UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
quarterly period ended
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act.) Yes ☐ No
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
AUGUSTA GOLD CORP.
TABLE OF CONTENTS TO FORM 10-Q
i
PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUSTA GOLD CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2023 AND DECEMBER 31, 2022
(Expressed in US dollars)
| 9/30/23 | 12/31/22 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid | ||||||||
| Deferred stock issuance costs | ||||||||
| Deposits | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Equipment, net | ||||||||
| Reclamation bonds | ||||||||
| Mineral properties, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Note payable and accrued interest - related party | ||||||||
| Asset retirement obligation | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities | ||||||||
| Asset retirement obligation, net of current | ||||||||
| Warrant liability | ||||||||
| Total long term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, | ||||||||
| Preferred stock series A, | ||||||||
| Preferred stock series B, | ||||||||
| Common stock, | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements
1
AUGUSTA GOLD CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Expressed in US dollars)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 9/30/23 | 9/30/22 | 9/30/23 | 9/30/22 | |||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Lease expense | ||||||||||||||||
| Exploration, evaluation and project expense | ||||||||||||||||
| Accretion expense | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Net operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Revaluation of warrant liability | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency exchange gain (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| Weighted average common shares outstanding – basic | ||||||||||||||||
| Weighted average common shares outstanding – diluted | ||||||||||||||||
| Earnings (loss) per common share – basic | $ | $ | $ | $ | ( | ) | ||||||||||
| Earnings (loss) per common share – diluted | $ | $ | $ | $ | ( | ) | ||||||||||
See accompanying notes to consolidated financial statements
2
AUGUSTA GOLD CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Expressed in US dollars)
| Preferred | Common | Total | ||||||||||||||||||||||||||
| Stock | Stock | Additional | Stockholders’ | |||||||||||||||||||||||||
| Shares | Preferred | Shares | Common | Paid In | Accumulated | Equity | ||||||||||||||||||||||
| Issued | Stock | Issued | Stock | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Conversion of warrants | ||||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Conversion of preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchase of CR Reward | ||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Placement - January | ||||||||||||||||||||||||||||
| Warrant liability | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to consolidated financial statements
3
AUGUSTA GOLD CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Expressed in US dollars)
| Nine Months Ended | ||||||||
| 9/30/23 | 9/30/22 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Accretion expense | ||||||||
| Depreciation expense | ||||||||
| Revaluation of warrant liability | ( | ) | ( | ) | ||||
| Share based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Deferred stock issuance costs | ||||||||
| Debt issuance costs | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued interest | ||||||||
| Asset retirement obligation | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activity | ||||||||
| Acquisition of mineral properties | ( | ) | ||||||
| Acquisition of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from private placement of stock | ||||||||
| Proceeds from note payable - related party | ||||||||
| Share issuance costs | ( | ) | ||||||
| Increase in surety bond collateral | ( | ) | ||||||
| Proceeds from conversion of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Noncash investing and financing activities | ||||||||
| Interest and taxes paid | $ | $ | ||||||
| Revaluation of asset retirement obligation | $ | $ | ||||||
| Incurrence of asset retirement obligation | $ | $ | ||||||
| Stock issued for purchase of CR Reward | $ | $ | ||||||
| Warrant liability from units placement | $ | $ | ||||||
See accompanying notes to consolidated financial statement
4
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 September 30, 2023, the Company has a working capital deficiency of approximately $
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 September 30, 2023, the Company’s
cash balance was approximately $
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.
5
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
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.
| 2023 | 2022 | |||||||
| Balance, January 1 | $ | $ | ||||||
| Accretion | ||||||||
| Costs applied to ARO balance | ( | ) | ( | ) | ||||
| Acquisition of CR Reward ARO | ||||||||
| Change in estimates | ( | ) | ||||||
| Balance, September 30 (current) | $ | $ | ||||||
| Balance, September 30 (long term) | $ | $ | ||||||
| Life of mine | ||||||||
| Discount rate | % | % | ||||||
| Inflation rate (average) | % | % | ||||||
6
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
September 30, 2023, the estimated future cash flows have been determined using real cash flows and discounted using a rate of
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 September 30, 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.
7
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.
