NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Augusta
Gold Corp. (formerly known as Bullfrog Gold Corp., the “Company”) is a junior exploration company engaged in the acquisition
and exploration of properties that may contain gold, silver, and other metals in the United States. The Company’s target properties
are those that have been the subject of historical exploration. The Company owns, controls or has acquired mineral rights on patented
claims and federal unpatented claims in the state of Nevada for the purpose of exploration and potential development of gold, silver,
and other metals. The Company plans to review opportunities and acquire additional mineral properties with current or historic precious
and base metal mineralization with meaningful exploration potential.
The Company’s
properties do not have any reserves. The Company plans to conduct exploration and engineering evaluation programs on these properties
with the objective of ascertaining whether any of its properties contain economic concentrations of precious and base metals that are
prospective for mining.
Basis
of Presentation and Statement of Compliance
The accompanying
consolidated financial statements (the “consolidated financial statements”), have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”).
Basis of Measurement
These consolidated financial
statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments
that are measured at fair value as described herein.
Principles
of Consolidation
The consolidated
financial statements include the accounts of Augusta Gold Corp. and its wholly owned subsidiaries, Standard Gold Corp. (“Standard
Gold”), Bullfrog Mines LLC (“Bullfrog Mines”), CR Reward, LLC (“CR Reward” or “Reward”), Augusta
Gold BC (“BC Co”) and Rocky Mountain Minerals Corp. (“Rocky Mountain Minerals” or “RMM”). All significant
inter-entity balances and transactions have been eliminated in consolidation.
Going Concern and Management’s Plans
As at March 31, 2023,
the Company has a working capital deficiency of approximately $21,700,000. The ability of the Company to meet its obligations and
continue operations is dependent on its ability to obtain additional debt or equity financing. These circumstances raise substantial
doubt about the Company’s ability to continue as a going concern.
Cash,
Cash Equivalents and Concentration
The Company
considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places
its cash with high credit quality financial institutions in the United States and Canada. On March 31, 2023, the Company’s cash
balance was approximately $3,600,000. To reduce its risk associated with the failure of such financial institution, the Company will evaluate,
as needed, the rating of the financial institution in which it holds deposits.
Use
of Estimates
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Estimates have been made for share-based compensation, asset retirement obligation, warrant liability
and whether acquisitions of Bullfrog Mines and CR Reward constituted an asset acquisitions or business combinations.
Foreign
Currency Translation
The Company
is exposed to currency risk on transactions and balances in currencies other than the functional currency. The Company has not entered
any contracts to manage foreign exchange risk.
The functional
currency of the Company and its subsidiaries is the US dollar; therefore, the Company is exposed to currency risk from financial assets
and liabilities denominated in Canadian dollars.
Property and Equipment
Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated
useful lives of the assets, which range from 5 to 15 years. Additions, renewals, and betterments that significantly extend the life of
the asset are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed
of, the cost and related accumulated depreciation and amortization are removed from the accounts, and any related gain or loss is reflected
in income for the period.
Leases
The Company has adopted Financial Accounting Standards
Board (FASB) ASU 2016-02, Leases (Topic 842), for reporting leases. Leases of 12 months or less will be accounted for similar to existing
guidance for operating leases. For leases with a lease term greater than one year, the Company recognizes a lease asset for its right
to use the underlying leased asset and a lease liability for the corresponding lease obligation.
Mineral Property
Acquisition and Exploration Costs
Mineral property exploration
costs are expensed as incurred until economic reserves are quantified. To date, the Company has not established any proven or probable
reserves on its mineral properties. Costs of lease, exploration, carrying and retaining unproven mineral lease properties are expensed
as incurred. The Company has chosen to expense all mineral exploration costs as incurred given that it is still in the exploration stage.
Once the Company has identified proven and probable reserves in its investigation of its properties and upon development of a plan for
operating a mine, it would enter the development stage and capitalize future costs until production is established. When a property reaches
the production stage, the related capitalized costs will be amortized over the estimated life of the probable-proven reserves. When the
Company has capitalized mineral properties, these properties will be periodically assessed for impairment of value and any diminution
in value. To date, the Company has not established the commercial feasibility of any exploration prospects; therefore, all exploration
costs are being expensed. Costs of property and equipment acquisitions are being capitalized.
The Company is required
to reclaim the property at the Bullfrog Project and Reward Project at the end of their useful lives. In accordance with FASB ASC 410-20,
Asset Retirement and Environmental Obligations, the Company recognized the fair value of a liability for an ARO in the amount of $1,742,131
at the Bullfrog Project and $1,065,201 at the Reward Project. During the period ended March 31, 2023, we incurred certain costs related
to the ARO estimate that has an effect on the accretion and estimated costs.
| |
2023 | | |
2022 | |
Balance, January 1 | |
$ | 2,814,435 | | |
$ | 1,868,265 | |
Accretion | |
| 27,907 | | |
| 7,099 | |
Costs applied to ARO balance | |
| (18,343 | ) | |
| (35,014 | ) |
Change in estimates | |
| (16,667 | ) | |
| 120,877 | |
Balance, March 31 (current) | |
$ | 1,050,400 | | |
$ | 1,039,786 | |
Balance, March 31 (long term) | |
$ | 1,756,932 | | |
$ | 921,441 | |
Life of mine | |
| 2028 | | |
| 2028 | |
Discount rate | |
| 3.6 | % | |
| 2.4 | % |
Inflation rate (average) | |
| 2.2 | % | |
| 2.0 | % |
Although the ultimate
amounts for future site reclamation and remediation are uncertain, the best estimate of these obligations was based on information available,
including current legislation, third-party estimates, and management estimates. The amounts and timing of the mine closure obligations
will vary depending on several factors including future operations and the ultimate life of the mine, future economic conditions, and
changes in applicable environmental regulations.
