UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-249533
FORTITUDE GOLD CORPORATION
(Exact name of registrant as specified in its charter)
Colorado | 85-2602691 |
(State of Other Jurisdiction of incorporation or Organization) | (I.R.S. Employer Identification No.) |
| |
2886 Carriage Manor Point, Colorado Springs, CO | 80906 |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (719) 717-9825
Securities registered pursuant to Section 12(b) of the Act:
|
| | | Name Of Each Exchange |
Title of Each Class | | Trading Symbol(s) | | On Which Registered |
N/A | | N/A | | N/A |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 232.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer x | Smaller reporting company x Emerging growth company x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The aggregate market value of the Registrant’s Common Stock held by non-affiliates on June 30, 2021 (the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $138,000,000. Shares of Common Stock held by each executive officer and director and by each shareholder affiliated with a director or an executive officer have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the Registrant’s Common Stock as of February 28, 2022 was 23,997,876.
Documents Incorporated by Reference
Not applicable.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K of Fortitude Gold Corporation. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2022 (the “Form 10-K”).
This Amendment is being filed solely to update the Report of Independent Registered Public Accounting Firm (the “Report”) related to the tenure of Plante & Moran, PLLC (“Plante Moran”) included in the Form 10-K under Item 8. “Financial Statements and Supplemental Data.” The Form 10-K inadvertently included the incorrect tenure of Plante Moran. The sole change in this Amendment is to update the tenure of Plante Moran.
This Amendment consists solely of the preceding cover page, this explanatory note, a replacement Item 8. “Financial Statements and Supplemental Data,” which contains the correct Report, the information required by Item 15 of Form 10-K, a signature page, and new certifications pursuant to the Sarbanes-Oxley Act of 2002. Except as described in this Explanatory Note, this Amendment does not modify, amend, or update any of the financial information or any other information set forth in the Form 10-K.
2
Item 8. Financial Statements and Supplementary Data
Index to the Financial Statements
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Fortitude Gold Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Fortitude Gold Corporation (the “Company”) as of December 31, 2021, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Haynie and Company
We have served as the Company’s auditor since 2021.
Salt Lake City, Utah
March 1, 2022
4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Fortitude Gold Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Fortitude Gold Corporation (the “Company”) as of December 31, 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Emphasis of Matter
As discussed in Note 2 Related Party Transactions to the financial statements, the Company has had expense allocations and capital contributions from Gold Resource Corporation. Our opinion is not modified with respect to this matter.
/s/ Plante & Moran, PLLC
We served as the Company’s auditor from 2017 to 2021.
Denver, Colorado
March 24, 2021
5
FORTITUDE GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share amounts)
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
| | | |
| | |
ASSETS | | |
| | |
|
Current assets: | | |
| | |
|
Cash and cash equivalents | | $ | 40,017 | | $ | 27,774 |
Accounts receivable | |
| 238 | |
| 145 |
Inventories | |
| 37,550 | |
| 23,051 |
Prepaid taxes | | | 1,289 | | | — |
Prepaid expenses and other current assets | |
| 2,228 | |
| 1,962 |
Total current assets | |
| 81,322 | |
| 52,932 |
Property, plant and mine development, net | |
| 37,226 | |
| 50,990 |
Operating lease assets, net | |
| 463 | |
| 6,198 |
Deferred tax assets | | | 509 | | | 959 |
Other non-current assets | |
| 2,909 | |
| 1,946 |
Total assets | | $ | 122,429 | | $ | 113,025 |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 2,127 | | $ | 1,715 |
Loans payable, current | |
| 87 | |
| 665 |
Finance lease liabilities, current | |
| 23 | |
| 398 |
Operating lease liabilities, current | |
| 463 | |
| 6,198 |
Mining taxes payable | |
| 1,699 | |
| 1,001 |
Other current liabilities | |
| 912 | |
| 1,092 |
Total current liabilities | |
| 5,311 | |
| 11,069 |
Asset retirement obligations | |
| 4,725 | |
| 3,844 |
Loans payable, long-term | |
| 30 | |
| 117 |
Finance lease liabilities, long-term | |
| 15 | |
| 27 |
Total liabilities | |
| 10,081 | |
| 15,057 |
Shareholders' equity: | |
|
| |
|
|
Preferred stock - $0.01 par value, 20,000,000 shares authorized and nil outstanding at December 31, 2021 and nil shares authorized and outstanding at December 31, 2020 | |
| — | |
| — |
Common stock - $0.01 par value, 200,000,000 shares authorized and 23,961,208 shares outstanding at December 31, 2021 and 21,211,208 shares outstanding at December 31, 2020 | |
| 240 | |
| 212 |
Additional paid-in capital | |
| 103,476 | |
| 99,682 |
Retained earnings (accumulated deficit) | |
| 8,632 | |
| (1,926) |
Total shareholders' equity | |
| 112,348 | |
| 97,968 |
Total liabilities and shareholders' equity | | $ | 122,429 | | $ | 113,025 |
The accompanying notes are an integral part of these consolidated financial statements.
