALS Labs in Reno, NV for analysis.

 

The highlights of the assay results include the following:

 

  · Excellent comparison of our core hole PA-01 with historic RC hole S242P. Magellan PA-01 intercept of 90 feet grading 6.05 OPT Ag, (including 10 feet of 17.06 OPT Ag), compared very favorably with the historic result of 90 feet grading 5.78 OPT Ag (including 10 feet averaging 14.60 OPT Ag).
  · Previously unreported significant zinc and lead assays from the mineralization in PA-01 4.71% Zn and 1.56% Pb over 90 feet, including 10 feet averaging 8.35% Zn and 4.02% Pb.
  · PA-01 intercepted a previously unknown vein structure, about 15 feet wide and approximately 50 feet below the known mineralized structure, that includes 3 feet grading 3.64% Zn, 0.62% Pb and 0.15 OPT Ag. The significance of this occurrence relative to the Papago resource area is unknown.
  · PA-02 was drilled 250 feet east of PA-01 to test for the down plunge extension of that intercept, but did not encounter any mineralization due to offset by a late fault.
  · RC-01 was drilled just north of the Red Cloud open pit to intersect the extension of the Red Cloud vein beneath the Red Cloud Fault. Although the vein was known to be partly cut off by that fault, the hole intersected over 10 feet of the footwall of the vein, which has never been mined, including five feet grading 3.2% Pb, 7.47% Zn, 0.6 OPT Ag and Trace Au. The granodiorite in the footwall of the vein was extensively altered with stockwork veins for over 50 feet, containing anomalous levels of Pb, Zn, Ag and Au.

 

 

 

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The 2014 drill results will be incorporated into the existing historic drill database for use in planning additional drilling. Geologic evaluation of the entire district continues as Magellan develops additional drill targets in and around the multiple satellite deposits in the Silver District land package.

 

2015 Sampling Program

 

In 2015 the Company carried out a program of rock chip surface sampling. The samples were collected across seven of fourteen known deposits. Results were successful in validating the occurrence of silver values up to 13.0 ounces per ton and fluorspar values up to 25.7% over significant widths. Silver District deposits are localized along three major vein systems having a collective strike length of eight miles. Previous shallow drilling that partially tested these vein systems identified mineralized material containing silver and fluorite, with additional barite and lead-zinc mineralization.

 

The sample results are consistent with historical drilling results. In addition, with respect to any future mining development, ICP 33-element analysis returned low values for environmentally undesirable elements such as mercury, arsenic and uranium.

 

Following are highlights of sample results:

 

  Clip (15 ft rock chip across vein):   13.0 opt Ag; 5.2% Fluorspar (CaF2); 6.9% Barite (BaSO4)
  Geronimo (12 ft rock chip across vein):   10.5 opt Ag; 5.7% Fluorspar; 1.5% Pb
  MP (20 ft rock chip across vein):   5.3 opt Ag
  Red Cloud (30 ft rock chip across vein):   4.1 opt Ag; 25.7% Fluorspar; 2.1% Zn
  Pacific (20 ft rock chip across vein):   1.0 opt Ag; 20.9% Fluorspar; 2.2% Pb; 3.8%Zn

 

For locations of the deposits from which the samples were collected, refer to Magellan’s management presentation available on the Company’s website, www.magellangoldcorp.com.

 

Geochemical analyses were performed by ALS Minerals in Reno, NV and Vancouver, B.C. Silver analysis was by four acid digestion, HCl leach and atomic absorption finish. Fluorine analysis was by Na2O2 fusion, citric acid leach and ion selective electrode. Barium analysis was by fusion XRF. Lead and zinc analyses were by four acid digestion with ICP-AES finish. All samples were analyzed as part of a 33 element package by four acid digestion and ICP-AES finish. Gold analysis was by fire assay with atomic absorption finish.

 

2016 - 2017 Exploration Program

 

During 2016 and 2017 we conducted exploration in the vicinity of the Red Cloud Mine, one of two mines in the district that produced significant quantities of silver-lead ores during the ten-year period 1883-1893. Mineralization in the Red Cloud area is controlled by veins localized along fault structures. The vein targets, which in most places are poorly exposed, occur along a prospective fault zone passing through the Red Cloud Mine. The zone and its possible continuation extends 1,000 meters to the north-northwest of the mine, and to the south-southeast continues for over 800 meters towards the Papago Prospect, where drilling in 2014 returned significant results.

 

Our exploration program in 2016 and 2017 consisted of a ground magnetic survey and a geochemical orientation survey. The work had several objectives, including gaining a better understanding of the geology and in particular the locations of major fault structures, testing the usefulness of geochemical techniques for locating buried mineralization, and delineating drill targets.

 

Zonge International performed a GPS-based 2 kilometer x 1 kilometer ground magnetic survey during May 2016. Ground magnetic/GPS data were acquired on 20 lines oriented N70 degrees East and spaced approximately 100 meters apart, for a total distance of 18 line-kilometers of data acquisition. Total-field magnetic measurements and GPS positions were acquired at 1-second intervals, which corresponds to a down-line station spacing of about 1 meter.

 

 

 

 8 

 

 

Red Cloud Magnetic Survey Interpretation, Showing Rock Domains, Fault Structures, Mines and Prospects and Exploration Target Zones

 

The magnetic results suggest there are four main magnetic domains in the survey area: 1) relatively low susceptibility metamorphic and granitic basement rocks that occupy the western edge and southeast corner of the survey; 2) higher susceptibility volcanic rocks that bound the Red Cloud in the central eastern part of the survey; 3) low to very low susceptibility volcanic rocks in the northeast corner of the survey that are essentially “non-magnetic or transparent” and reflect the rocks beneath them (probably older volcanic rocks); 4) high to very high susceptibility rocks in the extreme northwest corner of the survey and possibly in the extreme northeast corner.

 

 

 

 9 

 

 

Structurally, the Red Cloud Fault and probable extensions is evident for about 800 or more meters both north-northwest and south-southeast of the Red Cloud Mine. To the south-southeast it apparently extends toward Papago and the Pacific Patent. It may be cut off or offset on the north end by a significant east-west fault that also separates the two volcanic units. To the south, the andesitic volcanic rocks (and possibly the southern end of the Red Cloud Fault) are cut off by a northeast trending late fault that is obscured by valley fill sediments. Some northwest and west-northwest textures and breaks within the volcanic units are also highlighted. Structural complexity is evident around the Papago drilling area. Late post-mineral faults that juxtapose rocks of high susceptibility with those of low susceptibility are defined clearly, even at 100-meter line spacing.

 

In summary, the magnetic survey has helped to define major lithologic domains. It also has been especially useful in showing the location of major faults, some of which served as conduits for mineralization and some of which are post-mineral. Several locations along the major Red Cloud fault where poorly exposed constitute prospective exploration targets.

 

In 2016 and 2017, we performed a geochemical orientation survey over the Red Cloud ore body in an attempt to detect known deep mineralization through overlying barren volcanic rocks. This technique could be useful in identifying additional ore bodies beneath post-mineral cover. In the Silver District, all the known ore bodies crop out at surface. Exploration for extensions of known ore bodies and potentially blind ore bodies must rely on indirect methods such as geochemistry or geophysics.

 

Twenty-three soil samples were collected at 15-meter intervals along two parallel lines approximately 100 meters apart in the hanging wall of the Red Cloud Vein. The samples were prepared for analysis by MEG, Inc. of Reno, Nevada. A split of all 23 samples were analyzed for mercury (Hg) by MEG using their proprietary GAS’m method. A second split of all 23 samples was submitted to ALS in Reno for Ionic Leach analysis for a 60-element suite of metals including silver, lead, zinc, molybdenum, gold and mercury, which are the primary and main secondary metals found in Red Cloud ore. Both of these methods measure metal ions that are loosely attached to the surfaces of clay minerals in the soil, having been mobilized from a deep mineralized source, traveled upward through barren overlying rock and been re-deposited on the clay minerals.

 

The orientation survey produced encouraging results. Samples collected from directly above the known, dipping ore body contain levels of silver, lead, molybdenum, zinc, mercury and gold that are ten to one hundred times background. Mercury analyses from the GAS’m survey agreed with mercury analyses from the Ionic Leach method. Those samples collected closest to the outcropping vein had the highest values, diminishing with distance by a factor of 10 as the dipping vein passed below the water table at a vertical depth of almost 400 feet. The mobilization process for the metals is only effective above the water table in oxidizing conditions, so this fall-off in values was expected.

 

The orientation survey demonstrates that primary metals from the Red Cloud ore body can be detected through tens to hundreds of feet of barren overlying material as long as the mineralized source is above the water table. Expanding the sample grid along strike to the north and south is warranted to search for extensions of the Red Cloud vein and to explore for other deposits. The ALS Ionic Leach process is the best analytical tool for an expanded survey, as it adequately detects the principal metals (including mercury) from the known ore bodies.

 

Based on the initial encouraging results obtained from the orientation survey, in 2017 we conducted an additional program of soil sampling along strike to the north and south of the Red Cloud ore body. Samples were collected on a grid with lines oriented across strike of the Red Cloud vein.

 

 

 

 

 

 

 

 

 10 

 

 

Silver District Claim Map

 

 

 

 

 

 11 

 

 

Silver District Patented Mining Claims

 

RED CLOUD Patented Mining Claim – MS 749; Parcel #301-34-003 La Paz Co. Assessor

(Subject to lease agreement)

 

JAMES G. BLAINE Patented Mining Claim – MS 1258-A Parcel #301-31-001 La Paz Co. Assessor

 

BLACK ROCK Patented Mining Claim – MS 291 Parcel #301-34-002 La Paz Co. Assessor

 

PACIFIC Patented Mining Claim – MS 292 Parcel #301-34-002 La Paz Co. Assessor

 

SILVER GLANCE Patented Mining Claim – MS 246 Parcel #301-34-001 La Paz Co. Assessor

(Subject to lease agreement; title to be perfected)

 

MENDIVIL Patented Mining Claim – MS 279 Parcel #301-33-002 La Paz Co. Assessor

(Subject to lease agreement; title to be perfected)

 

Arizona State Exploration Permit

 

Arizona State Exploration Permit #08-118475 - GRANTED December 2, 2015; 334.85 acres+/-

 

Silver District Unpatented Mining Claims

 

Plata No. 1(3 rd am.) AMC# 44189 (subject to lease agreement)
Plata No. 2(2 nd am.) AMC# 44190 (subject to lease agreement)
POP #1 (2dAm.) AMC# 43990
POP #2 (2d Am.) AMC# 43991
POP #3 (2d Am) AMC# 43992
POP #4 (2d Am) AMC# 43993
POP #5 (2d Am) AMC# 43994
POP #6 (2d Am) AMC# 43995
POP #7 (2d Am) AMC# 43996
POP #8 (2d Am) AMC# 43997
POP #9 (2d Am) AMC# 43998
POP #10 (2d Am) AMC# 43999
POP #11 (2d Am) AMC# 44000
POP #13 (2dAm) AMC# 44002
POP #14 (2dAm) AMC# 44003
POP #15 (2dAm) AMC# 44004
POP #16 (2dAm) AMC# 44005
POP #17 (Am) AMC# 44006
POP #19 (Am) AMC# 44008
POP #21 (Am) AMC# 44010
POP #22 (Am) AMC# 44011

 

 

 

 12 

 

 

POP #24 (2d Am AMC# 44013
POP #25 (2d Am AMC# 44014
POP #26 (2d Am AMC# 44015
POP #27 (2d Am AMC# 44016
POP #28 (2d Am AMC# 44017
POP #29 (2d Am AMC# 44018
POP #30 (Am) AMC# 44019
POP #31 (Am) AMC# 44020
POP #32 (Am) AMC# 44021
POP #37 (2d Am) AMC# 44026
POP #38 (2d Am) AMC# 44027
POP #43 (Am) AMC# 44032
POP #50 – POP #51 AMC# 207723-207724
POP #53 – POP #57 AMC# 207725-207729
POP #62 AMC# 207734
RUF #1 AMC # 129269
RUF #2 AMC # 129270
RUF #5 AMC # 129273
RUF #9 AMC # 129277
RUF #10 AMC# 129278
RUF #12 AMC# 129280
RUF #13 AMC# 129281
RUF #14 AMC# 129282
RUF #15 AMC# 129283
RUF #17 AMC# 129285
RUF #18 AMC# 129286
RUF #22 AMC# 129290
RUF #23 AMC# 129291
RUF #24 AMC# 129292
MIL #1 AMC # 129261
MIL #2 AMC# 129262
MIL #3 AMC# 129263
MIL #4 AMC# 129264
MIL #5 AMC# 129265
MIL #6 AMC# 129266

 

 

 

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G + W #2 AMC # 129255
G + W #3 AMC # 129256
G + W #4 AMC # 129257
PL-1 – PL-2 AMC # 366944-366945
Arch AMC # 366937
RU 1 – RU 3 AMC # 366947-366949
CH-1 – CH-6 AMC # 366938-366943
POP 39 AMC # 366946
A-1 AMC # 369924
RIHO AMC # 369925
MAX 13-26 AMC # 386562-386575
Ruth #1 Amended AMC # 42216
Ruth #3 Amended AMC# 44218
Ruth #5 Amended AMC# 44220
Ruth #7 Amended AMC# 44222
Plata No. 3 Amended AMC# 44191
Plata No. 5 Amended AMC# 44193
Plata No. 6 Amended AMC# 44194
Plata No.10 Amended AMC# 44195
Plata No.11 Amended AMC# 44196
Plata No.12 Amended AMC# 44197
Plata No.14 AMC# 44199
Plata No.15 Amended AMC# 44200
Chuck No.5 AMC# 44208
Chuck No.7 AMC# 44210
Chuck No.9 AMC# 44212
Staked by Magellan  
SD 30 AMC424398
SD 37 AMC424404

 

Certain of the Silver District Claims are subject to third party lease and/or net smelter royalties of varying percentages.

 

 

 

 

 

 

 

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SDA Mill, Nayarit, Mexico

On March 3, 2017, Magellan acquired a 150-day option to purchase the SDA Mill from Rose Petroleum plc and its wholly-owned subsidiary Minerales Vane S,A. de C.V. (“Rose”) for consideration of $1.0 million in cash and $500,000 in restricted common stock of Magellan. The Company paid an initial $50,000 option fee on March 3, 2017, and on June 1, 2017 paid an additional $100,000 option fee that also applied to the purchase price upon closing.