At March 31, 2023, the
estimated future cash flows have been determined using real cash flows and discounted using a rate of 3.6% and a total undiscounted amount
for the estimated future cash flows is $1,811,651 at the Bullfrog Project and $1,313,204 at the Reward Project.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may
be used to measure fair value:
Level 1 - Valuation based on quoted market prices
in active markets for identical assets and liabilities.
Level 2 - Valuation based on quoted market prices
for similar assets and liabilities in active markets.
Level 3 - Valuation based on unobservable inputs
that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would
use as fair value.
The fair value of cash, deposits, accounts payable,
and notes payable approximates their carrying values due to their short term to maturity. The warrant liabilities are measured using level
3 inputs (Note 4).
Income Taxes
Income taxes are accounted for under the asset
and liability method in accordance with ASC 740, “Income Taxes”. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their
respective tax bases as well as operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. Deferred tax assets are reduced by a valuation allowance to the extent that the recoverability of the asset is unlikely to be recognized.
The Company reports a liability, if any, for unrecognized
tax benefits resulting from uncertain tax positions taken, or expected to be taken, in an income tax return. The Company has elected to
classify interest and penalties related to unrecognized income tax benefits, if and when required, as part of income tax expense in the
statement of operations. No liability has been recorded for uncertain income tax positions, or related interest or penalties as of March
31, 2023 and December 31, 2022. The periods ended December 31, 2022, 2021, 2020, 2019, and 2018 are open to examination by taxing authorities.
Long Lived Assets
The Company assesses the impairment of long-lived
assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When the Company determines
that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment and
the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge.
The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to
be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether
an indicator of impairment exists and in projecting cash flows.
Preferred Stock
The Company accounts for its preferred stock under
the provisions of the ASC on Distinguishing Liabilities from Equity, which sets forth the standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and equity. This standard requires an issuer to classify a financial
instrument that is within the scope of the standard as a liability if such financial instrument embodies an unconditional obligation to
redeem the instrument at a specified date and/or upon an event certain to occur. The Company has determined that its preferred stock does
not meet the criteria requiring liability classification as its obligation to redeem these instruments is not based on an event certain
to occur. Future changes in the certainty of the Company’s obligation to redeem these instruments could result in a change in classification.
Stock-Based Compensation
Stock-based compensation is accounted for based
on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of
the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director
is required to perform the services in exchange for the award (presumptively, the vesting period). This ASC also requires measurement
of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
The estimated fair value of each stock option
as of the date of grant was calculated using the Black-Scholes pricing model. The Company estimates the volatility of its common stock
at the date of grant based on Company stock price history. The Company determines the expected life based on the simplified method given
that its own historical share option exercise experience does not provide a reasonable basis for estimating expected term. The Company
uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately
equal to the expected life of the award. The Company has never paid any cash dividends on its common stock and does not anticipate paying
any cash dividends in the foreseeable future. The shares of common stock subject to the stock-based compensation plan shall consist of
unissued shares, treasury shares or previously issued shares held by any subsidiary of the Company, and such number of shares of common
stock are reserved for such purpose.
Derivative Financial Instruments
The Company accounts for derivative instruments
in accordance with Financial Accounting Standards Board (“FASB”) ASC 815, Derivatives and Hedging (“ASC 815”),
which requires additional disclosures about the Company’s objectives and strategies for using derivative instruments, how the derivative
instruments and related hedged items are accounted for, and how the derivative instruments and related hedging items affect the financial
statements. The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk. Terms of
convertible debt and equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are
required under ASC 815 to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair
value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded
in current period operating results. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether
the fair value of warrants issued is required to be classified as equity or as a derivative liability.
