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1. Summary of Significant Accounting Policies and Business Operations
Business Operations
Thunder Mountain Gold, Inc. (“Thunder Mountain”, “THMG”, or “the Company”) was originally incorporated under the laws of the State of Idaho on November 9, 1935, under the name of Montgomery Mines, Inc. In April 1978, the Montgomery Mines Corporation was obtained by a group of the Thunder Mountain property holders and changed its name to Thunder Mountain Gold, Inc., with the primary goal to further develop their holdings in the Thunder Mountain Mining District, located in Valley County, Idaho. Thunder Mountain Gold, Inc. takes its name from the Thunder Mountain Mining District, where its principal lode mining claims were located. For several years, the Company’s activities were restricted to maintaining its property position and exploration activities. During 2005, the Company sold its holdings in the Thunder Mountain Mining District. During 2007, the Company acquired the South Mountain Mines property in southwest Idaho and initiated exploration activities on that property, which continue today.
On February 27, 2019, the Company entered into an Option Agreement, (the “BeMetals Option Agreement”) with BeMetals Corporation. Under the terms of the BeMetals Option Agreement, BMET USA will be entitled to purchase 100% of the issued and outstanding shares of South Mountain Mines, Inc. (“SMMI”) from Thunder Mountain Resources, Inc. (“TMRI”), both wholly owned subsidiaries of the Company. The original term of the agreement was for two years, but was extended on May 18, 2020, by three months from the existing BeMetals Option Agreement date, due to the COVID-19 pandemic, and business conditions surrounding restricted international travel, and corresponding access to capital markets. During this term, BeMetals is required to conduct a preliminary economic assessment ("PEA"), completed by a mutually agreed third-party engineering firm. Over its term, this agreement requires issuance of 10,000,000 million shares of BMET stock to the Company by BeMetals, and cash payments to the Company of $1,350,000: $1,100,000 in cash and $250,000 in exchange for shares of the Company’s common stock. For the year ended December 31, 2020, the Company recognized $300,000 in management services income, and a cash payment of $250,000 in accordance with the BeMetals Option Agreement.
In the event that BeMetals decides not to proceed with the South Mountain Project, BeMetals will not be obligated to make any additional payments. See Note 3 for further information.
Basis of Presentation and Going Concern
The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. The Company has historically incurred losses, however, under the BeMetals Option Agreement (Note 3), the Company now has a recurring source of revenue, and its ability to continue as a going concern is no longer dependent on equity capital raises and borrowings. However, if necessary, the Company continues to have the ability to raise additional capital in order to fund its future exploration and working capital requirements. The Company’s plans for the long-term continuation as a going concern include operating on the cash flows and consideration payments provided under the BeMetals Option Agreement.
COVID-19
In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions disrupted economic activity in Thunder Mountain Gold’s business related to raising capital. As of December 31, 2020, the disruption did not materially impact the Company’ financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact could be significantly greater in future periods.
35
The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company. As of December 31, 2020, there were no material adverse impacts to the Company’ operations due to COVID-19.
In addition, the economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets, and equity method investments. Thunder Mountain Gold evaluated these impairment considerations and determined that no such impairments occurred as of December 31, 2020.
The effects of the continued outbreak of COVID-19 and related government responses could have disruptions to the “BeMetals Option Agreement. In the event, if BeMetals decides not to proceed with the South Mountain Project, BeMetals will not be obligated to make any additional payments. The COVID-19 outbreak could have a variety of adverse impacts to the Company, including their ability to continue operations of their exploration under the BeMetals Operation Agreement. As of December 31, 2020, there were no material adverse impacts to the Company’s BeMetal Options Agreement due to COVID-19.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company; its wholly owned subsidiaries, Thunder Mountain Resources, Inc. (“TMRI”) and South Mountain Mines, Inc. (“SMMI”); and a company in which the Company owns 75% and has majority control, Owyhee Gold Trust, LLC (“OGT”). The Company’s consolidated financial statements reflect the other investor’s 25% non-controlling, capped interest in OGT. Intercompany accounts are eliminated in consolidation.
