Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - WESTMOUNTAIN GOLD, INC. | exhibit31_2.htm |
EX-31.1 - EXHIBIT 31.1 - WESTMOUNTAIN GOLD, INC. | exhibit31_1.htm |
EX-32.2 - EXHIBIT 32.2 - WESTMOUNTAIN GOLD, INC. | exhibit32_2.htm |
EX-32.1 - EXHIBIT 32.1 - WESTMOUNTAIN GOLD, INC. | exhibit32_1.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the three month period ended January 31, 2016
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-53028
WESTMOUNTAIN GOLD, INC.
(Exact Name of Issuer as specified in its charter)
Colorado | 26-1315498 | |
(State or other jurisdiction of incorporation) | (IRS Employer File Number) |
120 E Lake St. Ste. 401 Sandpoint, ID | 83864 | |
(Address of principal executive offices) | (zip code) |
(208)265-1717
(Registrant's telephone number, including area code)
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: þ No: o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files. Yes: þ No: o
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting Company. See definitions of large accelerated filer, accelerated filer, and small reporting Company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o | Non accelerated filer | o |
Accelerated filer | o | Smaller reporting company | þ |
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act): Yes: o No: þ
The number of shares of common stock, $0.001 par value, issued and outstanding as of March 10, 2016: 62,038,357 shares.
1
FORM 10-Q
TABLE OF CONTENTS
| Page | ||
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PART I FINANCIAL INFORMATION | |||
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Item 1. | Financial Statements |
| 3 |
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Consolidated Balance Sheets as of January 31, 2016 (unaudited) and October 31, 2015 |
| 3 | |
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Consolidated Statements of Operations for the three months ended January 31, 2016 and 2015 (unaudited) |
| 4 | |
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Consolidated Statement of Cash Flows for the three months ended January 31, 2016 and 2015 (unaudited) |
| 5 | |
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Notes to Consolidated Financial Statements |
| 6 | |
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
| 31 |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
| 38 |
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Item 4. | Controls and Procedures |
| 38 |
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PART II OTHER INFORMATION | |||
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Item 1. | Legal Proceedings |
| 39 |
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Item 1A. | Risk Factors |
| 39 |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| 39 |
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Item 3. | Defaults Upon Senior Securities | | 39 |
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Item 4. | Mine Safety Disclosure | | 39 |
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Item 5. | Other Information |
| 39 |
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Item 6. | Exhibits |
| 40 |
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Signatures |
| 41 |
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WestMountain Gold, Inc.
An Exploration Stage Company
Consolidated Balance Sheets
| January 31, | | October 31, | ||
| 2016 | | 2015 | ||
ASSETS | (unaudited) | | | ||
Current Assets | | | | ||
Cash and cash equivalents | $ | 58,193 |
| $ | 383,412 |
Prepaid expenses | 156,906 |
| 26,704 | ||
Inventory | 559,432 |
| 559,432 | ||
Total current assets | 774,531 |
| 969,548 | ||
| | | | ||
Equipment, net | 267,876 |
| 318,804 | ||
| | | | ||
Other Assets | |
| | ||
Prepaid royalties | 359,951 |
| 362,830 | ||
Mining claims | 2,446,459 |
| 2,446,458 | ||
Security deposits | 10,618 |
| 10,618 | ||
Asset retirement cost | 174,401 |
| 180,149 | ||
Total Assets | $ | 4,033,836 |
| $ | 4,288,407 |
| | | | ||
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | ||
Current Liabilities | |
| | ||
Accounts payable | $ | 1,122,191 |
| $ | 1,134,428 |
Accounts payable - related parties | 11,300 |
| 11,300 | ||
Accrued expenses | 157,721 |
| 159,313 | ||
Accrued interest | 590,351 |
| 346,289 | ||
Forward contract | 250,635 |
| 250,612 | ||
Derivative liability | 1,237,753 |
| 867,557 | ||
Line of credit - related parties ($150,000 facility) | 109,346 | | 109,346 | ||
Promissory notes, net of discounts of $420,218 and $469,237, January 31, 2016 and October 31, 2015, respectively | 4,931,897 | | 4,882,878 | ||
Total current liabilities | 8,411,194 |
| 7,761,723 | ||
| |
| | ||
Long-Term Liabilities | |
| | ||
Asset retirement obligation | 189,315 |
| 184,045 | ||
Total liabilities | 8,600,509 | | 7,945,768 | ||
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Commitments and Contingencies | |||||
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STOCKHOLDERS' DEFICIT |
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Preferred stock, $0.10 par value; 987,900 shares authorized, 0 shares issued and outstanding at January 31, 2016 and October 31, 2015, respectively | - | | - | ||
Preferred Series A Convertible Stock, $0.10 par value; 12,100 shares authorized, issued and outstanding at January 31, 2016 and October 31, 2015 | 1,210 | | 1,210 | ||
Common stock, $0.001 par value; 200,000,000 shares authorized, 62,038,357 and 61,650,537 shares issued and outstanding at January 31, 2016 and October 31, 2015, respectively | 62,039 |
| 61,651 | ||
Additional paid in capital | 17,892,325 |
| 17,831,364 | ||
Accumulated deficit | (22,522,247) |
| (21,551,586) | ||
Total stockholders' deficit | (4,566,673) |
| (3,657,361) | ||
Total Liabilities and Stockholders' Deficit | $ | 4,033,836 |
| $ | 4,288,407 |
See notes to consolidated financial statements.
3
WestMountain Gold, Inc.