Certain warrants are treated as derivative financial
liabilities. The estimated fair value, based on the Black-Scholes model, is adjusted on a quarterly basis with gains or losses recognized
in the statement of loss and comprehensive loss. The Black-Scholes model is based on significant assumptions such as volatility, dividend
yield, expected term and liquidity discounts
Earnings (Loss) per Common Share
The following
table shows basic and diluted earnings per share:
| |
Three Months Ended | |
| |
3/31/2023 | | |
3/31/2022 | |
Basic and Diluted Earnings (Loss) per Common Share | |
| | |
| |
Earnings (loss) | |
$ | 5,445,958 | | |
$ | (1,421,213 | ) |
Basic weighted average shares outstanding | |
| 84,435,276 | | |
| 70,519,188 | |
Assumed conversion of dilutive shares | |
| 225,002 | | |
| 0 | |
Diluted weighted average common shares outstanding, assuming conversion of common stock equivalents | |
| 84,660,278 | | |
| 70,519,188 | |
Basic Earnings (Loss) Per Common Share | |
$ | 0.06 | | |
$ | (0.02 | ) |
Diluted Earnings (Loss) Per Common Share | |
$ | 0.06 | | |
$ | (0.02 | ) |
Certain options and warrants and all preferred
shares were included in the computation of diluted shares outstanding for the three months ended March 31, 2023. The options and warrants
that were not included in the diluted weighted average shares calculation because they were “out-of-the money”. In periods
where the Company has a net loss, all common stock equivalents are excluded as they would be anti-dilutive. The following details
the dilutive and anti-dilutive shares:
| |
Dilutive shares | | |
Anti-dilutive shares | | |
| |
| |
In the
money | | |
Out of the money | | |
Total | |
Options | |
| 225,002 | | |
| 4,975,000 | | |
| 5,200,002 | |
Warrants | |
| 0 | | |
| 34,701,615 | | |
| 34,701,615 | |
Total | |
| 225,002 | | |
| 39,676,615 | | |
| 39,901,617 | |
Risks and Uncertainties
Since the formation of the Company, it has not
generated any revenues. As an early-stage company, the Company is subject to all the risks inherent in the initial organization, financing,
expenditures, complications and delays inherent in a new business. Our business is dependent upon the implementation of our business plan.
There can be no assurance that our efforts will be successful or that we will ultimately be able to generate revenue or attain profitability.
Natural resource exploration, and exploring for
gold, is a business that by its nature is very speculative. There is a strong possibility that we will not discover gold or any other
mineralization which can be mined or extracted at a profit. Even if we do discover gold or other deposits, the deposit may not be of the
quality or size necessary for us or a potential purchaser of the property to make a profit from mining it. Few properties that are explored
are ultimately developed into producing mines. Unusual or unexpected geological formations, geological formation pressures, fires, power
outages, labor disruptions, flooding, explosions, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment
or labor are just some of the many risks involved in mineral exploration programs and the subsequent development of gold deposits.
The Company business is exploring for gold and
other minerals. If the Company discovers commercially exploitable gold or other deposits, revenue from such discoveries will not be generated
unless the gold or other minerals are actually mined.
Mining operations in the United States are subject
to many different federal, state, and local laws and regulations, including stringent environmental, health and safety laws. In the event
operational responsibility is assumed for mining our properties, the Company may be unable to comply with current or future laws and regulations,
which can change at any time. Changes to these laws may adversely affect any of the Company potential mining operations. Moreover, compliance
with such laws may cause substantial delays and require capital outlays greater than those the Company anticipate, adversely affecting
any potential mining operations. Future mining operations, if any, may also be subject to liability for pollution or other environmental
damage. The Company may choose to not be insured against this risk because of high insurance costs or other reasons.
The Company’s exploration and development activities may be affected
by existing or threatened medical pandemics, such as the novel coronavirus (COVID-19). A government may impose strict emergency measures
in response to the threat or existence of an infectious disease, such as the emergency measures imposed by governments of many countries
and states in response to the COVID-19 virus pandemic. As such, there are potentially significant economic and social impacts of infectious
diseases, including but not limited to the inability of the Company to develop and operate as intended, shortage of skilled employees
or labor unrest, inability to access sufficient healthcare, significant social upheavals or unrest, disruption to operations, supply chain
shortages or delays, travel and trade restrictions, government or regulatory actions or inactions (including but not limited to, changes
in taxation or policies, or delays in permitting or approvals, or mandated shut downs), declines in the price of precious metals, capital
markets volatility, availability of credit, loss of investor confidence and impact on economic activity in affected countries or regions.
In addition, such pandemics or diseases represent a serious threat to maintaining a skilled workforce in the mining industry and could
be a major health-care challenge for the Company. There can be no assurance that the Company or the Company’s personnel will not
be impacted by these pandemic diseases and the Company may ultimately see its workforce productivity reduced or incur increased medical
costs/insurance premiums as a result of these health risks. COVID-19 is rapidly evolving and the effects on the mining industry and the
Company are uncertain. The Company may not be able to accurately predict the impact of infectious disease, including COVID-19, or the
quantum of such risks. There can be no assurance that the Company will not be impacted by adverse consequences that may be brought about
by pandemics on global financial markets, which may reduce resources, share prices and financial liquidity and may severely limit the
financing capital available to the Company.
Recent Accounting Pronouncements
The Company is not aware of any recent accounting
pronouncements expected to have a material impact on the consolidated financial statements.