Accounting 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions include the carrying value of properties and mineral interests, environmental remediation liabilities, deferred tax assets, and stock-based compensation. Management’s estimates and assumptions are based on historical experience and other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Revenue Recognition
Management service revenue is recognized when the Company has satisfied its performance obligation required under its management contract. Such obligation is satisfied over time as work is performed and the Company has a contractual right to payment.
Income Taxes
Revenue from BeMetals Option Agreement is recognized in accordance with the BeMetals contract recorded when received. (See Note 3) The Company recognizes deferred income tax liabilities or assets at the end of each period using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized.
Cash and Cash Equivalents
For the purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be a cash equivalent.
36
Fair Value Measurements
When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. At December 31, 2020, the Company has one financial asset, investment in equity security, that is adjusted to fair value on a recurring basis for which the fair value is determined based on Level 1 inputs as the equity security is traded on a stock exchange. The Company has no financial liabilities that are adjusted to fair value on a recurring basis.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, investment in equity security and related party notes payable the carrying value of which approximates fair value based on the nature of those instruments.
Investments
The Company determines the appropriate classification of investments at the time of acquisition and re-evaluates such determinations at each reporting date. Equity securities determined to be marketable are carried at fair value determined using Level 1 fair value measurement inputs with the change in fair value recognized as unrealized gain (loss) in the Consolidated Statement of Operations each reporting period. Realized gains and losses on the sale of securities are recognized on a specific identification basis.
Mineral Interests
The Company capitalizes costs for acquiring mineral interests, and expenses costs to maintain mineral rights and leases as incurred. Exploration costs are expensed in the period in which they occur. Should a property reach the production stage, these capitalized costs would be amortized using the units-of-production method based on periodic estimates of ore reserves. Mineral interests are periodically assessed for impairment of value and any subsequent losses are charged to operations at the time of impairment.
If a mineral interest is abandoned or sold, its capitalized costs are charged to operations. Consideration received by the Company pursuant to joint ventures or purchase option agreements is applied against the carrying value of the related mineral interest. When and if payments received exceed the carrying value, the excess amount is recognized as a gain in the Consolidated Statement of Operations in the period the consideration is received.
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
37
Investments in Joint Ventures
For companies and joint ventures where the Company holds more than 50% of the voting interests, but less than 100%, and has significant influence, the company or joint venture is consolidated, and other investor interests are presented as noncontrolling. See Note 3 regarding the Company’s investment in Owyhee Gold Trust. Joint Ventures in which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity method of accounting.
Reclamation and Remediation
The Company’s operations have been, and are subject to, standards for mine reclamation that have been established by various governmental agencies. The Company would record the fair value of an asset retirement obligation as a liability in the period in which the Company incurred a legal obligation for the retirement of tangible long-lived assets. A corresponding asset would also be recorded and depreciated over the life of the asset.
For non-operating properties, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred, and they are reasonably estimable. Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed. At December 31, 2019 and 2020, the Company had accrued $65,000 on it’s Consolidated Balance Sheets relating to estimated mine closure and reclamation costs on its South Mountain Mines property.
Share-Based Compensation
Share-based payments to employees and directors, including grants of employee stock options, are measured at fair value and expensed in the Consolidated Statement of Operations over the vesting period.
Recent Accounting Pronouncements
Accounting Standards Updates Adopted
In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to the disclosure requirements on fair value measurements. The update is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company evaluated the new standard in the first quarter of 2020 and determined that ASU 2018-13 did not have an impact on the Company’s consolidated financial statement disclosures.
