UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to _____
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
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| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class |
| N/A |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
There were shares of the registrant’s common stock, $0.0001 par value per share, outstanding as of May 12, 2023.
CHILEAN COBALT CORP.
Contents
| 2 |
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHILEAN COBALT CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued service expenses | ||||||||
| Stock to be issued | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders' Equity: | ||||||||
| Series A Convertible Preferred Stock, $ par value; shares authorized and -- and -- shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Common Stock, $ par value; shares authorized and and issued and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 3 |
CHILEAN COBALT CORP. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
| Period Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Depreciation | ||||||||
| Foreign currency transaction (gain) loss | ||||||||
| Total operating expenses | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per common share | $ | ) | $ | ) | ||||
| Weighted-average number of shares outstanding: | ||||||||
| Basic and diluted loss per common share | ||||||||
| Comprehensive loss: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation adjustments | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 4 |
CHILEAN COBALT CORP. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Issuance of Common Stock in a private placement | – | |||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | ||||||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Issuance of Common Stock in a private placement | – | – | ||||||||||||||||||||||||||||||
| Foreign currency translation | – | – | ||||||||||||||||||||||||||||||
| Stock based compensation | – | – | ||||||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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CHILEAN COBALT CORP. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
| For the Periods Ended | ||||||||
| March 31 | March 31 | |||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Common Stock | ||||||||
| Advances from investors (Repayment of investor advances) | ( | ) | ||||||
| Proceeds from (repayment of) related party loan payable | ( | ) | ||||||
| Net cash provided by financing activities | $ | $ | ||||||
| Effect of foreign exchange rate on cash | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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CHILEAN COBALT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Organization and Nature of Business |
The accompanying consolidated financial statements include the accounts of Chilean Cobalt Corp. (the “Company”), a Nevada corporation formed on December 4, 2017, and its wholly-owned subsidiary Baltum Minería SpA (“Baltum”), a Chilean Sociedad por Acciones formed on January 3, 2018. The Company is a primary cobalt, secondary copper, junior mining and exploration company restarting mining exploration in northern Chile after a period of reduced operations due to the worldwide economic impact of COVID-19. Cobalt, a critical mineral for many of the current cathode battery chemistry configuration options in the EV battery production space, was mined in Chile for 100 years from 1844 thru 1944 and ceased at the end of World War II. Baltum owns exploitation-level mining concessions for 2,635 hectares in the San Juan Mining District in northern Chile.
On May 12, 2022, the former Parent Company, Genlith, Inc. distributed all of its shares in the Company to its individual shareholders. As of the date of the distribution, Genlith, Inc. no longer held an equity interest in the Company.
The Company’s year-end is December 31.
| 2. | Going Concern |
The Company has not yet begun to generate revenue
as of March 31, 2023, has incurred recurring losses since inception, and expects to continue to incur losses as a result of costs and
expenses related to mining exploration and general and administrative expenses. For the quarter ended March 31, 2023, the Company reported
a net loss of $
The ability of the Company to continue as a going concern over a longer term is dependent on the Company’s ability to raise the financing necessary to complete the exploration and development of cobalt and copper mines and bring mining operations into production and commercialization.
With a cash balance of $
| 3. | Summary of Significant Accounting Policies Basis of Presentation |
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The financial statements include the consolidated accounts of the Company and its wholly-owned subsidiary Baltum Minería SpA. All material intercompany transactions have been eliminated in consolidation.
Forward Stock Split
On May 2, 2023, the Company effected a
| 7 |
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the impairment assessment of assets and the applicability of accrued expenses. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. Actual results could differ from the Company’s estimates and those differences may be material.
Cash
Cash amounts consist of cash on hand, deposits
in banks, and money market accounts. As of March 31, 2023, and December 31, 2022, the Company’s cash balances were $
Value Added Tax (“VAT Tax”)
The Company’s subsidiary historically has
paid significant amounts of value-added tax (“VAT Tax”) to the Chilean government on certain operating purchases. The tax
paid can be offset against future VAT Tax due. The Company has
Property and Equipment
Property, plant, and equipment are stated at cost
less accumulated depreciation. Capitalized costs include computers, vehicles, furniture and fixtures, machinery, and equipment, and are
depreciated using the straight-line method or unit-of-production method at rates sufficient to depreciate such costs over the shorter
of estimated productive lives or the useful life of the individual assets. Useful lives range from
Costs are capitalized when it has been determined an ore body can be economically developed. The development stage begins at new projects when our management and/or board of directors make the decision to bring a mine into commercial production, and ends when the production state, or extraction of reserves, begins. The production stage of a mine commences when salable materials, beyond a de minimis amount, are produced.