NOTE 2 - MINERAL PROPERTIES AND EQUIPMENT
| |
Mineral | | |
Property and | | |
| |
| |
properties | | |
equipment | | |
Total | |
Cost | |
| | |
| | |
| |
As of December 31, 2021 | |
$ | 12,077,511 | | |
$ | 338,204 | | |
$ | 12,415,715 | |
Additions | |
| 46,884,775 | | |
| 838,991 | | |
| 47,723,766 | |
As of December 31, 2022 | |
| 58,962,286 | | |
| 1,177,195 | | |
| 60,139,481 | |
Additions | |
| 0 | | |
| 0 | | |
| 0 | |
As of March 31, 2023 | |
$ | 58,962,286 | | |
$ | 1,177,195 | | |
$ | 60,139,481 | |
| |
| | | |
| | | |
| | |
Accumulated depreciation | |
| | | |
| | | |
| | |
As of December 31, 2021 | |
$ | 0 | | |
$ | 44,689 | | |
$ | 44,689 | |
Depreciation expense | |
| 0 | | |
| 44,057 | | |
| 44,057 | |
As of December 31, 2022 | |
| 0 | | |
| 88,746 | | |
| 88,746 | |
Depreciation expense | |
| 0 | | |
| 11,014 | | |
| 11,014 | |
As of March 31, 2023 | |
$ | 0 | | |
$ | 99,760 | | |
$ | 99,760 | |
| |
| | | |
| | | |
| | |
Net book value on March 31, 2023 | |
$ | 58,962,286 | | |
$ | 1,077,435 | | |
$ | 60,039,721 | |
On October 26, 2020, the Company completed its
acquisition of Bullfrog Mines pursuant to the Membership Interest Purchase Agreement (the “MIPA”) among the Company, Homestake
Mining Company of California (“Homestake”), and Lac Minerals (USA) LLC (“Lac Minerals” and together with Homestake,
the “Barrick Parties”).
Pursuant to the MIPA, the Company purchased from
the Barrick Parties all of the equity interests in Bullfrog Mines LLC for aggregate consideration of (i) 9,100,000 units of
the Company, each unit consisting of one share of common stock of the Company and one four-year warrant purchase one share of common stock
of the Company at an exercise price of C$1.80 (such number of units and exercise price are set out on a pre Reverse Stock Split basis),
(ii) a 2% net smelter returns royalty (the “Barrick Royalty”) granted on all minerals produced from all of the patented
and unpatented claims (subject to the adjustments set out below), pursuant to a royalty deed, dated October 26, 2020 by and among Bullfrog
Mines and the Barrick Parties (the “Royalty Deed”), (iii) the Company granting indemnification to the Barrick Parties pursuant
to an indemnity deed, dated October 26, 2020 by and among the Company, the Barrick Parties and Bullfrog Mines, and (iv) certain investor
rights, including anti-dilution rights, pursuant to the investor rights agreement dated October 26, 2020, among the Company, Augusta Investments
Inc., and Barrick Gold Corporation.
Pursuant to the Royalty Deed, the Barrick Royalty
is reduced to the extent necessary so that royalties burdening any individual parcel or claim included in the Barrick Properties on October
26, 2020, inclusive of the Barrick Royalty, would not exceed 5.5% in the aggregate, provided that the Barrick Royalty in respect of any
parcel or claim would not be less than 0.5%, even if the royalties burdening a parcel or claim included in the Barrick Properties would
exceed 5.5%.
The following is the consideration paid in the
Bullfrog Mines acquisition, which was allocated entirely to mineral properties:
Consideration: | |
| |
Grant date fair value of 9,100,000 units issued | |
$ | 8,342,880 | |
Transaction fees | |
| 97,571 | |
Asset retirement obligation | |
| 1,130,631 | |
Total | |
$ | 9,571,082 | |
On June 13, 2022, the Company completed the acquisition
of the outstanding membership interests (collectively, the “CR Interests”) of CR Reward LLC, a wholly-owned subsidiary of
Waterton (“CR Reward”), pursuant to a membership interest purchase agreement with Waterton Nevada Splitter, LLC (“Waterton”).
CR Reward holds the Reward Project located seven miles from the Company’s Bullfrog Project in Nevada. The CR Interests were acquired
for the following consideration: (a) $12,500,000 in cash paid at the closing; plus (b) the issuance of 7,800,000 shares of Augusta
Gold common stock at closing; plus (c) $22,126,000 in cash paid on September 14, 2022 (comprising collectively the “Second Payment”
and the “Deferred Payment”).
Management has determined that the CR Reward acquisition
does not constitute a business combination because the acquired assets do not contain processes sufficient to constitute a business in
accordance with ASC 805. As a result, the consideration is measured based on the cost accumulation model and allocated to the acquired
assets on the basis of relative fair value, with no resulting goodwill or bargain purchase gain being recognized. Share-based payments
issued in conjunction with the acquisition are valued based on the fair value of the consideration issued, measured at the grant date
in accordance with ASC 718.
The following is the consideration paid in the
CR Reward acquisition:
Consideration: | |
| |
Cash | |
$ | 12,500,000 | |
Grant date fair value of 7,800,000 units issued | |
| 11,516,583 | |
Transaction fees | |
| 61,488 | |
Second Payment | |
| 4,626,000 | |
Deferred Payment | |
| 17,500,000 | |
Total consideration | |
$ | 46,204,071 | |
Net assets acquired | |
| |
Cash | |
$ | 1,299 | |
Prepaids | |
| 9,658 | |
Property and plant | |
| 838,992 | |
Mineral properties | |
| 46,465,056 | |
Accounts payable | |
| (10,500 | ) |
Asset retirement obligation | |
| (1,100,434 | ) |
Total net assets acquired | |
$ | 46,204,071 | |
The Company has posted several cash bonds as financial
security to satisfy reclamation requirements. The balance of posted cash reclamation bonds at March 31, 2023 is $1,115,813, for total
coverage of $3,188,036.