Accounting Standards Updates to Become Effective in Future Periods
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Management is evaluating the impact of this update on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Clarifying the Interactions Between Topic 321, Topic 323 and Topic 815. ASU 2020-01 which makes improvements related to accounting for certain equity securities when the equity method of accounting is applied or discontinued, and scope considerations related to forward contracts and purchased options on certain securities. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
38
Net Income (Loss) Per Share
The Company is required to have dual presentation of basic earnings per share (“EPS”) and diluted EPS. The Company calculates basic earnings (loss) per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. We do not include the impact of any potentially dilutive common stock equivalents in our basic earnings (loss) per share calculations. Diluted earnings per share reflect potentially dilutive common stock equivalents, including options and warrants that could share in our earnings through the conversion of common shares, except where their inclusion would be anti-dilutive. For the year ended December 31, 2020 outstanding common stock equivalents consisting of 5,705,000 outstanding stock options were included in calculating diluted weighted average shares outstanding.
For the year ended December 31, 2019, stock options of 960,000 are included in and 4,075,000 are excluded from the calculation of diluted income per share. Options are excluded because their exercise prices were greater than the average trading price of the Company’s common stock for the year.
Diluted common shares outstanding were calculated using the treasury stock method and are as follows:
|
December 31,
|
|
2020
|
2019
|
Weighted average number of common shares calculated using basic net income per common share
|
60,145,579
|
59,042,839
|
Effect of common stock equivalents:
|
|
|
Stock options
|
1,544,968
|
286,896
|
Weighted average number of common shares calculated using diluted net income per common share
|
61,690,547
|
59,329,735
|
2. Mineral Interest Commitments
The Company has two lease arrangements with landowners that own land parcels adjacent to the Company’s South Mountain patented and unpatented mining claims. The leases were originally for a seven-year period, with annual payments of $20 per acre. The leases were renewed for an additional 10 years at $30 per acre paid annually; committed payments are listed in the table below. The leases have no work requirements.
|
Annual Payment
|
Acree Lease (June)
|
$3,390
|
Lowry Lease (October)
|
11,280
|
Total
|
$14,670
|
The Company has 78 unpatented claims (1,600 acres) in the Trout Creek area and 21 unpatented claims in the South Mountain area. The claim fees are paid on these unpatented claims annually as follows:
Target Area
|
2020
|
Trout Creek -State of Nevada
|
$12,090
|
Trout Creek -Lander County, Nevada
|
940
|
South Mountain-State of Idaho
|
3,255
|
Total
|
$16,285
|
39
3. South Mountain Project
BeMetals Option Agreement:
On February 27, 2019, the Company entered into an Option Agreement, (the “BeMetals Option Agreement”) with BeMetals Corp., a British Columbia corporation (“BeMetals”), and BeMetals USA Corp., a Delaware corporation (“BMET USA”), a wholly owned subsidiary of BeMetals. Under the terms of the BeMetals Option Agreement, BMET USA will be entitled to purchase 100% of the issued and outstanding shares of SMMI from TMRI, both wholly owned subsidiaries of the Company. SMMI is the Company’s subsidiary that holds the Company’s investment in the South Mountain project mineral interest. The original term of the agreement is for two years with BeMetals completing a preliminary economic assessment ("PEA") completed by a mutually agreed third-party engineering firm. On May 18, 2020, by three months from the existing BeMetals Option Agreement date, due to the COVID-19 pandemic, and business conditions surrounding restricted international travel, and corresponding access to capital markets.
Pursuant to the BeMetals Option Agreement, BMET USA will be entitled to purchase 100% of the outstanding shares of SMMI from TMRI if the following obligations are satisfied:
·Tranche 1: cash payment of $100,000 to TMRI within 1 business day of delivery of voting support agreements from shareholders of THMG who hold or control shares carrying more than 50% of the voting rights attached to all outstanding THMG Shares. Payment was received on March 5, 2019 and is nonrefundable.
