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Form 8-K/A AUGUSTA GOLD CORP. For: Jun 13

July 7, 2022 1:37 PM EDT

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Exhibit 99.1

 

 

 

Consolidated Financial Statements

 

CR REWARD LLC

 

Years Ended December 31, 2021 and 2020

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Member of

CR Reward LLC

 

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of CR Reward LLC (the “Company”), as of December 31, 2021 and 2020, and the related consolidated statements of loss and comprehensive loss, changes in members’ equity (deficit), and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CR Reward LLC as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below is matter arising from the current periods audit of the financial statements that were communicated or required to be communicated to the members and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

 

Description of Critical Audit Matter

 

As described in Note 1 to the consolidated financial statements, the Company’s asset retirement obligation (“ARO”) as at December 31, 2021 and 2020 totaled $1,168,968 and $1,211,386 respectively. We considered the Company’s ARO a critical audit matter due to high professional judgement by management when assessing this obligation, including the assessment of the nature and extent of future work to be performed, the future cost of performing the rehabilitation work, the timing of when the rehabilitation will take place and economic assumptions such as the discount rate and inflation rates applicable to future cash outflows associated with rehabilitation activities to bring them to their present value.

 

How we addressed Critical Audit Matter

 

We reviewed the Company’s calculation of its ARO, and verified the correct valuation of the principal components of the provision in accordance with FASB ASC 410-20. To audit the ARO liability, our procedures included evaluating the methodology used, and testing the significant assumptions in the ARO calculations. We compared assumptions including the credit-adjusted risk-free rate, and inflation rate to current market data. In addition, to assess the estimates of disturbed acreage, timing of reclamation activities and reclamation costs, we verified consistency between timing of reclamation activities and projected mine life, considered the appropriateness of the estimated costs based on mine type, compared anticipated costs to recent reclamation expenditures, and recalculated management's estimate.

 

We have served as the Company’s auditor since 2022.

 

  /s/ DAVIDSON & COMPANY LLP
   
   
Vancouver, Canada Chartered Professional Accountants
   
July 7, 2022  

   

 

 

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CR REWARD LLC

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2021 AND DECEMBER 31, 2020

(Expressed in US dollars)

 

   12/31/21   12/31/20 
Assets        
Current assets        
Cash  $549,350   $77,218 
Prepaid   32,195    35,422 
Total current assets   581,545    112,640 
           
Other assets          
Mineral properties, net   11,084,945    11,084,945 
Property, plant and equipment   838,991    813,851 
Total other assets   11,923,936    11,898,796 
           
Total assets  $12,505,481   $12,011,436 
           
Liabilities and Member’s Equity (Deficit)          
           
Current liabilities          
Accounts payable  $22,697   $96,917 
Total current liabilities   22,697    96,917 
           
Long term liabilities          
Asset retirement obligation   1,168,968    1,211,386 
Total long-term liabilities   1,168,968    1,211,386 
           
Total liabilities   1,191,665    1,308,303 
           
Member’s equity          
Member’s capital   21,317,522    20,417,522 
Accumulated deficit   (10,003,706)   (9,714,389)
           
Total member's equity   11,313,816    10,703,133 
           
Total liabilities and member’s equity  $12,505,481   $12,011,436 

 

Commitment and contingencies (note 7)

 

See accompanying notes to consolidated financial statements

 

3

 

 

CR REWARD LLC

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Expressed in US dollars)

 

   Year Ended 
   12/31/21   12/31/20 
Operating expenses        
General and administrative  $100,055   $233,790 
Exploration, evaluation, and project expense   161,035    544,733 
Accretion expense   11,266    20,178 
Total operating expenses   272,356    798,701 
           
Net operating loss   (272,356)   (798,701)
           
Financing expense   16,961    25,606 
Net loss and comprehensive loss  $(289,317)  $(824,307)
           

 

See accompanying notes to consolidated financial statements

 

4

 

 

CR REWARD LLC

CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY (DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Expressed in US dollars)

 

           Total 
           Member’s 
   Member’s   Accumulated   Equity 
   Capital   Deficit   (Deficit) 
             
December 31, 2019  $19,217,522   $(8,890,082)   10,327,440 
Member’s contribution   1,200,000    -    1,200,000 
Net loss   -    (824,307)   (824,307)
December 31, 2020  $20,417,522   $(9,714,389)  $10,703,133 
                
Member’s contribution   900,000    -    900,000 
Net loss   -    (289,317)   (289,317)
December 31, 2021  $21,317,522   $(10,003,706)  $11,313,816 

 

See accompanying notes to consolidated financial statements

 

5

 

 

CR REWARD LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Expressed in US dollars)

 

   Year Ended 
   12/31/21   12/31/20 
         
Cash flows from operating activities        
Net loss  $(289,317)  $(824,307)
Adjustments to reconcile net loss to net cash used in operating activities; change in operating assets and liabilities:          
Prepaid expenses   3,227    (14,314)
Accounts payable   (74,220)   (42,481)
Asset retirement obligation   (42,418)   149,390 
           
Net cash used in operating activities   (402,728)   (731,712)
           
Cash flows from investing activity          
Additions to Property, plant and equipment   (25,140)   (813,865)
           
Net cash used in investing activities   (25,140)   (813,865)
           