 

On July 31, 2017, Magellan and Rose agreed to extend the option period. Under terms of the extension, Magellan had the obligation by August 15, 2017, to deliver executed irrevocable bridge loan commitments representing not less than $900,000 in cash required to fund the transaction. Magellan delivered the loan commitments as required. Magellan also agreed to reimburse Rose for certain mill employee and maintenance costs for the months of August and September 2017. Magellan reimbursed Rose approximately $50,000 for the two months, as required under terms of the extension.

 

 

 

 15 

 

 

On September 9, 2017, Magellan and Rose executed a definitive and binding stock purchase agreement (“SPA”) pursuant to which Magellan would acquire 100% interest in Rose's wholly-owned Mexican subsidiary that owned the SDA Mill. The SPA provided that the purchase price for the SDA Mill would be US $1.5 million, consisting of $1.0 million in cash (of which $100,000 had been paid in the form of an option extension payment on June 1, 2017) and $500,000 in shares of Magellan’s restricted common stock. The SPA provided that closing of the transaction would be subject to the satisfaction of certain conditions, including Rose completing the split-off of its Mexican subsidiary that owned the SDA Mill and Rose obtaining the approval of its shareholders.

 

On November 30, 2017, as disclosed above, the transaction closed for the agreed upon price of approximately US$1.5 million, consisting of $1,000,000 in cash, including the $100,000 option extension payment, and $500,000 in restricted common stock of Magellan. Based upon the volume weighted average price per share of Magellan Gold stock for the 30 calendar days preceding the closing date, 284,017 shares of stock were issued in connection with the transaction.

 

The total purchase price for the SDA Mill was determined to be $1,476,025 which consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 previously paid for the option-to-purchase extension, and 284,017 shares of common stock (the “Shares”) with a fair value of $426,025. The note was 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 7 to 12. This repurchase option expired unexercised.

 

The SDA Mill is a fully operational flotation plant that also includes a precious metals leach circuit and associated assets, licenses and agreements. The mill has the capacity to process ore at a rate of up to 100 tons per day. The mill has a ten-year operating history. Historically its operation has been based on sales of flotation concentrates to smelters, and payment for precious metals content. The SDA mill has had limited operations since its acquisition in December 2017.

 

Magellan acquired no ore reserves in connection with the SDA Mill purchase. Resumption of production will depend on the Company’s success in identifying and acquiring new sources of ore, for which there is no assurance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 16 

 

 

El Dorado

 

 

 

EL DORADO GOLD-SILVER PROJECT, NAYARIT STATE, MEXICO

 

In August, 2018, 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 Company has initiated permitting and is in the process of selecting an underground mining contractor. The project has excellent road and rail infrastructure, and the Company plans to truck the mineralized material 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.

 

 

 

 17 

 

 

Commencement of mining will depend on a number of preconditions, the most important of which include obtaining environmental and blasting permits, selecting and mobilizing a mining contractor and procuring financing. An access and land use agreement with the local ejido already is in place. Once development begins, mineralized material will be accessible with a minimal amount of underground development. Mineralized material will be sourced initially from the shallow, upper portions of the mineralized veins.

 

Drilling on the El Dorado vein system was conducted by a TSX.V-listed company in 2010-2011 and comprised 28 diamond core holes totaling 4,950 meters. Two veins appear to offer particular promise for mining, namely the Hundido and Intermedia veins. These veins lie adjacent to and along strike from the old Hundido Mine, which from 1900-1927 produced an estimated 50,000 tonnes of high-grade gold-silver ore. The veins are steeply-dipping, highly silicified structures cutting volcanic rocks. Polygonal resource calculations for the two veins, based on intersections in 10 core holes and after applying a 25% tonnage deduction for dilution and recovery factors, yielded respectively 89,000 tonnes grading 7.01 g/t gold equivalent (Au+Ag) over a true width of 2.3 meters (Hundido Vein); and 91,000 tonnes grading 15.17 g/t gold equivalent (Au+Ag) over a true width of 8.3 meters (Intermedia Vein). These mineralized materials do not constitute ore reserves under SEC Industry Guide 7. The mineralization extends from near surface to a drilled depth of 150 meters and is open at greater depth.

 

The El Dorado vein system can be traced on the surface for a distance greater than three kilometers and exhibits structural complexity with numerous conjugate vein splits both in the hangingwall and footwall. This complex structure hosts multiple mineralized zones including high-grade veins potentially minable underground, and lower-grade open-pittable stockwork zones that are observed to extend over tens of meters in width in both the hangingwall and footwall of the El Dorado vein system.

 

Magellan has concluded an agreement with Ingenieros Mineros, S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making staged six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable. Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of $50,000 (plus 16% IVA) during the year ended December 31, 2018. An additional $60,500 was paid during the year ended December 31, 2019. The Company’s next installment payment of $75,000 was due on August 15, 2019. The company negotiated a new agreement in January 2020 to replace the prior agreement. The $75,000 payment that was due on August 15, 2019 is no longer due. The company is now obligated to pay $20,000 in 2020 and $25,000 in 2021 and a 3.5% Net Smelter Return (“NSR”) on any production from the concession. The Company is current on its obligations under this new agreement.

 

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.

 

LOCATION, HISTORY AND GEOLOGY OF OUR PROPERTIES

 

Silver District

 

The property covers the heart of the historic Silver District in La Paz County, approximately 80 kilometers (50 miles) north of Yuma in southwest Arizona. This property is currently without known reserves and our proposed program is exploratory in nature.

 

 

 

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Location, Access and Composition

 

The Silver District is located approximately 50 miles by road north of Yuma, Arizona on the southeast flank of the Trigo Mountains. Access to the property via a 4WD vehicle from Yuma is seasonally good, with 34 miles of paved or well-maintained gravel road and another 14 miles of seasonally maintained unimproved roads to the Red Cloud Mine, in the southwestern corner of the district.

 

The Silver District Project consists of 87 unpatented lode mining claims, 6 patented lode claims, an Arizona State Exploration Permit of 334.85 acres and 23 unpatented mill site claims, totaling over 2,000 acres in La Paz County, Arizona.

 

Certain of the underlying claims are subject to third party lease and or purchase obligations and net smelter royalties of varying percentages.

 

History

 

The Silver District was discovered in 1862 and supported small but significant silver-lead production, largely from underground operations at the Red Cloud and Clip (Blaine patented claim) mines, during the ten year period from 1883 to 1893. Recorded production is estimated at 1.56 million ounces silver and 2.33 million pounds lead. There have been occasional small scale development activities since that time and in recent years the area has been a site for collection of high value, specimen wulfenite crystals.

 

Modern exploration, principally shallow drilling, metallurgical test work and a number of scoping studies to evaluate development of the silver and fluorspar deposits, was carried out intermittently from 1973 through 1992, initially by Gulf + Western Industries (no relation to our recently-formed subsidiary) through its New Jersey Zinc subsidiary, and followed by Orbex Resources and its successor companies, Silver Glance Resources and Silverspar Minerals. A total of 465 holes for an aggregate length of 62,866 feet were drilled during this period. The project has been largely inactive since the early 1990’s.

 

Columbus Silver (US) Corporation acquired the project in 2004 and focused its efforts on re-consolidation of the property position, organization and compilation of technical records and limited field mapping and sampling.

 

Power and Water

 

There are no modern mine developments or equipment on the property. The Red Cloud Mine patented mining claim has a covered shop and full time watchman with living facilities. It also has a water well and a small diesel generator. There is no commercial water or power available at the site and these would have to be developed with any mining development.

 

Geology

 

The Silver District deposits consist of variable silver and lead-zinc mineralization in massive quartz-calcite-fluorspar-barite veins and breccia zones that occur within three major north-northwest trending vein systems having a collective strike length of about eight miles. The veins cut Tertiary volcanic and volcaniclastic rock formations, which overly an older, possibly Pre-Cambrian crystalline to metamorphic basement complex. Potential ore-grade silver (lead-zinc), fluorspar and barite deposits occur as pod-like bodies within all three vein systems. Various historic resource estimates, all pre-dating NI 43-101 reporting standards, have been carried out by past operators in the District.

 

 

 

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Exploration Plans

 

Subject to available funding, the following outlines our exploration plans for the Silver District.

 

Past explorers identified a number of outcropping ore bodies (some of which saw production in the late 19 th and early 20 th centuries) and with shallow drilling defined new and larger deposits to open-pit depths. These known occurrences are the exposed portions of three long, through-going district wide fault trends. Potential for the discovery of additional mineralization is excellent at depth below known ore bodies and along the fault trends between known ore bodies. The best method for making new discoveries is by drilling at depth below known ore bodies. Geology, geophysics and geochemistry could prove useful in defining blind targets in non-outcropping areas. We chose the known mineralization at the historic Red Cloud and Papago mines as our initial exploration targets in the exploration drilling carried out in 2014 and for our exploration program in 2016.

 

Geological mapping, with rock sampling and assaying, will help guide drilling and geophysical surveying over the next twelve months. Geophysical geochemical test surveys to detect sulfide mineralization below known resources at Red Cloud and Papago, if successful, will be used to delineate drill targets under other historic resources and along the unexplored sections of the major mineralized structures.

 

Subject to securing the necessary funding, we have budgeted $500,000 for exploration work over the next 12 to 24 months, comprising $100,000 for geology, geochemistry and computer modeling, $50,000 for geophysical orientation surveys, and $350,000 for diamond drilling and assaying of approximately 6,000 feet of core.

 

We anticipate the exploration program will be supervised by Douglas R Bowden, a consulting geologist based in Sparks, Nevada. Mr. Bowden has over 35 years of experience in mining exploration in the United States, Canada and Mexico and is a licensed geologist in the State of Utah.

 

If Mr. Bowden was unavailable, we believe we could find a qualified consulting geologist to manage our exploration efforts.

 

SDA Mill

 

Location and Access

 

The SDA Mill (“SDA”) is located in the town of San Dieguito de Arriba, within the municipality of Acaponeta, in the State of Nayarit, Mexico. It is approximately 15 km east of Acaponeta and easily accessible by paved road. The town, with a population of approximately 300 inhabitants, lies at an elevation of 38 meters asl and is within the ejido of the same name. Acaponeta is about 150 km southeast from Mazatlan, a 1.5 hours drive via a major paved highway. Mazatlan is served by direct flights from several cities in the US and Canada.

 

The SDA plant and tailings area includes approximately 9 hectares (21.6 acres) of land leased from the local ejido and an individual. The largest lease of 6 hectares (14.4 acres), on which the plant is located, was renewed in 2016 and includes the supply of plant make-up water. The facility is permitted and the Operating License is valid until 2026.

 

Ore transport, operating supplies and concentrate shipments are by truck. The majority of employees live in the adjacent town of San Dieguito de Arriba and either walk or bicycle to work.

 

 

 

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History

 

The SDA plant was built and began operating in 2007 by Minerales Vane S.A. de C.V. (“Vane”), and operated more or less continuously until 2017. The plant was originally designed to process ore from Vane’s El Diablito mine. Vane developed and exploited this mine as well as other mines through joint ventures until mining ceased in October 2015 due to lack of ore.

 

The mill continued to operate until April 2017, processing ore from various operators in the region on a toll basis. The toll ores were tested prior to processing to estimate recoveries and concentrate grades. Typical reported recoveries were in the range 85-92% for gold and 72-77% for silver. The stated objective of SDA was to produce a bulk gold-silver concentrate of the highest grade possible without detrimental impurities.

 

The SDA plant generally has been operated at the rate of 100 mtpd over the past ten years.

 

An agitated leach system and precious metals recovery plant (Merrill – Crowe) was installed and operated briefly processing concentrates. The leach system is not currently being operated.

 

Water and Power

 

Water is pumped from the Rio Acaponeta, 2.4 km distant to the west using a company owned portable pump and 4-inch piping. The fresh water make-up requirement is estimated at 4-5 m 3 per hour. This is equivalent to approximately 1 tonne of fresh water per tonne of ore processed. The plant has two storage tanks totaling approximately 150 m 3 of storage.

 

Power is supplied by an overland power line from the grid by Comision Federal de Electricidad (“CFE”). Rates are set by the CFE. Plant power is 440V with two transformers, one for the plant and a smaller unit for the laboratory.

 

Workforce

 

When fully operational the SDA Mill is operated with a total of 36 employees, which includes 3 in administration (I GM and 2 Engineers), 4 in the laboratory and 29 operators. The technical support for metallurgy is provided through an external consultant. Overall the available workforce is well trained to maintain current operating status, and open to process improvement given external support. Turnover is nil with the advantage of the local workforce, and community relations are in good standing. The SDA Mill is currently on care and maintenance with independent contractors on retainer to oversee the security of the premises.

 

Process Plant

 

The main sections of the SDA process plant include:

 

  · Crushing – two stage crushing in closed circuit – capacity 25 mtph

 

  · Grinding – ball mill in closed circuit with cyclone classifier – capacity 150 mtpd

 

  · Flotation – including conditioner tank, roughers and cleaners – capacity + 150 mtpd

 

  · Concentrate vats, drying and load out area

 

  · Tailings facility – contains 250,000 mt – additional capacity 150,000 mt

 

  · Analytical laboratory

 

  · Office, warehouse and small maintenance shop

 

  · Leaching – Merrill Crowe installation – not operating – capacity 300 mtpd concentrate leaching

 

The plant historically has operated at 100 mtpd but has the capacity to operate at 150 mtpd or greater without additional capital expenditure.

 

 

 

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EL DORADO

 

Location and Access

 

The El Dorado Gold-Silver Project is located in the Pacific Coastal Plain, near the village of Las Minitas, Municipality of Rosamorada, State of Nayarit, within the Mining Agency of Tepic. It lies 50 kilometers south of the Company’s SDA Mill, 70 kilometers north-northwest of Tepic, the state capital, and 180 kilometers southeast of Mazatlan, Sinaloa. The project has excellent road and rail infrastructure.

 

The El Dorado Mining Concession consists of a 50-hectare concession held under option by the Company’s wholly-owned subsidiary Minerales Vane 2 S.A. de C.V. from a Mexican private company, Ingenieros Mineros S.A. de C.V.