8
Earnings (Loss) per Common Share
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 9/30/2023 | 9/30/2022 | 9/30/2023 | 9/30/2022 | |||||||||||||
| Basic and Diluted Earnings (Loss) per Common Share | ||||||||||||||||
| Earnings (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Assumed conversion of dilutive shares | ||||||||||||||||
| Diluted weighted average common shares outstanding, assuming conversion of common stock equivalents | ||||||||||||||||
| Basic Earnings (Loss) Per Common Share | $ | $ | $ | $ | ( | ) | ||||||||||
| Diluted Earnings (Loss) Per Common Share | $ | $ | $ | $ | ( | ) | ||||||||||
Certain
options and warrants and all preferred shares were included in the computation of diluted shares outstanding for the three and nine months
ended September 30, 2023. The options and warrants that were not included in the diluted weighted average shares calculation were excluded
because they were “out-of-the money”. In periods when the Company has a net loss, all common stock equivalents are excluded
as they would be anti-dilutive.
| Dilutive shares - In the money | Anti-dilutive shares - Out of the money | Total | ||||||||||
| Options | | |||||||||||
| Warrants | ||||||||||||
| Total | ||||||||||||
Risks and Uncertainties
Since the formation of the Company, it has not generated any revenue. 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 anticipates, 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 not to be insured against this risk because of high insurance costs or other reasons.
9
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 | Property
and equipment | Total | ||||||||||
| Cost | ||||||||||||
| As of December 31, 2021 | $ | $ | $ | |||||||||
| Additions | ||||||||||||
| As of December 31, 2022 | ||||||||||||
| Additions | ||||||||||||
| As of September 30, 2023 | $ | $ | $ | |||||||||
| Accumulated depreciation | ||||||||||||
| As of December 31, 2021 | $ | $ | $ | |||||||||
| Depreciation expense | ||||||||||||
| As of December 31, 2022 | ||||||||||||
| Depreciation expense | ||||||||||||
| As of September 30, 2023 | $ | $ | $ | |||||||||
| Net book value on September 30, 2023 | $ | $ | $ | |||||||||
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)
10
| Consideration: | ||||
| Grant date fair value of | $ | |||
| Transaction fees | ||||
| Asset retirement obligation | ||||
| Total | $ | |||
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) $
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.
| Consideration: | ||||
| Cash | $ | |||
| Grant date fair value of | ||||
| Transaction fees | ||||
| Second Payment | ||||
| Deferred Payment | ||||
| Total consideration | $ | |||
| Net assets acquired | ||||
| Cash | $ | |||
| Prepaids | ||||
| Property and plant | ||||
| Mineral properties | ||||
| Accounts payable | ( | ) | ||
| Asset retirement obligation | ( | ) | ||
| Total net assets acquired | $ | |||
The
Company has posted several cash bonds as financial security to satisfy reclamation requirements. The balance of posted cash reclamation
bonds at September 30, 2023 is $
11
NOTE 3 - STOCKHOLDER’S EQUITY
On
January 20, 2023, the Company closed its offering (the “Offering”) of
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
As
compensation in connection to the Offering, the Company paid the Underwriters cash compensation equal to
Recent Sales of Unregistered Securities
On
June 13, 2022,
In addition to the above, the Company issued the following common shares for the twelve months ending December 31, 2022, and nine months ending September 30, 2023:
Options converted to common shares (none)
| Date | Shares | Price | ||||||||||
| June-22 | CAD | $ | ||||||||||
| Date | Shares | |||
| May-22 | ||||
Convertible Preferred Stock
In
August 2011, the Board of Directors designated
12
In
October 2012, the Board of Directors designated
On
May 4, 2022,
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
| Options | Exercise Price | Expected Life | Volatility | Risk Free Interest Rate | ||||||||||||
| C$ | % | % | ||||||||||||||
| Options | Exercise Price | Expected Life | Volatility | Risk Free Interest Rate | ||||||||||||
| C$ | % | % | ||||||||||||||
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$
The
repricing on September 29, 2022, resulted in incremental stock-based compensation expense of $
For
the nine months ended September 30, 2023, and 2022, the Company recognized share-based compensation expense related to the stock options
of $
13
Stock Option Activity
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Average | Contractual | Aggregate | ||||||||||||||
| Number of | Exercise | Life | Intrinsic | |||||||||||||
| Options | Price | (Years) | Value | |||||||||||||
| Balance at December 31, 2021 | $ | $ | ||||||||||||||
| Exercised | ||||||||||||||||
| Issued | C$ | | ||||||||||||||
| Canceled | C$ | |||||||||||||||
| Balance at December 31, 2022 | $ | |||||||||||||||
| Exercised | ||||||||||||||||
| Issued | ||||||||||||||||