·Tranche 2: Tranche 2 conditions were completed on June 10, 2019 with the issuance of 10 million common shares of BMET USA to TMRI having a fair value of $1,883,875; and BMET USA’s purchase of 2.5 million shares of THMG common stock at a price of $0.10 per share, for an aggregate purchase price of $250,000, on a private placement basis (received June 2019).
·Tranche 3: Cash payment of $250,000 on or before the 6-month anniversary of the Tranche 2. Payment was received on December 10, 2019 and is nonrefundable.
·Tranche 4: Cash payment of $250,000 on or before the 15-month anniversary of the Tranche 2, was received on September 10, 2020 and was recognized as a gain on sale of mineral interest during the year ended December 31, 2020.
·Tranche 5: Cash payment of $250,000 on or before the 21-month anniversary of the Tranche 2, which is March 10, 2021.
·Tranche 6: Cash payment of $250,000 plus an additional payment paid in cash, BMET USA common shares or a combination of both, due on or before the 27-month anniversary of Tranche 2, which is September 10, 2021. The calculation of the additional payment is an amount equal to the lesser of 50% of the market capitalization of BeMetals at the time, and the greater of either $10 million; or 20% the net present value of the South Mountain Project as calculated in a PEA.
Concurrent with the BeMetals Option Agreement, BMET USA and SMMI entered into a management contract whereby BeMetals will pay $25,000 monthly to SMMI for management services to enable BMET to perform exploration and development work with respect to the South Mountain Project. Per the agreement the Company received management service income of $75,000 per quarter for a total of $300,000 for the year ended December 31, 2020.
BeMetals provides funding to SMMI for ongoing project expenses, including office lease payments. Under the terms of the Option Agreement, SMMI’s management provides BeMetals a request for funds monthly to cover the upcoming month’s expenses. At December 31, 2020 and December 31, 2019, advances received from BeMetals that have not yet been spent totaled $38,384 and $73,343, respectively.
40
SMMI Joint Venture – OGT, LLC
The Company’s wholly owned subsidiary SMMI is the sole manager of the South Mountain Project in its entirety through a separate Mining Lease with Option to Purchase (“Lease Option”) with the Company’s majority-owned subsidiary OGT. The Lease Option includes a capped $5 million less net returns royalties paid through the date of exercise. The Lease Option expires in November 2026. If SMMI exercises the option, the option payment of $5 million less advance royalties will be distributed 100% by OGT to OGT’s minority member. Under the Lease Option, SMMI pays an advance $5,000 net returns royalty to OGT annually on November 4 which is distributed to OGT’s minority member. OGT’s financial information is included 100% in the Company’s consolidated financial statements and reflects its minority member’s non-controlling interest. Changes in the non-controlling interest equity balance is as follows:
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
Balance at beginning of year
|
$
|
173,702
|
$
|
173,702
|
Distribution to non-controlling interest
|
|
(5,000)
|
|
(5,000)
|
Net income attributable to noncontrolling interest
|
|
5,000
|
|
5,000
|
Balance at end of year
|
$
|
173,702
|
$
|
173,702
|
4. Investment in Equity Security
In 2019 in connection with the BeMetals Option Agreement (see Note 3), the Company received 10,000,000 shares of BeMetals Corp. common stock that had a fair value of $1,883,875. At December 31, 2020, the fair value of the shares is $3,018,634. For the years ended December 31, 2020 and 2019, the Company recognized an unrealized gain in the change in fair value of the investment of $1,282,804, and an unrealized loss of (148,045), respectively.
5. Property and Equipment
The Company’s property and equipment are as follows:
|
|
December 31,
|
|
|
2020
|
|
2019
|
Vehicles
|
$
|
22,441
|
|
22,441
|
Buildings
|
|
65,071
|
|
65,071
|
Construction Equipment
|
|
36,447
|
|
36,447
|
Mining Equipment
|
|
58,646
|
|
58,646
|
|
|
182,605
|
|
182,605
|
Accumulated Depreciation
|
|
(177,650)
|
|
(156,694)
|
|
|
4,954
|
|
25,911
|
Land
|
|
280,333
|
|
280,333
|
Total Property and Equipment
|
$
|
285,287
|
|
306,244
|
41
6. PPP Loan
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (the “CARES Act”) Act was signed into United States law.