 

NAME OF THE MINING CONCESSION   TITLE N°     HA     VALID UNTIL
EL DORADO     166132     50     March 26, 2030

 

The principal vein system is the El Dorado epithermal vein trend that strikes N50°E and dips steeply to the NW. It forms a continuous reef outcrop 1.5 kilometers in length. Additional discontinuous outcrops both to the NE and SW indicate a strike length of 3.5 kilometers.

 

 

 

 

 

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History

 

The El Dorado vein system has a history of small-scale mining. In the period 1900-1927 a mineralized zone was mined in the Hundido Mine. A historic longitudinal section of this portion of El Dorado vein indicates that it was mined for gold and silver to a maximum depth of 150 meters from the surface. The workings are largely inaccessible and there are no production records available. Based on the extent of old workings and the size of the stopes shown on the historic longitudinal section approximately 50,000 tons of gold-silver mineralization are estimated to have been extracted from the Hundido Mine.


From 1965 to 1975 Rafael Velasco extracted mineralized material from the El Dorado mine, located 250 meters further NE of the El Hundido mine, and from 1975 to 1983 American interests mined direct-to-smelter grade material from the El Dorado mine.

 

From 1985 to 1990 the company Ingenieros Mineros SA de CV continued operations in the El Dorado Mine in three levels to a depth of 30 meters below the surface and shipped the ore to the "El Venado" processing plant located near Ruiz, Nayarit, for toll treatment to produce a flotation concentrate. Historic metallurgical balance sheets from this plant indicate the grade of the material was on the order of 5 g/t Au and 70 g/t Ag.

 

In a report dated May 1986 by Compañia Fresnillo, S.A. de C.V., a list of 46 underground samples reported an average grade of 7.88 g/t Au and 55 g/t Ag for the three levels of the El Dorado Mine with vein widths ranging from 1.2 meters to 4.0 meters.

 

Magellan has not verified available historic data because the underground workings are presently flooded and inaccessible. In due course the Company intends to dewater the underground workings and carry out the work necessary to verify data and define the size and grade of the mineralization.

 

Drilling Program 2010-2011

 

Drilling on the El Dorado vein system was conducted by a Toronto Stock Exchange venture listed company in 2010-2011 and comprised 28 diamond core holes totaling 4,950 meters. The drilling intersected multiple steeply-dipping silicified mineralized zones extending from near-surface to a drilled depth of 150 meters.

 

The following longitudinal section shows the drilling pattern along the El Dorado vein in the area of the Hundido and El Dorado mines, and summary drill hole intersection grades and widths.

 

 

 

 

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The mineralization extends from near surface to a drilled depth of 150 meters and is open at greater depth.

 

Two veins appear to offer particular promise for mining, namely the Hundido and Intermedia veins. These veins lie adjacent to and along strike from the old Hundido Mine. Polygonal resource calculations for the two veins, based on intersections in 10 core holes are summarized as follows:

 

MINERALIZATION INDICATED BY DRILLING

 

Vein

True

Width

m

Tonnes

Au+Ag

Au Equiv

g/t

Hundido 2.3 89,000 7.01
Intermedia 8.3 91,000 15.17

 

Notes:    1. Polygonal resources based on intersections from 10 holes.
  2. Tonnage reduced by 25% to allow for mining dilution and recovery loss.
  3. Does not constitute ore reserves under SEC Industry Guide 7.

 

Geology

 

The stratigraphy of the district consists predominantly of a thick andesitic lithic lapilli tuff, with a dacitic crystal tuff marker horizon within the andesitic pile. The andesitic sequence is overlain by a pre-vein rhyolitic pyroclastic sequence, indicating an andesitic/rhyolitic bimodal composition. In the central part of the district a complex of domes and dikes of rhyolitic composition exhibit a NE-SW orientation similar to the vein system. The pre-vein volcanic stratigraphy shows a general tilt of 8°-15° to the east, exposing the deepest portions of the stratigraphy and hydrothermal system in the SW and central parts of the district, and the higher geologic level of the deposit towards the NE where high level silicification and argillization outcrop.


The vein pattern is interpreted to be the result of a right lateral structural regime that developed a N50°E fault system exhibiting a horizontal component of movement, and a conjugate system of N70°E to E-W faults with dilational and normal movement. The principal mineralized structure in the district is the El Dorado Vein which can be traced on the surface for a distance greater than 3 kilometers, and exhibits structural complexity with numerous conjugate vein splits both in the hangingwall and footwall.


A number of prospective exploration targets have been defined along the El Dorado Vein structure related to old mines, anaomalous geochemical sample results and zones of structural complexity.

 

Two main stages of vein formation appear to be present consisting of early fine to medium grained crystalline quartz with Pb-Zn-Cu and Ag sulfides (Stage I), and a later Stage II which consists of generally barren coarse-crystalline quartz that is commonly observed cementing breccia fragments of Stage I vein material. In the hangingwall and footwall of the veins it is common to observe quartz stockwork-stringer zones with Pb-Zn-Cu sulfides as well as dissemination of sulfides in permeable zones of coarse-grained tuffs and pyroclastic breccias. In the geologically deeper central part of the El Dorado vein system where the Hundido and El Dorado mineralized zones were mined, quartz with Au-Ag values and base metal sulfides of Stage I are present accompanied by strong propylitization (epidote and chlorite) of the andesitic volcanic, particularly in the footwall portion of El Dorado vein system.

 

The El Dorado Vein exhibits potential to contain multiple mineralized zones, including higher grade over minable widths for underground mining, or lower-grade open pitable stockwork zones which are observed over tens of meters in width in both the hangingwall and footwall of the El Dorado vein system.

 

 

 

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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.

 

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.

 

Our current focus is primarily on the exploration of our Silver District (Arizona) Project. We plan to develop a formal sample collection and analysis process in due course; this process will include appropriate quality assurance and quality control procedures.

 

Subject to our ability to raise the necessary funds, we may acquire additional exploration properties near our existing properties or elsewhere and implement exploration programs that may cover these future 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, re-contouring and re-seeding of disturbed areas; and,

 

  · analyzing samples for minerals that are known to have occurred in the test area.

 

 

 

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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. Our Silver District Project 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.

 

Plan of Exploration

 

We have one material property, namely the Silver District Project in southwest Arizona. We currently intend to engage in exploration activities on the Silver District Project and, if commercially recoverable deposits are found, to conduct mineral development activities.

 

 

 

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Gold and Silver Prices

 

Our operating results are substantially dependent upon the world market prices of gold and silver. We have no control over gold or silver prices, which can fluctuate widely. The volatility of such prices is illustrated by the following graphs, which respectively set forth the prices of gold and silver per ounce (as reported by www.kitco.com) during the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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These historical prices are not indicative of future gold or silver prices.

 

Marketing

 

All of our mining operations, if successful, will produce precious metals in doré form or contained in a concentrate.

 

We plan to refine and market our precious metals doré and concentrates using a geographically diverse group of third party smelters and refiners. The loss of any one smelter or refiner 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 or refiner.

 

Hedging Activities

 

Our strategy is to provide shareholders with leverage to changes in gold and silver prices by selling precious metals production at market prices. We may sell precious metals from our future mines, if any, both pursuant to forward contracts and at spot prices prevailing at the time of sale. We may also enter into derivative contracts to protect the selling price for certain anticipated gold and silver production and to manage risks associated with commodities and foreign currencies.

 

Government Regulation

 

 

 

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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.

 

In June 2018, we received a notification from the US Department of Interior regarding a breach of a mine tailings impoundment at the Red Cloud prospect in the Silver District. According to the notice, the tailings contained hazardous substances including lead and arsenic. We were indentified as a potential responsible party. We responded to the notification and have heard nothing further. We cannot predict whether the situation represents the potential a material liability.

 

Mexico

 

In order to carry out mining activities in Mexico, the Company is required to obtain a mining concession from the General Bureau of Mining, which belongs to the Ministry of Economy of the Federal Government, or be assigned previously granted concession rights, and both must be recorded with the Public Registry of Mining. In addition, mining works may have to be authorized by other authorities when performed in certain areas, including  ejidos  (communal owners of land recognized by the federal laws in Mexico), villages, dams, channels, general communications ways, submarine shelves of islands, islets and reefs, marine beds and subsoil and federal maritime-terrestrial zones. Reports have to be filed with the General Bureau of Mining in May of each year, evidencing previous calendar year mining investment and works. Annual reports, detailing technical and statistical information and production results, must be submitted during the first 30 business days of the following year for each concession or group of concessions bearing production and all concessions over six years of age. Bi-annual mining duties are payable in January and July of each year and, based on amount of surface of each mining concession, holders of mining concessions must also pay annually and no later than the last business day of March a special mining fee based on 7.5% of the income before interest and certain other permitted deductions derived from the transfer or sale of minerals, plus 0.5% of gross revenues from sales of gold, silver and platinum. Failure to pay any of these duties and submit the required reports could lead to cancellation of the concessions. Upon expiration or cancellation of the concession, certain obligations remain, such as filing technical reports and ground support.

 

 

 

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Employees and Consultants

 

Effective June 1, 2016, we entered into an Employment Agreement with Dr. Pierce Carson and engaged his services as President and CEO of Magellan for an initial term of one year. 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.

 

We rely heavily on the services of our consulting geologist and other technical consultants.

 

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, 2019 and 2018, 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.

 

 

 

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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.

 

Our principal shareholders and control persons are also principal shareholders and control persons of Athena and Silver Saddle, which could result in conflicts with the interests of minority stockholders.

 

Messrs. Gibbs and Power are control persons and principal shareholders of Magellan, Athena and Silver Saddle. Magellan, Athena and Silver Saddle are engaged in mineral exploration activities, although in different geographical regions. While the geographical focus of the companies is different, numerous conflicts could arise in the future. For example, Messrs. Gibbs and Power have provided the majority of working capital for all three companies to date, and in the likely event that these companies require additional capital in the future their resources may be inadequate to finance the activities of all. In addition, if new prospects become available, a conflict may exist with respect to which company to offer those opportunities. Messrs. Gibbs and Power have not developed a conflict of interest policy to mitigate the potential adverse effects of these conflicts and as a result these conflicts represent a significant risk to the shareholders of the Company. Conflicts for access to limited resources and opportunities cannot be eliminated completely, and investors should be aware of their potential.

 

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.

 

 

 

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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.

 

 

 

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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.

 

 

 

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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. and Mexican governments may determine to revise U.S. or Mexican 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.

 

 

 

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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.

 

 

 

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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.

 

 

 

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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.

 

 

 

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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 Associated with Foreign Operations

 

The Company relies on local counsel and advisors and the experience of its management and board of directors in foreign jurisdictions.

 

The legal and regulatory requirements in Mexico with respect to mineral exploration and mining activities, as well as local business customs and practices are different from those in the United States. The officers and directors of the Company must rely, to a great extent, on the Company’s local legal counsel and local consultants retained by the Company in order to keep abreast of material legal, regulatory and governmental developments as they pertain to and affect the Company’s business operations, and to assist the Company with its governmental relations. The Company must rely, to some extent, on those members of management and the Company’s board of directors who have previous experience working and conducting business in these countries in order to enhance its understanding of and appreciation for the local business customs and practices. The Company also relies on the advice of local experts and professionals in connection with current and new regulations that develop in respect of banking, financing, labor, litigation and tax matters in these countries. There can be no guarantee that reliance on such local counsel and advisors and the Company’s management and board of directors will result in compliance at all times with such legal and regulatory requirements and business customs and practices. Any such violations could result in a material adverse effect on the Company’s business, financial condition and results of operations.

 

Our operating properties located in Mexico are subject to changes in political or economic conditions and regulations in that country. 

 

As of December 1, 2018, Andres Manual Lopez Obrador became the newly elected President of Mexico. President Obrador may attempt to implement changes to the mining regulatory environment that are adverse to the interests of mineral exploration and development companies. The risks with respect to Mexico include, but are not limited to: nationalization of properties, military repression, extreme fluctuations in currency exchange rates, criminal activity, lack of personal safety or ability to safeguard property, labor instability or militancy, mineral title irregularities and high rates of inflation. In addition, changes in mining or investment policies or shifts in political attitude in Mexico may adversely affect our business. We may be affected in varying degrees by government regulation with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation, land use, land claims of local people, opposition from non-governmental organizations, water use and mine safety. The effect of these factors cannot be accurately predicted and may adversely impact our operations.

 

 

 

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Our ability to develop Mexican properties to provide ore to our SDA Mill is subject to the rights of the Ejido (agrarian cooperatives) who use or own the surface for agricultural purposes.

 

Our ability to mine minerals is subject to maintaining satisfactory arrangements and relationships with the Ejido for access and surface disturbances. Ejidos are groups of local inhabitants who were granted rights to conduct agricultural activities on the property. We must negotiate and maintain a satisfactory arrangement with these residents in order to disturb or discontinue their rights to farm.

 

Since a significant amount of our expenses in Mexico are paid in Mexican pesos, we are subject to changes in currency values that may adversely affect our results of operations. 

 

Our operations in the future could be affected by changes in the value of the Mexican peso against the United States dollar. The appreciation of non-U.S. dollar currencies such as the peso against the U.S. dollar increases expenses and the cost of purchasing capital assets in U.S. dollar terms in Mexico, which can adversely impact our operating results and cash flows. Conversely, depreciation of non-U.S. dollar currencies usually decreases operating costs and capital asset purchases in U.S. dollar terms. The value of cash and cash equivalents, and other monetary assets and liabilities denominated in foreign currencies also fluctuate with changes in currency exchange rates.

 

Our activities are subject to significant environmental regulations, which could raise the cost of doing business.

 

Our operations in Mexico are subject to environmental regulation by SEMARNAT. Regulations governing advancement of new projects or significant changes to existing projects require an environmental impact statement, known in Mexico as a MIA. We may also be required to submit proof of local community support for a project to obtain final approval. If an environmental impact statement is adverse or if we cannot obtain community support, our ability to explore and develop our properties could be adversely affected. Significant environmental legislation exists in Mexico, including fines and penalties for spills, release of emissions into the air, and other environmental damage, which fines or penalties could adversely affect our financial condition or results of operations.