An Exploration Stage Company
Consolidated Statements of Operations
(unaudited)
| Three Months Ended | ||||
| January 31, | January 31, | |||
| 2016 | 2015 | |||
Revenue: |
|
| |||
Sales, net | $ | 69,085 | $ | 612,070 | |
Total revenue | 69,085 | 612,070 | |||
| | | |||
Cost of sales | - | 368,192 | |||
Total cost of sales | - | 368,192 | |||
| | | |||
Gross profit | 69,085 | 243,878 | |||
| | | |||
Operating Expenses | | | |||
Selling, general and administrative expenses | 340,926 | 105,638 | |||
Exploration expenses | - | 81,568 | |||
Total operating expenses | 340,926 | 187,206 | |||
| | | |||
Income(Loss) from operations | (271,841) | 56,672 | |||
| | | |||
Other income/(expense) | | | |||
Interest expense | (298,374) | (391,515) | |||
Gain(Loss) on change - derivative liability | (370,196) | 536,597 | |||
Total other income/(expense) | (668,570) | 145,082 | |||
Income(loss) before income taxes | (940,411) | 201,754 | |||
Income tax expense | - | - | |||
Net income(loss) | $ | (940,411) | $ | 201,754 | |
Preferred stock dividends | (30,250) | (18,345) | |||
Income (loss) attributable to common shareholders' | $ | (970,661) | $ | 183,409 | |
|
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| |||
Basic net (loss) income per share | $ | (0.02) | $ | 0.01 | |
Diluted net (loss) income per share | $ | (0.02) | $ | 0.01 | |
Basic weighted average common shares outstanding | 61,777,000 | 27,485,284 | |||
Diluted weighted average common shares outstanding | 61,777,000 | 28,090,284 |
See notes to consolidated financial statements.
4
WestMountain Gold, Inc.
An Exploration Stage Company
Consolidated Statement of Cash Flows
(unaudited)
|
| Three months ended | ||||
| | January 31, | ||||
| | 2016 |
| 2015 | ||
Cash flows from operating activities | |
|
| |||
Net (loss) income | | $ | (940,411) | $ | 201,754 | |
Adjustments to reconcile net income (loss) to net cash provided by(used in) operating activities: | | | ||||
Depreciation and amortization | | 56,676 | 44,033 | |||
Amortization of debt discount | | 49,020 | - | |||
Accretion expense | | 5,270 | - | |||
Stock option expense | | 31,098 | 30,671 | |||
Issuance of common stock for fees | | - | 100,000 | |||
(Gain) Loss on forward contract | | 23 | 63 | |||
(Gain) Loss on derivative liability | | 370,196 | (536,597) | |||
Royalties expense | | 2,878 | - | |||
Changes in operating assets and operating liabilities: | | | | |||
Prepaid expenses and other current assets | | (130,202) | (25,738) | |||
Inventory | | - | 232,561 | |||
Accrued interest | | 244,062 | 391,452 | |||
Accounts payable and accrued liabilities | | (13,829) | (350,325) | |||
Accounts payable and accrued liabilities - related parties | | - | (4,741) | |||
Net cash (used in) provided by operating activities | | (325,219) | 83,133 | |||
| | | | |||
Cash flows from financing activities: | | | | |||
Repayment of forward contract | | - | (50,000) | |||
Net cash (used in) financing activities | | - | (50,000) | |||
| | | | |||
Net increase (decrease) in cash and cash equivalents | | (325,219) | 33,133 | |||
Cash and cash equivalents, beginning of period | | 383,412 | 22,766 | |||
Cash and cash equivalents, end of period | | $ | 58,193 | $ | 55,899 | |
| | | | |||
Supplemental disclosures of cash flow information: | | | | |||
Interest paid | | $ | - | $ | - | |
Taxes paid | | $ | - | $ | - | |
Non-cash investing and financing activities: | | | | |||
Common stock issued in exchange for account payable | | $ | - | $ | 100,000 | |
Preferred stock dividend | | $ | 30,250 |
| $ | 36,690 |
| | |
See notes to consolidated financial statements.
5
WESTMOUNTAIN GOLD, INC.
AN EXPLORATION STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS
WestMountain Gold, Inc. (WMTN or the Company) is an exploration stage mining company, determined in accordance with applicable Securities and Exchange Commission (SEC) guidelines, which pursues gold projects that the Company anticipates will have low operating costs and high returns on capital.
WMTNs wholly owned subsidiary, Terra Gold Corporation (TGC), was a joint venture partner with Raven Gold Alaska, Inc. (Raven) through February 12, 2014 on a gold system project (the TMC Project). On February 12, 2014, the Company, through its wholly owned subsidiary, Terra Gold Corp, acquired 100% ownership interest in the TMC Project from Raven, which is a wholly owned subsidiary of Corvus Gold Inc. (TSX:KOR, OTCQX:CORVF) for $1.8 million in cash and 200,000 shares of WMTN.
The Company is currently focused on mineral production from mineralized material at the TMC Project in the state of Alaska. The TMC Project consists of 339 Alaska state mining claims plus an additional 5 unpatented lode mining claims held under lease (subject to a 3-4% net smelter return (NSR) royalty to the lessor, dependent upon the gold price) covering 223 square kilometers (22,300 hectares). The property is centered on an 8-km-long trend of gold vein occurrences. All government permits and reclamation plans for continued exploration through 2014 were renewed and the fees to maintain the Terra claims through 2015 were paid by the Company. The property lies approximately 200 km west-northwest of Anchorage and is accessible via helicopter or fixed-wing aircraft. The property has haul roads, a mill facility and adjoining camp infrastructure, a tailings pond and other infrastructure. The remote camp is powered by diesel powered generators and water is supplied to the mill by spring fed sources and year round water wells.