NOTE 3 - STOCKHOLDER’S EQUITY
On January 20, 2023,
the Company closed its offering (the “Offering”) of 6,725,147 units (“Units”) of the Company at a price of C$1.71
per Unit, including the units issued pursuant to the full exercise of the over-allotment option by the underwriters in the Offering (the
“Underwriters”), for aggregate gross proceeds of approximately C$11,500,000 before deducting Offering expenses.
In connection with the
closing of the Offering, the Company entered into a Warrant Indenture dated January 20, 2023 (the “Warrant Indenture”) with
Endeavor Trust Corporation, as the warrant agent, pursuant to which the Company issued Warrants to purchase up to a maximum of 3,362,573
Warrant Shares. Each Warrant is exercisable at any time after January 20, 2023, and prior to January 20, 2026.
As compensation in connection
to the Offering, the Company paid the Underwriters cash compensation equal to 5.0% of the aggregate gross proceeds of the Offering and
issued to the Underwriters 336,257 common stock purchase warrants (the “Compensation Warrants”). Each Compensation Warrant
is exercisable for one share of common stock (each, a “Compensation Warrant Share”) for a period of 12 months following the
closing of the Offering at a price of C$1.71 per Compensation Warrant Share.
Recent Sales of Unregistered Securities
On June 13, 2022, 7,800,000
shares of common stock of the Company (“Common Shares”) were issued for the purchase of CR Reward. See Note 2 for additional
information.
In addition to the above,
the Company issued the following common shares for the twelve months ending December 31, 2022, and three months ending March 31, 2023:
Options converted to common shares (none) |
|
Warrants converted to common shares |
Date | |
Shares | | |
| | |
Price | |
June-22 | |
| 208,334 | | |
| CAD | | |
$ | 1.80 | |
Preferred shares converted to common shares |
Date | |
Shares | |
May-22 | |
| 677,084 | |
Convertible Preferred Stock
In August 2011, the Board of Directors designated
5,000,000 shares of Preferred Stock as Series A Preferred Stock. Each share of Series A Preferred Stock is convertible into one share
of common stock at the option of the preferred holder. The Series A Preferred Stock is not entitled to receive dividends and does not
possess redemption rights. The Company is prohibited from effecting the conversion of the Series A Preferred Stock to the extent that,
as a result of the conversion, the holder of such shares would beneficially own more than 4.99% (or, if this limitation is waived by the
holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the issued and outstanding shares of our common stock.
The holders of the Company’s Series A Preferred Stock are also entitled to certain liquidation preferences upon the liquidation,
dissolution or winding up of the business of the Company.
In October 2012, the Board of Directors designated
5,000,000 shares of Preferred Stock as Series B Preferred Stock. In July 2016, the Board of Directors increased the total Series B Preferred
Stock designated to 7,500,000. Each share of Series B Preferred Stock is convertible into one share of common stock at the option of the
preferred holder. The Series B Preferred Stock is not entitled to receive dividends and does not possess redemption rights. The Company
is prohibited from effecting the conversion of the Series B Preferred Stock to the extent that, as a result of the conversion, the holder
of such shares would beneficially own more than 4.99% (which may be increased or waived upon no less than 61 days prior notice) in the
aggregate of the issued and outstanding shares of our common stock. For a period of 24 months from the issue date, the holder of Series
B Preferred Stock were entitled to price protection as determined in the subscription agreement. The Company has evaluated this embedded
lower price issuance feature in accordance with ASC 815 and determined that it is clearly and closely related to the host contract and
is therefore accounted for as an equity instrument.
On May 4, 2022, 677,084 shares
of Series B Preferred Stock were converted shares of common stock. As of March 31, 2023, there were no Preferred Stock shares outstanding.
Common Stock Options
On
February 22, 2021, the Company’s Board of Directors approved a new stock option plan (the “Plan”). The aggregate
number of shares of common stock of the Company (a “Share”) that may be reserved for issuance pursuant to the Plan shall not
exceed 10% of the number of Shares issued and outstanding from time to time.
The Company granted 350,000
options to an officer and an employee of the Company, pursuant to the terms of the Company’s Stock Option Plan. The Black Scholes
option pricing model was used to estimate the aggregate fair value of the June 2022 options of $324,816 with the following inputs:
Options |
|
Exercise Price |
|
Expected
Life |
|
Volatility |
|
Risk Free
Interest Rate |
|
350,000 |
|
C$2.50 |
|
3.5 years |
|
83.7% |
|
2.94% |
|
The Company granted 100,000
options to two employees of the Company, pursuant to the terms of the Company’s Stock Option Plan. The Black Scholes option pricing
model was used to estimate the aggregate fair value of the August 2022 options of $99,021 with the following inputs:
Options |
|
Exercise Price |
|
Expected
Life |
|
Volatility |
|
Risk Free
Interest Rate |
|
100,000 |
|
C$1.96 |
|
3.5 years |
|
80.3% |
|
3.14% |
|
Stock
Option Repricing
Effective
September 29, 2022, the Company’s board of directors repriced certain previously granted and still outstanding vested and unvested
stock option awards under the Company’s Plan held by current employees, officers and directors. As a result, the exercise price
for these awards was lowered to C$2.00 per share. No other terms of the repriced stock options were modified, and the repriced stock
options will continue to vest according to their original vesting schedules and will retain their original expiration dates. As a result
of the repricing, 4,541,667 vested and unvested stock options outstanding as of September 29, 2022, with original exercise prices
of C$3.00, were repriced.