 

In addition, significant state and federal environmental protection laws in the U.S. may hinder our ability to explore at our Silver District prospect and may also delay or prohibit us from developing properties where economic mineralization is found. Federal laws that govern mining claim location and maintenance and mining operations on federal lands are generally administered by the BLM. Additional federal laws, governing mine safety and health, also apply. State laws also require various permits and approvals before exploration, development or production operations can begin. Among other things, a reclamation plan must typically be prepared and approved, with bonding in the amount of projected reclamation costs. The bond is used to ensure that proper reclamation takes place, and the bond will not be released until that time. Local jurisdictions may also impose permitting requirements (such as conditional use permits or zoning approvals).

 

The Company may be responsible for corruption and anti-bribery law violations.

 

The Company’s business is subject to the Foreign Corrupt Practices Act (the “FCPA”) and the Corrupt Foreign Public Officials Act (the “CFPOA”), which generally prohibit companies and company employees from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain accurate books and records and internal controls, including at foreign-controlled subsidiaries. There is a risk of potential FCPA violations. In addition, the Company is subject to the anti-bribery laws of Mexico and of any other countries in which it conducts business in the future. The Company’s employees or other agents may, without its knowledge and despite its efforts, engage in prohibited conduct under the Company’s policies and procedures and the FCPA, the CFPOA or other anti-bribery laws for which the Company may be held responsible. If the Company’s employees or other agents are found to have engaged in such practices, the Company could suffer severe penalties and other consequences that may have a material adverse effect on its business, financial condition and results of operations.

 

 

 

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The Company may be adversely affected by operating expense exchange rate fluctuations.

 

The Company’s activities and operations in Mexico make it subject to foreign currency fluctuations. Although the Company uses U.S. dollars as the currency for the presentation of its financial statements, the Company’s operating expenses are incurred in Mexican pesos in proportions that will typically range between 40% and 60% of total expenses, depending on the country. The fluctuation of these currencies in relation to the U.S. dollar will consequently have an impact upon the profitability of the Company’s mineral properties and therefore its ability to continue to finance its exploration, development and operations. Such fluctuations may also affect the value of the Company’s assets and shareholders’ equity. Future exploration, development and operational plans may need to be altered or abandoned if actual exchange rates for these currencies are less than or more than the rates estimated in any such future plans. To date, the Company has not entered into any agreements or purchased any instruments to hedge possible currency risks. The Company cannot be sure that any hedging techniques it may implement in the future will be successful or that its business, financial condition, and results of operations will not be materially adversely affected by exchange rate fluctuations.

 

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.

 

 

 

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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.

 

 

 

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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.

 

Risks Related to Our Secured Debt

 

Our principal assets have been pledged as collateral to secure outstanding secured debt; and if we are unable to repay the debt, the creditors have the right to execute against our assets.

 

The Series 2017 Notes in the principal amount of $1,069,376 are secured by a pledge of 100% of the issued and outstanding common stock of Magellan Acquisition Corporation, which owns 100% of Minerales Vane2, which owns the SDA Mill. The Series 2017 Notes mature on December 31, 2019. If we are unable to repay the Series 2017 Notes, the holders thereof could exercise their rights under the pledge and take ownership of the SDA Mill.

 

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.

 

 

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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.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2. PROPERTIES

 

Mining Properties

 

Descriptions of our mining properties are contained in the Business discussion in this Report.

 

ITEM 3. LEGAL PROCEEDINGS

 

None

 

ITEM 4. REMOVED AND RESERVED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PART II

 

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:

 

    2018     2019  
    High     Low     High     Low  
First quarter ended March 31   $ 1.74     $ 0.79     $ 3.05     $ 1.10  
Second quarter ended June 30   $ 1.75     $ 0.60     $ 2.18     $ 1.21  
Third quarter ended September 30   $ 1.75     $ 0.90     $ 2.50     $ 1.70  
Fourth quarter ended December 31   $ 1.30     $ 0.85     $ 2.30     $ 1.04  

 

The closing price of the Company's common stock as of May 19, 2020 was $0.55, 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 March 25, 2020 there were approximately 75 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.

 

 

 

 

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(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.

 

 

 

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(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

 

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.

 

 

 

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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.

 

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 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.

 

 

 

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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.

 

Commencement of mining will depend on a number of preconditions, the most important of which include obtaining environmental and blasting permits, selecting and mobilizing a mining contractor and procuring financing. An access and land use agreement with the local ejido already is in place. Once development begins, ore will be accessible with a minimal amount of underground development. Ore will be sourced initially from the shallow, upper portions of the mineralized veins.

 

Drilling on the El Dorado vein system was conducted by a TSX.V-listed company in 2010-2011 and comprised 28 diamond core holes totaling 4,950 meters. Two veins appear to offer particular promise for mining, namely the Hundido and Intermedia veins. These veins lie adjacent to and along strike from the old Hundido Mine, which from 1900-1927 produced an estimated 50,000 tonnes of high-grade gold-silver ore. The veins are steeply-dipping, highly silicified structures cutting volcanic rocks. Polygonal resource calculations for the two veins, based on intersections in 10 core holes and after applying a 25% tonnage deduction for dilution and recovery factors, yielded respectively 89,000 tonnes grading 7.01 g/t gold equivalent (Au+Ag) over a true width of 2.3 meters (Hundido Vein); and 91,000 tonnes grading 15.17 g/t gold equivalent (Au+Ag) over a true width of 8.3 meters (Intermedia Vein). These resources are non-NI43-101 compliant. The mineralization extends from near surface to a drilled depth of 150 meters and is open at greater depth.

 

 

 

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The El Dorado vein system can be traced on the surface for a distance greater than three kilometers and exhibits structural complexity with numerous conjugate vein splits both in the hangingwall and footwall. This complex structure hosts multiple mineralized zones including high-grade veins potentially minable underground, and lower-grade open-pittable stockwork zones that are observed to extend over tens of meters in width in both the hangingwall and footwall of the El Dorado vein system.

 

Magellan has concluded an agreement with Ingenieros Mineros, S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making staged six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable. Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of $50,000 (plus 16% IVA) plus an additional $50,000 during the nine months ended September 30, 2019. The Company’s next installment payment of $75,000 was due on August 15, 2019. The Company negotiated a new agreement in January 2020 to replace the prior agreement. The $75,000 payment that was due on August 15, 2019 is no longer due. The Company is now obligated to pay $20,000 in 2020 and $25,000 in 2021 and a 3.5% Net Smelter Return (“NSR”) on any production from the concession. The Company is current on its obligations under this new agreement.

 

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.

 

Our primary focus is to advance our Arizona silver 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.

 

 

 

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Results of Operations for the Years Ended December 31, 2019 and 2018

 

   Years ended December 31,  
   2019   2018 
         
Revenues, net  $32,500   $123,955 
           
Operating expenses:          
Cost of sales   286,085    437,711 
Exploration costs   10,000    20,035 
General and administrative expenses   1,082,797    886,770 
Depreciation and amortization   122,348    118,822 
Impairment loss       323,200 
Total operating expenses   1,501,230    1,786,538 
           
Operating loss   (1,468,730)   (1,662,583)
           
Other income (expense):          
Interest expense   (526,273)   (718,583)
Foreign currency exchange gain   (1,940)   3,128 
Loss on extinguishment of debt   (3,151,314)   (73,250)
Unrealized loss on available-for-sale securities   12,457    (38,923)
Other expense       (48,644)
Gain on change in derivative liability       224,529 
Net loss  $(5,135,800)  $(2,314,326)

 

Revenues

 

During the year ended December 31, 2019 our total revenues were $32,500 as compared to $123,955 during the same period in 2018. Revenues were generated from the sale of concentrate from the processing of tailings left from operations prior to our acquisition of the SDA Mill.

 

Operating expenses

 

During the year ended December 31, 2019, our total operating expenses were $1,501,230 as compared to $1,786,538 during the year ended December 31, 2018.

 

During the year ended December 31, 2019 our total cost of sales was $286,085 as compared to $437,711 during the same period in 2018. Cost of sales were comprised primarily of labor and benefits, equipment depreciation, utilities and supplies from operating the SDA Mill.

 

During the year ended December 31, 2019 we incurred $10,000 of exploration costs as compared to $20,035 in 2018. Exploration cost for the year ended December 31, 2019 comprised lease payments. Exploration cost for the year ended December 31, 2018 comprised of fees to our consulting geologist, lease payments and maintenance expenses.

 

 

 

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General and administrative expenses for the year ended December 31, 2019 total $1,082,797 as compared to $886,770 for the year ended December 31, 2018. The $196,027 increase is primarily associated with decreases in officer compensation and legal fees offset by increases in consulting and accounting fees. For the year ended December 31, 2019, administrative expenses comprised of investor relations fees of $370,090, officer compensation of $160,600, accounting, auditing and legal fees of $193,628, professional fees of $162,689, loss on the settlement of accounts payable of $107,293, other administrative costs including travel, office and facility rents totaling $88,497. For the year ended December 31, 2018, administrative expenses comprised of investor relations fees of $182,338, officer compensation of $207,741, accounting, auditing and legal fees of $400,808, other administrative costs including travel, office and facility rents totaling $95,883.

 

On June 1, 2016 we executed an employment agreement with Dr. Pierce Carson in which Dr. Carson assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The term of the agreement covered the period from June 1, 2016 to May 31, 2017. On June 1, 2017, Dr. Carson and the Company agreed to extend the agreement to May 31, 2018 under the same terms and conditions. During the term of the agreement, Dr. Carson was paid a base salary in equal semi-monthly installments. 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. During the years ended December 31, 2019 and 2018, salary and payroll expense totaled $0 and $36,667, respectively. During the year ended December 31, 2019 the Company issued 20,000 of these shares to Dr. Carson and recognized expense of $10,000 related to this issuance. Dr. Carson resigned on June 1, 2019.

 

Other income (expenses)

 

Interest expense for the year ended December 31, 2019 and 2018 totaled $526,273 and $718,583, respectively, and is primarily attributable to our related party line of credit, which accrues interest at the rate of 6.0% per year, our related party notes payable which accrue interest at a weighted average interest rate of 9.46%, and convertible notes which accrue interest at a weighted average of 10% per year in addition to amortization of debt discounts of $268,195 and $421,083 during the years ended December 31, 2019 and 2018, respectively.

 

Loss on extinguishment of debt for the year ended December 31, 2019 and 2018 totaled $3,151,314 and $73,250, respectively. 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.

 

Gain on change in derivative liability for the year ended December 31, 2018 totaled $224,529. The gain on derivative liability was the result of our various convertible instruments outstanding during 2018. As of December 31, 2019 and 2018, the Company does not have any instruments that are recorded as a derivative liability.

 

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, 2019, we had not yet generated any significant revenues or achieved profitable operations and we have accumulated losses of $11,902,725. 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.

 

We have amended our credit agreement with Mr. Gibbs, a related party, on multiple occasions with the most recent amendment extending the maturity date for the line of credit to December 31, 2019. As of December 31, 2019, the outstanding principle and interest were converted into preferred stock.

 

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.

 

 

 

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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.

 

On December 31, 2018 our credit agreement with Mr. John Gibbs, a related party, provides the Company an additional $147,500 available under the credit line. Effective December 31, 2016 we amended the agreement to extend the maturity date to December 31, 2018 and is currently in default. We pledged our ownership interest in our subsidiary, G+W, which owns all our ownership interests in the Silver District properties, as security for all amounts outstanding under the credit agreement.

 

During the year ended December 31, 2018, the Company raised $460,000 through the sale of 460,000 common stock and warrants (“Units”) at a price of $1.00 per Unit, each Unit consisting of one share of common stock and one warrant to purchase one additional share of common stock at an exercise price of $1.00 per share. The expiration date of the warrants varies from August 31, 2018 to December 31, 2018. Of this raise $330,000 was purchased by directors or significant shareholders. A price protection feature of the offering provides that if at December 31, 2018, the Company has issued common stock at a price less than $1.00 per share, then the number of Units issuable to each investor shall be increased so as to reduce the Unit price to the lower price. The allocation of relative fair values of the equity instruments at the dates of the sale transactions was as follows: common stock at 63% and the warrants at 37%. During the year ended December 31, 2018 pursuant to the provision discussed above the Company issued 298,636 shares of common stock and committed to issue an additional 45,559 shares. This issuance was recorded as a deemed dividend and valued at $323,792.

 

During the year ended December 31, 2018, the Company received net proceeds of $120,000 from the exercise of 120,000 warrants.

 

In October 2018 the Company sold $160,700 of Series 2018 36% Unsecured Promissory Notes (“Notes”) (“Bridge Note Offering”) to Mr. Gibbs and Mr. Power. The purchase price of the Note is equal to the principal amount of the Note. The Maturity Date of the Notes is December 31, 2018. During the year ended December 31, 2018, $10,700 was repaid to Mr. Power leaving a balance of $0. As of December 31, 2018, the portion funded by Mr. Gibbs of $150,000 remained outstanding.

 

On July 26, 2018, the Company sold a 10% Convertible Promissory Note to Power Up Lending Group Ltd. (“July Power Up Note”) in a principal amount of $63,000. After deducting the investor’s discount and legal fees, net proceeds to the Company were $60,000. The Note matures on July 26, 2019 and can be converted into the Company’s common stock after 180 days from the date the Note is issued.

 

On August 20, 2018, the Company sold a 10% Convertible Promissory Note to Power Up Lending Group Ltd. (“August Power Up Note”) in a principal amount of $38,000. After deducting the investor’s discount and legal fees, net proceeds to the Company were $35,000. The Note matures on August 20, 2019 and can be converted into the Company’s common stock after 180 days from the date the Note is issued.

 

In October 2018, the Power Up Notes were repaid in full with a payment of $133,242. Of the payment, $101,000 was applied to the note balances and the remainder to interest and prepayment fees.

 

 

 

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In the quarter ended December 31, 2018, the Company sold $355,000 of Series 2018A 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal amount of the Note. The Notes are convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. 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. Maturity Date can be extended at the option of the Company for an additional one (1) year. Within thirty (30) days following the closing of the 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 this issuance, $150,000 was sold to a related party, Mr. Gibbs. As of December 31, 2018, the balance due under these notes is $355,000 in principal and $5,692 in accrued interest.