Exploration costs include those relating to activities carried out (a) in search of previously unidentified mineral deposits or (b) at undeveloped concessions. Pre-development activities involve costs incurred in the exploration stage that may ultimately benefit production and are expensed due to lack of evidence of economic development, which is necessary to demonstrate future recoverability of these expenses. Costs for exploration, evaluation, and pre-development, including drilling costs related to those activities (discussed further below), and repairs and maintenance on capitalized property and equipment are charged to operations as incurred.
| 8 |
Drilling, development, and related costs are either classified as exploration, pre-development or secondary development as defined above, and charged to operations as incurred, or capitalized based on the following criteria:
| · | whether the costs are incurred to further define mineralization at and adjacent to existing reserve areas or intended to assist with mine planning within a reserved area; | |
| · | whether the drilling or development costs relate to an ore body that has been determined to be commercially mineable, and a decision has been made to put the ore body into commercial production; | |
| · | whether, at the time the cost is incurred: (a) the expenditure embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows, (b) we can obtain the benefit and control others’ access to it, and (c) the transaction or event giving risk to our right to or control of the benefit has already occurred. |
If all of these criteria are met, drilling, development and related costs are capitalized. Drilling and development costs not meeting all of these criteria are expensed as incurred. The following factors are considered in determining whether or not the criteria listed above have been met, and whether capitalization of drilling and development costs is appropriate:
| · | Completion of a favorable economic study and mine plan for the ore body targeted; | |
| · | authorization of development of the ore body by management and/or the board of directors; and | |
| · | there is a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues and/or contractual requirements necessary for us to have the right to or control of the future benefit from the targeted ore body have been met. |
Drilling and related costs at our properties as of and for the years ended December 31, 2022, and December 31, 2021, respectively, did not meet our criteria for capitalization. When assets are retired or sold, the costs and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in the current period net income (loss).
Impairment of Long-lived Assets
Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. Baltum presently owns 2,635 hectares of exploitation-level mining concessions in the San Juan mining district and will continue its exploration activities toward proving the existence of cobalt and/or copper. Depending on the outcome of the exploration activities, the Company would then consider seeking a preliminary economic assessment, preliminary feasibility study, or definitive feasibility study to validate the expected profitability of constructing a plant to extract the target minerals and process them into saleable products.
| 9 |
Mining Concessions
Mining concessions are recorded at cost based on the payments required under the contracts. Amortization begins when placed in service after the mining concession is exercised. Mining concessions are amortized over their useful life based on the pattern over which the mining concessions are consumed or otherwise used up. Determination of expected useful lives for amortization calculations is made on a property-by-property or asset-by-asset basis at least annually. At the time an ore body can be economically developed, the basis of the mining concession will be amortized on a units-of-production basis. Pursuant to our policy on the impairment of long-lived assets, if it is determined that a mining concession cannot be economically developed or its innate value has not been independently substantiated, the basis of the mining concession is reduced to its fair value and an impairment loss is recorded to expense in the period in which it is determined to be impaired.
Finite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Intangible assets that are not subject to amortization are tested for impairment annually and more frequently if events or changes in circumstances indicate that is more likely than not, meaning more than 50%, that the asset is impaired.
The value of the exploitation mining concessions owned by Baltum have yet to be independently substantiated by a valuation or any level of feasibility study. As of March 31, 2023 and December 31, 2022, these mining concessions had a value of $-0- and $-0-, respectively on the Company’s Balance Sheet.
Foreign Currency
The reporting currency of the Company is the U.S. dollar. The functional currency of Baltum, the Company’s wholly-owned subsidiary, is the Chilean Peso. The assets and liabilities of Baltum are translated into U.S. dollars based on exchange rates at the end of each reporting period. Expenses are translated at average exchange rates during the reporting period. Gains and losses arising from the translation of assets and liabilities are included as a component of accumulated other comprehensive income or loss within the Company’s consolidated balance sheet. Gains and losses resulting from foreign currency transactions are reflected within the Company’s consolidated statements of operations. The Company has not utilized foreign currency hedging strategies to mitigate the effect of its foreign currency exposure.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. The potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company’s wholly owned subsidiary is subject to foreign corporate tax in foreign taxing jurisdictions.
The Company accounts for income taxes in accordance with Accounting Standards Codification 740, “Accounting for Income Taxes” (“ASC 740”). Under ASC 740, income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes.
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In accordance with ASC 740, the Company has evaluated its tax positions. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a likelihood of being realized on examination of more than 50 percent. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Under the “more likely than not” threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company’s policy is to account for interest expense and penalties related to unrecognized tax benefits as a component of income tax expense. The Company is currently not under examination with any federal, state, or foreign taxing authorities. In addition, the Company had no material unrecognized tax benefits or accrued interest and penalties as of and for the year ended December 31, 2022.