6
FORTITUDE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2021 and 2020
(U.S. dollars in thousands, except share and per share amounts)
| | | | | | | |
| | Year ended | | ||||
| | December 31, | | ||||
|
| 2021 |
| 2020 | | ||
Sales, net | | $ | 82,109 | | $ | 53,967 | |
Mine cost of sales: | |
|
| |
|
| |
Production costs | |
| 26,661 | |
| 27,495 | |
Depreciation and amortization | |
| 14,728 | |
| 10,241 | |
Reclamation and remediation | |
| 156 | |
| 48 | |
Total mine cost of sales | |
| 41,545 | |
| 37,784 | |
Mine gross profit | |
| 40,564 | |
| 16,183 | |
Costs and expenses: | |
|
| |
|
| |
General and administrative expenses | |
| 11,443 | |
| 2,882 | |
Exploration expenses | |
| 5,396 | |
| 2,648 | |
Other expense, net | |
| 190 | |
| 233 | |
Total costs and expenses | |
| 17,029 | |
| 5,763 | |
Income before income and mining taxes | |
| 23,535 | |
| 10,420 | |
Mining and income tax expense | |
| 5,669 | |
| 203 | |
Net income | | $ | 17,866 | | $ | 10,217 | |
Net income per common share: | |
|
| |
|
| |
Basic | | $ | 0.75 | | $ | 0.48 | |
Diluted | | $ | 0.74 | | $ | 0.48 | |
Weighted average shares outstanding: | |
|
| |
|
| |
Basic | | | 23,875,631 | | | 21,211,208 | |
Diluted | |
| 24,108,365 | |
| 21,211,208 | |
The accompanying notes are an integral part of these consolidated financial statements.
7
FORTITUDE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended December 31, 2021 and 2020
(U.S. dollars in thousands, except share amounts)
| | | | | | | | | | | | | | |
|
| Years Ended December 31, 2021 and 2020 | ||||||||||||
| | | | Par | | | | | | Retained | | | | |
| | Number of | | Value of | | | | | Earnings | | Total | |||
| | Common | | Common | | Additional Paid- | | (Accumulated | | Shareholders' | ||||
|
| Shares |
| Shares |
| in Capital |
| Deficit) |
| Equity | ||||
Balance, December 31, 2019 (GRCN) | | 10,000 | | $ | — | | $ | 78,083 | | $ | (12,143) | | $ | 65,940 |
Capital contributions by Parent | | — | | | — | | | 21,811 | | | — | | | 21,811 |
Issuance of shares under private placement | | 21,211,208 | |
| 212 | |
| (212) | |
| — | |
| — |
Net income | | — | | | — | | | — | | | 10,217 | | | 10,217 |
Balance, December 31, 2020 (Fortitude) | | 21,221,208 | | $ | 212 | | $ | 99,682 | | $ | (1,926) | | $ | 97,968 |
| | | | | | | | | | | | | | |
Balance, December 31, 2020 (Fortitude) | | 21,211,208 | | $ | 212 | | $ | 99,682 | | $ | (1,926) | | $ | 97,968 |
Stock-based compensation | | 2,250,000 | |
| 23 | |
| 3,382 | |
| — | |
| 3,405 |
Issuance of shares under private placement | | 500,000 | |
| 5 | |
| 495 | |
| — | |
| 500 |
Dividends | | — | |
| — | |
| — | |
| (7,308) | |
| (7,308) |
True up from spin-off | | — | | | — | | | (83) | | | — | | | (83) |
Net income | | — | |
| — | |
| — | |
| 17,866 | |
| 17,866 |
Balance, December 31, 2021 (Fortitude) | | 23,961,208 | | $ | 240 | | $ | 103,476 | | $ | 8,632 | | $ | 112,348 |
The accompanying notes are an integral part of these consolidated financial statements.
8
FORTITUDE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2021 and 2020
(U.S. dollars in thousands)
| | | | | | |
| | Year ended | ||||
| | December 31, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net income | | $ | 17,866 | | $ | 10,217 |
Adjustments to reconcile net income to net cash from operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 14,859 | |
| 10,377 |
Stock-based compensation | | | 3,405 | | | — |
Deferred taxes | | | 450 | | | (959) |
Reclamation and remediation accretion | | | 156 | | | 48 |
Other operating adjustments | |
| (303) | |
| — |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| (93) | |
| (145) |
Inventories | |
| (10,866) | |
| (2,300) |
Prepaid expenses and other current assets | |
| (266) | |
| (1,643) |
Other non-current assets | |
| 19 | |
| (2,085) |
Accounts payable and other accrued liabilities | |
| 29 | |
| (1,508) |
Income and mining taxes payable | |
| (591) | |
| 1,001 |
Net cash provided by operating activities | |
| 24,665 | |
| 13,003 |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Capital expenditures | |
| (4,546) | |
| (6,488) |
Net cash used in investing activities | |
| (4,546) | |
| (6,488) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Contributions from GRC | |
| — | |
| 21,711 |
Dividends paid | | | (7,308) | | | — |
Issuance of common stock | | | 500 | | | — |
Repayment of loans payable | |
| (665) | |
| (879) |
Repayment of capital leases | |
| (403) | |
| (439) |
Net cash (used in) provided by financing activities | |
| (7,876) | |
| 20,393 |
| | | | | | |
Net increase in cash and cash equivalents | |
| 12,243 | |
| 26,908 |
Cash and cash equivalents at beginning of period | |
| 27,774 | |
| 866 |
Cash and cash equivalents at end of period | | $ | 40,017 | | $ | 27,774 |
| | | | | | |
Supplemental Cash Flow Information | |
|
| |
|
|
Interest expense paid | | $ | 26 | | $ | 86 |
Income and mining taxes paid | | $ | 5,893 | | $ | — |
Non-cash investing and financing activities: | |
|
| |
|
|
Change in capital expenditures in accounts payable | | $ | 503 | | $ | (1,544) |
Change in estimate for asset retirement costs | | $ | 794 | | $ | 1,159 |
Stock contributed from Parent | | $ | — | | $ | 100 |
Equipment purchased under finance lease | | $ | 16 | | $ | — |
Right-of-Use assets acquired through operating lease | | $ | 1,820 | | $ | 7,265 |
The accompanying notes are an integral part of these consolidated financial statements.