The Company is considered an exploration stage company under SEC criteria because it has not demonstrated the existence of proven or probable reserves at the TMC Project. Accordingly, as required under SEC guidelines and U.S. GAAP for companies in the exploration stage, substantially all expenditures in the mining properties to date, have been expensed as incurred and therefore do not appear as assets on our balance sheet. The Company expects construction expenditures and underground mine exploration and capital improvements will continue during 2016 and subsequent years. The Company expects to remain as an exploration stage company for the foreseeable future. It will not exit the exploration stage until such time that it demonstrates the existence of proven or probable reserves that meet SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine exploration and construction will continue to be expensed as incurred.
Over the course of the last two years, the Company was in default on all of its outstanding debt, including approximately $4.3 million of debt to BOCO Investments, our largest creditor. These notes carried a default interest rates of 18% and 45%, which over the past two years has accrued to an additional $2.2 million. In early 2015, the Company engaged BOCO and our other creditors to restructure our debt in a way that the Company expects will allow us to execute our business plan and to repay our debts over a reasonable amount of time.
6
On May 26, 2015, the Company received from BOCO the fully executed Loan and Note Modification Agreement dated as of May 15, 2015 (the Loan Modification Agreement) between the Company, its directors, BOCO, and two other creditors of the Company. The Loan Modification Agreement modified all outstanding Loan Agreements, Security Agreements and related Promissory Notes between the Company and BOCO (collectively, the Loan Documents) that were previously in default and extended the repayment and maturity dates over the course of a three year period in addition to lowering the annual interest rate on all BOCO notes to 8%.
As part of the Loan Modification Agreement, BOCO agreed to convert $2,221,159 in unpaid interest, plus principal of $300,000 into shares of the Companys common stock at a price per share of $0.12. Such conversion was effected on May 26, 2015 and the Company issued 21,009,658 shares of its common stock as a result of such conversion.
As of January 31, 2016, the Company had eight secured promissory notes with BOCO Investments, LLC, and has recorded $4,261,461 in principal plus $381,831 in accrued interest.
The company had a total of $909,346 of principal payments to BOCO due on November 15, 2015 which were extended to December 15, 2015. Because the Company was unable to make these payments, all notes to BOCO are now in default. The note dated September 17, 2012 is currently accruing interest at the default interest rate of 18% per annum and all other notes with BOCO are currently accruing interest at a default rate of 45% per annum. The Company continues to work with BOCO to resolve the matter.
The Companys principal source of liquidity for the next several years will need to be the continued raising of capital through the issuance of equity or debt. WMTN plans to raise funds for each step of the TMC Project and as each step is successfully completed, raise the capital for the next phase. WMTN believes this will reduce the cost of capital as compared to trying to raise all the anticipated capital at once up front. However, since WMTNs ability to raise additional capital will be affected by many factors, most of which are not within the Companys control (including the Risk Factors set forth in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2015 as filed with the Securities and Exchange Commission (the SEC) on February 16, 2016), no assurance can be given that WMTN will in fact be able to raise the additional capital as it is needed.
The Company may choose to scale back operations to operate at break-even with a smaller level of business activity, while adjusting overhead depending on the availability of additional financing. In addition, the Company expects that it will need to raise additional funds if the Company decides to pursue more rapid expansion, appropriate responses to competitive pressures, or the acquisition of complementary businesses or technologies, or if it must respond to unanticipated events that require it to make additional investments. The Company cannot assure that additional financing will be available when needed on favorable terms, or at all.
NOTE 2. GOING CONCERN
The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The company has incurred losses since its inception resulting in an accumulated deficit of $22,522,247 as of January 31, 2016, and further losses are anticipated in the development of its business. Accordingly, there is substantial doubt about the Companys ability to continue as a going concern.
7
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of WMTN and its subsidiaries have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial statements for the periods January 31, 2016 and 2015 are unaudited and include all adjustments necessary to a fair statement of the results of operations for the periods then ended. All such adjustments are of a normal, recurring nature. The results of the Companys operations for any interim period are not necessarily indicative of the results of the Companys operations for a full fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2015 as filed with the SEC on February 16, 2016.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation
These consolidated financial statements include the Companys consolidated financial position, results of operations, and cash flows. All material intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements.
Equipment
Equipment consists of machinery, heavy equipment, furniture and fixtures and software, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives or lease period of the relevant asset, generally 3 -5 years.
Metal and Other Inventory
Inventories were $559,432 as of January 31, 2016 and October 31, 2015. Inventories may include ore stockpiles (in process inventory), doré and gold bullion. All of the inventory at January 31, 2016 and October 31, 2015 were represented by ore stockpiles. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Metal inventory costs include direct labor, materials, depreciation, as well as administrative overhead costs relating to mining activities.
Mineral Properties
Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Costs to maintain the mineral rights are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves.
8
Long-Lived Assets
The Company reviews its long-lived assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results. As of October 31, 2015, there are no impairments recognized.