Cash flows from financing activities          
Proceeds from member contribution   900,000    1,200,000 
           
Net cash provided by financing activities   900,000    1,200,000 
           
Net increase (decrease) in cash   472,132    (345,577)
           
Cash, beginning of period   77,218    422,795 
           
Cash, end of period  $549,350   $77,218 

 

See accompanying notes to consolidated financial statements

 

6

 

 

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

CR Reward Corporation was formed on June 1, 2007. On July 1, 2018, the corporation was converted to a Nevada limited liability company and renamed CR Reward LLC (“Reward” or the “Company”). The Company is a junior exploration company engaged in the acquisition and exploration of properties that may contain gold, silver, and other metals. On October 9, 2020, the Company formed a wholly owned subsidiary, CR Reward Water Holdings LLC, a Nevada limited liability company to hold the Reward mine and related assets in Nye county, Nevada. The balances and results of operations of CR Reward Water Holdings LLC are consolidated within these financial statements. The Company is a wholly owned subsidiary of Waterton Nevada Splitter, LLC (“Waterton Nevada”), a subsidiary of Waterton Precious Metals Fund II Cayman, LP (“Waterton”).

 

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 CR Reward LLC and its wholly owned subsidiaries. All significant inter-entity balances and transactions have been eliminated in consolidation.

 

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. On December 31, 2021, the Company’s cash balance was $549,350.

 

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 asset retirement obligations.

 

Foreign Currency Translation

 

The functional currency of the Company and its subsidiary is the US dollar.

 

Leases

 

The Company has early adopted Financial Accounting Standards Board (FASB) ASU 2016-02, Leases (Topic 842). Leases of 12 months or less are 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.

 

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Property, plant and equipment

 

Land includes associated resource rights where they are not legally separate. If the predominant feature of land is underlying minerals, it is classified as mineral properties, and otherwise it is classified as property, plant and equipment.

 

Mineral Property Acquisition and Exploration Costs

 

Mineral property exploration and evaluation expenditures are expensed as incurred until economic reserves are quantified and the Company has developed a plan for operating a mine. Costs of lease including associated advance royalties, exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. The Company expenses all mineral exploration costs as incurred, except acquisition costs. Once the Company has identified proven and probable reserves in its investigation of its properties and developed a plan for operating a mine economically, it capitalizes future development 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 are periodically assessed for impairment of value and any diminution in value. The capitalization criteria have not been met and therefore all exploration and evaluation costs are being expensed.

 

The Company has reclamation and closure cost obligations related to the operations of the Reward gold and silver mine in Nye County, Nevada at the end of its useful life.

 

   2021   2020 
Balance, January 1  $1,211,386   $1,061,996 
Accretion   11,266    20,178 
Change in estimates   (53,684)   129,212 
Balance, December 31 (current)  $-   $- 
Balance, December 31 (long term)  $1,168,968   $1,211,386 
           
Life of mine   2029    2029 

 

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.

 

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 and accounts payable and accrued liabilities approximates their carrying values due to their short term to maturity.

 

8

 

 

Income Taxes

 

The Company and its subsidiary are limited liability companies registered in Nevada, USA. These entities are disregarded entities for United States income tax purposes; accordingly, no provision for income taxes is included in these financial statements.

 

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.

 

Risks and Uncertainties

 

Since the formation of the Company, it has not generated any revenues. Although the Company has identified mineralization, obtained applicable permits and advanced its evaluation of the Reward project, the Company has not commenced development nor established current economic feasibility of the deposit in conjunction with an operating plan for the Reward mine. The Company has determined that previous technical reports established on the basis of economic assumptions are insufficient for purposes of establishing the mining methods, processing and recoveries associated with an economically feasible mine plan.

 

The Company’s sole source of financing to conduct its business activities has been through equity contributions from its member. The Company is subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in mineral exploration and development. Our business is dependent upon establishing the economic feasibility of extracting minerals profitably, including the development and implementation of a mine development and operating 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, development and operation, is a business that by its nature is very speculative. There is a significant possibility that we will be able to mine or extract minerals at a profit as 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 programs and the subsequent development of gold deposits.

 

The Company business is exploring and planning for the potential extraction of gold and other minerals. If the Company determines it has 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.

 

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

 

Cost and net book value    
As of December 31, 2021 and December 31, 2020  $11,084,945 

 

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT

 

Cost and net book value  Land including associated resources and rights 
As of December 31, 2019  $- 
Acquired during the year   813,851 
As of December 31, 2020   813,851 
Additions   25,140 
As of December 31, 2021  $838,991 

 

10

 

 

NOTE 4 – ACCOUNTS PAYABLE

 

   12/31/2021   12/31/2020 
Trade accounts payable  $5,325   $61,597 
Due to related parties (note 5)   17,372    35,320 
Total   22,697    96,917 

 

NOTE 5 - RELATED PARTY

 

By virtue of common control, Elko Mining Group is related to the Company. Elko Mining Group provides certain technical services to the Company, for which it receives a service fee. In the year ended December 31, 2021, the Company incurred fees of $182,319 (2020: $251,182), of which $17,372 (2020: $35,320) was outstanding at year-end. The amount due is non-interest bearing and due on demand.