 

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,  
   2019   2018 
         
Net cash used in operating activities  $(381,322)  $(642,355)
Net cash used in investing activities   (75,000)   (65,760)
Net cash used in financing activities   457,246    741,923 
Effect of foreign currency exchange   (454)   (29,367)
           
Net change in cash and cash equivalents   470    4,441 
Cash and cash equivalents beginning of period   4,862    421 
           
Cash and cash equivalents end of period  $5,332   $4,862 

 

At December 31, 2019, we had $5,332 in cash and a $2,434,025 working capital deficit. This compares to cash of $4,862 and a working capital deficit of $3,788,972 at December 31, 2018.

 

Net cash used in operating activities during the year ended December 31, 2019 was $381,322 and was mainly comprised of our $5,135,800 net loss during the period, adjusted by non-cash charges of accretion of discounts on notes payable $268,196, depreciation $122,348, and stock based compensation $423,399. In addition, it reflects a decrease in prepaid expenses and other assets totaling $66,477, as well as increases in accounts payable and accrued expenses totaling $482,791, increase in accounts payable – related party of $30,000 and increases in accrued interest totaling $249,313 representing accrued interest on our related party line of credit and related party and other notes payable.

 

Net cash used in operating activities during the year ended December 31, 2018 was $642,355 and was mainly comprised of our $2,314,326 net loss during the period, adjusted by non-cash charges of accretion of discounts on notes payable $421,083, loss on extinguishment of debt $73,750, amortization of service contracts $119,167, depreciation $118,822, gain due to our derivative liability of $224,529, impairment loss of $323,200 and stock based compensation $36,667. In addition, it reflects a decrease in receivables from Rose Petroleum for toll milling, and prepaid expenses and other assets totaling $82,255, as well as increases in accounts payable and accrued expenses totaling $396,114, and increases in accrued interest totaling $451,029 representing accrued interest on our related party line of credit and related party and other notes payable.

 

 

 

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During the year ended December 31, 2019, our net cash used in investing activities was $75,000 which was due to the payment for other assets, as well as an installment payment for acquisition of the El Dorado gold-silver property. During the year ended December 31, 2018, our net cash used in investing activities was $65,760 which was due to the purchase of plant, property and equipment, as well as an installment payment for acquisition of the El Dorado gold-silver property.

 

During the year ended December 31, 2019, net cash provided by financing activities was $457,246 including proceeds from convertible notes of $135,000 and $32,500 proceeds from advances by third parties. The Company received advances from related parties in the amount of $482,455, of which $222,709 was repaid. In addition, during the year ended December 31, 2019 we sold stock and warrants resulting in total proceeds of $30,000.


During the year ended December 31, 2018, net cash provided by financing activities was $741,923 including proceeds from related party notes payable of $160,700 (payments of $60,700), proceeds from line of credit of $20,000 and proceeds from convertible notes to third parties and related parties of $450,000 (payments of $306,896). Mr. Power, an executive and director, advanced the Company a total of $19,300 of which $19,300 was repaid. In addition Mr. Power was repaid $101,181 as repayment for expenses paid on his personal credit card. In addition, during the year ended December 31, 2018 we completed a private placement of equity securities resulting in total proceeds of $460,000 and warrants were exercised resulting in total proceeds of $120,000.

 

Additionally, Minerales Vane 2, S.A. de C.v. (“MV2”) and Minerales Vane Operaciones (“MVO”), wholly owned subsidiaries of Magellan Acquisition Corporation (“MAC”), maintains operations in the Mexican Peso, its functional currency. The accounts of MV2 and MVO are translated to US dollars upon consolidation for reporting purposes. A translation adjustment gain of $40,222 and loss of $29,806 were recorded as a component of the consolidated comprehensive gain (loss) at December 31, 2019 and 2018, respectively.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements required by this item are located in Item 15 beginning on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

 

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

 

None.

 

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.

 

 

 

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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, 2019. 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, 2019. 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.

 

 

 

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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, including Mr. Power, our CFO, 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, including our CFO Mr. Power, 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, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

Our current executive officers and directors are:

 

Name Age Position
John C. Power 57 CFO & Director
David E. Drips 65 CEO & President

 

David E. Drips, age 65, was appointed President & CEO June 1, 2019.

 

David has 45 years of experience in the mining and contracting industry as a miner, supervisor, engineer, project manager, general manager, president, and owner. Experienced with mine engineering, construction, and operations that include open pit, room and pillar (gassy and non-gassy), longhole stoping, cut and fill, shrinkage, undercut and fill, overhand open stoping, cut and fill resuing, and all phases of mine development which includes shafts, raises, track drifts, laterals, sloped developments and drop raises. Process plant operating experience includes raw material management at cement plants, hydrometallurgical plants with refineries, hydrometallurgical plants with Solvent Extraction/Electrowinning (SX/EW), differential flotation processing plants (one, two, and three products), and the operation of roasters for processing refractory ores. Extensive experience in managing the turnaround of under-performing projects and distressed assets by utilizing in-house personnel for planning, design, construction and operation. Successfully dealt with labor unions in the United States, Mexico, Honduras, and Venezuela. Engineering experience includes underground and surface mine design, process plant design, process circuit development, facility power design and tailing impoundment design.

 

David earned a B.S. in Mining Engineering, Colorado School of Mines, 1980.

 

John C. Power served as President, CFO, Secretary and director from our inception in September 2010 until June 1, 2016 when Dr. Carson became President & CEO. Mr. Power continued to serve as CFO and Secretary until September 2017 when Mr. Martinez was engaged to fulfill those roles. Mr. Power resumed those roles in September 2019. Mr. Power continues to serve as a director.

 

Mr. Power also serves as a director of Athena Silver Corporation since its inception in December 2003 and has served as Athena’s President from December 2005 to December 2007 and from January 2009 to the present and has served as Athena’s Secretary since January 2007.

 

Mr. Power is also a co-managing member since 2011 of Silver Saddle Resources, LLC a private company that owns mining claims in Nevada.

 

From March 2010 to present, Mr. Power has served as co-Managing Member of Ryan Air Exposition, LLC, a private California holding company that invests in antique airplanes. Mr. Power also has served as Co-Managing Member of Wyoming Resorts, LLC, which owns and operates an historic hotel in Thermopolis, Wyoming, since June 1997; and Mr. Power has served as President of Power Curve, Inc., a private investment company, since 1986. Mr. Power has also been the managing member of Best of Sea Ranch, LLC since December 2004 which operated through a joint venture a vacation home rental business in The Sea Ranch California. Mr. Power has been a general partner of Power Vacaville, LP a real estate investment firm since January 2008. Mr. Power also has served as the vice-president and director of The Tide Community Broadcasting, Inc. since July 2012.

 

Mr. Power attended, but did not receive a degree from, Occidental College and University of California at Davis.

 

 

 

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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.

 

Conflicts of Interest

 

Athena Silver Corporation is a company under common control. Mr. Power is a director and is also a director and CEO of Athena. Mr. Power and Mr. Gibbs are significant investors in both Magellan and Athena.

 

Silver Saddle Resources, LLC (“Silver Saddle”) is a private company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle.

 

Magellan, Athena and Silver Saddle are exploration stage companies and each is involved in the business of acquisition and exploration of mineral resources.

 

The existence of common ownership and common management could result in significantly different operating results or financial position from those that could have resulted had Magellan, Athena and Silver Saddle been autonomous. In addition, the common ownership could result in significant conflicts of interest both in terms of the allocation of working capital as well as under the doctrine of corporate opportunity, inasmuch as all three entities are engaged in mineral exploration in the United States. Mr. Power and Gibbs have not adopted any policy or guidelines to mitigate the potential adverse effects of their conflicting interests between and among, Magellan, Athena and Silver Saddle.

 

While the foregoing may mitigate the conflicts of interest inherent in the interlocking interests, it will not eliminate all potential future conflicts. Investors in Magellan should be cognizant that the interests of Magellan may, in the future, be in conflict with the other activities of Magellan’s control persons.

 

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). Our two directors are both officers of the corporation and are not considered independent.

 

 

 

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Board Meetings

 

During the years ended December 31, 2018 and 2019, 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, 2019, all of these filing requirements were satisfied by our officers, directors, and ten-percent holders except that Mr. Gibbs failed to file one report covering one transaction in a timely fashion, Mr. Power failed to file one report covering three transactions in a timely fashion and Mr. Martinez, former CFO of the Company, failed to file one report covering one transaction in a timely. 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, 2010 Harbison Dr., #312, Vacaville, CA 95687.

 

 

 

 

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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, 2019 and 2018:

 

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   ($)   ($)   ($)   ($)   ($)   ($)   ($)       ($)  
David E. Drips, President & CEO   2019 (partial)            92,000                    92,000 
                                              
John C. Power, CFO   2019 (partial)                                 
                                              
W. Pierce Carson, President & CEO   2019 (partial)    50,000        10,000                        60,000 
    2018    120,000        160,000    79,801                  359,801 
                                              
Michael P. Martinez, CFO   2019 (partial)    4,000                            4,000 
    2018    40,000                            40,000 

 

  (1) 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.
     
    Effective June 1, 2016, we entered into an Employment Agreement with Mr. Carson and engaged his services as President and CEO of Magellan for an initial term of one year. Under the terms of the Employment Agreement, Mr. Carson is entitled to a salary of $6,667 per month for the first three months, and $10,000 per month for the following nine months. If the Company is unable to pay the salary, the Company has the right to satisfy its obligation with shares of common stock.
     
   

The initial term of the agreement covered the period from June 1, 2016 to May 31, 2017. On June 1, 2017, Dr. Carson and the Company agreed to extend the term of the agreement to May 31, 2018, with all terms of the original agreement remaining unchanged. On June 1, 2018, Dr. Carson and the Company agreed to extend the term of the agreement to May 31, 2019, with all terms of the original agreement remaining unchanged.

 

 

 

 

Dr. Carson shall have the right to voluntarily terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through the date of termination, including any amount that may have been deferred and accrued.
     
   

On October 26, 2017, Dr. Carson agreed to waive payment of accrued but unpaid salary obligations from June 1, 2016 through September 30, 2017 in the aggregate amount of $150,000, including $60,000 earned in 2016. The waiver of accrued wages is recorded as a capital contribution to the Company. Dr. Carson was subsequently issued 80,000 shares of the Company’s restricted common stock.

 

Effective July 24, 2018, the Company and W. Pierce Carson, President, executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued but unpaid executive compensation for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash advance of $8,100 made to the Company into an aggregate of 98,100 shares of Common Stock, valued at $1.00 per share. The fair value of the shares issued equaled to the amount of debt settled which resulted in no gain or loss.

 

 

 

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 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 will vest upon the Company completing a milestone (which was achieved), and the remaining 60,000 shares are subject to ratable vesting over an 18-month period. During the year ended December 31, 2018 the Company recognized an expense of $36,667 related to this issuance.

 

  (2) We entered into a consulting agreement with Mr. Power at the rate of $30,000 per year for his part-time service as our CFO. Mr. Power resigned as our CFO on August 31, 2017 and no longer receives consulting fees.

 

Employment Agreements

 

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.

 

At December 31, 2018 a total of $60,000 and $13,870 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.

 

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.

 

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.

 

 

 

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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 prospectus, 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.

 

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.

 

 

 

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The following table shows the number of shares owned and the percentage of outstanding common stock owned as of March 25, 2020. 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
   3,482,063(4)   59.05% 
           
John C. Power   714,423(5)   17.50% 
           
W. Pierce Carson   430,580(6)   10.79% 
           
David Drips   2,000    nil 
           
All officers and directors as a group
(two persons)
   716,423    17.55% 

 

(1) Unless otherwise stated, address is 2010A Harbison Dr. #312, Vacaville, CA  95687
   
(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 3,651,042 shares outstanding on March 25, 2020.
   
(4)

Includes 1,330,443 shares owned individually, 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) and 10,330 shares owned by Tri Power Resources, Inc., controlled by Mr. Gibbs.

 

(5) Includes 263,019 shares owned individually, options exercisable to purchase 20,000 shares at $2.00 per share, Series A Preferred Shares convertible into 406,404 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 options exercisable to purchase 40,000 shares at $2.00 per share.

 

 

 

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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.

 

Conflicts of Interests

 

Athena Silver Corporation (“Athena”) is a company under common control. Mr. Power is also a director and CEO of Athena. Mr. Gibbs is a significant investor in both Magellan and Athena. Magellan and Athena are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

Silver Saddle Resources, LLC is also a company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle. Magellan and Silver Saddle are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

The existence of common ownership and common management could result in significantly different operating results or financial position from those that could have resulted had Magellan, Athena and Silver Saddle been autonomous.

 

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. Mr. Power continues to serve as a member of the Board of Directors.

 

Management fees to Mr. Power for the year ended December 31, 2019 and 2018, are $0. These fees are included in general and administrative expenses in our consolidated statements of operations and comprehensive loss. At December 31, 2019 and 2018, $0 and $27,500 of the fees had not been paid and are included in accrued liabilities on the accompanying consolidated balance sheets.

 

Management fees to Mr. Martinez for the year ended December 31, 2019 and 2018, are $4,500 and $40,000, respectively. These fees are included in general and administrative expenses in our consolidated statements of operations and comprehensive loss. At December 31, 2019 and 2018, $7,000 and $28,000 of the fees had not been paid and are included in accounts payable on the accompanying consolidated balance sheets.

 

 

 

 65 

 

 

Accrued Interest - Related Parties

 

Accrued interest due to related parties is included in our consolidated balance sheets as follows:

 

   December 31,
2019
   December 31,
2018
 
Accrued interest payable - Mr. Gibbs  $11,973   $340,218 
Accrued interest payable - Mr. Power   11,342    76,504 
Accrued interest payable - Dr. Carson   6,597    3,736 
           
   $29,912   $420,458 

 

During the year ended December 31, 2019, we paid a total of $0 to Mr. Power representing unpaid accrued interest on notes payable. During the year ended December 31, 2018, we paid a total of $12,358 to Mr. Power representing unpaid accrued interest on notes payable.