9
FORTITUDE GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Fortitude Gold Corporation (the “Company,” “FGC,” or “Fortitude”) was organized under the laws of the State of Colorado on August 11, 2020. On August 18, 2020, Gold Resource Corporation (“GRC” or “Parent”) transferred all of the 10,000 issued and outstanding common stock shares of its wholly-owned subsidiary GRC Nevada Inc. (“GRCN”) to Fortitude in exchange for 21,211,208 shares of Fortitude’s common stock. With the share transfer, GRCN became a wholly-owned subsidiary of Fortitude and Fortitude became a wholly-owned subsidiary of GRC. The assets and liabilities were recorded at historical cost as the entities were under common control.
On December 31, 2020, GRC completed the spin-off of FGC, which separated FGC’s business, activities, and operations into a separate, public company. The Spin-Off was effected by the distribution of all of the outstanding shares of FGC common stock to GRC’s shareholders. GRC’s shareholders received one share of FGC common stock for every 3.5 shares of GRC’s common stock held as of December 28, 2020.
In February 2021, FGC began trading on the OTC Market under the ticker symbol “FRTT”. Subsequently the symbol was changed to “FTCO” and was up listed to the OTCQB in March 2021.
FGC is a mining company which pursues gold and silver projects that are expected to have both low operating costs and high returns on capital.
Significant Accounting Policies
Basis of Presentation
The consolidated financial statements included herein are expressed in United States dollars and conform to United States generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company, its subsidiaries GRCN, Walker Lane Minerals Corp. (“WLMC”), County Line Holdings, Inc., and County Line Minerals Corp. All significant intercompany balances and transactions have been eliminated.
The consolidated balance sheet as of December 31, 2020 and statements of operations, shareholders’ equity and cash flows for the year ended December 31, 2020 have been have been prepared on a “carve-out” basis to include allocations of certain expenses for human resources, accounting, and other services, plus share-based compensation allocated from GRC. The expense allocations have been determined on basis that the Company and GRC consider to be reasonable reflections of the utilization of services, or the benefits provided. In addition, the assets and liabilities include only those assigned to the carve-out entities. The allocations and related estimates and assumptions are described more fully in Note 2, Related Party Transactions. Further, the consolidated financial statements as of and for the year ended December 31, 2020 do not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Company been a separate entity nor are they indicative of the future results of the Company. The Company’s consolidated balance sheet as of December 31, 2020, reflects the consolidated balance sheet of FGC and its subsidiaries, while the consolidated statements of operations, shareholders’ equity and cash flows for the year ended December 31, 2020 have been derived from the accounting records of GRC and should be read with the accompanying notes thereto.
Risk and Uncertainties
As a mining company, the Company’s revenue, profitability and future rate of growth are substantially dependent on prevailing metal prices for gold and to a lesser extent silver. Historically, the commodity markets have been very volatile, and there can be no assurance that commodity prices will not be subject to wide fluctuations in the future. A substantial or extended decline in commodity prices could have a material adverse effect on the Company’s financial
10
position, results of operations, cash flows, access to capital and on the quantities of reserves that the Company can economically produce. The carrying value of the Company’s property, plant and mine development, net; inventories; stockpiles and ore on leach pads; and deferred income tax assets are particularly sensitive to the outlook for the market price for gold. A decline in the price of gold and silver from current levels could result in material impairment charges related to these assets.
In addition to changes in gold prices, other factors such as changes in mine plans, increases in costs, geotechnical failures, changes in social, environmental or regulatory requirements, impacts of global events such as the COVID-19 pandemic and management’s decision to reprioritize or abandon a development project can adversely affect the Company’s ability to recover its investment in certain assets and result in impairment charges.
During the year ended December 31, 2021, the COVID-19 pandemic has had a material impact on the global economy, the scale and duration of which remain uncertain. The Company remained fully operational during 2021, however, the future impact of this pandemic could include temporary or sustained site closures, significant COVID-19 specific costs, volatility in the prices for gold and other metals, logistical challenges shipping the Company’s products, additional travel restrictions, other supply chain disruptions and workforce interruptions, including loss of life. Depending on the duration and extent of the impact of COVID-19 and the success of a widely available vaccine, this could materially impact the Company’s results of operations, cash flows and financial condition and could result in material impairment charges to the Company’s property, plant and mine development, net; inventories; stockpiles and ore on leach pads; and deferred income tax assets. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly. The Company has completed various scenario planning analyses to consider potential impacts of COVID 19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary). The Company believes that its operations will be sufficient for the foreseeable future, although there is no assurance that will be the case.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount 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 periods. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of-production depreciation calculations; future metal prices; environmental remediation, reclamation and closure obligations; estimates of recoverable gold and other minerals in stockpile and leach pad inventories; estimates of fair value related to asset impairment assessments; write-downs of inventory, stockpiles and ore on leach pads to net realizable value; valuation allowances for deferred tax assets; provisional amounts related to income tax effects of newly enacted tax laws. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain and bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with a remaining maturity of three months or less when purchased and are carried at cost.
Accounts receivable
Accounts receivable consists of trade receivables, which are recorded from the sale of doré.
11
Inventories
The major inventory categories are set forth below:
Stockpile Inventories: Stockpile inventories represent ore that has been mined and is available for further processing. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, an estimate of the contained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred, including applicable overhead, depreciation and amortization relating to mining operations. Material is removed at each stockpile’s average cost per ounce. Stockpiles are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. The current portion of stockpiles is determined based on the expected amounts to be processed within the next 12 months. Stockpiles not expected to be processed within the next 12 months are classified as long-term. See Note 4 for current and long-term balances as of December 31, 2021 and 2020.