Concentration of Credit Risk and of Significant Vendors
The Company maintains cash balances at financial institutions in the U.S. and Chile. The Company holds all cash balances at accredited financial institutions, in amounts that exceed federally insured limits in the United States of America. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Recently Issued and Adopted Accounting Pronouncements
There are not any recently issued and adopted accounting pronouncements that have a material impact on the Company’s financial statements as of March 31, 2023, and December 31, 2022.
| 4. | Property and Equipment, Net |
Property and equipment, net consisted of the following:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Furniture and fixtures | ||||||||
| Machinery and equipment | ||||||||
| Property and equipment, gross | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
Depreciation expense for the quarters March 31,
2023 and 2022 amounted to $
| 11 |
| 5. | Stockholders’ Equity |
Preferred Stock
The Company’s certificate of incorporation authorized the Company to issue 25,000,000 shares of Preferred Stock, $0.0001 par value. On December 28, 2017, a Certificate of Designations was resolved and approved by the board and signed into being that authorized the issuance of 7,500,000 shares of Series A Convertible Preferred Stock, of which 5,151,125 were issued and then later converted to common stock on August 10, 2020. Once converted the provisions of the Certificate of Designations does not allow for re-issuance of those shares. There were shares of preferred stock issued and outstanding as of March 31, 2023, or December 31, 2022.
Common Stock
The Company’s certificate of incorporation authorizes the Company to issue shares of $ par value common stock. As of March 31, 2023, and December 31, 2022, there were and shares of common stock issued and outstanding. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.
2022 Issuances
During the quarter ended March 31, 2022, the Company issued the following shares of common stock:
| · | shares were issued to investors at $0.20 per share to satisfy the $ |
During the quarter ended June 30, 2022, the Company issued the following shares of common stock:
| · | shares were issued to investors at $0.20 per share to satisfy the $ |
Stock Options
On April 26, 2022, the board adopted, and by shareholder consent achieved on April 29, 2022, the shareholders approved the Company’s 2022 Equity Incentive Plan. The purposes of this Plan are (i) to attract and retain the best available personnel for positions of substantial responsibility, (ii) to provide additional incentive to Employees, Directors and Consultants, and (iii) to promote the success of the Company’s business.
On May 24, 2022, the Company granted stock options to purchase an aggregate of shares to officers/management, advisors, and directors at an exercise price of $0.20. The options vest quarterly starting on June 30, 2022, for 25% of the granted shares and then the remainder in equal installments over a one-and-one-half-year period and expire in 10 years from the date of grant.
| 12 |
On June 1, 2022, the Company granted stock options to purchase an aggregate of shares to an advisor at an exercise price of $0.20. The options vest quarterly in equal installments over a one-year period and expire in 10 years from the date of grant.
On July 15, 2022, the Company granted stock options to purchase an aggregate of shares to an officer at an exercise price of $0.20. The options vest quarterly starting on September 30, 2022, for 25% of the granted shares and then the remainder in equal installments over a three quarter year period and expire in 10 years from the date of grant.
On July 28, 2022, the Company granted stock options to purchase an aggregate of shares to an officer/director at an exercise price of $0.20. The options vest quarterly starting on September 30, 2022, for 12.5 % of the granted shares and then the remainder in equal installments over a one-and-three-quarter-year period and expire in 10 years from the date of grant.
The fair value of the options granted was estimated on the date of grant using the Black-Scholes options pricing model, with the following weighted average assumptions:
| Description | As of June 30, 2022 | As of September 30, 2022 | ||||||
| Expected dividend yield | % | % | ||||||
| Expected stock volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected life of options (years) | ||||||||
| Expected forfeiture rate | % | % | ||||||
| Grant date fair value per option | $ | $ | ||||||
During the quarter ended March 31, 2023, the Company recorded $ (March 31, 2022 $) as stock based compensation expenses. In addition, the Company issued no (March 31, 2022: 0) common shares of the Company as a result of no cash stock options. As of March 31, 2023, the unamortized stock option expense was $.
A summary of the changes in stock options for the quarter ended March 31, 2023 is presented below:
Options Outstanding Number of Shares | Weighted Average Exercise Price | |||||||
| Balance, December 31, 2021 | n/a | |||||||
| Issued | $ | |||||||
| Expired/Forfeited | ) | $ | ||||||
| Exercised | n/a | |||||||
| Balance, December 31, 2022 | $ | |||||||
| Issued | n/a | |||||||
| Expired/Forfeited | n/a | |||||||
| Issued | n/a | |||||||
| Balance, March 31, 2023 | $ | |||||||
| 13 |
The Company has the following options outstanding and exercisable at March 31, 2023:
| Issue Date | Expiry Date | Exercise Price | Number of Options | Remaining Life | |||||
| 6. | Commitments and Contingencies Indemnification Agreements |
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of March 31, 2023, and December 31, 2022.
Litigation
From time to time, the Company may be subject to claims and lawsuits arising in the normal course of business. The Company’s management believes that the outcome of any litigation or claims will not have a material effect on the Company’s financial position, results of operations or cash flows. At March 31, 2023, management was not aware of any material active, pending, or threatened litigation.
7. Subsequent Events
Common Stock Issued
Since March 31, 2023, the Company has issued 4,285,716 shares of common stock at a price of $0.25666667 per share for proceeds of $1,100,000. Of the $1,100,000, $105,000 related to amounts as of March 31, 2023, categorized as “Stock to be issued”, for which the required documentation had yet to be approved and fully executed by all parties in advance of April 12, 2023, transaction closing date, whereas, the remaining $995,000 related to amounts received in cash during April 2023.