 

Advances Payable – Related Party

 

We borrowed and repaid non-interest bearing advances from/to related parties as follows:

 

   Year Ended December 31, 2019 
   Advances   Repayments 
Mr. Power  $130,455   $(222,709)
Mr. Gibbs   352,000     
Totals  $482,455   $(222,709)

 

   Year Ended December 31, 2018 
   Advances   Repayments 
Mr. Power  $19,300   $(19,300)
Mr. Carson       (8,100)
Totals  $19,300   $(27,400)

 

In addition to the above, Mr. Power’s used personal credit cards during the year ended December 31, 2018 to fund Company operations. During the year ended December 31, 2018 a total of $125,945 was paid for on these credit cards and the Company repaid Mr. Power $101,181 resulting in a balance of $24,764 remained outstanding and is included in Advances payable, related party. During the year ended December 31, 2019 a total of $195,499 was paid for on these credit cards and repayments of the credit cards and other advances to Mr. Powers are noted above.

 

At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $345,450 to partially settle related party advances from Mr. Gibbs and Mr. Powers including accrued interest. See Note 10. Amounts due to Mr. Gibbs and Powers related to cash advances and expense paid on behalf of the Company was $134,559 and $24,764 as of December 31, 2019 and December 31, 2018, respectively.

 

 

 

 66 

 

 

Notes Payable – Related Parties

 

In August 2011, we entered into an unsecured loan from John Power, the Company’s Director, evidenced by a $20,000 promissory note. The promissory note bears interest at 6% per annum and is payable on demand with thirty days’ notice from the lender. During 2014, the Company made payments totaling $5,000 to pay down the principal balance of the note. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At December 31, 2019 and December 31, 2018, the note balance was $0 and $15,000, respectively. At December 31, 2019 and December 31, 2018, accrued interest totaling $0 and $1,800, respectively, is included in Accrued interest – related parties on the accompanying consolidated balance sheets.

 

In January 2014, we entered into an additional unsecured loan from Mr. Power, evidenced by a $50,000 promissory note. The promissory note bears interest at 6.75% per annum and is payable on demand with thirty days’ notice from the lender. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At December 31, 2019 and December 31, 2018, accrued interest totaling $0 and $6,000, respectively, is included in Accrued interest – related parties on the accompanying consolidated balance sheets. At December 31, 2019 and December 31, 2018, the note balance was $0 and $50,000, respectively.

 

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 and $3,760 of interest is accrued on these notes as of December 31, 2019 and December 31, 2018, respectively.

 

On June 30, 2017 we entered into an additional secured loan for advances from Mr. Power and evidenced by a $125,000 promissory note. The promissory note bore interest at 6% per annum and matured on December 31, 2017 and was settled in September 2019. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. The note was collateralized by our investment in Rio Silver shares and warrants. At December 31, 2019 and December 31, 2018, the note balance was $0 and $125,000, respectively. A total of $0 and $15,000 of interest is accrued on these notes as of December 31, 2019 and December 31, 2018, respectively and is included in accrued interest – related parties on the accompanying consolidated balance sheets.

 

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 Series 2017 Notes were settled subsequent to December 31, 2019. See Note 15.

 

Net proceeds on the issuance after reducing for the transfers previously listed total $900,000. The notes are secured by a stock pledge agreement covering 100% of the outstanding common stock of Magellan Acquisition Corporation, bear interest at 10% and mature on December 31, 2018, and were subsequently extended to December 31, 2019.

 

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. As of December 31, 2019 the balance on the Series 2017 Notes from related parties, net of unamortized discount of $0, is $953,876, with accrued interest of $29,160. As of December 31, 2018 the balance on the Series 2017 Notes from related parties, net of unamortized discount of $0, is $1,045,000 with accrued interest of $113,375. The Series 2017 Notes were settled subsequent to December 31, 2019. See Note 15.

 

At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $332,686 to partially settle the Series 2017 Notes balance including accrued interest. See Note 10.

 

 

 

 67 

 

 

Bridge Note Offering

 

In October 2018 the Company sold $160,700 of Series 2018 36% Unsecured Promissory Notes (“Notes”) (“Bridge Note Offering”) to Mr. Gibbs and Mr. Power. The purchase price of the Note is equal to the principal amount of the Note. The Maturity Date of the Notes was December 31, 2018. During the year ended December 31, 2018, $10,700 was repaid to Mr. Power leaving a balance of $0. On January 18, 2019, the Note was extended until March 31, 2019 after which it was in default. At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $201,337 to settle the Bridge Note Offering balance including accrued interest. See Note 9. As of December 31, 2019, the portion funded by Mr. Gibbs of $0 remained outstanding, with accrued interest of $0 outstanding.

 

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. Until such time as Magellan is properly funded, Magellan may defer and accrue salary owed. If not properly funded before the end of the term, Magellan may at its option issue shares of Magellan common stock as settlement of the accrued salary liability.

 

Dr. Carson shall have the right to voluntarily terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through the date of termination, including any amount that may have been deferred and accrued.

 

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.

 

At December 31, 2018 a total of $60,000 and $13,870 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.

 

 

 

 68 

 

 

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 2019 and 2018 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:

 

   2019   2018 
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  $55,000   $103,800 
Audit-related fees - related to the performance of audit or review of financial statements not reported under "audit fees"   0    0 
Tax fees - tax compliance, tax advice and tax planning   5,600    0 
All other fees - services provided by our principal accountants other than those identified above   0    0 
Total fees  $60,600   $103,800 

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 69 

 

 

PART IV

 

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

 

 

 

 70 

 

 

(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

 

 

 

 71 

 

 

* 31.1 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.
* 31.2 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.
* 32 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.

 

 

 

 72 

 

 

  (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.

 

  * Filed herewith.
  ** Furnished, not filed.

 

 

 

 

 

 

 

 

 

 

 

 

 73 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MAGELLAN GOLD CORPORATION

 

 

 

FINANCIAL STATEMENTS

 

 

 

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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MAGELLAN GOLD CORPORATION

 

TABLE OF CONTENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations and Comprehensive Loss F-4
   
Consolidated Statements of Shareholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-1 

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Stockholders of

Magellan Gold Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Magellan Gold Corporation and its subsidiaries (collectively, the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, shareholders’ 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, 2019 and 2018, 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

May 27, 2020

 

 

 

 

 

 

 F-2 

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED BALANCE SHEETS

 

   December 31, 2019   December 31, 2018 
ASSETS        
Current assets          
Cash  $5,332   $4,862 
Investment in Rio Silver equities       70,609 
Prepaid expenses and other current assets   55,881    44,746 
Total current assets   61,213    120,217 
           
Mineral rights, net of impairment   101,672    48,164 
           
Property, plant and equipment, net of accumulated depreciation of $259,344 and $130,644, respectively   973,930    1,054,381 
           
Other assets:          
Prepaid expenses and other assets   388,468    301,158 
Total assets  $1,525,283   $1,523,920 
           
LIABILITIES AND SHAREHOLDERS' DEFICIT          
Current liabilities:          
Accounts payable  $410,579   $540,593 
Accounts payable - related party   30,000     
Accrued liabilities   426,636    206,948 
Line of credit - related party       852,500 
Notes payable - related parties, net   953,876    1,385,000 
Note payable, net   115,500    110,000 
Convertible note payable - related party       150,000 
Convertible note payable, net of unamortized discounts of $87,583 and $0, respectively   373,395    205,000 
Accrued interest - related parties   29,912    420,458 
Accrued interest   48,682    13,926 
Advances payable, related party   134,559    24,764 
Advances payable, third party   32,500     
Total current liabilities   2,555,639    3,909,189 
           
Long term liabilities:          
Other long term liabilities   9,857     
Asset retirement obligation   120,878    116,149 
Total liabilities   2,686,374    4,025,338 
           
Commitments and contingencies          
           
Shareholders' deficit:          
Preferred shares, $10.00 stated value, 2,500,000 shares authorized, 242,269 and no shares issued and outstanding, respectively   2,422,690     
Common shares, $0.001 par value; 1,000,000,000 shares authorized, 3,651,042 and 3,264,752 shares issued and outstanding, respectively   3,651    3,265 
Additional paid-in capital   8,383,929    4,310,699 
Accumulated other comprehensive loss   (68,636)   (108,858)
Accumulated deficit   (11,902,725)   (6,706,524)
Shareholders' deficit   (1,161,091)   (2,501,418)
Total liabilities and shareholders' deficit  $1,525,283   $1,523,920 

 

See accompanying notes to the consolidated financial statements

 

 F-3 

 

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

   Years ended December 31,  
   2019   2018 
         
Revenues, net  $32,500   $123,955 
           
Operating costs and expenses:          
Cost of sales   286,085    437,711 
Exploration costs   10,000    20,035 
General and administrative expenses   1,082,797    886,770 
Depreciation and amortization   122,348    118,822 
Impairment loss       323,200 
           
Total operating costs and expenses   1,501,230    1,786,538 
           
Operating loss   (1,468,730)   (1,662,583)
           
Other income (expense):          
Interest expense   (526,273)   (718,583)
Foreign currency exchange gain (loss)   (1,940)   3,128 
Loss on extinguishment of debt   (3,151,314)   (73,250)
Changes in fair value   12,457    (38,923)
Other expenses       (48,644)
Gain on change in derivative liability       224,529 
           
Total other income (expense)   (3,667,070)   (651,743)
           
Net loss   (5,135,800)   (2,314,326)
           
Series A preferred stock dividend   (60,401)    
           
Net loss attributable to common shareholders   (5,196,201)   (2,314,326)
           
Other comprehensive income (loss):          
Foreign currency translation   40,222    (29,806)
           
Net comprehensive loss  $(5,115,979)  $(2,344,132)
           
Basic and diluted net loss per common share  $(1.46)  $(0.97)
           
Basic and diluted weighted-average common shares outstanding   3,554,396    2,388,807 

 

See accompanying notes to the consolidated financial statements

 

 F-4 

 

 

MAGELLAN GOLD CORPORATION

Consolidated Statements of Shareholders' Deficit

For the years ended December 31, 2019 and 2018

 

                   Additional   Accumulated Other       Total 
   Preferred Stock   Common Stock   Paid - in   Comprehensive   Accumulated   Shareholders' 
   Shares   Amount   Shares   Par Value   Capital   Income (Loss)   Deficit   Deficit 
                                 
Balance, December 31, 2017      $    1,911,628   $1,912   $2,897,539   $(87,570)  $(4,059,888)  $(1,248,007)
                                         
Adoption of ASU 2016-01                       8,518    (8,518)    
Sales of common stock and warrants           460,000    460    459,540            460,000 
Exercise of warrants           120,000    120    119,880            120,000 
Conversion of debt - related party           198,100    198    197,902            198,100 
Resolution of derivative liability                   239,262            239,262 
Stock based compensation           20,000    20    36,647            36,667 
Stock issued for prepaid asset           20,261    20    18,215            18,235 
Conversion of debt           236,000    236    187,012            187,248 
Warrant derivative liability                   (168,791)           (168,791)
Deemed dividend           298,636    299    323,493        (323,792)    
Rounding from stock split           127                     
Net loss                           (2,314,326)   (2,314,326)
Other comprehensive loss                       (29,806)       (29,806)
                                         
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    30    29,970            30,000 
Stock issued for services           237,000    237    398,363            398,600 
Stock and warrants issued for liabilities   242,269    2,422,690    46,692    47    3,312,153            5,734,890 
Stock issued for deemed dividend           45,559    45    (45)            
Conversion of debt           27,039    27    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 income                       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)

 

See accompanying notes to the consolidated financial statements

 

 

 

 F-5 

 

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Years ended December 31,  
   2019   2018 
Operating activities:          
Net loss  $(5,135,800)  $(2,314,326)
Adjustments to reconcile net loss to net cash          
used in operating activates:          
Accretion of discounts on notes payable   268,196    421,083 
Amortization of service contracts       119,167 
Depreciation and amortization expense   122,348    118,822 
Loss on extinguishment of liabilities   3,259,365    73,750 
Unrealized (gain) loss on available-for-sale securities   (12,457)   38,923 
Gain on change in derivative liability       (224,529)
Impairment loss       323,200 
Stock based compensation   423,399    36,667 
Changes in operating assets and liabilities:          
Due from Rose Petroleum       27,147 
Prepaid expenses and other assets   (66,477)   (109,402)
Accounts payable and accrued liabilities   480,791    396,114 
Accounts payable - related party   30,000     
Accrued interest   249,313    451,029 
           
Net cash used in operating activities   (381,322)   (642,355)
           
Investing activities:          
Purchase of plant, property and equipment       (15,760)
Payment for other assets   (25,000)    
Payment of installment on El Dorado acquisition   (50,000)   (50,000)
           
Net cash used in investing activities   (75,000)   (65,760)
           
Financing activities:          
Proceeds from advances from related parties   482,455    19,300 
Proceeds from advances from third parties   32,500     
Payments on advances from related parties   (222,709)   (19,300)
Payments on expenses paid on related party credit card       (101,181)
Proceeds from notes payable from related parties       160,700 
Payments on notes payable from related parties       (60,700)
Proceeds from line of credit from related party       20,000 
Proceeds from convertible notes   135,000    300,000 
Proceeds from convertible notes from related parties       150,000 
Payments on convertible notes       (306,896)
Proceeds from sale of common stock and warrants   30,000    460,000 
Proceeds from the exercise of warrants       120,000 
           
Net cash provided by financing activities   457,246    741,923 

 

Effect of foreign currency exchange   (454)   (29,367)
           
Net increase in cash   470    4,441 
Cash at beginning of period   4,862    421 
           
Cash at end of period  $5,332   $4,862 

 

 

 

 F-6 

 

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

Supplemental disclosure of cash flow information          
Cash paid for interest  $3,250   $90,373 
Cash paid for income taxes  $   $ 
           
Non-cash financing and investing activities:          
  Conversion of line of credit to common stock  $   $100,000 
  Conversion of advances - related party to common stock  $   $8,100 
  Conversion of accrued wages to common stock  $   $90,000 
  Discounts on convertible notes  $280,978   $ 
  Common stock and warrants issued for the settlement of liabilities  $54,652   $ 
  Convertible note issued to settle accounts payable  $145,978   $ 
  Transfer of investment to related party for settlement of liabilities  $83,066   $ 
  Common stock issued for prepaid assets  $   $18,235 
  Preferred stock issued for the settlement of debt  $2,420,873   $ 
  Deemed dividend on true-up share issuance  $45   $323,792 
  Adoption of ASU 2016-01  $   $8,518 
  Conversion of notes payable and accrued interest to common stock  $27,039   $187,248 
  Warrant derivative liability  $   $168,791 
  Resolution of derivative liability  $   $239,262 
  Expenses paid by related party credit cards  $195,499   $125,945 
   Series A preferred stock dividend  $60,401   $ 
  Additions of assets under operating lease obligations  $6,968   $ 

 

See accompanying notes to the consolidated financial statements


 

 

 

 F-7 

 

 

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 and Canada. We plan to dispose of our international assets and to continue to advance our Arizona silver 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, 2019, we had not yet generated any significant revenues or achieved profitable operations and we have accumulated losses of $11,902,725. 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

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiaries, Gulf + Western Industries, Inc., Magellan Acquisition Corporation, Minerales Vane 2, S.A. de C.V., and Minerales VANE Operaciones. 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.