Doré Inventory: Doré inventories includes gold and silver doré bars held at the Company’s facility. Doré inventories are carried at the lower of cost of production or net realizable value based on current metals prices.
Leach Pad: Ore on leach pad represents ore that has been mined and placed on the leach pad where a solution is applied to the surface of the heap to extract the gold or silver. Costs are added to ore on leach pads based on current mining costs, including applicable depreciation and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per estimated recoverable ounce of gold or silver on the leach pad.
Estimates of recoverable ore on the leach pad are calculated from the quantities of ore placed on the leach pad (measured tonnes added to the leach pad), the grade of ore placed on the leach pad (based on assay data) and a recovery percentage (based on ore type).
Although the quantities of recoverable ore placed on the leach pad are reconciled by comparing the grades of ore placed on pads to the quantities of metal actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Changes in assumptions and estimates are accounted for on a prospective basis.
Materials and Supplies Inventories: Materials and supplies inventories consist of chemical reagents, fuels, and other materials and supplies. Cost includes applicable taxes and freight. Materials and supplies inventory is carried at lower of average cost or net realizable value.
Write-downs of inventory are charged to expense.
Property, Plant and Mine Development
Land and Mineral Rights: The costs of acquiring land and mineral rights are considered tangible assets. Administrative and holding costs to maintain an exploration property are expensed as incurred. If a mineable mineral deposit is discovered, such capitalized costs are amortized when production begins using the units of production (“UOP”) method. If no mineable mineral deposit is discovered or such rights are otherwise determined to have diminished value, such costs are expensed in the period in which the determination is made.
Mine Development: The costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as exploration expenses. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.
12
Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of production costs. All other drilling and related costs are expensed as incurred.
Mine development costs are amortized using the UOP method based on estimated recoverable ounces in proven and probable reserves.
The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs”. Pre-stripping costs are capitalized during the development of an open pit mine. Where multiple open pits exist at a mining complex utilizing common processing facilities, pre-stripping costs are capitalized at each pit. The removal, production, and sale of deminimis saleable materials may occur during the development phase of an open pit mine and are assigned incremental mining costs related to the removal of that material.
The production phase of an open pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in costs applicable to sales in the same period as the revenue from the sale of inventory.
Property and Equipment: All items of property and equipment are carried at cost. Normal maintenance and repairs are expensed as incurred while expenditures for major maintenance and improvements are capitalized. Gains or losses on disposition are recognized in other (income) expense.
Construction in Progress: Expenditures for new facilities or equipment are capitalized and recorded at cost. Once completed and ready for its intended use, the asset is transferred to property and equipment to be depreciated or amortized.
Depreciation and Amortization: Capitalized costs are depreciated or amortized using the straight-line or UOP method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such assets or the useful life of the individual assets. The estimates for mineral reserves are a key component in determining the UOP depreciation rates. The estimates of reserves may change, possibly in the near term, resulting in changes to depreciation and amortization rates in future reporting periods. The following are the estimated economic lives of depreciable assets:
| | |
|
| Range of Lives |
Asset retirement costs | | UOP |
Furniture, computer and office equipment | | 3 to 4 years |
Light vehicles and other mobile equipment | | 4 years |
Machinery and equipment | | UOP to 4 years |
Plant facilities, leach pad, and related infrastructure | | UOP to 7 years |
Mine development and mineral interests | | UOP |
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. If an impairment is indicated, a determination is made whether an impairment has occurred and any impairment losses are measured as the excess of carrying value over the total discounted estimated future cash flows, or the application of an expected fair value technique in the absence of an observable market price and are charged to expense on the Company’s consolidated statements of operations. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups.
Existing reserves and other mineralized material are included when estimating the fair value in determining whether the assets are impaired. The Company’s estimates of future cash flows are based on numerous assumptions including expected gold and other commodity prices, production levels, capital requirements and estimated salvage values. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of
13
recoverable minerals, gold and other commodity prices, production levels and costs and capital requirements are each subject to significant risks and uncertainties.
Fair Value of Financial Instruments
The recorded amounts of cash and cash equivalents, accounts payable, and loans payable approximate fair value because of the short maturity of those instruments.
Revenue Recognition
Gold doré sales are recognized upon the satisfaction of performance obligations, which occurs when price and quantity are agreed upon with the customer. Silver doré sales are immaterial. Doré sales are recorded using quoted metal prices, net of refining charges.
Production Costs
Production costs include labor and benefits, royalties, and doré shipping costs, mining subcontractors, fuel and lubricants, legal and professional fees related to mine operations, materials and supplies, repairs and maintenance, explosives, insurance, reagents, travel, medical services, security equipment, office rent, tools, and other costs that support mining operations.
Exploration Costs
Exploration costs are charged to expense as incurred. Costs to identify new mineral resources and to evaluate potential resources are considered exploration costs.
Asset Retirement Obligation
An asset retirement obligation is recognized when incurred and is recorded as a liability at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Asset retirement costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The estimated asset retirement obligation is based on when spending for an existing disturbance is expected to occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation in accordance with ASC guidance for asset retirement obligations.
Income Taxes
Income taxes are computed using the asset and liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes and the effect of net operating losses using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are evaluated to determine if it is more likely than not that they will be realized. Please see Note 5 for additional information.
Earnings Per Share
Basic earnings per share is calculated based on the weighted average number of common shares outstanding for the period. Diluted income per share reflects the dilution that could occur if potentially dilutive securities, as determined using the treasury stock method, are converted into common stock. Potentially dilutive securities are excluded from the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise price of the instrument exceeds the average fair market value of the underlying common stock.