The repricing
on September 29, 2022, resulted in incremental stock-based compensation expense of $480,250, of which $188,233 related to vested stock
option awards and was expensed on the repricing date, and $292,017 related to unvested stock option awards is being amortized on a straight-line
basis over the remaining vesting period of those awards ranging from 5 months to 23 months.
For the
three months ended March 31, 2023 and 2022, the Company recognized share-based compensation expense related to the stock options of $472,981,
and $438,522, respectively. The options are vested based on years of service, with certain options vested after two years and other options
vested after three years.
Stock
Option Activity
A summary
of the stock options as of March 31, 2023, and changes during the periods are presented below:
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
| | |
Average | | |
| |
| |
| | |
Weighted | | |
Remaining | | |
| |
| |
| | |
Average | | |
Contractual | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Life | | |
Intrinsic | |
| |
Options | | |
Price | | |
(Years) | | |
Value | |
Balance at December 31, 2021 | |
| 4,800,002 | | |
$ | 1.55 | | |
| 4.36 | | |
$ | 29,817 | |
Exercised | |
| 0 | | |
| 0.00 | | |
| 0 | | |
| 0 | |
Issued | |
| 450,000 | | |
| C$2.03 | | |
| 5 | | |
| 0 | |
Canceled | |
| 50,000 | | |
| C$2.00 | | |
| 0 | | |
| 0 | |
Balance at December 31, 2022 | |
| 5,200,002 | | |
| 1.56 | | |
| 3.45 | | |
| 57,468 | |
Exercised | |
| 0 | | |
| 0.00 | | |
| 0 | | |
| 0 | |
Issued | |
| 0 | | |
| 0.00 | | |
| 0.00 | | |
| 0 | |
Canceled | |
| 0 | | |
| 0.00 | | |
| 0 | | |
| 0 | |
Balance at March 31, 2023 | |
| 5,200,002 | | |
$ | 1.56 | | |
| 3.12 | | |
$ | 15,985 | |
Options exercisable at March 31, 2023 | |
| 3,658,335 | | |
$ | 1.54 | | |
| 3.31 | | |
$ | 15,985 | |
Total outstanding warrants of
34,701,615 as of March 31, 2023, were as follows:
| |
Warrants Issued | | |
Total | |
Warrants issued (includes expired warrants) | |
| 1,434,522 | | |
| 27,433,335 | | |
| 3,777,784 | | |
| 3,362,573 | | |
| 336,257 | | |
| 36,344,471 | |
Issued date | |
| 1/16/2020 | | |
| 10/26/2020 | | |
| 3/4/2021 | | |
| 1/20/2023 | | |
| 1/20/2023 | | |
| | |
Expiration date | |
| 1/15/2022 | | |
| 10/26/2024 | | |
| 3/4/2024 | | |
| 1/20/2026 | | |
| 1/20/2024 | | |
| | |
Exercise price (Canadian $) | |
$ | 1.20 | | |
$ | 1.80 | | |
$ | 2.80 | | |
$ | 2.30 | | |
$ | 1.71 | | |
| | |
Balance at December 31, 2021 | |
| 216,076 | | |
| 27,433,335 | | |
| 3,777,784 | | |
| | | |
| | | |
| 31,427,195 | |
Exercised | |
| 0 | | |
| 208,334 | | |
| 0 | | |
| | | |
| | | |
| 208,334 | |
Issued | |
| 0 | | |
| 0 | | |
| 0 | | |
| | | |
| | | |
| 0 | |
Expired | |
| 216,076 | | |
| 0 | | |
| 0 | | |
| | | |
| | | |
| 216,076 | |
Balance at December 31, 2022 | |
| 0 | | |
| 27,225,001 | | |
| 3,777,784 | | |
| | | |
| | | |
| 31,002,785 | |
Exercised | |
| 0 | | |
| 0 | | |
| 0 | | |
| | | |
| | | |
| 0 | |
Issued | |
| 0 | | |
| 0 | | |
| 0 | | |
| 3,362,573 | | |
| 336,257 | | |
| 3,698,830 | |
Expired | |
| 0 | | |
| 0 | | |
| 0 | | |
| | | |
| | | |
| 0 | |
Balance at March 31, 2023 | |
| 0 | | |
| 27,225,001 | | |
| 3,777,784 | | |
| 3,362,573 | | |
| 336,257 | | |
| 34,701,615 | |
NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS
Warrants have an exercise price in Canadian dollars
while the Company’s functional currency is US dollars. Therefore, in accordance with ASU 815 - Derivatives and Hedging, the Warrants
have a derivative liability value.