| Canceled | $ | |||||||||||||||
| Balance at September 30, 2023 | $ | $ | ||||||||||||||
| Options exercisable at September 30, 2023 | $ | $ | ||||||||||||||
| Warrants Issued | Total | |||||||||||||||||||||||
| Warrants issued (includes expired warrants) | ||||||||||||||||||||||||
| Issued date | ||||||||||||||||||||||||
| Expiration date | ||||||||||||||||||||||||
| Exercise price (Canadian $) | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Issued | ||||||||||||||||||||||||
| Expired | ||||||||||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Issued | ||||||||||||||||||||||||
| Expired | ||||||||||||||||||||||||
| Balance at September 30, 2023 | ||||||||||||||||||||||||
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 $
| 10/26/20 | 12/31/22 | 9/30/23 | ||||||||||
| Fair market value of common stock | $ | | $ | | $ | | ||||||
| Exercise price | $ | $ | $ | |||||||||
| Term | ||||||||||||
| Volatility range | % | % | % | |||||||||
| Risk-free rate | % | % | % | |||||||||
14
The
value of the March 2021 Warrants of $
| 3/4/21 | 12/31/22 | 9/30/23 | ||||||||||
| Fair market value of common stock | $ | | $ | | $ | | ||||||
| Exercise price | $ | $ | $ | |||||||||
| Term | ||||||||||||
| Volatility range | % | % | % | |||||||||
| Risk-free rate | % | % | % | |||||||||
The
value of the January 2023 Warrants of $
| 1/20/23 | 9/30/23 | |||||||
| Fair market value of common stock | $ | | $ | | ||||
| Exercise price | $ | $ | ||||||
| Term | ||||||||
| Volatility range | % | % | ||||||
| Risk-free rate | % | % | ||||||
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 $
The
Note bears interest at a rate of prime plus
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
The Amendment amends Section 1 of the Note to change the maturity date of the Note from September 13, 2023 to the earlier of (i) first Business Day occurring 30 days after the Lender has provided written notice to the Company demanding payment on the entire unpaid balance of principal and all accrued and unpaid interest thereon; (ii) the date upon which the Company makes payment in full of the entire unpaid balance of principal and all accrued and unpaid interest; and (iii) December 13, 2023.
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.
15
| Nine Months Ended | ||||||||
| 9/30/2023 | 9/30/2022 | |||||||
| Salaries and benefits | $ | $ | ||||||
| Office | ||||||||
| Operating expenses | ||||||||
| Total | $ | $ | ||||||
| 2023 | ||||
| 2024 | ||||
| Total | $ |
For
the nine months ended September 30, 2023 and 2022, the Company recognized share-based payments expense to related parties of $
NOTE 6 - COMMITMENTS AND CONTINGENCIES
| Total | ||||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| 2028 | $ | |||
| 2029 | $ | |||
| 2030 | $ | |||
| 2031 | $ | |||
| 2032 | $ | |||
| 2033 | $ | |||
| 2034 | $ | |||
| 2035 | $ | |||
| 2036 | $ | |||
| 2037 | $ | |||
| 2038 | $ | |||
| Applicable NSRs | % | |||
| (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. |
16
On
July 1, 2017, RMM entered a
Under
the Lunar Lease, RMM shall expend as minimum work commitments of $
| Payment due July | Annual Payment | |||
| 2023-2026 | $ | |||
| 2027-2031 | $ | |||
| 2032-2036 | $ | |||
| 2037-2041 | $ | |||
| 2042-2046 | $ | |||
On
October 29, 2014, RMM entered into an Option Agreement (the “Mojave Option”) with Mojave Gold Mining Corporation (“Mojave”)
granting RMM the right to purchase
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
In
order to maintain in force, the working right and option granted to RMM, and to exercise the Mojave Option, the Company issued Mojave
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, by:
| ● | 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
17
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this Management’s Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate,” or “believe,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable law. Readers should carefully review the risk factors and related notes included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 15, 2023.
The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” and similar expressions refer to Augusta Gold Corp., and depending on the context, its subsidiaries.
Company History and Recent Events
General Corporate Overview
The Company is an exploration stage gold company focused on building a long-term business that delivers stakeholder value through developing the Company’s Bullfrog and Reward gold projects and pursuing accretive merger and acquisition opportunities. We are focused on exploration and advancement of gold exploration and potential development projects, which may lead to gold production or strategic transactions such as joint venture arrangements with other mining companies or sales of assets for cash and/or other consideration. At present, our properties are in the exploration stage, and we do not mine, produce or sell any mineral products and we do not currently generate cash flows from mining operations.