14
Stock-Based Compensation
The Company records stock-based compensation awards exchanged for employee services at fair value on the date of the grant and expenses the awards in the consolidated statements of operations over the requisite employee service period on a straight-line basis over the vesting period. The Company recognizes forfeitures as they occur. The Company's estimates may be impacted by certain variables including, but not limited to, stock price volatility, and related tax impacts.
Concentration of Credit Risk
The Company has considered and assessed the credit risk resulting from its doré sales arrangements with its customers. In the event that the Company’s relationships with its customers are interrupted for any reason, the Company believes that it would be able to locate another entity to purchase its doré bars; however, any interruption could temporarily disrupt the Company’s sale of its products and adversely affect operating results.
The Isabella Pearl Mine in Nevada, U.S.A. accounted for 100% of the Company’s 2021 and 2020 net sales with 1 customer accounting for 96% of net sales in both 2021 and 2020.
2. Related Party Transactions
Effective December 31, 2020, in connection with the Spin-Off, the Company entered into a Management Services Agreement (“MSA” or “Agreement”) with GRC that governed the relationship of the parties following the Spin-Off. The MSA provided that the Company received services from GRC and its subsidiaries to assist in the transition of the Company as a separate company including, managerial and technical supervision, advisory and consultation with respect to mining operations, exploration, environmental, safety and sustainability matters. The Company also received certain administrative services related to information technology, accounting and financial advisory services, legal and compliance support and investor relation and shareholder communication services. The agreed upon charges for services rendered were based on market rates that align with the rates that an unaffiliated service provider would charge for similar services. The MSA’s initial term was to expire on December 31, 2021, would automatically renew annually and may be cancelled upon 30 days written notice by one party to the other during the term. On April 21, 2021, GRC provided the Company 30 days written notice to cancel the MSA effective May 21, 2021. During the year ended December 31, 2021, the Company recognized $0.4 million of expense related to the MSA.
Prior to the Spin-Off, GRC provided human resources, information technology, accounting, legal, technical, and other services to the Company. The Company obtained its business insurance under GRC. The accompanying Consolidated Statements of Operations, Shareholder’s Equity and Consolidated Statement of Cash Flows for the year ended December 31, 2020, include allocations of all of these expenses. The allocation method calculates the appropriate share of overhead cost to the Company by using time spent by GRC employees. The Company believes the allocation methodology used is reasonable, has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had the Company been a stand-alone entity or of future services. GRC allocated $2.8 million for the year ended December 31, 2020. These costs were treated as capital contributions from GRC in the accompanying 2020 financial statements. In addition, the Company received cash contributions from GRC to help fund its operations and mine development, which are not expected to be repaid and are treated as capital contributions. For year ended December 31, 2020, the Company received total capital contributions from GRC of $21.8 million inclusive of allocated costs described above.
15
3. Revenue
The following table presents the Company’s net sales disaggregated by source:
| | | | | | |
|
| Year ended | ||||
| | December 31, | ||||
|
| 2021 |
| 2020 | ||
| | (in thousands) | ||||
Sales, net | |
| | |
| |
Gold doré sales | | $ | 82,390 | | $ | 54,264 |
Less: Refining charges | |
| (281) | |
| (297) |
Total sales, net | | $ | 82,109 | | $ | 53,967 |
4. Inventories
At December 31, 2021 and December 31, 2020, current inventories consisted of the following:
| | | | | | |
|
| December 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Stockpiles | | $ | 5,839 | | $ | 6,269 |
Leach pad | |
| 31,119 | |
| 16,636 |
Doré | |
| 434 | |
| 19 |
Subtotal - product inventories | |
| 37,392 | |
| 22,924 |
Materials and supplies | |
| 158 | |
| 127 |
Total | | $ | 37,550 | | $ | 23,051 |
In addition to the inventory above, as of December 31, 2021 and December 31, 2020, the Company has $2.6 million and $1.6 million, respectively, of low-grade ore stockpile inventory included in other non-current assets on the accompanying Consolidated Balance Sheets.
For the year ended December 31, 2020 the Company recorded $3.6 million in net realizable value (“NRV”) inventory adjustments. NaN NRV adjustments were recorded in 2021.
5. Income Taxes
The Company files a consolidated U.S. income tax return. The Company also files a Nevada net proceeds of minerals tax return and such tax is treated as an income tax for purposes of ASC 740. At the federal level, the Company’s income (loss) in the U.S. is taxed at 21%, while a 5% net proceeds of minerals tax applies in Nevada. For financial reporting purposes, the Company recorded net income before income taxes of $23.5 million and $10.4 million for the years ended December 31, 2021 and 2020, respectively.
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For the years ended December 31, 2021 and 2020, the Company had $5.2 million and $1.2 million of current tax expense, respectively. As a result of the spinoff from GRC, $(0.1) million and $0.2 million in federal current tax (benefit)/expense resulted in an adjustment to additional paid in capital and did not generate a tax payable in 2021 and 2020, respectively.