 

The Company has posted a reclamation bond with the Bureau of Land Management for $1,130,709. The reclamation bond is posted through a surety arrangement and is guaranteed by the Company and by Waterton. The Company is responsible for interest charges associated with the surety arrangement. In the year ended December 31, 2021, the Company incurred financing expense of $16,961 (2020: $25,606) associated with this surety arrangement and letter of credit.

 

NOTE 6 - MEMBER’S EQUITY

 

Authorized, issued and outstanding

 

An unlimited number of member units have been authorized. In the year ended December 31, 2021, the member of the Company contributed $900,000 in member’s equity (2020: $1,200,000). The member’s units issued and outstanding as at December 31, 2021 and 2020 were 21,317,522 and 20,417,522 respectively.

 

NOTE 7 - 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. The advance royalties paid till December 31, 2021 was $415,405 (2020: $383,005). Once in production, each agreement attracts payment of net smelter royalties as per the last row of the following table. 

 

   Connolly   Webster(1)   Orser   Meeteren   Total 
2022  $10,000   $7,500   $20,000   $2,400   $39,900 
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 NSR’s   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.

 

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NOTE 8 - SUBSEQUENT EVENTS

 

On April 21, 2022, Augusta Gold Corp. (“Augusta”) announced that it had entered into an agreement to acquire the Reward Project (the “Transaction”) from Waterton Nevada for the following consideration:

 

$12.5 million cash paid on closing of the Transaction (“Closing”);
   
$15.0 million comprised of 7,800,000 Augusta common shares paid on Closing with the remaining payable (based on C$1.70 per common share) at the time of Augusta’s next equity financing, in cash or Augusta common shares, provided the additional amount of common shares does not result in Waterton owning more than 9.99% of Augusta’s issued and outstanding common shares.
   
$17.5 million cash paid within 90 days of Closing (the “Deferred Payment”).

 

Augusta announced the closing of the acquisition of the Reward Project on June 14, 2022 (refer to the Augusta’s news releases dated April 21, 2022, June 7, 2022 and June 14, 2022 for further information).

 

 

12

 

Exhibit 99.2

 

 

 

 

Unaudited Consolidated Financial Statements

 

CR REWARD LLC

 

Three Months Ended March 31, 2022 and 2021

 

 

 

CR REWARD LLC

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2022 AND DECEMBER 31, 2021

(Expressed in US dollars)

 

   3/31/22   12/31/21 
Assets          
Current assets          
Cash  $485,521   $549,350 
Prepaid   19,521    32,195 
Total current assets   505,042    581,545 
           
Other assets          
Mineral properties, net   11,084,945    11,084,945 
Property, plant and equipment   838,991    838,991 
Total other assets   11,923,936    11,923,936 
           
Total assets  $12,428,978   $12,505,481 
           
Liabilities and Member’s Equity (Deficit)          
           
Current liabilities          
Accounts payable  $63,285   $22,697 
Total current liabilities   63,285    22,697 
           
Long term liabilities          
Asset retirement obligation   1,100,434    1,168,968 
Total long-term liabilities   1,100,434    1,168,968 
           
Total liabilities   1,163,719    1,191,665 
           
Member’s equity          
Member’s capital   21,317,522    21,317,522 
Accumulated deficit   (10,052,263)   (10,003,706)
           
Total member's equity   11,265,259    11,313,816 
           
Total liabilities and member’s equity  $12,428,978   $12,505,481 

 

Commitment and contingencies (note 7)

 

See accompanying notes to consolidated financial statements

 

2

 

 

CR REWARD LLC

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Expressed in US dollars)

 

   Three Months Ended 
   3/31/22   3/31/21 
Operating expenses          
General and administrative  $38,943   $21,850 
Exploration, evaluation, and project expense   1,136    11,010 
Accretion expense   4,238    2,816 
Total operating expenses   44,317    35,676 
           
Net operating loss   (44,317)   (35,676)
           
Financing expense   4,240    4,240 
Net loss and comprehensive loss  $(48,557)  $(39,916)

 

See accompanying notes to consolidated financial statements

 

3

 

 

CR REWARD LLC

CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Expressed in US dollars)

 

           Total 
           Member’s 
   Member’s   Accumulated   Equity 
   Capital   Deficit   (Deficit) 
                
December 31, 2020  $20,417,522   $(9,714,389)   10,703,133 
Member’s contribution   400,000    -    400,000 
Net loss   -    (39,916)   (39,916)
March 31, 2021  $20,817,522   $(9,754,305)  $11,063,217 
                
December 31, 2021  $21,317,522   $(10,003,706)   11,313,816 
Member’s contribution   -    -    - 
Net loss   -    (48,557)   (48,557)
March 31, 2022  $21,317,522   $(10,052,263)  $11,265,259 

 

See accompanying notes to consolidated financial statements

 

4

 

 

CR REWARD LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(Expressed in US dollars)

 

   Three Months Ended 
   3/31/22   3/31/21 
         
Cash flows from operating activities          
Net loss  $(48,557)  $(39,916)
Adjustments to reconcile net loss to net cash used in operating activities; change in operating assets and liabilities:          
Prepaid expenses   12,674    11,510 
Accounts payable   40,588    (64,016)
Asset retirement obligation   (68,534)   (75,709)
           