Alaska Reclamation and Remediation Liabilities
The Company operates in Alaska. The State of Alaska Department of Natural Resources requires a pool of funds from all permittees with exploration and mining projects to cover reclamation. There is a $750 per acre disturbance reclamation bond that is required for disturbance of 5 acres or more and/or removal of more than 50,000 cubic yards of material. The Companys asset retirement obligation (ARO), consisting of estimated future mine reclamation and closure costs, may increase or decrease significantly in the future as a result of changes in regulations, mine plans, estimates, or other factors. The Companys ARO is recognized as a liability at fair value in the period incurred. An ARO, which is initially estimated based on discounted cash flow estimates, is accreted to full value over time through charges to accretion expense. Resultant ARO cost assets are depreciated on a units-of-production method over the related long-lived assets useful life. The Companys ARO is adjusted annually, or more frequently at interim periods if necessary, to reflect changes in the estimated present value resulting from revisions to the timing or amount of reclamation and closure costs.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entitys own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 Quoted prices in active markets for identical assets and liabilities;
Level 2 Inputs other than level one inputs that are either directly or indirectly observable; and
Level 3 Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
9
Liabilities measured at fair value on a recurring basis are summarized as follows:
| Fair Value Measurements Using Inputs |
| Carrying Amount at | ||||||||
Financial Instruments | Level 1 |
| Level 2 |
| Level 3 |
| January 31, 2016 | ||||
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Liabilities: |
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Forward contract | $ | - |
| $ | 250,635 |
| $ | - |
| $ | 250,635 |
Derivative Instruments | $ | - |
| $ | 1,237,753 |
| $ | - |
| $ | 1,237,753 |
Total | $ | - |
| $ | 1,488,388 |
| $ | - |
| $ | 1,488,388 |
| Fair Value Measurements Using Inputs |
| Carrying Amount at | ||||||||
Financial Instruments | Level 1 |
| Level 2 |
| Level 3 |
| October 31, 2015 | ||||
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Liabilities: |
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Forward contract | $ | - |
| $ | 250,612 |
| $ | - |
| $ | 250,612 |
Derivative Instruments | $ | - |
| $ | 867,557 |
| $ | - |
| $ | 867,557 |
Total | $ | - |
| $ | 1,118,169 |
| $ | - |
| $ | 1,118,169 |
Market price and estimated fair value of common stock used to measure the Derivative Instruments-Warrants at January 31, 2016 and October 31, 2015:
| January 31, 2016 |
| October 31, 2015 | ||
Market price and estimated fair value of common stock: | $ | 0.06 |
| $ | 0.09 |
Exercise price | $ | 0.12 |
| $ | 0.12 |
Expected term (years) |
| 1.75 |
|
| 2.00 |
Dividend yield |
| - |
|
| - |
Expected volatility |
| 130.90% |
|
| 133.29% |
Risk-free interest rate |
| 0.83% |
|
| 0.75% |
10
The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the warrants.
The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, and accounts payable approximate the fair value of the respective assets and liabilities at January 31, 2016 and October 31, 2015 based upon the short-term nature of the assets and liabilities.
Embedded Derivatives
The Company has entered into certain financial instruments and contracts, such as convertible note financing arrangements that contained embedded derivative features. Because the economic characteristics and risks of the equity-linked conversion options were not clearly and closely related to a debt-type host, the conversion features required classification and measurement as derivative financial instruments. The convertible note financing arrangements were carried as derivative liabilities, at fair value, in the financial statements until their conversion into common stock. The Company estimated the fair value of the embedded derivative features in the convertible notes by using probability weighted scenarios on the conversion price with a Black Scholes model. The liability recorded for these embedded derivatives as of January 31, 2016 and October 31, 2015 was $1,237,753 and $867,557 respectively.
During the quarter ended January 31, 2016, the Company recognized $370,196 of other expense resulting from the increase in the fair value of the embedded derivatives from October 31, 2015.
Derivative Instruments Warrants
In May and June 2013, the Company received a total of $1.0 million and entered into Promissory Notes, Security Agreement, Loan Agreement and Warrants to Purchase Stock Agreement (collectively, the Transaction Documents) with BOCO Investments LLC (BOCO).
In addition, the Company issued Warrants to BOCO to purchase 2,500,000 shares of common stock at $0.75 per share or a price per share equal to eighty percent (80%) of the lowest price at which a common share in the Company has been issued in any round of financing commenced or closed after the date of the Warrants. The Warrants expire in 2018, five years from the issuance date. There are no registration requirements. The Transaction Documents place certain operating restrictions on the Company.
11
These warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. In addition, since the warrants do not have a fixed number of shares, they are accounted for outside of equity. Therefore, the fair value of these warrants were recorded as a liability in the consolidated balance sheet and are marked to market each reporting period until they are exercised or expire or otherwise extinguished.
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the Derivative Instruments Warrants were repriced to $0.05 per share and were exercised into 2,500,000 common shares for $125,000.
Forward Sale and Loan Agreements
On March 20, 2013, the Company entered into forward sale and loan agreements with three accredited investors for an aggregate loan of $600,000. The Company was required to tender no less than 600 ounces of gold in bar form to the three accredited investors by September 15, 2013, but defaulted on this obligation. The Company settled with two of the three investors during the year ended October 31, 2014.
The Company is continuing to negotiate with the third lender, Snowmass Mining Co., LLC, who is owed $250,000 (payable in cash or gold), together with interest thereon from September 15, 2013. The Company has paid Snowmass the sum of $50,000 during the year ended October 31, 2015.
As of January 31, 2016, the value of the gold obligation to Snowmass is $250,000. The difference between the amount received and the fair value of the obligation will be recorded as additional interest expense or income at each reporting date based on the fair value of gold. During the quarter ended January 31, 2016, the Company recorded additional interest expense of $23 for the change in the value of gold from October 31, 2015.
Revenue Recognition:
Revenue is recognized net of royalties, when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable. The passing of title to the customer is based on the terms of the sales contract and the actual sale of gold bullion. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets, for example the London Bullion Market for both gold and silver, in an identical form to the product sold.
Mineral Exploration and Development Costs
All exploration expenditures are expensed as incurred. Significant property acquisition payments for active exploration properties are capitalized. If no minable ore body is discovered, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, will be capitalized and amortized on a unit of production basis over proven and probable reserves.
12
Should a property be abandoned, its capitalized costs are charged to operations. The Company charges to operations the allocable portion of capitalized costs attributable to properties abandoned. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area.