| | | | | | |
| | Year ended December 31, | ||||
| | 2021 |
| 2020 | ||
| | (in thousands) | ||||
Current taxes | | | | | | |
Federal | | $ | 3,000 | | $ | 161 |
State | | | 2,219 | | | 1,001 |
Total current taxes | | $ | 5,219 | | $ | 1,162 |
| | | | | | |
Deferred taxes | | | | | | |
Federal | | $ | 450 | | $ | (959) |
State | | | — | | | — |
Total deferred taxes | | $ | 450 | | $ | (959) |
Total income and mining taxes | | $ | 5,669 | | $ | 203 |
The provision for income taxes for the years ended December 31, 2021 and 2020, differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to pre-tax income from operations as a result of the following differences:
| | | | | | |
| | Year ended December 31, | ||||
| | 2021 |
| 2020 | ||
| | (in thousands) | ||||
Tax at statutory rates | | $ | 4,943 | | $ | 2,188 |
Change in valuation allowance | | | — | | | (2,063) |
Nevada net proceeds of minerals tax, net | | | 1,753 | | | 791 |
Depletion in excess of basis | | | (1,584) | | | (623) |
Nondeductible Compensation | | | 576 | | | — |
Other | | | (19) | | | (90) |
Total income and mining tax expense | | $ | 5,669 | | $ | 203 |
17
The following table sets forth deferred tax assets and liabilities:
| | | | | | |
| | December 31, | ||||
| | 2021 |
| 2020 | ||
| | (in thousands) | ||||
Deferred tax assets | | | | | | |
Property and equipment | | $ | 2,434 | | | 1,873 |
Lease liabilities | | | 97 | | | 1,302 |
Stock compensation | | | 31 | | | — |
Total deferred tax assets | | | 2,562 | | | 3,175 |
Valuation allowance | | | — | | | — |
Deferred tax assets after valuation allowance | | $ | 2,562 | | $ | 3,175 |
| | | | | | |
Deferred tax liabilities | | | | | | |
Lease assets | | $ | (97) | | $ | (1,302) |
Inventory | | | (1,956) | | | (914) |
Total deferred tax liabilities | | $ | (2,053) | | $ | (2,216) |
| | | | | | |
Net deferred tax asset | | $ | 509 | | $ | 959 |
Other Tax Disclosures
The Company evaluates the evidence available to determine whether a valuation allowance is required on the deferred tax assets. The Company removed the valuation allowance on its deferred tax assets in 2020 as a result of significant taxable income in the year and the strong likelihood of utilization of its net deferred tax assets as a result of continuing operations. The Company continues to evaluate the realizability of deferred tax assets.
As of both December 31, 2021 and 2020, the Company believes that it has 0 uncertain tax positions. If the Company were to determine there was an uncertain tax position, the Company would recognize the liability and related interest and penalties within income tax expense.
6. Prepaid Expenses and Other Current Assets
At December 31, 2021 and December 31, 2020, prepaid expenses and other current assets consisted of the following:
| | | | | | |
|
| December 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Contractor advances | | $ | 1,831 | | $ | 1,670 |
Prepaid insurance | | | 250 | | | 195 |
Other current assets | |
| 147 | |
| 97 |
Total | | $ | 2,228 | | $ | 1,962 |
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7. Property, Plant and Mine Development, net
At December 31, 2021 and December 31, 2020, property, plant and mine development consisted of the following:
| | | | | | |
|
| December 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Asset retirement costs | | $ | 4,382 | | $ | 3,588 |
Construction-in-progress | |
| 3,891 | |
| 195 |
Furniture and office equipment | |
| 410 | |
| 324 |
Leach pad and ponds | |
| 5,649 | |
| 5,649 |
Land | |
| 25 | |
| 13 |
Light vehicles and other mobile equipment | |
| 463 | |
| 435 |
Machinery and equipment | |
| 15,143 | |
| 14,311 |
Mill facilities and infrastructure | |
| 7,729 | |
| 7,669 |
Mineral interests and mineral rights | |
| 18,928 | |
| 18,878 |
Mine development | |
| 24,365 | |
| 24,365 |
Software and licenses | |
| 65 | |
| 65 |
Subtotal (1) (2) | |
| 81,050 | |
| 75,492 |
Accumulated depreciation and amortization | |
| (43,824) | |
| (24,502) |
Total | | $ | 37,226 | | $ | 50,990 |
(1) | Includes $0.1 million and $1.8 million of assets recorded under finance leases at December 31, 2021 and 2020, respectively. Please see Note 12 for additional information. |
(2) | Includes capital expenditures in accounts payable of $1.1 million and $0.6 at December 31, 2021 and 2020, respectively. |
For the years ended December 31, 2021 and 2020, the Company recorded depreciation and amortization expense of $14.9 million and $10.4 million, respectively.
8. Other Current Liabilities
At December 31, 2021 and December 31, 2020, other current liabilities consisted of the following:
| | | | | | |
|
| December 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Accrued royalty payments | | $ | 435 | | $ | 718 |
Accrued property and excise taxes | |
| 461 | |
| 353 |
Other accrued expenses | | | 16 | | | 21 |
Total | | $ | 912 | | $ | 1,092 |
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9. Asset Retirement Obligation
The following table presents the changes in the Company’s asset retirement obligation for the years ended December 31, 2021 and 2020:
| | | | | | |
|
| December 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Asset retirement obligation – balance at beginning of period | | $ | 3,844 | | $ | 2,486 |
Changes in estimate | |
| 794 | |
| 1,159 |
Payments | | | (220) | | | — |
Accretion | |
| 307 | |
| 199 |
Asset retirement obligation – balance at end of period | | $ | 4,725 | | $ | 3,844 |
As of December 31, 2021 the Company had a $7.5 million off-balance sheet arrangement consisting of a $12.2 million surety bond off-set by a $4.7 million asset retirement for future reclamation obligations for Isabella Pearl. As of December 31, 2020, the Company had a $5.4 million off-balance sheet arrangement consisting of a $9.2 million surety bond off-set by a $3.8 million asset retirement obligation for future reclamation obligations for Isabella Pearl. The Company’s asset retirement obligations were discounted using a credit adjusted risk-free rate of 8%.