The value of the October 2020 Warrants of $11,439,156 has been calculated
on the date of issuance of October 26, 2020 using Black-Scholes valuation technique. For the three months ending March 31, 2023, the
warrant liability was valued at $7,008,142 with the following assumptions:
| |
10/26/20 | | |
12/31/22 | | |
3/31/23 | |
Fair market value of common stock | |
$ | 1.26 | | |
$ | 1.40 | | |
$ | 1.09 | |
Exercise price | |
$ | 1.38 | | |
$ | 1.33 | | |
$ | 1.33 | |
Term | |
| 4 years | | |
| 1.8 years | | |
| 1.6 years | |
Volatility range | |
| 68.4 | % | |
| 101.5 | % | |
| 82.1 | % |
Risk-free rate | |
| 0.18 | % | |
| 4.41 | % | |
| 4.06 | % |
The value of the March 2021 Warrants of $3,306,758
has been calculated on the date of issuance of March 4, 2021, using Black-Scholes valuation technique. For the three months ending March
31, 2023, the warrant liability was valued at $552,870 with the following assumptions:
| |
3/4/21 | | |
12/31/22 | | |
3/31/23 | |
Fair market value of common stock | |
$ | 1.97 | | |
$ | 1.40 | | |
$ | 1.09 | |
Exercise price | |
$ | 2.21 | | |
$ | 2.07 | | |
$ | 2.07 | |
Term | |
| 3 years | | |
| 1.2 years | | |
| 1.0 years | |
Volatility range | |
| 72.7 | % | |
| 116.0 | % | |
| 82.3 | % |
Risk-free rate | |
| 0.32 | % | |
| 4.73 | % | |
| 4.64 | % |
The value of the January 2023 Warrants of $1,668,671
has been calculated on the date of issuance of January 20, 2023, using Black-Scholes valuation technique. For the three months ending
March 31, 2023, the warrant liability was valued at $1,499,678 with the following assumptions:
| |
1/20/23 | | |
3/31/23 | |
Fair market value of common stock | |
$ | 1.13 | | |
$ | 1.09 | |
Exercise price | |
$ | 1.71 | | |
$ | 1.70 | |
Term | |
| 3.0 years | | |
| 2.8 years | |
Volatility range | |
| 80.0 | % | |
| 79.1 | % |
Risk-free rate | |
| 3.83 | % | |
| 3.81 | % |
NOTE 5 - RELATED PARTY
On September 13, 2022,
the Company entered into a secured note purchase agreement (the “Purchase Agreement”) with Augusta Investments Inc. (“Augusta
Investments”), of which is under common control of a director of Augusta Gold, to offer and sell a secured promissory note of the
Company (the “Note”) in exchange for Augusta Investments loaning the Company $22,232,561 (the “Loan”). The Loan
and the issuance of the Note occurred on September 13, 2022. The Company used the Loan to make the second payment and deferred payment
to Waterton Nevada Splitter LLC (“Waterton”) on September 13, 2022, in connection with the Company’s acquisition of
its Reward gold project that closed on June 13, 2022.
The Note bears interest
at a rate of prime plus 3% and is for a maximum term of 12 months. The Note is secured by a first-priority, perfected security interest
in all the assets of the Company pursuant to a guarantee and security agreement (the “Security Agreement”) and certain deeds
of trust (the “Deeds of Trust”, collectively with the Purchase Agreement, the Note and the Security Agreement, the “Loan
Documents”).
The payment of the obligations
of the Company under the Note is also guaranteed by each of the subsidiaries of the Company pursuant to the Security Agreement. The Company
paid Augusta Investments an origination fee of 0.5% of the amount of the Loan on the closing of the issuance of the Note pursuant to the
Purchase Agreement. The following is the balance of the Loan as of March 31, 2023:
Total principal | |
$ | 22,232,561 | |
Deferred financing costs, net | |
| (8,918 | ) |
Accrued interest | |
| 1,246,394 | |
Total | |
$ | 23,470,037 | |
On October 26, 2020,
the Company entered an arrangement to share office space, equipment, personnel, consultants and various administrative services with other
companies related by virtue of certain directors and management in common. These services have been provided through a management company
equally owned by each company party to the arrangement. Costs incurred by the management company are allocated and funded by the shareholders
of the management company based on time incurred and use of services. If the Company’s participation in the arrangement is terminated,
the Company will be obligated to pay its share of the rent payments for the remaining term of the office space rental agreement.
The Company was charged
for the following with respect to this arrangement for the three months ended March 31, 2023 and 2022:
| |
Three Months Ended | |
| |
3/31/2023 | | |
3/31/2022 | |
Salaries and benefits | |
$ | 153,306 | | |
$ | 88,257 | |
Office | |
| 27,228 | | |
| 10,840 | |
Operating expenses | |
| 50,089 | | |
| 7,920 | |
Total | |
$ | 230,623 | | |
$ | 107,017 | |
The Company is committed
to payments for office leases premises through 2024 in the total amount of approximately $183,000 based on the Company’s current
share of rent paid. The Company is jointly liable for rent payments and uses the assets jointly. Payments by fiscal year are:
2023 | |
| 95,557 | |
2024 | |
| 87,594 | |
Total | |
$ | 183,151 | |
For the three months
ended March 31, 2023 and 2022, the Company recognized share-based payments expense to related parties of $472,981 and $438,522, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company has four leases which require annual
advance royalty payments according to the following schedules. These leases are out of the scope of ASC 842 Leases, and any advance
royalty paid is expensed off as exploration expenses. Once in production, each agreement attracts payment of net smelter royalties as
per the following table.