In April 2020, the Company received a loan of $48,000 pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I, Section 1102 and 1106 of the CARES Act. The loan, which was in the form of a promissory note, as amended, dated April 21, 2020 issued by the Company (the “Note”); the Note matures on April 13, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on August 13, 2021. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Qualifying expenses include payroll costs, costs used to continue group health care benefits, mortgage payments, rent, and utilities. The Company elected to take 24 weeks to spend these funds instead of eight weeks. The Company used the entire loan amount for qualifying expenses, but there is no guarantee that the loan will be forgiven.
On October 21, 2020 the Company completed Paycheck Protection Program (PPP) loan forgiveness application with Washington Trust Bank. On November 7, 2020, the Company received a notice that the PPP loan was forgiven. Accordingly, the Company recorded PPP loan forgiveness in other income in the Consolidated Statement of Operations for the year ended December 31, 2020.
7. Related Parties
Notes Payable
At December 31, 2020, the Company had notes payable balances of $66,768 and $39,808 with Eric Jones and James Collord, respectfully. Eric Jones is the Company’s President and Chief Executive Officer and James Collord, the Company’s Vice President and Chief Operating Officer, respectively. These notes, as amended, bear interest at 1.0% to 2.0% per month and were due December 31, 2020. Interest accrued for Eric Jones and James Collord notes for the year ended December 31, 2020 was $47,697 and $40,834, respectfully.
On February 14, 2019 and May 9, 2019, Mr. Jones loaned $10,000 (in exchange for an accounts payable balance due to him) and $30,000 in cash, respectively, at an interest rate of 1.5% per month and initially payable in full on June 30, 2019. These notes were extended to December 31, 2019. During the year ended December 31, 2019, Mr. Jones and Mr. Collord were each paid $30,000 reducing their notes payable balances. The notes payable balances to Mr. Jones and Mr. Collord were $66,768 and $39,808, respectively, for the year ended December 31, 2019. The accrued interest balances to Mr. Jones and Mr. Collord were $37,286 and $36,057, respectively, for the year ended December 31, 2019. On December 31, 2020, all note balances due to Mr. Jones and Mr. Collord were amended changing the payment due date to December 31, 2021.
On January 18, 2019, the Company executed a promissory note payable with Paul Beckman, a director of the Company. The amount of the note was $10,000 at an interest rate of 1.5% per month. The amount was paid in full on June 17, 2019 with interest expense of $736.
Deferred Compensation
Three of the Company’s officers began deferring compensation for services on April 1, 2015. On July 31, 2018, the Company stopped expensing and deferring compensation for the three Company officers in the interest of marketing the SMMI project. As part of the BeMetals agreement (Note 3), the Company resumed compensation for these officers on May 15, 2019. The officers deferred compensation balances at December 31, 2020 and 2019 represent the balances deferred prior to the BeMetals agreement and are as follows: Eric Jones, President and Chief Executive Officer - $420,000; Jim Collord, Vice President and Chief Operating Officer - $420,000; and Larry Thackery, Chief Financial Officer - $201,500.
42
Accrued Related Party Liability
The Company engaged Baird Hanson LLP (“Baird”), a company owned by one of the Company’s directors, to provide legal services in 2018. During the year ended December 31, 2018, the Company incurred $65,530 in legal expense with Mr. Baird. There was no expense for the year ended in 2020, and 2019. At December 31, 2020 and 2019, the balance due to Baird for prior years’ legal services was $186,685 and $216,685, respectfully. During the year ended December 31, 2020, the company paid Baird $30,000 on the accrued liability.