Net cash used in operating activities   (63,829)   (168,131)
           
Cash flows from investing activity          
Additions to property, plant and equipment   -    - 
           
Net cash used in investing activities   -    - 
           
Cash flows from financing activities          
Proceeds from member contribution   -    400,000 
           
Net cash provided by financing activities   -    400,000 
           
Net increase (decrease) in cash   (63,829)   231,869 
           
Cash, beginning of period   549,350    77,218 
           
Cash, end of period  $485,521   $309,087 

 

See accompanying notes to consolidated financial statements

 

5

 

 

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

CR Reward Corporation was formed on June 1, 2007. On July 1, 2018, the corporation was converted to a Nevada limited liability company and renamed CR Reward LLC (“Reward” or the “Company”). The Company is a junior exploration company engaged in the acquisition and exploration of properties that may contain gold, silver, and other metals. On October 9, 2020, the Company formed a wholly owned subsidiary, CR Reward Water Holdings LLC, a Nevada limited liability company to hold the Reward mine and related assets in Nye county, Nevada. The balances and results of operations of CR Reward Water Holdings LLC are consolidated within these financial statements. The Company is a wholly owned subsidiary of Waterton Nevada Splitter, LLC (“Waterton Nevada”), a subsidiary of Waterton Precious Metals Fund II Cayman, LP (“Waterton”).

 

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 CR Reward LLC and its wholly owned subsidiaries. All significant inter-entity balances and transactions have been eliminated in consolidation.

 

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. On March 31, 2022, the Company’s cash balance was $485,521.

 

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 asset retirement obligations.

 

Foreign Currency Translation

 

The functional currency of the Company and its subsidiary is the US dollar.

 

6

 

 

Leases

 

The Company has early adopted Financial Accounting Standards Board (FASB) ASU 2016-02, Leases (Topic 842). Leases of 12 months or less are 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.

 

Property, plant and equipment

 

Land includes associated resource rights where they are not legally separate. If the predominant feature of land is underlying minerals, it is classified as mineral properties, and otherwise it is classified as property, plant and equipment.

 

Mineral Property Acquisition and Exploration Costs

 

Mineral property exploration and evaluation expenditures are expensed as incurred until economic reserves are quantified and the Company has developed a plan for operating a mine. Costs of lease including associated advance royalties, exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. The Company expenses all mineral exploration costs as incurred, except acquisition costs. Once the Company has identified proven and probable reserves in its investigation of its properties and developed a plan for operating a mine economically, it capitalizes future development 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 are periodically assessed for impairment of value and any diminution in value. The capitalization criteria have not been met and therefore all exploration and evaluation costs are being expensed.

 

The Company has reclamation and closure cost obligations related to the operations of the Reward gold and silver mine in Nye County, Nevada at the end of its useful life.

 

   2022   2021 
Balance, January 1  $1,168,968   $1,211,386 
Accretion   4,238    2,816 
Costs applied to ARO balance   -    - 
Change in estimates   (72,772)   (78,525)
Balance, March 31 (current)  $-   $- 
Balance, March 31 (long term)  $1,100,434   $1,135,677 
           
Life of mine   2029    2029 

 

7

 

 

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.

 

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 and accounts payable and accrued liabilities approximates their carrying values due to their short term to maturity.

 

Income Taxes

 

The Company and its subsidiary are limited liability companies registered in Nevada, USA. These entities are disregarded entities for United States income tax purposes; accordingly, no provision for income taxes is included in these financial statements.

 

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.

 

Risks and Uncertainties

 

Since the formation of the Company, it has not generated any revenues. Although the Company has identified mineralization, obtained applicable permits and advanced its evaluation of the Reward project, the Company has not commenced development nor established current economic feasibility of the deposit in conjunction with an operating plan for the Reward mine. The Company has determined that previous technical reports established on the basis of economic assumptions are insufficient for purposes of establishing the mining methods, processing and recoveries associated with an economically feasible mine plan.

 

The Company’s sole source of financing to conduct its business activities has been through equity contributions from its member. The Company is subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in mineral exploration and development. Our business is dependent upon establishing the economic feasibility of extracting minerals profitably, including the development and implementation of a mine development and operating 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.

 

8

 

 

Natural resource exploration, development and operation, is a business that by its nature is very speculative. There is a significant possibility that we will be able to mine or extract minerals at a profit as 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 programs and the subsequent development of gold deposits.

 

The Company business is exploring and planning for the potential extraction of gold and other minerals. If the Company determines it has 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

 

Cost and net book value    
As of March 31, 2022 and December 31, 2021  $11,084,945 

 

9

 

 

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT    
     
Cost and net book value  Land
including
associated
resources
and rights
 
As of December 31, 2020  $813,851 
Additions   25,140 
As of December 31, 2021   838,991 
Additions   - 
As of March 31, 2022  $838,991 

 

NOTE 4 – ACCOUNTS PAYABLE

 

   3/31/2022   12/31/2021 
Trade accounts payable  $7,288   $5,325 
Due to related parties (note 5)   55,997    17,372 
Total   63,285    22,697 

 

NOTE 5 - RELATED PARTY

 

By virtue of common control, Elko Mining Group is related to the Company. Elko Mining Group provides certain technical services to the Company, for which it receives a service fee. In the period ended March 31, 2022, the Company incurred fees of $53,908 (2021: $69,535), of which $53,908 (2020: $17,372) was outstanding at year-end. The amount due is non-interest bearing and due on demand.