10. Loans Payable
The Company has financed certain equipment purchases on a long-term basis. The loans bear annual interest at rates ranging from 3% to 4.48%, are collateralized by the equipment, and require monthly principal and interest payments of $0.01 million. As of December 31, 2021, and December 31, 2020, there was an outstanding balance of $0.1 million and $0.8 million, respectively. Scheduled remaining minimum repayments are $0.1 million in 2022. The fair value of the loans payable, based on Level 2 inputs, approximated the outstanding balance at both December 31, 2021 and December 31, 2020. See Note 15 for the definition of a Level 2 input.
11. Commitments and Contingencies
The Company has a Contract Mining Agreement with a mining contractor relating to mining activities at its Isabella Pearl Mine. Included in this Agreement is an embedded lease for the mining equipment for which the Company has recognized a right-of-use asset and corresponding operating lease liability. Please see Note 12 for more information. In addition to the embedded lease payments, the Company pays the contract miner operational costs in the normal course of business. These costs represent the remaining future contractual payments for the Contract Mining Agreement over its term. The contractual payments are determined by rates within the Contract Mining Agreement, estimated tonnes moved and bank cubic yards for drilling and blasting. As of December 31, 2021, total estimated contractual payments remaining, excluding embedded lease payments, are $0.6 million for the year ended December 31, 2022.
12. Leases
Operating Leases
Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases as incurred over the lease term. For leases beginning in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs).
The depreciable life of assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The weighted average remaining lease term for the Company’s operating leases as of December 31, 2021 is 0.08 years.
20
The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on the lease term adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating lease liabilities as of December 31, 2021 was 4.48%.
There are no material residual value guarantees and no restrictions or covenants imposed by the Company’s leases.
The Company has an embedded lease for its mining equipment in its Contract Mining Agreement for its Isabella Pearl Mine, which was renewed for a three-month period in October 2021 resulting in the recognition of a $1.8 million right-of-use asset and corresponding $1.8 operating lease liability. The Company’s lease payments for its mining equipment are determined by tonnage hauled. The payments, amortization of the right-of-use asset, and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the year ended December 31, 2021, the Company capitalized variable lease costs of $8.2 million to Inventory and NaN to Property, plant, and mine development. During the year ended December 31, 2020, the Company capitalized variable lease costs of $6.4 million to Inventory and $1.5 million to Property, plant, and mine development.
Maturities of operating lease liabilities as of December 31, 2021 are as follows (in thousands)
| | | |
Year Ending December 31: |
| |
|
2022 | | $ | 466 |
Thereafter | |
| — |
Total lease payments | |
| 466 |
Less imputed interest | |
| (3) |
Present value of minimum payments | |
| 463 |
Less: current portion | |
| (463) |
Long-term portion of minimum payments | | $ | — |
Finance Leases
The Company has finance lease agreements for certain equipment. The leases bear annual imputed interest of 4.48% and require monthly principal, interest, and sales tax payments of $0.04 million. The weighted average discount rate for the Company’s finance leases is 4.48%. Scheduled minimum annual payments as of December 31, 2021 are as follows (in thousands):
| | | |
Year Ending December 31: |
| |
|
2022 | | $ | 23 |
2023 | |
| 13 |
2024 | |
| 4 |
2025 | |
| — |
Thereafter | |
| — |
Total minimum obligations | |
| 40 |
Less: interest portion | |
| (2) |
Present value of minimum payments | |
| 38 |
Less: current portion | |
| (23) |
Long-term portion of minimum payments | | $ | 15 |
The weighted average remaining lease term for the Company’s finance leases as of December 31, 2021 is 1.88 years.
21
Supplemental cash flow information related to the Company’s operating and finance leases is as follows for the years ended December 31, 2021 and 2020:
| | | | | | |
|
| Year ended | ||||
| | December 31, | ||||
|
| 2021 |
| 2020 | ||
|
| (in thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| |
Operating cash flows from operating leases | | $ | 8,228 | | $ | 6,382 |
Operating cash flows from finance leases | |
| 12 | |
| 36 |
Investing cash flows from operating lease | |
| — | |
| 1,452 |
Financing cash flows from finance leases | |
| 403 | |
| 439 |
13. Other Expense, Net
For the years ended December 31, 2021 and 2020, other expense, net consisted of the following:
| | | | | | | |
| | Year ended | | ||||
| | December 31, | | ||||
| | 2021 |
| 2020 | | ||
| | (in thousands) | | ||||
Interest expense | | $ | 129 | | $ | 143 | |
Charitable contributions | | | 71 | | | 100 | |
Other income | | | (10) | | | (10) | |
Total | | $ | 190 | | $ | 233 | |
14. Net Income per Common Share
Basic earnings per common share is calculated based on the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated based on the assumption that stock options and other dilutive securities outstanding, which have an exercise price less than the average market price of the Company’s common shares during the period, would have been exercised on the later of the beginning of the period or the date granted and that the funds obtained from the exercise were used to purchase common shares at the average market price during the period.
The effect of the Company’s dilutive securities is calculated using the treasury stock method and only those instruments that result in a reduction in net income per common share are included in the calculation. As of December 31, 2021, potentially dilutive securities representing 90,000 shares of common stock were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.