Forward Stock Split
On May 2, 2023, by written consent, the Company’s Board of Directors authorized a 3 for 1 forward stock split of its common stock and on the same day by written consent a majority of the Company’s shareholders voted in favor of the 3 for 1 forward stock split. Articles were filed with the state of Nevada, Secretary of State on that day and the 3 of 1 forward stock split was effected. As noted in Footnote 3, Summary of Significant Accounting Policies Basis of Presentation, all common stock amounts have been retroactively adjusted for the forward stock split for all periods presented and for all references in this Report unless stated otherwise.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations of Chilean Cobalt Corp. (“C3”) and including its subsidiaries, the (collectively, the “Company”) should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. This Quarterly Report on Form 10-Q includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Risk Factors”, which are included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“Commission”) on March 24, 2023.
Overview
Chilean Cobalt Corp. is a critical materials exploration and development company focused on developing the La Cobaltera project located in Chile’s historic San Juan cobalt district. C3 is mission-driven as an innovator and leader that strives to be the most responsible supplier of critical mineral resources for the development of advanced materials and cleaner energy technologies that address the most pressing environmental and development issues.
Given the transformational shift from internal combustion engines to electric vehicles (EVs), there has been an increase in demand for cobalt, a critical battery material in lithium-ion batteries that EVs use, along with copper as well. The Company’s wholly-owned subsidiary Baltum Mineria SpA (“Baltum”) has acquired 2,635 hectares of fully exploitable mining concessions in northern Chile’s Atacama region in the San Juan District. The Company continues to seek opportunities to further consolidate mining rights in the district. The San Juan mining district, which includes the La Cobaltera area, has been identified by CORFO, the Chilean governmental agency responsible for the country’s economic development, as likely containing the highest quality cobalt assets in Chile. Chile already being the leading copper-producing country in the world with the La Cobaltera area historically supporting the existence of established and high-quality copper assets. Being strategically located near roads, electricity, water, and ports, the site is in close proximity to robust mining infrastructure. The Company’s principal business activities since incorporation have been the assessment, acquisition and consolidation of mining concessions; the exploration of the potential cobalt-copper resources within the concessions; and developing an accelerated phased implementation plan to generate revenue as quickly as possible.
We have not generated revenues to date. Our limited operations have included the formation of the Company and its wholly-owned subsidiary Baltum Mineria SpA, oversight of cobalt exploration activities, and business development activities. These limited operations have been funded by capital raised through the issuance of our common stock, preferred stock, and debt. From December 4, 2017 through May 12, 2023, we raised a total of $30,309,536 from accredited investors through the issuance of our common stock, preferred stock, and debt.
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We have limited business operations and have achieved losses since inception. We have been issued a going concern opinion from our auditors as a result of not generating sufficient business to date.
Our monthly “burn rate,” the amount of expenses we expect to incur on a monthly basis, is approximately $100,000 for a total of $1.2 million for the following 12 months. We have relied and will continue to rely on capital raised from third parties to fund operations during the following 12 months.
In order to complete our long-term plan of operations, we estimate that approximately $160 million in funds will be required.
For the fiscal years ended December 31, 2022 and 2021, we reported net losses of $1,032,295 and $107,858, respectively, and negative cash flow from operating activities of $673,796 and $107,822, respectively. For the quarters ended March 31, 2023 and March 31, 2022, we reported net losses of $335,687 and $147,962, respectively and negative cash flow from operating activities of $243,221 and $141,552, respectively. Our management has concluded that our historical recurring losses from operations and negative cash flows from operations as well as our dependence on securing private equity and other financings raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit reports for the fiscal years ended December 31, 2022 and 2021. As noted in our unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q, we had an accumulated stockholders’ deficit of approximately $31,543,183 and recurring losses from operations as of March 31, 2023. See the risk factor in our Annual Report on Form 10-K titled, “Risk Factors - We have a history of operating losses and our management has concluded that factors raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the fiscal years ended December 31, 2022 and 2021.”
Plan of Operations
In order to complete our plan of operations during the next 12 months, we estimate that approximately $1.2 million in funds will be required. The source of such funds is anticipated to be from private placements of our securities, such as the $1.1 million raised in April 2023 as disclosed in the subsequent events to the quarterly report contained herein. If we fail to obtain this amount, we may not be able to fully carry out our plan of operations. Assuming that our projections are not materially understated, we believe we have the necessary cash requirements during the next 12 months to implement our business plan.