| |
Connolly | | |
Webster(1) | | |
Orser | | |
Meeteren | | |
Total | |
2023 | |
$ | 10,000 | | |
$ | 7,500 | | |
$ | 20,000 | | |
$ | 2,400 | | |
$ | 39,900 | |
2024 | |
| - | | |
| - | | |
$ | 20,000 | | |
$ | 2,400 | | |
$ | 22,400 | |
2025 | |
| - | | |
| - | | |
| - | | |
$ | 2,400 | | |
$ | 2,400 | |
2026 | |
| - | | |
| - | | |
| - | | |
$ | 2,400 | | |
$ | 2,400 | |
2027 | |
| - | | |
| - | | |
| - | | |
$ | 2,400 | | |
$ | 2,400 | |
2028 | |
| - | | |
| - | | |
| - | | |
$ | 2,400 | | |
$ | 2,400 | |
2029 | |
| - | | |
| - | | |
| - | | |
$ | 2,400 | | |
$ | 2,400 | |
2030 | |
| - | | |
| - | | |
| - | | |
$ | 2,400 | | |
$ | 2,400 | |
Applicable NSRs | |
| 3.0 | % | |
| 3.0 | % | |
| 3.0 | % | |
| 3.0 | % | |
| | |
(1) | All amounts of annual advance minimum royalties paid during a calendar year shall be applied toward all
amounts of earned mineral production royalties payable during that calendar year. |
On July
1, 2017, RMM entered a 30-year Mineral Lease (the “Lunar Lease”) with Lunar Landing, LLC (“Lunar”) involving 24 patented
mining claims underlying part of the Bullfrog property. Lunar owns a 100% undivided interest in the mining claims.
Under the
Lunar Lease, RMM shall expend as minimum work commitments of $50,000 per year starting in 2017 until a cumulative of $500,000 of expense
has been incurred. If RMM fails to perform its obligations under the Lunar Lease, and in particular fails to make any payment due to Lunar
thereunder, Lunar may declare RMM in default by giving RMM written notice of default which specifies the obligation(s) which RMM has failed
to perform. If RMM fails to remedy a default in payment within fifteen (15) days of receiving the notice of default or fails to remedy
or commence to remedy any other default within thirty (30) days of receiving notice, Lunar may terminate the Lunar Lease and RMM shall
peaceably surrender possession of the properties to Lunar. Notice of default or of termination shall be in writing and served in
accordance with the Lunar Lease. RMM has made all required payments and has paid Lunar $111,000 as of March 31, 2023, and makes lease
payments on the following schedule:
Payment due July | |
Annual Payment | |
2023-2026 | |
$ | 21,000 | |
2027-2031 | |
$ | 25,000 | |
2032-2036 | |
$ | 30,000 | |
2037-2041 | |
$ | 40,000 | |
2042-2046 | |
$ | 45,000 | |
On October 29, 2014, RMM entered into an Option
Agreement (the “Mojave Option”) with Mojave Gold Mining Corporation (“Mojave”). Mojave holds the purchase rights
to 100% of 12 patented mining claims located in Nye County, Nevada. This property is contiguous to the Company’s Bullfrog Project
and covers approximately 156 acres, including the northeast half of the M-S pit mined by Barrick Gold in the 1990s.
Mojave granted to RMM the sole and immediate working
right and option with respect to the property until the 10th anniversary of the closing date, to earn a 100% interest in and to the property
free and clear of all charges encumbrances and claims, except a sliding scale Net smelter return (or NSR) royalty.
In order to maintain in force, the working right
and option granted to RMM, and to exercise the Mojave Option, the Company issued Mojave 750,000 shares of Company common stock
and paid $16,000 in October 2014, and RMM must pay to Mojave a total of $190,000 over the next 10 years of which the Company
has made all required payments and paid $160,000 as of December 31, 2022, and one remaining payment for $30,000 to be paid in
2023.
On December
9, 2020, Bullfrog Mines entered into a mining option agreement with Abitibi Royalties (USA) Inc. (“Abitibi”) granting
Bullfrog Mines the option (the “Abitibi Option”) to acquire forty-three unpatented lode mining claims to the south of the
Bullfrog deposit. The Abitibi Option was amended on December 9, 2022, to extend the exercise deadline and to increase the last payment
amount required to exercise the option. Bullfrog Mines made an initial payment to Abitibi of C$25,000 and exercised the Abitibi
Option in full on January 30, 2023.
| ● | Paying
to Abitibi C$50,000 in cash before December 9, 2021; |
| ● | Paying
to Abitibi C$78,750 in cash before January 30, 2023; and |
| ● | Granting
to Abitibi a 2% net smelter royalty on the claims subject to the Abitibi Option on January
30, 2023, of which Bullfrog Mines has the option to purchase 0.5% for C$500,000 on or before
December 9, 2030. |
The
Company is from time to time involved in various legal proceedings related to its business. Except as disclosed here in, management
does not believe that adverse decisions in any pending or threatened proceedings or that amounts that may be required to be paid by reason
thereof will have a material adverse effect on the Company’s financial condition or results of operations.
NOTE 7 - SUBSEQUENT EVENTS
None