The Bullfrog Gold Project is located approximately 120 miles north-west of Las Vegas, Nevada and 4 miles west of Beatty, Nevada. The Reward Gold Project is located seven miles from the Bullfrog Gold Project. The Company owns, controls or has acquired mineral rights on federal patented and unpatented mining 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 is led by a management team and board of directors with a proven track record of success in financing, exploring and developing mining assets and delivering shareholder value.
18
Recent Development of the Business
On June 13, 2022, the Company closed (the “Closing”) on its previously announced membership interest purchase agreement (the “Agreement”) with Waterton Nevada Splitter, LLC (“Waterton”) to acquire all of the outstanding membership interests (collectively, the “CR Interests”) of CR Reward LLC, a wholly-owned subsidiary of Waterton (“CR Reward”). CR Reward holds the Reward Project located just 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 closing; (b) the issuance of 7,800,000 shares of Augusta Gold common stock at closing; and (c) $22,126,000 in cash paid on September 14, 2022 (comprising collectively the “Second Payment” and the “Deferred Payment”).
Results of Operations
Three Months Ended September 30, 2023 and 2022
| Three Months Ended | ||||||||
| 9/30/23 | 9/30/22 | |||||||
| Operating expenses | ||||||||
| General and administrative | $ | 781,598 | $ | 1,569,066 | ||||
| Exploration, evaluation and project expense | 534,371 | 3,003,730 | ||||||
| Accretion expense | 27,399 | 23,297 | ||||||
| Depreciation expense | 11,014 | 11,014 | ||||||
| Total operating expenses | 1,354,382 | 4,607,107 | ||||||
| Net operating loss | (1,354,382 | ) | (4,607,107 | ) | ||||
| Revaluation of warrant liability | 2,883,272 | 5,202,608 | ||||||
| Interest expense | (641,287 | ) | (106,435 | ) | ||||
| Foreign currency exchange gain (loss) | (25,503 | ) | (179,405 | ) | ||||
| Net income | $ | 862,100 | $ | 309,661 | ||||
Nine Months Ended September 30, 2023 and 2022
| Nine Months Ended | ||||||||
| 9/30/23 | 9/30/22 | |||||||
| Operating expenses | ||||||||
| General and administrative | $ | 3,293,334 | $ | 3,856,168 | ||||
| Lease expense | 21,000 | 21,000 | ||||||
| Exploration, evaluation and project expense | 1,885,067 | 4,824,158 | ||||||
| Accretion expense | 80,221 | 48,766 | ||||||
| Depreciation expense | 33,043 | 33,043 | ||||||
| Total operating expenses | 5,312,665 | 8,783,135 | ||||||
| Net operating loss | (5,312,665 | ) | (8,783,135 | ) | ||||
| Revaluation of warrant liability | 16,444,241 | 435,034 | ||||||
| Interest expense | (1,899,081 | ) | (106,435 | ) | ||||
| Foreign tax | 0 | 0 | ||||||
| Foreign currency exchange gain (loss) | (47,491 | ) | (206,609 | ) | ||||
| Net income (loss) | $ | 9,185,004 | $ | (8,661,145 | ) | |||
19
For the three months ending September 30, 2023, the Company decreased general and administrative expenses by approximately $803,000. The increase was due to the following year over year variances:
| Three months ending | 9/30/2023 | 9/30/2022 | Variance | |||||||||
| Accounting fees | $ | 30,000 | $ | 123,000 | $ | (93,000 | ) | |||||
| Legal and other professional fees | 206,000 | 450,000 | (244,000 | ) | ||||||||
| Marketing expense | 8,000 | 15,000 | (7,000 | ) | ||||||||
| Payroll | 159,000 | 179,000 | (20,000 | ) | ||||||||
| Corporate expenses & rent | 60,000 | 47,000 | 13,000 | |||||||||
| Share based compensation | 282,000 | 673,000 | (391,000 | ) | ||||||||
| Insurance | (7,000 | ) | 45,000 | (52,000 | ) | |||||||
| Stock exchange fees | 11,000 | 31,000 | (20,000 | ) | ||||||||
| Other general expenses | 33,000 | 6,000 | 27,000 | |||||||||
| Total | $ | 782,000 | $ | 1,569,000 | $ | (787,000 | ) | |||||
For the nine months ending September 30, 2023, the Company decreased general and administrative expenses by approximately $578,000. The increase was due to the following year over year variances:
| Nine months ending | 9/30/2023 | 9/30/2022 | Variance | |||||||||
| Accounting fees | $ | 491,000 | $ | 248,000 | $ | 243,000 | ||||||