For the next twelve months, we intend to implement our business plan as follows:
| · | Exploration and Development Expenses. During this period, we intend to, among other things, continue exploration and development of the mining sites. The exploration and development expenses are expected to be $100,000. | |
| · | Possible Strategic Acquisition Opportunities. During this period, we intend to, among other things, consider possible strategic acquisitions of other possible mining sites. There are no monies budgeted for acquisitions over the next 12 months and if the Company does identify any possible strategic acquisition of any mining sites over the next 12 months, it will have to raise funds for this specific purpose, unless other budget areas are over-projected and allow for redeployment of those excess monies. | |
| · | General and Administrative Expenses. During this period, we intend to, among other things, hire additional staff to assist with operations which will increase the amount of salaries or consulting fees we pay as a part of general and administrative expenses. The general and administrative expenses are expected to be $1,100,000. |
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Our future is dependent upon our ability to obtain further financing, the successful development of our business plan, a successful marketing program, and achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. There are no assurances that we will be able to obtain further funds required for our continued operations. Even if additional financing is available, it may not be available on terms we find favorable. At this time, there are no anticipated sources of additional funds in place. Failure to secure the needed additional financing will have an adverse effect on our ability to remain in business.
Components of revenues and costs and expenses
General and administrative expense. Our general and administrative (“G&A”) expenses include compensation of staff and overhead.
Exploration and development expense. Our exploration and development costs are incurred during the exploration and development of mining sites.
Interest expense, net. Interest income consists of interest income earned on our cash, cash equivalents and short-term investments. Interest expense consists of interest expense associated with debt obligations.
Provision for Income Taxes. Provision for income taxes consists of an estimate of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business, as adjusted for allowable credits, deductions and the valuation allowance against deferred tax assets.
Results of Operations – Quarter Ended March 31, 2023 Compared to the Quarter Ended March 31, 2022
Quarter Ended March 31, 2022 | Quarter Ended March 31, 2023 | Increase (Decrease) | ||||||||||
| Revenue | $ | 0 | $ | 0 | $ | 0 | ||||||
| Cost of Sales | 0 | 0 | 0 | |||||||||
| Gross Profit | $ | 0 | $ | 0 | $ | 0 | ||||||
| Gross Profit % | 0% | 0% | 0% | |||||||||
| Operating Expenses: | ||||||||||||
| General and administrative expenses | $ | 148,111 | $ | 335,814 | $ | 187,703 | ||||||
| Exploration and development expenses | 0 | 0 | 0 | |||||||||
| Operating Income (Loss) | (148,111 | ) | (335,814 | ) | (187,703 | ) | ||||||
| Interest Income | 149 | 127 | (22 | ) | ||||||||
| Provision of income taxes | 0 | 0 | 0 | |||||||||
| Net Income (Loss) | $ | (147,962 | ) | $ | (335,687 | ) | $ | (187,725 | ) | |||
Results of operations for the quarters-ended March 31, 2022, compared to March 31, 2023, were down substantially due to non-cash option compensation to directors, officers and consultants, compared to no option compensation in the same quarter for the prior year; gross compensation to three officers, compared to officer compensation for only two officers in the same quarter for the prior year; significantly higher legal and accounting services expenses in the current quarter compared to the same quarter in the prior year due to go-public filing services and completion of the annual audit in the first quarter, compared to neither outcome in the same quarter of the prior year; and nominal affects related to other expenses amounting to the increase of $187,725.
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Liquidity and Capital Resources
Liquidity
We have primarily financed our operations through the sale of unregistered equity. As of March 31, 2023, our Company had cash totaling $493,423 current assets totaling $536,815 and total assets of $559,117. We had total liabilities of $150,112 (all current) and positive working capital of $386,703. Stockholders’ equity of $409,005.
Sources and Uses of Cash for the Quarters Ended March 31, 2023 and 2022
The following table summarizes our cash flows for the years ended March 31, 2022 and 2023.
Quarter Ended March 31, 2022 | Quarter Ended March 31, 2023 | Increase (Decrease) | ||||||||||
| Net Cash Provided By (Used In) Operating Activities | $ | (141,552 | ) | $ | (243,221 | ) | $ | (101,669 | ) | |||
| Net Cash Provided By (Used In) Investment Activities | 0 | 0 | 0 | |||||||||
| Net Cash Provided By (Used In) Financing Activities | 771,601 | 105,000 | (666,601 | ) | ||||||||
| Effect of foreign exchange rate on cash | 1,034 | 841 | (193 | ) | ||||||||
| Net Increase (Decrease) in Cash | $ | 631,083 | $ | (137,380 | ) | $ | (768,463 | ) | ||||
Net cash used in operations
Net cash used in operating activities was $141,552 for the quarter ended March 31, 2022 versus net cash used in operating activities of $243,221 for the quarter ended March 31, 2023. The increase in cash flow used in operating activities was primarily due to overall compensation and benefits paid to three officers in the current year, compared to only overall compensation paid to two officers in the prior year, along with substantially higher expenditures for legal and accounting services for purposes of the go-public objective in the current year, that were substantially less for the same quarter in the prior year. There were also higher costs for conference attendance to market the Company in the current quarter, compared to no such costs in the same quarter for the prior year.