 

The Company has posted a reclamation bond with the Bureau of Land Management for $1,161,725. The reclamation bond is posted through a surety arrangement and is guaranteed by the Company and by Waterton. The Company is responsible for interest charges associated with the surety arrangement. In the period ended March 31, 2022, the Company incurred financing expense of $4,240 (2021: $4,240) associated with this surety arrangement and letter of credit.

 

NOTE 6 - MEMBER’S EQUITY

 

Authorized, issued and outstanding

 

An unlimited number of member units have been authorized. In the period ended March 31, 2022, the member of the Company contributed $Nil in member’s equity (2021: $400,000). The member’s units issued and outstanding as at March 31, 2022 and March 31, 2021 were 21,317,522 and 20,817,522 respectively.

 

10

 

 

NOTE 7 - 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. The advance royalties paid till March 31, 2022 was $435,405 (March 31, 2021: $403,005). Once in production, each agreement attracts payment of net smelter royalties as per the last row of the following table. 

 

   Connolly   Webster(1)   Orser   Meeteren   Total 
2022  $     10,000   $     7,500   $20,000   $    2,400   $    39,900 
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 NSR’s   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.

 

NOTE 8 - SUBSEQUENT EVENTS

 

On April 21, 2022, Augusta Gold Corp. (“Augusta”) announced that it had entered into an agreement to acquire the Reward Project (the “Transaction”) from Waterton Nevada for the following consideration:

 

$12.5 million cash paid on closing of the Transaction (“Closing”);

 

$15.0 million comprised of 7,800,000 Augusta common shares paid on Closing with the remaining payable (based on C$1.70 per common share) at the time of Augusta’s next equity financing, in cash or Augusta common shares, provided the additional amount of common shares does not result in Waterton owning more than 9.99% of Augusta’s issued and outstanding common shares.

 

$17.5 million cash paid within 90 days of Closing (the “Deferred Payment”).

 

Augusta announced the closing of the acquisition of the Reward Project on June 14, 2022 (refer to the Augusta’s news releases dated April 21, 2022, June 7, 2022 and June 14, 2022 for further information).

 

11

 

 

Exhibit 99.3

 

AUGUSTA GOLD CORP.

UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information of Augusta Gold Corp. (“Augusta” or the “Company”) is presented to give effect to the Company’s membership purchase agreement (the “Agreement”) entered into on April 21, 2022 and closed on June 13, 2022 (the “Acquisition”) with Waterton Nevada Splitter, LLC (“Waterton”) whereby the Company acquired all of the outstanding membership interest of CR Reward LLC (“CR Reward”). The Company would not have sufficient cash to discharge the deferred cash payment under the Agreement within 90 days from June 13, 2022, the closing date of the Acquisition, without entering into a financing arrangement. The unaudited pro forma condensed combined financial information assumes that such financing has not been raised.

 

The unaudited pro forma condensed balance sheet as of March 31, 2022 combines the historical consolidated balance sheets of Augusta and CR Reward giving effect to the Acquisition as if they occurred on March 31, 2022. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2022 and the year ended December 31, 2021 combine the historical statements of operations of Augusta and CR Reward giving effect to the Acquisition as if they occurred on January 1, 2021.

 

The Acquisition and basis of presentation of the pro forma condensed combined financial information are described in greater detail in Note 1: Basis of Presentation included in the notes to the pro forma condensed combined financial statements. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined balance sheet and statements of operations.

 

The pro forma condensed combined financial information is based on various adjustments and assumptions and is not necessarily indicative of what Augusta’s operating results actually would have been if the Acquisition occurred as of the dates indicated or will be for any future periods. The pro forma condensed combined financial information does not include adjustments to reflect any potential revenue, synergies or dis-synergies, or cost savings or financing arrangements that may be achievable in connection with the Acquisition, or the associated costs that may be necessary to achieve such revenues, synergies or dis-synergies, or cost savings.

 

 

 

 

 

 

 

Augusta Gold Corp.

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

March 31, 2022 and December 31, 2021

 

(Unaudited)

 

 

 

 

 

 

2

 

 

AUGUSTA GOLD CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

March 31, 2022

(Unaudited, expressed in United States dollars)

 

   Historical   Pro Forma Transaction
Accounting Adjustments
   Augusta Gold.
Corp Pro
 
   Augusta Gold Corp.   CR Reward LLC   Acquisition       Forma
Consolidated
 
Assets                    
Current assets                    
Cash  $19,024,422    485,521    (17,377,395)   [5(a)]    2,132,548 
Prepaid   134,302    19,521    -         153,823 
Deposits   7,028    -    -         7,028 
Total current assets   19,165,752    505,042    (17,377,395)        2,293,399 
                          
Other assets                         
Equipment, net   282,501    -    -         282,501 
Property and plant   -    838,991    -    [5(b)]    838,991 
Mineral properties, net   12,198,388    11,084,945    35,072,722    [5(b)]    58,356,055 
Total other assets   12,480,889    11,923,936    35,072,722         59,477,547 
                          