| Legal and other professional fees | 908,000 | 1,084,000 | (176,000 | ) | ||||||||
| Marketing expense | 23,000 | 36,000 | (13,000 | ) | ||||||||
| Payroll | 513,000 | 544,000 | (31,000 | ) | ||||||||
| Corporate expenses & rent | 164,000 | 125,000 | 39,000 | |||||||||
| Share based compensation | 1,000,000 | 1,584,000 | (584,000 | ) | ||||||||
| Insurance | 56,000 | 122,000 | (66,000 | ) | ||||||||
| Stock exchange fees | 86,000 | 99,000 | (13,000 | ) | ||||||||
| Other general expenses | 52,000 | 14,000 | 38,000 | |||||||||
| Total | $ | 3,293,000 | $ | 3,856,000 | $ | (563,000 | ) | |||||
| ● | Accounting fees increase resulted from additional consulting fees needed for required regulatory filings and planning/projection activities in 2023. |
| ● | Legal fees and professional fees decreased due to a reduction in corporate activities in 2023. |
| ● | Marketing expenses were lower as 2022 had additional amounts that were used for company and shareholder awareness projects. |
| ● | The payroll and corporate expenses result from the Company having an agreement to share office space, equipment, personnel, consultants and various administrative services for the Company’s head office located in Vancouver, BC, Canada. Management expects payroll costs to fluctuate based on the personnel and consultants used during the period. | |
| ● | The Company granted options to officers, directors and employees of the Company pursuant to the terms of the Company’s Stock Option Plan. In September 2022 the options were repriced resulting in an increase in share based compensation for that period. Certain stock options were canceled in 2023 after termination of an employee resulting in reversal of previous share based compensation expense. |
20
For the three months ending September 30, 2023, the Company decreased exploration, evaluation and project expenses by approximately $2,470,000. The decrease was due to the following year over year variances:
| Three months ending | 9/30/2023 | 9/30/2022 | Variance | |||||||||
| Drilling | $ | 0 | $ | 1,211,000 | $ | (1,211,000 | ) | |||||
| Consultants/Contractors | 169,000 | 1,281,000 | (1,112,000 | ) | ||||||||
| Supplies and equipment | 69,000 | 134,000 | (65,000 | ) | ||||||||
| Assay | 0 | 26,000 | (26,000 | ) | ||||||||
| Overhead and payroll | 269,000 | 306,000 | (36,000 | ) | ||||||||
| Permits and fees | 9,000 | 12,000 | (3,000 | ) | ||||||||
| Other | 18,000 | 34,000 | (17,000 | ) | ||||||||
| Total | $ | 534,000 | $ | 3,004,000 | $ | (2,470,000 | ) | |||||
For the nine months ending September 30, 2023, the Company decreased exploration, evaluation and project expenses by approximately $2,939,000. The decrease was due to the following year over year variances:
| Nine months ending | 9/30/2023 | 9/30/2022 | Variance | |||||||||
| Drilling | $ | 0 | $ | 1,566,000 | $ | (1,566,000 | ) | |||||
| Consultants/Contractors | 534,000 | 2,243,000 | (1,709,000 | ) | ||||||||
| Supplies and equipment | 217,000 | 286,000 | (69,000 | ) | ||||||||
| Assay | 0 | 36,000 | (36,000 | ) | ||||||||
| Overhead and payroll | 888,000 | 392,000 | 496,000 | |||||||||
| Permits and fees | 219,000 | 288,000 | (69,000 | ) | ||||||||
| Other | 27,000 | 13,000 | 14,000 | |||||||||
| Total | $ | 1,885,000 | $ | 4,824,000 | $ | (2,939,000 | ) | |||||
In the third quarter of 2023, the Company continued with metallurgical test work on drill core samples from the Bullfrog deposit, environmental baseline studies, compliance reporting, and preparation of a feasibility level technical report for the CR Reward project.
The revaluation of the warrant liability is based on the following outstanding warrants:
| Issue Date | Expiration Date | Outstanding Warrants | Exercise Price | |||||||||
| October 2020 | October 2024 | 18,125,001 | C$ | 1.80 | ||||||||
| March 2021 | March 2024 | 3,777,784 | C$ | 2.80 | ||||||||
| January 2023 | January 2026 | 3,362,573 | C$ | 2.30 | ||||||||
There are an additional 9,436,257 warrants outstanding which are not warrant liabilities and therefore have no effect on the revaluation of warrant liability.