Net cash used in investment activities
Net cash used in investment activities was $0 for the quarter ended March 31, 2022 versus net cash used in investment activities of $0 for the quarter ended March 31, 2023. There were no changes in cash flow used in investment activities between years.
Net cash provided by financing activities
Net cash provided by financing activities in the quarter ended March 31, 2022, which included an aggregate of $951,960 of proceeds for the sale of an aggregate of 1,586,600 shares of common stock, versus net cash provided by financing activities in the quarter ended March 31, 2023 of $105,000, which included an aggregate of $105,000 of proceeds for the eventual sale of an aggregate of 136,364 shares of common stock, not closed until April 2023.
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Going Concern
Based upon our working capital balance but accumulated deficit of $386,703 and $(31,543,183), respectively, as of March 31, 2023, plus our use of $243,221 of cash in operating activities during the quarter ended March 31, 2023, we require additional equity and/or debt financing to continue our operations. In spite of the recent raise of $1.1 million of capital in April 2023, as noted in the subsequent events footnotes on the unaudited quarterly financial reports, these conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date of this filing. As a result of the foregoing factors, together with our recurring losses from operations and negative cash flows since inception, our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements for the fiscal years ended December 31, 2022 and 2021 and as footnoted in our unaudited quarterly consolidated financial statements for the quarters ended March 31, 2023 and 2022.
Availability of Additional Funds
Our capital requirements going forward will consist of financing our operations until we are able to reach a level of revenues and gross margins adequate to equal or exceed our ongoing operating expenses. Other than the borrowings from related and third parties, we do not have any credit agreement or source of liquidity immediately available to us.
Since inception our operations have primarily been funded through proceeds from existing shareholders in exchange for equity. There can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. We expect to have ongoing needs for working capital in order to (a) fund operations; plus (b) exploration and development. To that end, we may be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund its liabilities, or (d) seek protection from creditors.
In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.
If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.
Our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
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Public Company Expenses
We expect to incur direct, incremental selling, general and administrative expenses as a result of being a publicly traded company, including, but not limited to, where applicable, increased scope of our operations and costs associated with hiring new personnel, implementation of compensation programs that are competitive with our public company peer group, annual and quarterly reports to shareholders, tax return preparation, independent registered public accounting firm fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation. These direct, incremental selling, general and administrative expenses are not included in our historical results of operations.
Climate Change
The potential physical impacts of climate change on our operations are highly uncertain and are specific to the geographic circumstances of areas in which we operate. These may include changes in rainfall and storm patterns and intensities, droughts and water shortages, changing sea levels and changing temperatures, and an increase in the number and severity of weather events and natural disasters. These changes may have a material adverse effect on our operations, including cobalt extraction and production processes, as well as transportation of raw materials and delivery of products to customers. We may also face more stringent customer and regulatory requirements to accelerate water use reduction initiatives, more reliance on renewable energy sources and more water re-use and re-cycling. Climate change may also exacerbate socio-economic and political issues around the world and have other direct impacts to ecosystems, human health and quality of life, ranging from destruction of habitats to air, water and land quality to growing incidences of famines, pandemics and population shifts.
In addition, a number of governmental bodies have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change. Such legislation or regulation, if enacted, potentially could include provisions for a “cap and trade” system of allowances and credits or a carbon tax, among other provisions. There is also a potential for climate change legislation and regulation to adversely impact the cost of purchased energy and electricity.
The growing concerns about climate change and related increasingly stringent regulations may provide us with new or expanded business opportunities. Our product contributes to the efforts of our customers to revolutionize their product lines and markets. As a key part of the EV and battery supply chain, we provide cobalt-containing solutions that help enable the growth of electric transportation and the shift away from fossil fuels. As demand for, and legislation mandating or incentivizing the use of, alternative fuel technologies that limit or eliminate greenhouse gas emissions increases, we will continue to monitor the market and offer solutions where we have appropriate technology.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our estimates form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the financial statements. We believe that our critical accounting policies reflect the most significant estimates and assumptions used in the preparation of the consolidated financial statements.
We believe that the assumptions and estimates associated with our mining concession capitalization and stock-based compensation and the valuation of stock option grants have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Principal Accounting Policies and Related Financial Information
Basis of presentation and principles of consolidation. The accompanying consolidated financial statements are presented on a consolidated basis and include all of the accounts and operations of C3 and its majority-owned subsidiaries. The financial statements reflect the financial position, results of operations and cash flows of C3 in accordance with U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.
Earnings per share. The weighted average common shares outstanding for both basic and diluted earnings per share for all periods presented was calculated, in accordance with ASC 260, Earnings Per Share.
Estimates and assumptions. In preparing the financial statements in conformity with U.S. GAAP we are required 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 revenue and expenses during the reporting period. Actual results could differ materially from these estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position, results of operations or cash flows.
Due to the current coronavirus ("COVID-19") pandemic, there has been uncertainty and disruption in the global economy and financial markets. The estimates used for, but not limited to, the collectability of trade receivables, fair value of long-lived assets, income taxes, inventory valuation and fair value of financial instruments could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained.