Total assets  $31,646,641    12,428,978    17,695,327         61,770,946 
                          
Liabilities and Stockholders’ Equity                         
Current liabilities                         
Accounts payable  $461,408    63,285    (55,997)   [5(c)]    468,696 
Acquisition obligation   -         17,500,000    [5(d)]    17,500,000 
Asset retirement obligation   1,039,786    -    -         1,039,786 
Total current liabilities   1,501,194    63,285    17,444,003         19,008,482 
                          
Long term liabilities                         
Asset retirement obligation, net of current   921,441    1,100,434    -    [5(e)]    2,021,875 
Warrant liability   7,966,950    -    -         7,966,950 
Total long-term liabilities   8,888,391    1,100,434    -         9,988,825 
Total liabilities   10,389,585    1,163,719    17,444,003         28,997,307 
Stockholders’ equity                         
Preferred stock, $0.0001 par value   -    -    -         - 
Preferred stock series A, $.0001 par value   -    -    -         - 
Preferred stock series B, $.0001 par value   67    -    -         67 
Common stock, $.0001 par value   7,052    -    780    [5(f)]    7,832 
Member’s capital   -    21,317,522    (21,317,522)   [5(g)]    - 
Additional paid in capital   42,844,691    -    11,515,803    [5(f)]    54,360,494 
Accumulated deficit   (21,594,754    (10,052,263)   10,052,263    [5(g)]    (21,594,754)
Total stockholders’ equity   21,257,056    11,265,259    251,324         32,773,639 
Total liabilities and stockholders’ equity  $31,646,641    12,428,978    17,695,327         61,770,946 

 

See accompanying notes to unaudited pro forma condensed combined financial statements

 

3

 

 

AUGUSTA GOLD CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2021

(Unaudited, expressed in United States dollars)

 

   For the year ended December 31, 2021 
   Historical   Pro Forma Transaction
Accounting Adjustments
   Augusta Gold Corp.
Pro Forma
Consolidated
 
   Augusta Gold Corp.   CR Reward LLC   Acquisition         
Operating expenses                    
General and administrative  $4,664,565    100,055    -         4,764,620 
Lease expense   16,000    -    -         16,000 
Exploration, evaluation and project expense   7,909,333    161,035    -         8,070,368 
Accretion expense   24,747    11,266    -    [5(e)]    36,015 
Depreciation expense   44,057    -    -         44,057 
Total operating expenses   12,658,704    272,356    -         12,931,060 
                          
Net operating loss   (12,658,704)   (272,356)   -         (12,931,060)
                          
Financing expense   -    (16,961)   -         (16,961)
Revaluation of warrant liability   15,857,500    -    -         15,857,500 
Foreign currency exchange gain   253,236    -    -         253,236 
Net income (loss)  $3,452,032    (289,317)   -         3,162,715 
                          
Weighted average common shares outstanding – basic and diluted   68,251,261    -    7,800,000    [6]    76,051,261 
                          
Earnings per common share – basic and diluted  $0.05                   0.04 

 

See accompanying notes to unaudited pro forma condensed combined financial statements

 

4

 

 

AUGUSTA GOLD CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2022

(Unaudited, expressed in United States dollars)

 

   Three months ended March 31, 2022 
   Historical   Pro Forma Transaction
Accounting Adjustments
   Augusta Gold
Corp. Pro
 
   Augusta Gold Corp.   CR Reward LLC   Acquisition       Forma
Consolidated
 
Operating expenses                    
General and administrative  $1,067,879    38,943    -         1,106,822 
Exploration, evaluation and project expense   338,639    1,136    -         339,775 
Accretion expense   7,099    4,238    -    [5(e)]    11,337 
Depreciation expense   11,014    -    -         11,014 
Total operating expenses   1,424,631    44,317    -         1,468,948 
                          
Net operating loss   (1,424,631)   (44,317)   -         (1,468,948)
                          
Financing expense   -    (4,240)   -         (4,240)
Revaluation of warrant liability   (206,193)   -    -         (206,193)
Foreign currency exchange gain   209,611    -    -         209,611 
Net loss  $(1,421,213)   (48,557)   -         (1,469,770)
                          
Weighted average common shares outstanding – basic and diluted   70,519,188    -    7,800,000    [6]    78,319,188 
                          
Loss per common share – basic and diluted  $(0.02)                  (0.02)

 

See accompanying notes to unaudited pro forma condensed combined financial statements

 

5

 

 

AUGUSTA GOLD CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021 AND THE THREE MONTHS ENDED MARCH 31, 2022

(Unaudited, expressed in United States dollars except as otherwise noted)

 

1.BASIS OF PRESENTATION

 

These unaudited pro forma condensed combined financial statements were prepared in accordance with Article 8-05 of Regulation S-X to illustrate the pro forma effects of Augusta Gold Corp.’s (“Augusta” or the “Company”) membership interest purchase agreement (the “Agreement”) entered into on April 21, 2022 and closed on June 13, 2022 (the “Acquisition”) with Waterton Nevada Splitter, LLC (“Waterton”) whereby the Company acquired all of the outstanding membership interests of CR Reward LLC (“CR Reward”) which owns the Reward Mine Properties. The Company would not have sufficient cash to discharge the deferred cash payment under the Agreement within 90 days from June 13, 2022, the closing date of the Acquisition, without entering into a financing arrangement. Unaudited pro forma condensed combined financial information assumes that such financing has not been raised.