Advance from Related Party
Management has advanced funds, and foregone accrued wages to the Company for operating expenses. The balance of these advances and wages at December 31, 2020 and December 31, 2019 was $42,377 and $34,761, respectively. This balance is included in accounts payable and other accrued liabilities on the Consolidated Balance Sheets.
8. Stockholders’ Equity
The Company’s common stock has a par value of $0.001 with 200,000,000 shares authorized. The Company also has 5,000,000 authorized shares of preferred stock with a par value of $0.0001. During the year ended December 31, 2019, as per the agreement, BeMetals purchased 2,500,000 shares of the Company’s common stock for $250,000 in cash. See Note 3.
9. Stock Options
The Company has a Stock Incentive Plan (the “SIP”) that provides for the grant of stock options, incentive stock options, stock appreciation rights, restricted stock awards, and incentive awards to eligible individuals including directors, executive officers and advisors that have furnished bona fide services to the Company not related to the sale of securities in a capital-raising transaction. The SIP has a fixed maximum percentage of 10% of the Company’s outstanding shares. The SIP also has terms and limitations, including that the exercise price for stock options and stock appreciation rights granted under the SIP must equal the stock’s fair value, based on the closing price per share of common stock, at the time the stock option or stock appreciation right is granted.
On March 27, 2020, the Company granted 1,630,000 stock options to officers and directors of the Company. The fair value of the options was determined to be $159,740 using the Black Scholes model. The options are exercisable on or before March 27, 2025 and have an exercise price of $0.099. The options were fully vested upon grant and the entire fair value was recognized as management compensation expense during the year ended December 31, 2020.
On March 25, 2019, the Company granted 1,325,000 stock options to officers and directors of the Company. The options are exercisable on or before March 25, 2024 and have an exercise price of $0.09. The fair value of the options was determined to be $117,088 using the Black Scholes model. The options were fully vested upon grant and the entire fair value was recognized as management compensation expense during the quarter ended March 31, 2019.
The fair value of each option award was estimated on the date of the grant using the assumptions noted in the following table:
|
March 27, 2020
|
March 25, 2019
|
Stock price
|
$0.099
|
$0.09
|
Exercise price
|
$0.099
|
$0.09
|
Expected volatility
|
218.6%
|
209.5%
|
Expected dividends
|
-
|
-
|
Expected terms (in years)
|
5.0
|
5.0
|
Risk-free rate
|
0.39%
|
2.21%
|
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The following is a summary of the Company’s options issued and outstanding under the SIP:
|
Shares
|
|
Weighted Average Exercise Price
|
Outstanding and exercisable at December 31, 2018
|
3,710,000
|
|
0.09
|
Granted
|
1,325,000
|
|
0.09
|
Outstanding and exercisable at December 31, 2019
|
5,035,000
|
|
$0.09
|
Granted
|
1,630,000
|
|
$0.099
|
Expired
|
(960,000)
|
|
(0.06)
|
Outstanding and exercisable at December 31, 2020
|
5,705,000
|
|
$0.0997
|
The average remaining contractual term of the options outstanding and exercisable at December 31, 2020 was 2.28 years. As of December 31, 2020, options outstanding and exercisable had an aggregate intrinsic value of approximately $361,180 based on the Company’s stock price of $0.16 at December 31, 2020.
10. Income Taxes
The Company did not recognize a tax provision during 2020 and 2019.