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Cash equivalents. We consider investments in all liquid debt instruments with original maturities of three months or less to be cash equivalents.
Property, plant and equipment. We record property, plant and equipment, including capitalized interest, at cost less accumulated depreciation. We recognize acquired property, plant and equipment, from acquisitions at its estimated fair value. Depreciation is calculated principally on a straight-line basis over the estimated useful lives of the assets. The major classifications of property, equipment and software, including their respective expected useful lives, consisted of the following:
| Asset type | Useful Life | |
| Land | — | |
| Land improvements | 20 years | |
| Buildings | 20-40 years | |
| Machinery and Equipment | 3-10 years | |
| Software | 3-10 years |
Gains and losses are reflected in income upon sale or retirement of assets. Expenditures that extend the useful lives of property, plant and equipment or increase productivity are capitalized. Ordinary repairs and maintenance are expensed as incurred through operating expense. We periodically evaluate whether events or circumstances indicate that the net book value of our property, plant and equipment may not be recoverable.
Capitalized interest. For the quarters ended March 31, 2022 and 2023 we capitalized interest expense of $0 and $0, respectively. If applicable, we amortize capitalized interest over the estimated useful lives of the assets.
Impairments of long-lived assets. We review the recoverability of the net book value of long-lived assets whenever events and circumstances indicate that the net book value of an asset may not be recoverable from the estimated undiscounted future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the net book value, we recognize an impairment loss equal to an amount by which the net book value exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Baltum presently owns 2,635 hectares of exploitation-level mining concessions in the San Juan mining district and will continue its exploration activities toward proving the existence of cobalt and/or copper. Depending on the outcome of the exploration activities, the Company would then consider seeking a preliminary economic assessment, preliminary feasibility study or definitive feasibility study to validate the expected profitability of constructing a plan to extract the target minerals and process them into saleable concentrates. During the quarters ended March 31, 2023 and March 31, 2022, we recorded no impairments.
Asset retirement obligations. We record asset retirement obligations (“AROs”) at present value at the time the liability is incurred if we can reasonably estimate the settlement date. The associated AROs are capitalized as part of the carrying amount of related long-lived assets. In future periods, the liability is accreted to its estimated fair value and the capitalized cost is depreciated over the useful life of the related asset. We also adjust the liability for changes resulting from the passage of time and/or revisions to the timing or the amount of the original estimate. Upon retirement of the long-lived asset, we either settle the obligation for its recorded amount or incur a gain or loss.
The carrying amounts for the AROs for the quarters ended March 31, 2023 and 2022 are $0 and $0, respectively. If applicable, these amounts are included in "Other long-term liabilities" on the consolidated balance sheets.
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Leases. The Company determines if an arrangement is a lease at the inception of the contract. If applicable, our operating leases are included in Operating lease right-of-use ("ROU") assets, Operating lease liabilities - current, and Operating lease liabilities - long term in the consolidated balance sheets. The operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit interest rate, we utilize an estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In determining the discount rate used in the present value calculation, the Company has elected to apply the portfolio approach for leases provided the leases commenced at or around the same time. This election allows the Company to account for leases at a portfolio level provided that the resulting accounting at this level would not differ materially from the accounting at the individual lease level. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
If leases are applicable, the Company has elected not to separate lease and non-lease components and accounts for each separate lease component and non-lease component associated with that lease component as a single lease component. Operating lease ROU assets include all contractual lease payments and initial direct costs incurred less any lease incentives. Facility leases generally only contain lease expense and non-component items such as taxes and pass-through charges. Additionally, we have elected not to apply the recognition requirements of ASC 842 to leases which have a lease term of less than one year at the commencement date.
Restructuring and other charges. We continually perform strategic reviews and assess the return on our businesses. In the event that this results in a plan to restructure the operations of our business, we record an accrual for severance and other exit costs under the provisions of the relevant accounting guidance.
Additionally, in the event of these restructuring plans, write-downs of long-lived assets may occur. Two types of assets are impacted: assets to be disposed of by sale and assets to be abandoned. Assets to be disposed of by sale are measured at the lower of carrying amount or estimated net proceeds from the sale. Assets to be abandoned with no remaining future service potential are written down to amounts expected to be recovered. The useful life of assets to be abandoned that have a remaining future service potential are adjusted and depreciation is recorded over the adjusted useful life.
Research and Development. Research and development costs are expensed as incurred.
Income and other taxes. We provide current income taxes on income reported for financial statement purposes adjusted for transactions that do not enter into the computation of income taxes payable and recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. We do not provide income taxes on the equity in undistributed earnings of consolidated foreign subsidiaries as it is our intention that such earnings will remain invested in those companies.
Stock-based compensation. Stock-based compensation expense for the three years ended December 31, 2021 has been recognized for all share options and other equity-based arrangements. Stock-based compensation cost is measured at the date of grant, based on the fair value of the award, and is recognized over the employee’s requisite service period. We made a policy election to recognize forfeitures in stock-based compensation expense as they occur.