 

At the time of preparing these pro forma condensed combined financial statements, the Company does not have sufficient cash or funding commitments to make the Deferred Payment. If the Company fails to pay the Deferred Payment by the Deferred Payment Deadline (i.e., 90 days from closing), such failure will constitute an event of default and breach of the obligation of the Company to pay the Deferred Payment, and Waterton will be entitled to seek all available remedies at Law and in equity, including taking any proceedings with respect to the Reward Mine Properties. Accordingly, there is substantial doubt that the Company can continue its operations for the next 12 months as a going concern. Management plans to pursue a financing transaction in order to make the Deferred Payment within 90 days of closing of the acquisition including but not necessarily limited to obtaining additional equity financing. Management has successfully pursued such options previously and believes that they alleviate substantial doubt that the Company can continue its operations for the next 12 months as a going concern. However, there is no assurance that the Company will be successful in pursuing these plans.

 

The unaudited pro forma condensed combined balance sheet as of March 31, 2022 combines the historical unaudited consolidated balance sheet of the Company and the unaudited consolidated balance sheet of CR Reward LLC as of such date, giving effect to the Acquisition as if it had taken place on March 31, 2022, assuming no financing has been raised to discharge the Deferred Payment and adjustments described in the accompanying notes to these unaudited pro forma condensed combined financial statements.

 

The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2022 and the year ended December 31, 2021 combine the historical consolidated statements of operations of the Company and CR Reward for such periods, giving effect to the Acquisition as if they had both occurred on January 1, 2021,assuming no financing has been raised to discharge the Deferred Payment and adjustments described in the accompanying notes to these unaudited pro forma condensed combined financial statements.

 

The unaudited pro forma condensed combined financial statements are not intended to reflect the financial performance or the financial position of the Company which would have resulted had the Acquisition been completed on the dates indicated in the pro forma assumptions.

 

The pro forma condensed combined financial statements are based on a preliminary estimate of the purchase consideration and allocation of the purchase price to the acquired assets and assumed liabilities. Actual amounts recorded upon completion of the Acquisition and the determination of the final purchase price allocation will differ from amounts used in these unaudited pro forma condensed combined financial statements and such differences could be material.

 

Any potential synergies that may be realized, integration costs that may be incurred or financing that may be obtained subsequent to the completion of the Acquisition or other non-recurring charges have been excluded from the unaudited pro forma financial information. The pro forma financial information is not necessarily indicative of the results of operations that may be obtained in the future.

 

6

 

 

AUGUSTA GOLD CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021 AND THE THREE MONTHS ENDED MARCH 31, 2022

(Unaudited, expressed in United States dollars except as otherwise noted)

 

2.SIGNIFICANT ACCOUNTING POLICIES

 

The accounting policies used in preparing these unaudited pro forma condensed combined financial statements are set out in the Company’s audited consolidated financial statements for the year ended December 31, 2021. In preparing the unaudited pro forma condensed combined financial statements, a preliminary review was undertaken to identify any accounting policy differences between the accounting policies used in the consolidated financial statements of CR Reward and those of the Company where the impact was potentially material and could be reasonably estimated, with the Company identifying no such differences.

 

3.DESCRIPTION OF THE ACQUISITION

 

Under the terms of the Acquisition, the Company’s aggregate consideration to Waterton to acquire all the membership interest of CR Reward include the following:

 

$12,500,000 in cash to be paid on the closing date (“Closing Payment”);

 

Issuance of 7,800,000 shares of common stock of the Company (“Common Shares”) on the closing date (“Initial Payment Shares”) with an estimated fair value of $11,516,583 based on the Company’s closing share price of C$1.85 and a foreign exchange rate of C$0.7981 to the $ on June 13, 2022;

 

Combination of cash and Common Shares, determined as per the terms of the Agreement, which have an aggregate value of $4,621,398, being $15,000,000 less the deemed price per Common Share equal to the United States dollar equivalent (based on the Bank of Canada daily exchange rate for the conversion of Canadian dollars to United States dollars (the “Currency Exchange Rate”) on the business day immediately preceding the closing date) of C$1.70 for the 7,800,000 Initial Payment Shares. Such cash/shares are to be paid/issued on or before the earlier of the business day on which the Company completes any debt or equity financing (the “Financing”) and the date that is 90 days following the Closing Date (“Second Payment”); and,

 

Deferred Payment of $17,500,000 cash. The Company’s obligation to pay the Deferred Payment will be secured by a Deed of Trust and related financing statement pursuant to which the Company will grant Waterton a first-priority, perfected security interest running with the property held by CR Reward.

 

If the price at which securities are sold by the Company under the Financing (the “Financing Price”) is less than C$1.70, the Second payment shall be satisfied by such combination of cash and Common Shares as may be determined by Waterton in its sole discretion; and the (ii) if the Financing Price is C$1.70 or greater, the Second Payment shall be satisfied by such combination of cash and Common Shares as may be determined by the Company in its sole discretion. Any Common Shares issued pursuant to the Second Payment shall be issued at a deemed price per Common Share equal to the United States dollar equivalent (based on the Currency Exchange Rate on the business day immediately preceding the closing date of the Financing) of the Financing Price. For purposes of the pro forma assumptions and since the Company’s share price on closing exceed C$1.70, the Second Payment is assumed to be settled with cash on hand rather than through the issuance of shares.