Net Loss Per Share
Basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. As of January 31, 2016, the Company had (i) warrants for the purchase of 1,291,750 common shares; (ii) 16,267,625 common shares related to convertible promissory notes; and (iii) 605,000 common shares related to the conversion of Series A Convertible Preferred Stock (iv) options for the purchase of 1,000,000 common shares; which were considered but were not included in the computation of loss per share at January 31, 2016 because they would have been anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The most significant estimates relate to the determination of gold contained in stockpiled ore inventory, assumptions used in the Companys impairment assessment of long-lived assets, the estimated fair value of derivatives, the estimation of asset retirement obligations, estimates of the fair value of the Companys common stock, assumptions used in determining the fair value of stock based compensation and depreciation of buildings and equipment. These estimates may be adjusted as more current information becomes available.
Reclassifications
Certain reclassifications have been made to the prior period Consolidated Financial Statements to conform to the current period presentation. These reclassifications had no effect on previously reported assets, liabilities, net cash flows or net loss.
Stock-Based Compensation
FASB ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, but primarily focuses on transactions whereby an entity obtains employee services for share-based payments. FASB ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments.
13
The Companys accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendors performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with FASB ASC 718.
Income Tax/Deferred Tax
FASB ASC 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differing treatment of items for financial reporting and income tax reporting purposes. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. WestMountain Gold, Inc. has recognized deferred income tax benefits on net operating loss carry-forwards to the extent WestMountain Gold, Inc. believes it will be able to utilize them in future tax filings. The Company has applied a full valuation allowance on all deferred tax assets. The difference between the statutory income tax expense and the accounting tax expense is primarily attributable to non-deductible expenses representing permanent timing differences between book income and taxable income during the three months ended January 31, 2016.
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will be effective for the Company on November 1, 2017. Early application is not permitted. The Company is currently evaluating the impact of ASU No. 2014-09.
On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, which is intended to define managements responsibility to evaluate whether there is substantial doubt about the Companys ability to continue as a going concern and to provide related footnote disclosures. This standard will be effective for the Company for the year ending on October 31, 2016. Early application is permitted. The Company is currently evaluating the impact of ASU No. 2014-15.
14
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This update requires an entity to classify deferred tax liabilities and assets as non-current within a classified statement of financial position. ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the beginning of the interim or annual reporting period. We adopted ASU 2015-17 on a prospective basis as of December 31, 2015. The adoption of ASU 2015-17 did not have an impact on our financial statements.
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the consolidated financial statements.
NOTE 4. AGREEMENTS
Exploration, Development and Mine Operating Agreements
Amended Claims and Lease Agreements with Ben Porterfield
On January 7, 2011, Terra Mining Corporation (TMC) entered into an Amended Claims Agreement with Ben Porterfield related to five mining claims known as Fish Creek 1-5 (ADL-648383 through ADL- 648387), which claims have been assigned to the TMC Project. As part of this Amended Claims Agreement, Ben Porterfield consented to certain conveyances, assignments, contributions and transfers related to the above five mining claims.
15
The Amended Lease Agreement, which incorporates the Lease dated March 22, 2005 and the September 27, 2010 Consent between Ben Porterfield and AngloGold Ashanti (USA) Exploration Inc., has a term of ten years, which can be extended for an additional ten years with thirty days written notice. The Amended Lease Agreement defines terms and conditions and requires the following minimum advance royalties:
● |
| Payment of $100,000 annually on March 22, 2011 (paid). |
|
|
|
● |
| Payment of $100,000 annually on March 22, 2012 (paid), 2013 (paid), 2014 (paid), through March 22, 2015 (paid). |
|
|
|
● |
| 2015 payment of $100,000 due on March 22, 2015 was made on May 1, 2015. |
|
|
|
● |
| Payment of $125,000 annually beginning March 22, 2016 through the termination of the Amended Claims Agreement. |
The Company can terminate the Amended Lease Agreement with the payment of $875,000, less $75,000 paid during the years 2006-2011. The payment may be paid over three annual payments.
TMC has paid in total $500,000 to Ben Porterfield and WMTN issued 500,000 shares of WMTN restricted common stock on March 23, 2011. The common stock was recorded as Contractual Rights at $250,000 or $0.50 per share. The investment in the exclusive rights to the mineral properties is accounted for at cost. As of January 31, 2016, the Company has capitalized $850,000 related to this Claims Agreement.
The Amended Claims Agreement, which incorporates the Lease dated March 22, 2005, provides for a production royalty of 4% of the net smelter return for all minerals produced or sold. The amounts due under this royalty will be offset by any advance royalties that have been paid by the Company. The Company may repurchase 1% of the production royalty right for $1,000,000 and an additional 1% for $3,000,000.
The failure to operate in accordance with the Amended Claims or Lease Agreements could result in the Lease being terminated.
16
NOTE 5. EQUIPMENT, NET
Equipment, net consists of the following:
| Estimated Useful Lives |
| January 31, 2016 |
| October 31, 2015 | ||
|
|
|
|
|
|
|
|
Mining and other equipment | 2-5 years |
| $ | 894,259 |
| $ | 894,259 |
Less: accumulated depreciation |
|
|
| (626,383) |
|
| (575,455) |
|
|
| $ | 267,876 |
| $ | 318,804 |
Depreciation expense for the three months ended January 31, 2016 and 2015 was $56,676 and $44,033 respectively.
NOTE 6. CERTAIN RELATIONS AND RELATED PARTY TRANSACTIONS
Related Party Transactions
The Company has four full-time and part-time employees. The Company shares offices with Minex Exploration LLP (Minex), an Idaho partnership affiliated with the Companys Chief Executive Officer. Also, the Company utilizes Minex contractors for exploration and development of the Alaska property. The Company has recorded accounts payable and accrued payable for related party of $11,300 as of January 31, 2016 and October 31, 2015, respectively. Cash payments of $11,354 were made to Minex for services during the three months ended January 31, 2016.