As of December 31, 2021, there were no shares of C3 common stock issued under the C3 Plan. The Company has reserved a total of 1,950,000 shares of common stock for issuance under the Plan which was adopted in April of 2022. As of March 31, 2022, there were no shares of C3 common stock issued under the C3 Plan. As of March 31, 2023, there were 1,901,668 shares issued under the Plan, of which 31,250 of those shares had been forfeited, resulting in a net of 1,870,418 shares outstanding.
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Environmental obligations. We provide for environmental-related obligations when they are probable and amounts can be reasonably estimated. Where the available information is sufficient to estimate the amount of liability, that estimate has been used.
Included in our environmental liabilities are costs for the operation, maintenance and monitoring of site remediation plans (“OM&M”). Such reserves are based on our best estimates for these OM&M plans. Over time we may incur OM&M costs in excess of these reserves. However, we are unable to reasonably estimate an amount in excess of our recorded reserves because we cannot reasonably estimate the period for which such OM&M plans will need to be in place or the future annual cost of such remediation, as conditions at these environmental sites change over time. Such additional OM&M costs could be significant in total but would be incurred over an extended period of years.
Environmental remediation charges represent the costs for the continuing charges associated with environmental remediation at operating sites from previous years and from products that are no longer manufactured.
Foreign currency. We translate the assets and liabilities of our foreign operations at exchange rates in effect at the balance sheet date. For foreign operations for which the functional currency is not the U.S. dollar, we record translation gains and losses as a component of accumulated other comprehensive loss in equity. The foreign operations’ statements of operations are translated at the monthly exchange rates for the period. Transactions denominated in foreign currency other than our functional currency of the operation are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are remeasured at each reporting date into the functional currency at the exchange rate at that date. Exchange rate differences are recognized as foreign currency transaction gain or loss recorded as a component of Costs of sales in our consolidated statements of operations. We recorded transaction and remeasurement gains and losses of $-0- million, ($-0-) million for the quarters ended March 31, 2023 and 2022, respectively.
Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The ASU reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion model. As compared with current U.S. GAAP, more convertible debt instruments will be reported as a single liability instrument and the interest rate of more convertible debt instruments will be closer to the coupon interest rate. The ASU also aligns the consistency of diluted Earnings Per Share ("EPS") calculations for convertible instruments by requiring that (1) an entity use the if-converted method and (2) share settlement be included in the diluted EPS calculation for both convertible instruments and equity contracts when those contracts include an option of cash settlement or share settlement. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB has specified that an entity should adopt the guidance as of the beginning of its annual fiscal year.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Principal Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2023. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of March 31, 2023, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rue 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management, under the supervision of the Company’s Chief Executive Officer and Principal Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022 under the criteria set forth in the 2013 Internal Control – Integrated Framework.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that a material weakness exists due to a lack of segregation of duties. Currently, management contracts with an outside certified public accountant to assist the Company with preparation of its filings required pursuant to the Exchange Act.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. There are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
We may be subject to a fine imposed by the National Forestry Corporation of the Atacama Region ("CONAF"),on our subsidiary Baltum Mineria SpA (“Baltum”), which is currently being negotiated by Baltum’s counsel and CONAF, of up to $4,000, which may be reduced by as much as 50%. This is in connection with a self-report made by Baltum to CONAF on May 13, 2019, reporting the involuntary cutting of certain vegetation species in the La Cobaltera sector. Since Baltum made a self-report to CONAF, the applicable fine may be reduced by as much as 50%. We do not believe that this fine, even if imposed in the full amount, will have any material effect on the Company’s business, financial position or results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There have been no unregistered sales of equity securities during the quarter ended March 31, 2023.
ITEM 6. EXHIBITS
| Exhibit Number | Description of Document | |
| 3.1 | Articles of Incorporation of Chilean Cobalt Corp. filed with Nevada Secretary of State on December 4, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed with the Commission on November 14, 2022). | |
| 3.2 | Bylaws of Chilean Cobalt Corp. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed with the Commission on November 14, 2022). | |
| 4.1 | Certificate of Designations of Preferences and Rights of Series A Convertible Preferred Stock of Chilean Cobalt Corp. filed December 28, 2017 with the Secretary of State of Nevada (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed with the Commission on November 14, 2022). | |
| 31.1* | Rule 13a-14(a) Certification of Principal Executive Officer. | |
| 31.2* | Rule 13a-14(a) Certification of Principal Financial Officer. | |
| 32.1* | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Principal Executive Officer and Principal Financial Officer. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* |
XBRL Taxonomy Extension Definition Linkbase Document |
________________
*Filed Herewith
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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.
| CHILEAN COBALT CORP. | ||
| Dated: May 15, 2023 | By: | /s/ Duncan T. Blount |
| Duncan T. Blount, Chief Executive Officer | ||
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