 

 

 

 F-8 

 

 

 

Reclassifications

 

Certain items in these consolidated financial statements have been reclassified to conform to the current year's presentation.

 

Foreign Currency Translations

 

The Company maintains its accounting records in US Dollars. Our operating subsidiary, Minerales Vane 2, S.A. de C.V and Minerales VANE Operaciones are located in Mexico and maintain its accounting records in the Mexican Peso, which is its functional currency. Assets and liabilities of the subsidiaries are translated into the U.S. dollars at exchange rates at the balance sheet date, equity accounts are translated at historical exchange rate and revenues and expenses are translated by using the average exchange rates. Translation adjustments are reported as a separate component of other comprehensive loss in the consolidated statements of operations and comprehensive loss. Foreign currency denominated transactions are translated at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recognized in income.

 

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.

 

Investment Securities

 

We report investments in marketable equity securities at fair value. Changes in fair value are included in net income (loss). We regularly review investment securities for impairment using both quantitative and qualitative criteria.

 

 

 

 F-9 

 

 

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, 2019. Impairment charges of $0 and $323,200 were recognized for during the years ended December 31, 2019 and 2018, 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

 

Goodwill

 

Goodwill was generated through the acquisition of the SDA Mill in fiscal 2017 as the total consideration paid exceeded the fair value of the net assets acquired.

 

The Company tests its goodwill for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results. Goodwill was fully impaired in 2017.

 

 

 

 F-10 

 

 

Asset Retirement Obligations

 

The Company accounts for asset retirement obligations in accordance with ASC 410-20, Asset Retirement Obligations. ASC 410-20 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. Asset retirement obligations consists of estimated final mill closure and associated ground reclamation costs to be incurred by the Company in the future once the economical life of its SDA Mill is reached. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life. The liability accretes until the Company settles the obligation.

 

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, 2019 and 2018, the Company’s component of comprehensive income was foreign currency translation adjustments.

 

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, 2019 and 2018, 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 years ended December 31, 2019 and 2018, potential common shares associated with convertible notes payable and outstanding options and warrants to purchase common stock have been omitted from the net loss per common share computation as they are anti-dilutive due to the net loss for these periods.

 

 

 

 F-11 

 

 

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, 2019 and 2018, the Company had $0 and $15,000 of deferred revenue related to unsatisfied performance obligations included with accrued liabilities.

 

 

 

 F-12 

 

 

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.

 

Recently Adopted Accounting Standards

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-02, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, The Company adopted this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients.

 

On adoption, the Company recognized additional operating liabilities of $6,968, with corresponding Right of Use assets of approximately the same amount based on the present value of the remaining minimum rental payments under current leasing standards for its existing operating leases.

 

The new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities. The Company also made an accounting policy election to combine lease and non-lease components of operating leases for all asset classes.

 

On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The Company adopted this standard in the first quarter of 2019. The adoption had no impact on the Company’s financial statements.

 

Note 3 – Mineral Rights and Properties

 

El Dorado

 

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. The Company plans to truck the ore from El Dorado to the SDA Plant for processing.

 

Magellan has concluded an agreement with Ingenieros Mineros, S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making staged six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable. Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of $50,000 (plus 16% IVA) during the year ended December 31, 2018. An additional $60,500 was paid during the year ended December 31, 2019. The Company’s next installment payment of $75,000 was due on August 15, 2019. The Company negotiated a new agreement in January 2020 to replace the prior agreement. The $75,000 payment that was due on August 15, 2019 is no longer due. The Company is now obligated to pay $20,000 in 2020 and $25,000 in 2021 and a 3.5% Net Smelter Return (“NSR”) on any production from the concession.

 

 

 

 F-13 

 

 

In addition, the Company entered into an agreement to purchase a comprehensive El Dorado data package including diamond drill core and technical information for a price of $120,000, payable in cash and Magellan common stock. As of December 31, 2018, $10,000 of cash and 20,261 shares of common stock, with an issuance day fair value of $18,235, have been issued.

 

At December 31, 2019 and December 31, 2018, our mineral rights and properties were $101,672 and $48,164 (after currency adjustment), respectively associated with our El Dorado project.

 

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. 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.

 

In August 2019, we renewed the BLM lode and mill site claims in La Paz County, Arizona with the Bureau of Land Management and these claims will remain in good standing through August 31, 2020. Additionally, in both August 2018 and 2019, we made advance minimum royalty payments of $10,000 to a third-party landowner on the Red Cloud lease, which includes the Red Cloud Patented claim and two BLM lode claims. We previously expanded the Arizona State Exploration Permit to approximately 334.85 acres on the Arizona State section that comprises part of our Silver District land package and are current on our obligations under this permit.

 

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.

 

During the year ended December 31, 2018 the Company fully impaired its capitalized asset of $323,200 related to the Silver District project.

 

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.

 

 

 

 F-14 

 

 

Note 4 – Acquisition of SDA Mill

 

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.

 

The total purchase price for the SDA Mill was determined to be $1,476,025 which consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 paid for the option-to-purchase extension, and 284,017 shares of common stock (the “Shares”) with a fair value of $426,025. The note was non-interest bearing and was paid in full April 12, 2018.

 

Subsequent to the purchase of the SDA Mill, the Company and Rose Petroleum executed an IVA Agreement which implemented the provisions of the Stock Purchase Agreement with respect to the payment of the IVA Tax assessed by the Mexican taxing authorities on the sale and purchase of the IVA Mill. Under the terms of the IVA Agreement, Rose Petroleum advanced the IVA tax, in Mexican Pesos, for the payment of the IVA tax, approximately $260,000. The Company has agreed that all future tax credits or refunds that it receives from the Mexican taxing authority will be paid over to Rose until such time as Rose has recouped the advance, in full. Mr. Carson executed a Guaranty of the Company's obligations under the IVA Agreement effective March 8, 2018. Mr. Carson’s guaranty was released and discharged in January 2019.

 

In March 2018, the Company and Rose Petroleum, plc satisfied their respective obligations for payment of Mexican VAT on purchase of the SDA Mill, as required under terms of the Stock Purchase Agreement. The acquisition of Minerales Vane 2 has been accounted for as a business combination whereby the purchase price was allocated to assets acquired and liabilities assumed. The Company performed a valuation analysis of the fair market value the SDA Mill’s assets and liabilities.

 

In January 2019 the Company and Rose Petroleum entered into an agreement whereby any and all obligations of Magellan or its subsidiaries to make truck installment purchase payments shall be deemed satisfied in full, and Magellan shall be deemed released from any further liability therefor. The personal guaranty of W. Pierce Carson under the provisions of the IVA Agreement dated November 30, 2017 was also released and discharged.

 

Note 5 - Fair Value of Financial Instruments

 

Financial assets and liabilities recorded at fair value in our condensed 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.

 

 

 

 F-15 

 

 

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.

 

There were no financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2019. Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 are summarized below:

 

   Fair Value at   Fair Value Measurement at December 31, 2018 
    December 31, 2018    Level 1    Level 2    Level 3 
Investment in Rio Silver equities  $70,609   $70,609   $   $ 

 

A summary of the activity of the Investment in Rio Silver equities is shown below:

 

Balance December 31, 2018  $70,609 
Change in fair value   12,457 
Investment transferred to settle liabilities   (83,066)
Balance December 31, 2019  $ 

 

The carrying values for cash, prepaid assets, other current 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 – 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 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 $17,500 was recorded as a debt discount and fully amortized with settlement of debt in September 2019.

 

During the year ended December 31, 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.

 

 

 

 F-16 

 

 

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 and $852,500 at December 31, 2018. In addition, a total of $0 and $265,876 of interest has been accrued on this obligation and is included in accrued interest - related parties on the accompanying consolidated balance sheets at December 31, 2019 and December 31, 2018, respectively.

 

Note 7 – Notes Payable – Related Parties

 

In August 2011, we entered into an unsecured loan from John Power, the Company’s Director, evidenced by a $20,000 promissory note. The promissory note bears interest at 6% per annum and is payable on demand with thirty days’ notice from the lender. During 2014, the Company made payments totaling $5,000 to pay down the principal balance of the note. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At December 31, 2019 and December 31, 2018, the note balance was $0 and $15,000, respectively. At December 31, 2019 and December 31, 2018, accrued interest totaling $0 and $1,800, respectively, is included in Accrued interest – related parties on the accompanying consolidated balance sheets.

 

In January 2014, we entered into an additional unsecured loan from Mr. Power, evidenced by a $50,000 promissory note. The promissory note bears interest at 6.75% per annum and is payable on demand with thirty days’ notice from the lender. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At December 31, 2019 and December 31, 2018, accrued interest totaling $0 and $6,000, respectively, is included in Accrued interest – related parties on the accompanying consolidated balance sheets. At December 31, 2019 and December 31, 2018, the note balance was $0 and $50,000, respectively.

 

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 and $3,760 of interest is accrued on these notes as of December 31, 2019 and December 31, 2018, respectively.

 

On June 30, 2017 we entered into an additional secured loan for advances from Mr. Power and evidenced by a $125,000 promissory note. The promissory note bore interest at 6% per annum and matured on December 31, 2017 and was settled in September 2019. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. The note was collateralized by our investment in Rio Silver shares and warrants. At December 31, 2019 and December 31, 2018, the note balance was $0 and $125,000, respectively. A total of $0 and $15,000 of interest is accrued on these notes as of December 31, 2019 and December 31, 2018, respectively and is included in accrued interest – related parties on the accompanying consolidated balance sheets.

 

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 Series 2017 Notes are secured by a stock pledge agreement covering 100% of the outstanding common stock of Magellan Acquisition Corporation, bear interest at 10%. The Series 2017 Notes were settled subsequent to December 31, 2019. See Note 15.

 

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.

 

At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $332,686 to partially settle the Series 2017 Notes balance including accrued interest. See Note 10. As of December 31, 2019 the balance on the Series 2017 Notes from related parties, net of unamortized discount of $0, is $953,876, with accrued interest of $29,160.

 

 

 

 F-17 

 

 

Bridge Note Offering

 

In October 2018 the Company sold $160,700 of Series 2018 36% Unsecured Promissory Notes (“Notes”) (“Bridge Note Offering”) to Mr. Gibbs and Mr. Power. The purchase price of the Note is equal to the principal amount of the Note. The maturity date of the Notes was December 31, 2018. During the year ended December 31, 2018, $10,700 was repaid to Mr. Power leaving a balance of $0. On January 18, 2019, the Note funded by Mr. Gibbs of $150,000 was extended until March 31, 2019 after which it was in default. At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $201,337 to settle the Bridge Note Offering balance including accrued interest. See Note 10. As of December 31, 2019, the Note funded by Mr. Gibbs and the accrued interest has an outstanding balance of $0.

 

Advances – related party

 

During the year ended December 31, 2019 Mr. Gibbs and Mr. Power advanced $352,000 and $130,455 to the Company, respectively. Mr. Power also paid expenses using his personal credit card on behalf of the Company of $195,499 and the Company. Total cash repayments on cash advances and use or personal credit cards to Mr. Power were $222,709 during the year ended December 31, 2019.

 

At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $345,450 to partially settle related party advances from Mr. Gibbs and Mr. Powers including accrued interest. See Note 10. Amounts due to Mr. Gibbs and Powers related to cash advances and expense paid on behalf of the Company was $134,559 and $24,764 as of December 31, 2019 and December 31, 2018, respectively.

 

Note 8 – Notes payable

 

During the year ended December 31, 2019, $32,500 was received from third parties with the intention to convert to a note payable of which the terms are still being finalized, which is included on the balance sheet in advances payable, third party.

 

As discussed in Note 7 – 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 total of 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, is $115,500 with accrued interest of $23,377. As of December 31, 2018, the balance on the notes from non-related parties, net of unamortized discount of $0 was $110,000 with accrued interest of $11,934. The Series 2017 Notes were settled subsequent to December 31, 2019. See Note 15.

 

Note 9 – Convertible Note Payable

 

Series 2018A and 2018B 10% Unsecured Convertible Notes

 

In the quarter ended December 31, 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.

 

 

 

 F-18 

 

 

At September 30, 2019, the Company issued shares of Series A Preferred Stock with a stated value of $164,918 to settle the Series A note sold to Mr. Gibbs including accrued interest. See Note 10. 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.

 

Series 2019A 10% Unsecured Convertible Notes

 

In 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. Amortization expense of $47,417 was recognized during the year ended December 31, 2019.

 

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 of $145,978 as a debt discount and additional paid in capital in October 2019. The debt discount was fully amortized to interest expense during the year ended December 31, 2019. The 10% Unsecured Convertible Note will accrue interest at the rate of 10% per annum payable quarterly, accruing from the date of issuance. As of December 31, 2019, the balance due under these notes net of unamortized discount of $87,583, is $193,395, with accrued interest of $6,438.

 

Note 10 – Stockholders’ Deficit

 

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 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, 2019 the Company recognized $22,000 of expense related to these shares.

 

 

 

 F-19 

 

 

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.