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015, Minex converted the full $665,201 due to 5,543,350 shares of the Companys common stock.
Secured Promissory and Promissory Notes with BOCO
From time to time, the Company entered into promissory notes and other agreements with BOCO related to loans from BOCO to the Company. The current status of BOCO loans to the Company and their terms are described in Note 7, Promissory Notes.
17
NOTE 7. PROMISSORY NOTES
On May 26, 2015, the Company received from BOCO the fully executed Loan and Note Modification Agreement dated as of May 15, 2015 (the Loan Modification Agreement) between the Company, its directors, BOCO, and two other creditors of the Company. The Loan Modification Agreement modified all outstanding Loan Agreements, Security Agreements and related Promissory Notes between the Company and BOCO (collectively, the Loan Documents) that were previously in default and extended the repayment and maturity dates of the debt as follows:
● |
| $100,000 plus interest is due and payable on October 1, 2015; |
● |
| Approximately $700,000 plus interest shall be due and payable to BOCO on November 15, 2015; |
● |
| Approximately $1,500,000 plus interest shall be due and payable to BOCO on November 15, 2016; |
● |
| The remaining principal amount of approximately $1,852,115 plus interest shall be due and payable to BOCO on November 15, 2017. |
As part of the Loan Modification Agreement, BOCO agreed to convert $2,221,159 in unpaid interest, plus principal of $300,000 into shares of the Companys common stock at a price per share of $0.12. Such conversion was effected on May 26, 2015 and the Company issued 21,009,658 shares of its common stock as a result of such conversion.
As consideration for the loan modification, the Company agreed to the issuance of warrants to purchase two million shares of the Companys common stock for $0.01 per share, and to the extension and re-pricing of additional warrants to purchase 4,886,615 shares at $0.05 per share. BOCO agreed to exercise 6,886,615 warrants as a provision of the Loan Modification Agreement; the warrants were exercised on May 27, 2015 and proceeds of $264,331 paid to the Company. The warrants granted and the modification of warrants were valued at $562,063 and booked as a discount to the corresponding notes and is being amortized over the life of the notes.
As part of the Loan Modification Agreement, the Company and a related party vendor, Minex Exploration, agreed to convert payables of $665,202 into shares of the Companys common stock at a price per share of $0.12. A related party creditor, Silver Verde May Mining Company, also agreed to convert its debt of $37,950 into shares of the Companys common stock at the same price per share. Such conversions were effected on May 26, 2015 and the Company issued 5,543,350 shares of its common stock to Minex and 316,250 to Silver Verde.
18
The Loan Modification Agreement also noted that the due date for a loan in the principal amount of $1,000,000 to Giuseppe Dessi that was previously in default had been extended to December 14, 2016.
The Loan Modification Agreement also provides for: (i) the waiver by Greg Schifrin, CEO of the Company, of all rights and benefits under his employment agreement with the Company; (ii) a seat on the board of the Company for an appointee of BOCO as well as board observation rights; (iii) lock-up agreements on the stock held by board members and BOCO; (iv) loan covenants and oversight rights; and (v) a new credit facility by BOCO of $150,000 to provide for 2015 mining camp expenses.
The Company had previously entered into loan modification agreements with BOCO in April and June of 2014 but did not meet the conditions set forth in those agreements and the loans with BOCO were therefore in default from October 2013 to May 26, 2015, the date of that the Loan Modification Agreement was executed.
The company had a total of $909,346 of principal payments to BOCO due on November 15, 2015 which were extended to December 15, 2015. Because the Company was unable to make these payments, all notes to BOCO are now in default. The note dated September 17, 2012 is currently accruing interest at the default interest rate of 18% per annum and all other notes with BOCO are currently accruing interest at a default rate of 45% per annum. The Company continues to work with BOCO to resolve the matter.
As of January 31, 2016 and October 31, 2015, the Company has the following promissory notes outstanding:
| January 31, 2016 |
| October 31, 2015 | ||
|
| ||||
BOCO September 17, 2012 Promissory Note | $ | 1,852,115 |
| $ | 1,852,115 |
BOCO May 14, 2013 Promissory Note |
| 500,000 |
|
| 500,000 |
BOCO June 27, 2013 Promissory Note |
| 500,000 |
|
| 500,000 |
BOCO February 14, 2014 Promissory Note |
| 1,000,000 |
|
| 1,000,000 |
BOCO May 23, 2014 Promissory Note |
| 100,000 |
|
| 100,000 |
BOCO June 9, 2014 Promissory Note |
| 100,000 |
|
| 100,000 |
BOCO May 1, 2015 Promissory Note |
| 100,000 |
|
| 100,000 |
BOCO May 15, 2015 Line of Credit |
| 109,346 |
|
| 109,346 |
Dessi December 17, 2013 Promissory Note |
| 1,000,000 |
|
| 1,000,000 |
Andres Promissory Notes |
| 200,000 |
|
| 200,000 |
SUBTOTAL |
| 5,461,461 |
|
| 5,461,461 |
Debt Discount | (420,218) | (469,237) | |||
TOTAL | $ | 5,041,243 | $ | 4,992,224 | |
19
Secured Promissory Notes dated September 17, 2012
On September 17, 2012, the Company entered into an Amended and Restated Revolving Credit Loan and Security and Secured Convertible Promissory Note Agreements with BOCO, an existing lender to and shareholder in the Company. On October 1, 2012, the Company entered into a Warrant to Purchase Stock Agreement with BOCO related to this financing (such Agreements and Warrant, the Transaction Documents). This transaction consolidated previously issued promissory note agreements and warrants purchase agreements into one amended agreement.