At December 31, 2020 and 2019, net deferred tax assets were calculated based on expected blended future tax rates of 26.7% including both federal and Idaho state components. Significant components of net deferred tax assets at December 31, 2020 and 2019 are as follows:
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Net operating loss carryforwards
|
$ 1,547,400
|
|
$ 1,448,900
|
Share-based compensation
|
133,400
|
|
90,800
|
Deferred compensation
|
278,000
|
|
278,000
|
Investments
|
-
|
|
39,500
|
Mineral properties
|
179,300
|
|
212,400
|
|
2,138,100
|
|
2,069,600
|
Deferred tax liabilities:
|
|
|
|
Investment in OGT
|
(147,100)
|
|
(146,800)
|
Investments
|
(302,900)
|
|
-
|
Net deferred tax assets
|
1,688,100
|
|
1,922,800
|
Less valuation allowance
|
(1,688,100)
|
|
(1,922,800)
|
Net deferred tax asset
|
$ -
|
|
$ -
|
The Company fully reserved the deferred tax asset as of December 31, 2020 and 2019, as management of the Company cannot determine that is more likely than not that the Company will realize the benefit of the deferred tax assets.
At December 31, 2020, the Company had approximately $5.8 million of federal and state net operating loss carryforwards. $5.3 million of net operating loss will expire between 2029 and 2037. $0.5 million of the losses were incurred after 2017 and can be carried forward indefinitely, although usage of these net operating losses is limited to 80% of taxable income in the future tax year.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows NOLs generated in years 2018-2020 to be carried back 5 years. The Company has elected not to carry any net operating losses back.
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The income tax benefit shown in the financial statements for the years ended December 31, 2020 and 2019 differs from the federal statutory rate as follows:
|
2020
|
2019
|
|
|
|
|
|
(Provision) benefit at statutory rates
|
$ (256,600)
|
(21.0)%
|
$ (228,300)
|
21.0%
|
State taxes
|
(69,600)
|
(5.7)
|
(61,800)
|
(5.7)
|
Permanent differences
|
(12,600)
|
1.0
|
600
|
0.1
|
Change in prior year tax estimates
|
104,100
|
8.2
|
(3,600)
|
(0.4)
|
Change in valuation allowance
|
234,700
|
(19.2)
|
293,100
|
27.0
|
Total
|
$ -
|
- %
|
$ -
|
- %
|
The Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns and found no positions that would require a liability for uncertain income tax benefits to be recognized. The Company is subject to possible tax examinations for the years 2017 through 2020. Prior year tax attributes could be adjusted by taxing authorities. If applicable, the Company will deduct interest and penalties as interest expense on the financial statements.
11. Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In February 2019, the Company entered into an operating lease for its office and as a result a liability and right-of-use asset of $29,617 was recognized on the lease inception date. To calculate the liability and right of use asset, the Company utilized an 8.0% incremental borrowing rate to discount the future rent payments of approximately $1,300 per month over the lease term of 2.0 years. The lease contains no renewal option.
As of December 31, 2020, total future payments required through the remaining lease term of .09 years is $1,332 and is recognized as a current liability on the Company’s Consolidated Balance Sheet. For the years ended December 31, 2020 and December 31, 2019 rent expense recognized was $16,426 and $15,750, respectfully, and was all reimbursed by BeMetals.
12.Subsequent Events
On March 5, 2021, the company received Tranche 5 cash payment of $250,000 in accordance with the BeMetals Option Agreement.
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ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the year ended December 31, 2020, there were no changes in independent audit firms or consulting firms who provide accounting assistance.
During the year ended December 31, 2019, there were no disagreements between the Company and its independent certified public accountants concerning accounting and financial disclosure.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this report, an evaluation was carried out under the supervision of, and with the participation of, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) of the Securities and Exchange Act of 1934, as amended). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were adequately designed and effective in ensuring that information required to be disclosed by the Company in its reports that it files or submits to the SEC under the Exchange Act, is recorded, processed, summarized, and reported within the time specified in applicable rules and forms.
Our Chief Executive Officer and Chief Financial Officer have also determined that the disclosure controls and procedures were effective to ensure that material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow for accurate required disclosure to be made on a timely basis.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, using criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and concluded that internal control over financial reporting was effective as of December 31, 2020, based on these criteria.
Changes in internal controls over financial reporting
During the quarter ended December 31, 2020, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
None.
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