 

The Agreement provides that in no case will the Company be entitled to or permitted to issue any Common Shares to Waterton if such issuance would result in Waterton having beneficial ownership (as determined in accordance with applicable securities laws) of more than 9.99% of the outstanding Common Shares, and any portion of the Second Payment that would, if settled by Common Shares, cause Waterton to own more than 9.99% of the Common Shares shall be paid entirely in cash.

 

7

 

 

AUGUSTA GOLD CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021 AND THE THREE MONTHS ENDED MARCH 31, 2022

(Unaudited, expressed in United States dollars except as otherwise noted)

 

4.PURCHASE PRICE ALLOCATION

 

Management has preliminarily determined that the 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. Accordingly, these pro forma combined financial statements have been prepared on the basis that the Acquisition represents the acquisition of assets in exchange for cash, assumption of liabilities and the issuance of share-based payments. 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.

 

As of the date of this Form 8-K/A, the Company has not completed its accounting for the Acquisition, which is being undertaken in conjunction with the Company’s preparation of its consolidated financial statements as at and for the three months ending June 30, 2022. As a result, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing this unaudited pro forma financial information. The Company has estimated the fair value of the share-based consideration, the assets acquired and liabilities assumed based on preliminary valuation information, due diligence, and the consolidated financial statements of CR Reward as at March 31, 2022.

 

The final purchase price allocation may be materially different than that reflected in the preliminary purchase price assumptions presented below. The purchase consideration and the allocation of the purchase price to the assets acquired are presented below.

 

Purchase Consideration:    
Closing Payment  $12,500,0001
Initial Payment Shares (7,800,000 common shares) (1)(2)   11,516,583 
Second Payment (2)   4,621,398 
Deferred Payment (3)   17,500,000 
Transaction costs   200,000 
Total consideration   46,337,981 
Acquisition of assets and assumption of (liabilities) (4)     
Cash   429,524 
Prepaids   19,521 
Property and plant   838,991 
Mineral properties   46,157,667 
Accounts payable   (7,288)
Asset retirement obligation   (1,100,434)
Net assets acquired  $46,337,981 

 

(1)Valued using the closing price on TSX of Augusta Gold Corp as at April 21, 2022 which represents the grant date under ASC 718.

 

(2)For purposes of these pro forma condensed combined financial statements the Second Payment is expected to be paid fully in cash and the company has sufficient cash to settle this payment. Hence, it is presented as adjustment to cash and cash equivalent in the unaudited pro forma condensed combined balance.

 

(3)Presented as “Acquisition Obligation” under current liabilities in the unaudited pro forma condensed combined balance sheet.

 

(4)The allocation of the purchase consideration to acquired assets and assumed liabilities is subject to finalization and has been estimated on the basis of CR Reward’s consolidated assets and liabilities at March 31, 2022.

 

8

 

 

AUGUSTA GOLD CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021 AND THE THREE MONTHS ENDED MARCH 31, 2022

(Unaudited, expressed in United States dollars except as otherwise noted)

 

5.PRO FORMA ASSUMPTIONS AND ADJUSTMENTS

 

The unaudited pro forma combined statements of operations and the unaudited pro forma condensed combined balance sheet as of March 31, 2022, reflect the following assumptions and adjustments to give effect to the asset acquisition, as if the Acquisition had occurred on January 1, 2021 and March 31, 2022, respectively, and the fair value adjustments reflected in Note 4 had affected the periods presented.

 

As of the date of these pro forma financial statements, the Company is not aware of any additional reclassifications that would have a material impact on the unaudited pro forma financial information and are not reflected in the pro forma adjustments. Assumptions and adjustments made are as follows:

 

a)The decrease to cash represents the payment of the Closing Payment of $12,500,000, Second Payment of $4,621,398, estimated transaction costs of $200,000, and $55,997 payment of all related party payables per the terms of the Agreement.

 

b)The increase to mineral properties to record the relative fair value ascribed to the mineral properties and associated land package. The fair value of property and plant approximates the book value.

 

c)The decrease to accounts payable reflects the payment of related party payables as per the terms of the Agreement.

 

d)The increase to Acquisition obligation relates to the Deferred Payment (Notes 1 and 3).

 

e)The fair value of the asset retirement obligation approximates the book value.

 

f)The increase to common stock and additional paid-in capital represents the fair value of the issuance of the Initial Payment Shares, with $780 representing the par value of the common shares and $11,515,803 representing the additional paid-in capital (see Note 4).

 

g)The decrease to member’s capital and accumulated deficit represents the elimination of CR Reward’s historical balances.

 

6. PRO FORMA INCOME (LOSS) PER COMMON SHARE

 

Pro forma basic and diluted income (loss) per common share for the three months ended March 31, 2022 and the year ended December 31, 2021 have been calculated based on actual weighted average number of the Company’s common shares outstanding for the respective periods; as well as the number of shares assumed issued (Note 5(f)) in connection with the Acquisition as if such shares had been outstanding since January 1, 2021.

 

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