Basic and diluted net income per common share is calculated as follows:
| | | | | | | |
| | Year ended | | ||||
| | December 31, | | ||||
| | 2021 |
| 2020 | | ||
Net income (in thousands) | | $ | 17,866 | | $ | 10,217 | |
Basic weighted average shares of common stock outstanding | | | 23,875,631 | | | 21,211,208 | |
Diluted effect of share-based awards | | | 232,734 | | | — | |
Diluted weighted average common shares outstanding | | | 24,108,365 | | | 21,211,208 | |
Net income per share: | | | | | | | |
Basic | | $ | 0.75 | | $ | 0.48 | |
Diluted | | $ | 0.74 | | $ | 0.48 | |
| | | | | | | |
22
15. Fair Value Measurement
Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth certain of the Company’s assets measured at fair value by level within the fair value hierarchy as of December 31, 2021 and December 31, 2020:
| | | | | | | | |
|
| December 31, | | December 31, | | | ||
|
| 2021 |
| 2020 |
| Input Hierarchy Level | ||
|
| (in thousands) |
| | ||||
Cash and cash equivalents | | $ | 40,017 | | $ | 27,774 | | Level 1 |
Accounts receivable | |
| 238 | |
| 145 | | Level 2 |
Loans payable | | $ | 117 | | $ | 782 | | Level 2 |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value.
Accounts receivable include amounts due to the Company for deliveries of doré sold to customers, which approximates fair value.
Loans payable consist of obligations for equipment purchases financed on a long-term basis. Loans payable are recorded at amortized cost, which approximates fair value. See Note 10 for additional information.
16. Stock-Based Compensation
The Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Incentive Plan”) allows for the issuance of up to 5 million shares of common stock in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock units, stock grants, and stock units. The Company utilizes this Incentive Plan to attract, retain and incentivize staff.
Stock Grants
During the year ended December 31, 2021, in conjunction with its staffing process post Spin-Off, the Company issued 2,250,000 shares of its common stock to officers, directors, management and other key personnel. These shares immediately vested and had a weighted average fair value $1.45 per share. NaN shares were issued during year ended December 31, 2020.
23
Stock Options
A summary of stock option activity under the Incentive Plan for the year ended December 31, 2021 is presented below:
| | | | | | | | | | | |
|
| Shares |
| Weighted |
| Weighted Average |
| Aggregate |
| ||
Outstanding as of December 31, 2020 | | - | | $ | - | | - | | $ | - | |
Granted | | 462,000 | | | 2.12 | | - | | | - | |
Forfeited | | (40,000) | | | 1.00 | | - | | | - | |
Outstanding as of December 31, 2021 | | 422,000 | | $ | 2.23 | | 4.11 | | $ | 1,852 | |
NaN options were vested and exercisable as of December 31, 2021.
The weighted-average fair value of options per share granted during the year ended December 31, 2021 was $1.24. NaN stock options were issued during the year ended December 31, 2020.
NaN stock options were exercised during the years ended December 31, 2021 and 2020.
The Company utilizes the simplified method to determine expected life because of a lack of sufficient exercise history. The weighted average assumptions used to determine the value of stock-based awards under the Black-Scholes method are summarized below:
| | | | | | |
| | Year ended December 31, | | |||
|
| 2021 |
| 2020 |
| |
Risk-free interest rate | | 0.35 | % | - | % | |
Dividend yield | | 0.68 | % | - | % | |
Expected volatility | | 73.88 | % | - | % | |
Expected life in years | | 3.5 | | - | | |
As of December 31, 2021, there was $0.4 million of total unrecognized expense related to stock options, which is being amortized through 2024.
The following table summarizes information about stock options outstanding at December 31, 2021:
| | | | | | | | | | | | | |
| | Outstanding | | Exercisable | | ||||||||
Range of Exercise Prices |
| Number of |
| Weighted Average |
| Weighted |
| Number of |
| Weighted |
| ||
$1.00 - $5.48 | | 422,000 | | 4.11 | | $ | 2.23 | | - | | $ | - | |
| | 422,000 | | 4.11 | | $ | 2.23 | | - | | $ | - | |
Stock-Based Compensation Expense
Stock-based compensation is included in general and administrative expenses in the accompanying Consolidated Statements of Operations. For the year ended December 31, 2021, the Company recorded $3.4 million of stock-based compensation. For the year ended December 31, 2020, the Company recognized $0.7 million of stock-based compensation expenses allocated from GRC, as described in Note 2, for options and restricted stock units granted under GRC’s equity incentive plan.
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17. Shareholder’s Equity
On January 11, 2021, the Company completed a private placement sale of 500,000 shares of its common stock at $1.00 per share to 20 individual investors. The shares have a restrictive legend with no registration rights. NaN commission or finder’s fee was paid in connection with the private placement.
During the year ended December 31, 2021, the Company declared and paid dividends of $7.3 million or $0.30 per share.
See Note 16 for information concerning shares and options granted pursuant to the Company's Equity Incentive Plan.
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Part IV
Item 15. Exhibits and Financial Statement Schedules
(1) Incorporated by reference to the same exhibit filed with the Company's registration statement on Form S-1 (File No. 333-249533).
(2) Incorporated by reference to same exhibit filed with the Company's 8-K report dated March 1, 2021 (File No. 333-249533).
*Filed with this Annual Report on Form 10-K/A.
†Previously filed with the Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 3, 2022.
| | |
| FORTITUDE GOLD CORPORATION | |
| | |
| /s/Jason D. Reid | |
| Jason D. Reid, Chief Executive Officer, President and Director | |
| | |
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 3, 2022 by the following persons on behalf of the registrant and in the capacities indicated:
Signature | | Title |
| | |
/s/ Jason D. Reid | | Chief Executive Officer, President and Director |
Jason D. Reid | | (Principal Executive Officer) |
| | |
/s/ John A. Labate | | Chief Financial Officer |
John A. Labate | | (Principal Financial and Accounting Officer) |
| | |
/s/ Bill M. Conrad | | Chairman of the Board of Directors |
Bill M. Conrad | | |
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
The Company plans to send a Proxy Statement to its shareholders subsequent to the filing of this 10-K/A report.
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