Under the Transaction Documents, the Company issued an Amended and Restated Secured Convertible Promissory Note (the September 2012 Note) in the principal amount of $1,852,115. The September 2012 Note was due July 31, 2013 and provided for interest at 18% payable in arrears. The Note and accrued interest are convertible into common stock at the lesser of $3.00 or the lowest price at which common shares in the Company are issued in any round of financing commencing after the date of this Note and prior to the conversion, at the discretion of BOCO. Although the effective conversion rate on the Note is now $0.12 due to the events of the Loan and Note Modification Agreement dated May 15, 2015, this conversion feature continues to be an embedded derivative and the Company has accounted for the derivative liability accordingly (see Note 3). The September 2012 Note is secured by a security interest in the Companys assets to secure the Companys performance under the Note. In addition, the Company issued a Warrant to purchase 1,852,115 shares of common stock at $1.50 unless the Company elects to do a future offering at a lower price. There are no registration requirements. The Transaction Documents place certain operating restrictions on the Company. As of January 31, 2016, the principal and accrued interest due on the note is $1,981,915.
The Transaction Documents also contain certain representations and warranties of the Company and BOCO, including customary investment-related representations provided by BOCO, as well as acknowledgements by BOCO that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Companys issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. The representations and warranties made to BOCO are qualified in their entirety (to the extent applicable) by the Companys disclosures in the reports it files with the SEC. The Company also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Transaction Documents.
In addition to the Transaction Documents described above, on September 11, 2012, the Company entered into a Warrant to Purchase Stock Agreement with BOCO. The Company issued a Warrant to purchase 1,250,000 shares of common stock at $0.25 per share.
On August 29, 2013, the Company entered into the First Amendment to the Amended and Restated Secured Convertible Promissory Note with BOCO. The First Amendment was effective August 1, 2013 and extended the due date under for the September 2012 Note from July 31, 2013 to October 31, 2013.
20
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the annual interest rate on this note was reduced to 8% and the maturity was extended to November 15, 2017. The Warrant was repriced and exercised at $0.05 per share.
Promissory Note with BOCO dated May 14, 2013
In May 2013, the Company entered into a Promissory Note, a Security Agreement and warrants to Purchase Stock Agreement and a Loan Agreement (collectively the May 2013 Transaction Documents) with BOCO. Under the May 2013 Transaction Documents, the Company issued a Promissory Note (the May 2013 Note) to BOCO in the principal amount of $500,000. The May 2013 Note was due October 31, 2013 and provides for interest at 15%, payable in arrears. The May 2013 Note is secured by a security interest in the Companys assets to secure the Companys performance.
In addition, the Company issued a Warrant to purchase 1,250,000 shares of common stock at an exercise price that is the lesser of $0.75 per share or a price per share equal to eighty percent (80%) of the lowest price at which a common share in the Company has been issued in any round of financing commenced or closed after the date of this Warrant and prior to Holders exercise of its rights under the Warrant. The Warrant expires May 17, 2018. There are no registration requirements. The May 2013 Transaction Documents place certain operating restrictions on the Company.
The May 2013 Transaction Documents also contain certain representations and warranties of the Company and BOCO, including customary investment-related representations provided by BOCO, as well as acknowledgements by BOCO that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Companys issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. The representations and warranties made to BOCO are qualified in their entirety (to the extent applicable) by the Companys disclosures in the reports it files with the SEC. The Company also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the May 2013 Transaction Documents.
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the annual interest rate on this note was reduced to 8% and the maturity was extended to November 15, 2015. The Warrant was repriced and exercised at $0.05 per share. As of January 31, 2016, the principal and accrued interest due on the note is $552,424.
21
Promissory Note with BOCO dated June 27, 2013
On June 27, 2013, the Company entered into a Promissory Note, a Security Agreement and a Loan Agreement with BOCO. On June 27, 2013, the Company entered into a Warrant to Purchase Stock Agreement with BOCO related to this financing. All Agreements and the Warrant are the (June 2013 Transaction Documents).
Under the June 2013 Transaction Documents, the Company issued a Promissory Note (June 2013 Note) in the principal amount of $500,000. The June 2013 Note was due December 31, 2013 and provides for interest at 15%, payable in arrears. The June 2013 Note is secured by a security interest in the Companys assets to secure the Companys performance under the June 2013 Note. As of January 31, 2016, the principal and accrued interest due on the note is $552,424.
In addition, the Company issued a Warrant to purchase 1,250,000 shares of common stock at an exercise price that is the lesser of $0.75 per share or a price per share equal to eighty percent (80%) of the lowest price at which a common share in the Company has been issued in any round of financing commenced or closed after the date of this Warrant and prior to Holders exercise of its rights under the Warrant. The Warrant expires June 27, 2018. There are no registration requirements. The June 2013 Transaction Documents place certain operating restrictions on the Company.
The June 2013 Transaction Documents also contain certain representations and warranties of the Company and BOCO, including customary investment-related representations provided by BOCO, as well as acknowledgements by BOCO that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Companys issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. The representations and warranties made to BOCO are qualified in their entirety (to the extent applicable) by the Companys disclosures in the reports it files with the SEC. The Company also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the June 2013 Transaction Documents.
22
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the annual interest rate on this note was reduced to 8% and the maturity was extended to November 15, 2016. The Warrant was repriced and exercised at $0.05 per share.
Promissory Note with BOCO dated February 14, 2014
On February 14, 2014, the Company signed a Promissory Note with BOCO for an aggregate loan amount of $1,000,000 (the BOCO Bridge Loan). Repayment of the BOCO Bridge Loan was originally due December 31, 2014 by repayment in cash. The note bears interest at 8% per annum until paid in full with a default rate of 45%. $800,000 of the proceeds from this loan were used for the acquisition of 100% interest in the TMC project from Raven Gold Alaska, Inc.