21
Liquidity and Capital Resources
The Company has no revenue generating operations from which it can internally generate funds. To date, the Company’s ongoing operations have been financed by the sale of its equity securities by way of public offerings, private placements and the exercise of incentive stock options and share purchase warrants. The Company believes that it will be able to secure additional private placements and public financing in the future, although it cannot predict the size or pricing of any such financing. This situation is unlikely to change until such time as the Company can develop a bankable feasibility study on one of its projects.
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.
Liquidity
As of September 30, 2023, the Company had total liquidity of $1,000,000 in cash and cash equivalents. The Company had negative working capital of $25,000,000 and an accumulated deficit of $31,000,000. For the nine months ended September 30, 2023, the Company had negative operating cash flows before changes in working capital of $6,200,000 and a net income of $9,200,000.
As of September 30, 2022, the Company had total liquidity of $2,600,000 in cash and cash equivalents. The Company had negative working capital of $23,300,000 and an accumulated deficit of $28,800,000. For the nine months ended September 30, 2022, the Company had negative operating cash flows before changes in working capital of $7,431,000 and a net loss of $8,661,000.
The Company expects that it will operate at a loss for the foreseeable future and believes the current cash and cash equivalents and working capital will be sufficient for it to maintain its currently held properties, fund its planned exploration, and fund its currently anticipated general and administrative costs for at least the next 12 months from the date of this report. However, the Company does expect that it will be required to raise additional funds through public or private equity financing in the future in order to continue in business in the future past the immediate 12-month period. Should such financing not be available in that timeframe, the Company will be required to reduce its activities and will not be able to carry out all of its presently planned exploration and, if warranted, development activities on its currently anticipated scheduling.
Capital Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development and exploration of its mineral properties and to maintain a flexible capital structure, which optimizes the costs of capital to an acceptable risk.
As of September 30, 2023, the capital structure of the Company consists of 85,929,753 shares of common stock, par value $0.0001. The Company manages the capital structure and adjusts it in response to changes in economic conditions, its expected funding requirements, and risk characteristics of the underlying assets. The Company’s funding requirements are based on cash forecasts. In order to maintain or adjust the capital structure, the Company may issue new debt, new shares and/or consider strategic alliances. Management reviews its capital management approach on a regular basis. The Company is not subject to any externally imposed capital requirements.
22
Contractual obligations and commitments
The Company’s contractual obligations and commitments as of September 30, 2023, and their approximate timing of payment are as follows:
| <1 year | 1 - 3 years | 4 - 5 years | >5 years | Total | ||||||||||||||||
| Leases | $ | 95,557 | $ | 150,594 | $ | 50,000 | $ | 650,000 | $ | 946,151 | ||||||||||
| Capital Expenditure | 30,000 | - | - | - | 30,000 | |||||||||||||||
| $ | 125,557 | $ | 150,594 | $ | 50,000 | $ | 650,000 | $ | 976,151 | |||||||||||
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.
Critical Accounting Policies and Use of Estimates
Stock based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes pricing model. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. 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.
Mineral property exploration costs are expensed as incurred until such time as 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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISK
Not Applicable.
23
ITEM 4 - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) our management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023.
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports 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 our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the quarterly period ending September 30, 2023, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Based upon our evaluation regarding the quarterly period ending September 30, 2023, our management, including our chief executive officer and chief financial officer, has concluded that its disclosure controls and procedures were effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against the Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 1A - RISK FACTORS
There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The risks described in our Annual Report and as otherwise herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows, and/or future results.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the United States Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011 (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities under the regulation of the Federal Mine Safety and Health Administration (“MSHA”) under the United States Federal Mine Safety and Health Act of 1977 (the “Mine Act”). During the three months ended September 30, 2023, we had no U.S. properties subject to regulation by the MSHA under the Mine Act and consequently no disclosure is required under Section 1503(a) of the Dodd-Frank Act.
ITEM 5 - OTHER INFORMATION
None
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ITEM 6 - EXHIBITS
| * | Filed herewith |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 8, 2023 | AUGUSTA GOLD CORP. | |
| By: | /s/ Donald R. Taylor | |
| Name: Donald R. Taylor | ||
| Title: President and Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 8, 2023 | AUGUSTA GOLD CORP. | |
| By: | /s/ Michael McClelland | |
| Name: Michael McClelland | ||
| Title: Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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