 

 

 

 F-20 

 

 

A summary of the settlement of liabilities is below:

 

Liabilities Settled    
  Line of credit - related party  $869,550 
  Notes payable - related parties   483,375 
  Convertible note payable - related party   150,000 
  Accrued interest - related parties   603,064 
  Advances payable, related parties   345,150 
  Accrued liabilities   70,577 
Total liabilities settled   2,521,716 
      
Consideration Paid     
  Preferred shares - fair value   5,572,187 
  Common shares - fair value   40,000 
  Investment in Rio Silver Equities   83,066 
Loss on settlement of liabilities  $(3,173,537)

 

The total loss on settlement of liabilities of $3,173,537 is recorded on the income statement as loss on extinguishment of debt $3,151,314 with the remaining $22,223 loss on settlement of accounts payable recorded in general and administrative expense.

 

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. As of December 31, 2019, the Company recognized $24,799 of expense related to the warrants issued from this agreement.

 

During the nine months ended September 30, 2018, the Company raised $340,000 through the sale of 340,000 common stock and warrants (“Units”) at a price of $1.00 per Unit, each Unit consisting of one share of common stock and one warrant to purchase one additional share of common stock at an exercise price of $1.00 per share. The expiration date of the warrants varies from August 31, 2018 to December 31, 2018. A price protection feature of the offering provides that if at December 31, 2018, the Company has issued common stock at a price less than $1.00 per share, then the number of common shares issuable to each investor shall be increased so as to reduce the common share price to the lower price. The allocation of relative fair values of the equity instruments at the dates of the sale transactions including those disclosed below was as follows: common stock at 53% and the warrants at 47%. During the year ended December 31, 2018 pursuant to the price protection provision discussed above the Company issued 298,636 shares of common stock and committed to issue an additional 45,559 shares. This issuance was recorded as a deemed dividend and valued at $323,792.

 

 

 

 F-21 

 

 

During the quarter ended December 31, 2018, the Company raised $120,000 through the sale of 120,000 common stock and warrants (“Units”) at a price of $1.00 per Unit, each Unit consisting of one share of common stock and four warrants to purchase additional shares of common stock. 240,000 of the warrants have an exercise price of $2.00 per share while the other 240,000 warrants have an exercise price of $3.00. The expiration date of the warrants varies from May 8, 2019 to August 8, 2019. These Units in addition to $90,000 of the Units sold in the third quarter included a feature that between the date the units were sold in November 2018 and December 31, 2018 the investors would receive additional common shares and warrants should the Company sell stock at less than the unit offering price. This price protection feature resulted in the warrants being classified as a derivative liability on the date of issuance. This resulted in a day one warrant liability of $284,049, a day one loss on the derivative of $177,827 and a charge to additional paid in capital of $106,222. At the expiration of the price protection feature the current fair value of the warrant liability of $168,612 was reclassified to additional paid in capital resulting in a net impact to equity of $62,390.

 

During the year ended December 31, 2018, the Company received net proceeds of $120,000 from the exercise of 120,000 warrants.

 

During the year ended December 31, 2018, Convertible Note holders converted $24,394 of accrued interest and fees and $162,854 of principal into 236,000 shares of common stock in accordance with the note agreements.

 

During the year ended December 31, 2018, the Company issued 100,000 shares of common stock to Mr. Gibbs related to the conversion of $100,000 of the Line of Credit. The fair value of the shares issued equaled to the amount of debt settled which resulted in no gain or loss.

 

Effective July 24, 2018, the Company and W. Pierce Carson, President, executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued but unpaid executive compensation for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash advance of $8,100 made to the Company into an aggregate of 98,100 shares of Common Stock, valued at $1.00 per share. The fair value of the shares issued equaled to the amount of debt settled which resulted in no gain or loss.

 

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 will vest upon the Company completing a milestone, which was met in 2018, and the remaining 60,000 shares are subject to ratable vesting over an 18-month period. During the year ended December 31, 2018 the Company recognized an expense of $36,667 related to this issuance.

 

During the year ended December 31, 2018, the Company issued 20,261 shares of common stock as part of the acquisition of a data package related to the El Dorado project. The shares were valued at $18,235 and recorded as an asset.

 

Stock Options, Stock Warrants 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, 2019, the Company had 128,000 shares available for future grant.

 

 

 

 F-22 

 

 

Stock option activity within the 2017 Equity Incentive Plan and warrant activity outside the plan, for the year ended December 31, 2019 is as follows:

 

     Stock Options    Stock Warrants 
     Shares    

Weighted Average

Exercise Price

    Shares    

Weighted Average

Exercise Price

 
Outstanding at December 31, 2017    72,000   $2.00    37,000   $5.00 
Granted            820,000    2.00 
Cancelled                 
Expired            (257,000)   1.50 
Exercised            (120,000)   1.00 
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 
Exercisable at December 31, 2019    72,000   $2.00    335,000   $1.70 

 

As of December 31, 2019, the outstanding stock options have a weighted average remaining term of 7.82 years and $0 intrinsic value, and the outstanding stock warrants have a weighted average remaining term of 0.76 years and an intrinsic value of $23,000.

 

In April 2019, the maturity date for 300,000 of the stock warrants was extended to May 28, 2019 and the exercise price was reduced from $2.00 per share down to $1.00 per share. On May 28, 2019, the stock warrants were extended to October 31, 2019 and they expired on that date unexercised.

 

Note 11 - Commitments and Contingencies

 

Purchase Agreement

 

On October 16, 2019, the Company entered into an Option to Purchase Agreement with Golden Minerals Company, (“GMC”), and its wholly-owned subsidiary, Minera de Cordilleras, S. de R.L. de C.V. (“GMC Mexico”), whereby the Company, through Magellan Mexico has acquired from GMC, through GMC Mexico, an exclusive option to purchase GMC Mexico’s interest in concessions and related rights to its Santa Maria property in Mexico. The Company has 150 days to complete due diligence, secure funding and enter into a definitive agreement. In March 2020, the Company did not exercise the option to purchase GMC Mexico’s interest in its Santa Maria property in Mexico and the option is now expired.

 

Mining Claims

 

As part of our acquisition of the Silver District properties from Columbus Exploration, we assumed the Red Cloud lease whose initial term expires in August 2026. The lease requires annual advance minimum royalty payments of $10,000 through the term of the lease due on the annual anniversary of the agreement. The lease is also subject to a 2% net production royalty to be paid to the lessor from the sale of precious metals extracted from the leased property. In order to maintain the BLM lode and mill site claims, annual payments are required before the end of August of each year. Payments are also due annually on two patented claims we leased in July 2015 and on our Arizona State Minerals Exploration Permit. As of December 31, 2019, all of these claims and leases are in good standing.

 

 

 

 F-23 

 

 

Leases

 

As part of our acquisition of MV2 in Mexico, we assumed the following leases payable in local currency as follows:

 

  a) Ejido S.D.A, 10 year lease, 6 hectares, executed January 2016, expires December 2025. Annual payments 25,000 MX pesos. Renewable for 10 years.

 

  b) Silverio Medina Ozuna, 3 year lease, 1 hectare, executed May 2017, expires April 2020. Annual payments 15,000 MX pesos. Renewable for 3 year periods.

 

  c) Silverio Medina Ozuna, 10 year lease, 2 hectares, executed May 2010, expires April 2020. Payment $100,000 MX pesos paid in advance at lease execution. Renewable for 10 years.

 

For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options. The Company does not currently believe leases are reasonably certain of being renewed. Some leasing arrangements may require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability. The Company's lease agreements do not contain any material restrictive covenants.

 

The Company recognized operating lease cost of $2,717 during the year ended December 31, 2019. The Company had right-of-use assets of $4,419 (included in long-term prepaid expenses and other assets on the consolidated balance sheet) and right-of-use liabilities of $5,016 (included in accrued liabilities and other long term liabilities on the consolidated balance sheet) as of December 31, 2019. The Company had operating cash flows related to these leases of $2,080 for the year ended December 31, 2019. The Company’s operating leases had a weighted average estimated incremental borrowing rate of 15% and a weighted average remaining term of 6.0 years as of December 31, 2019.

 

The following table provides the maturities of lease liabilities and have been translated to US dollars using an exchange rate at December 31, 2019 of 18.86 MX pesos to US dollars:

 

Maturity of Lease Liabilities at December 31, 2019     
2020   $ 
2021    1,325 
2022    1,325 
2023    1,325 
2024    1,325 
2025 and thereafter    2,651 
Total future undiscounted lease payments    7,951 
Less: Interest    (2,935)
Present value of lease liabilities   $5,016 

 

Note 12 – Executive Employment Agreement

 

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.

 

 

 

 F-24 

 

 

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.

 

Effective June 1, 2019, the Company and Frank Pastorino, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Pastorino, in consideration of services to be rendered as COO, restricted stock units consisting of 8,333 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 $12,500. On September 23, 2019, Mr. Pastorino resigned as COO of the Company and the related expense recognized was reversed since none of the restricted stock units vested.

 

Note 13 – Related Party Transactions

 

Conflicts of Interests

 

Athena Silver Corporation (“Athena”) is a company under common control. Mr. Power is also a director and CEO of Athena. Mr. Gibbs is a significant investor in both Magellan and Athena. Magellan and Athena are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

Silver Saddle Resources, LLC is also a company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle. Magellan and Silver Saddle are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

The existence of common ownership and common management could result in significantly different operating results or financial position from those that could have resulted had Magellan, Athena and Silver Saddle been autonomous.

 

Management Fees

 

At December 31, 2019 and December 31, 2018 $0 and $27,500 of fees were due to Mr. Power for prior services and are included in accrued liabilities on the accompanying consolidated balance sheets. In September 2019, the Company settled the management fees due to Mr. Power as disclosed in Note 10.

 

At December 31, 2019 and December 31, 2018, $7,000 and $28,000 of fees were due to Mr. Martinez and are included in accrued liabilities 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, 2019   December 31, 2018 
Accrued interest payable - Mr. Gibbs  $11,973   $340,218 
Accrued interest payable - Mr. Power   11,342    76,504 
Accrued interest payable - Dr. Carson   6,597    3,736 
   $29,912   $420,458 

 

 

 

 F-25 

 

 

Other

 

The Company entered into a verbal agreement with Ms. Seijas de Drips, the CEO’s spouse, for consulting services specifically related to the Company’s operations in Mexico, from July through December 2019 for $5,000 per month. At December 31, 2019, $30,000 of consulting fees related to this agreement were accrued in accounts payable – related party.

 

Note 14 – Income Taxes

 

Our net operating loss carry forward as of December 31, 2019 was $11,270,000, which may be used to offset future income taxes through 2039. Our net operating loss carry forward as of December 31, 2018 was $6,850,000. Included in these numbers are loss carry-forwards of $2,320,171 that were obtained through the acquisition of Minerales Vane 2, S.A. de C.V. 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 2019 and 2018 is as follows:

 

   Years Ended December 31, 
   2019   2018 
Expected federal income tax benefit at statutory rate   927,598    407,997 
State taxes   131,222    38,324 
Change in valuation allowance   (1,058,820)   (446,321)
Income tax benefit  $   $ 

 

Our deferred tax assets as of December 31, 2019 and 2018 were as follows:

 

   December 31, 
   2019   2018 
Deferred tax asset   2,897,636    1,838,816 
Valuation allowance   (2,897,636)   (1,838,816)
Deferred tax assets, net of allowance  $   $ 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We have provided a valuation allowance of 100% of our net deferred tax asset due to the uncertainty of generating future profits that would allow us to realize our deferred tax assets.

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Tax Reform Act") was signed into law by President Trump. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. Under ASC 740, the tax effects of changes in tax laws must be recognized in the period in which the law was enacted. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. The Company re-measured its deferred tax assets and liabilities at the 21% federal corporate tax rate.

 

 

 

 F-26 

 

 

Note 15 – Subsequent Events

 

On January 10, 2020, Magellan Gold Corporation, a Nevada corporation (the “Company”), entered into a binding Letter of Intent with NV Gold Corporation to sell its Silver District Project in Arizona. On May 11, 2020, NV Gold notified the Company it did not exercise this option.   See Note 3.

 

Subsequent to December 31, 2019, Mr. Gibbs has made a advance of $5,000.

 

On May 8, 2020, the Company issued a $50,000 of Series 2020A 8% Unsecured Convertible Notes. 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, which is matures on November 30, 2020. The lender was issued 100,000 common stock warrants with an exercise price of $0.50 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 May 2020.

 

The Series 2017 Notes (see also Notes 7 and 8) 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.

 

Unaudited Pro Forma Information

 

The table below shows the settlement of the assets and liabilities held by MAC, Minerales Vane 2, MVO as of December 31, 2019 and the corresponding debt and accrued interest of Magellan that will be settled.

 

 

 

 F-27 

 

 

   As of 
   December 31, 2019 
Net assets sold:    
Cash  $5,165 
Property, plant and equipment   973,930 
Prepaid expenses and other assets   425,683 
Mineral rights, net of impairment   101,672 
Accounts payable and accrued expenses   (263,535)
Asset retirement obligation   (120,877)
Total consideration  $1,122,038 
      
Consideration received     
Notes payable - related parties  $953,875 
Notes payable   115,500 
Accrued interest   52,537 
Total liabilities settled  $1,121,912 
      
Loss on disposition of subsidiary  $126 

 

The following schedule contains unaudited pro-forma consolidated results of operations for the year ended December 31, 2019 and 2018 as if the control of MAC, MVO and Minerales Vane 2 transferred to the Lenders on January 1, 2018. The unaudited pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the disposition had taken place on those dates, or of results that may occur in the future. The unaudited pro forma results reflect adjustments related to the revenue, cost of sales, exploration costs, general and administrative expenses and foreign currency exchange related to the MAC, MVO and Minerales Vane 2 operations.

 

   For the years ended 
   December 31, 2019   December 31, 2018 
   Pro Forma   Pro Forma 
Revenue  $   $ 
Operating costs and expenses   (1,028,034)   663,162 
Net loss   (4,693,164)   (1,936,416)
Net comprehensive loss   (4,693,164)   (1,612,624)
Loss per common share basic and diluted  $(1.32)  $(0.68)
Pro forma weight average shares outstanding   3,554,396    2,388,807 

 

 

 

 

 

 

 

 

 

 

 F-28 

 

 

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:  May 27, 2020

By: /s/ David E. Drips                                                           

President, Principal Executive 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.

 

SIGNATURE   TITLE   DATE  
           
/s/ John C. Power   Principal Accounting Officer & Director   May 27, 2020  
John C. Power          
           
/s/ David E. Drips