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the annual interest rate on this note was reduced to 8% and the maturity was extended to November 15, 2016. As of January 31, 2016, the principal and accrued interest due on the note is $1,104,849.
Promissory Note with BOCO dated May 23, 2014
On May 23, 2014, the Company entered into a Convertible Promissory Note Agreement with BOCO Investments, LLC in the amount of $100,000. The note bears interest at 15% per annum until paid in full. Repayment of the note was due August 22, 2014 and the default rate was 45% per annum.
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the annual interest rate on this note was reduced to 8% and the maturity was extended to November 15, 2015. As of January 31, 2016, the principal and accrued interest due on the note is $110,630.
23
Promissory Note with BOCO dated June 9, 2014
On June 9, 2014, the Company entered into a Convertible Promissory Note Agreement with BOCO Investments, LLC in the amount of $100,000. The note bears interest at 15% per annum until paid in full. Repayment of the note was due August 22, 2014 with a default rate of 45% per annum.
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the annual interest rate on this note was reduced to 8% and the maturity was extended to November 15, 2015.
Promissory Note with BOCO dated May 1, 2015
On May 1, 2015, the Company entered into a Convertible Promissory Note Agreement with BOCO Investments, LLC in the amount of $100,000. The note bears interest at 15% per annum until paid in full. Repayment of the note and accrued interest was due October 1, 2015.
The Note and accrued interest are convertible into common stock at the lowest price at which common shares in the Company are issued in any round of financing commencing after the date of this Note and prior to the conversion, at the discretion of BOCO. Although the effective conversion rate on the Note is now $0.12 due to the events of the Loan and Note Modification Agreement dated May 15, 2015, this conversion feature continues to be an embedded derivative and the Company has accounted for the derivative liability accordingly (see Note 3).
24
Secured Line of Credit with BOCO dated May 15, 2015
On May 26, 2015, as part of the Companys Loan and Note Modification Agreement dated as of May 15, 2015 with BOCO, the Company entered into a Secured Line of Credit Promissory Note with BOCO the allows the Company to draw up to $150,000 for approved expenses related to the 2015 mining season. The note bears interest at 8% per annum on all outstanding balances until paid in full. Repayment of any outstanding balance on the note and accrued interest was due October 1, 2015. As of January 31, 2016 the outstanding principal balance on the note was $109,346. As of January 31, 2016, the principal and accrued interest due on the note is $119,453.
Promissory Note with Giuseppe Dessi dated December 17, 2013
On December 17, 2013, the Company signed a Promissory Note with an accredited investor, Giuseppe Dessi, for an aggregate loan amount of $1,000,000 (the Dessi Bridge Loan). Repayment of the Dessi Bridge Loan was due December 16, 2014 by repayment in cash. The note bears interest at 8% per annum until paid in full. All of the proceeds from this loan were used to acquire 100% interest in the TMC project from Raven Gold Alaska, Inc. On May 1, 2015 Guiseppe Dessi and the Company executed an agreement extending the Dessi Bridge Loan note which extends it to December 16, 2016. This note is no longer in default. As of January 31, 2016, the principal and accrued interest due on the note is $1,169,863.
25
Andres Unsecured Promissory Notes
On March 21, 2012 the Company entered into Promissory Note Documents with Fabian Andres and Bill Andres, existing shareholders in the Company. Under the Promissory Note Documents, the Company issued a Convertible Promissory Note to each of Fabian Andres and Bill Andres in the principal amount of $100,000 and $100,000, respectively (the Andres Notes). The Andres Notes were due in twelve months and provide for interest at 5% payable in arrears. The Andres Notes are convertible into common stock as $1.00 per share. In addition, the Company issued 50,000 shares of restricted common stock to each party that was expensed to interest at $1.00 per share or $100,000 during the three months ended April 30, 2012. On May 29, 2013, the Company entered into an Amendment to Convertible Promissory Note extending the due date to October 31, 2013. On October 31, 2013, the Company entered into the Second Amendment to Convertible Promissory Notes extending the due date to October 31, 2014 and subsequently entered into the Third Amendment to Convertible Promissory Note extending the note to October 31, 2015. The Company was unable to make the payments due on October 31, 2015 and as a result these notes are currently in default. As of January 31, 2016 the principal and accrued interest due on the Notes is $238,657.
The table below summarizes the Companys future note maturities as of January 31, 2016:
Year ended October 31, | Notes Maturing | ||
2016 |
|
| 1,109,346 |
2017 | 2,500,000 | ||
2018 |
|
| 1,852,115 |
$ | 5,461,461 |
26
NOTE 8. EQUITY TRANSACTIONS
Series A Convertible Preferred Stock:
On August 1, 2013 the Company issued 12,100 shares of Series A. Convertible Preferred Stock (Preferred Stock) for $50.00 per share and each share is convertible into 50 WestMountain Gold common shares at the holders option. In addition the preferred stockholders receive an annual dividend of 10% payable semi-annually, which at the Companys discretion, may be paid in the Companys common shares. During the quarter ended January 31, 2016, the Company issued 387,821 shares of common stock valued at $0.078 per share to the preferred stockholders and recorded dividends of $30,250.
A summary of the warrants issued and outstanding as of January 31, 2016 is as follows:
| January 31, 2016 | |||
| Shares |
| Weighted Average Exercise Price | |
Outstanding at beginning of period | 2,838,084 |
| $ | 1.235 |
Issued | - |
|
| - |
Exercised | - |
|
| - |
Forfeited | - |
|
| - |
Expired | (1,546,334) |
|
| 1.491 |
Outstanding at end of period | 1,291,750 |
| $ | 0.927 |
Exercisable at end of period | 1,291,750 |
|
|
|
27
| January 31, 2016 | ||||||
Number of Warrants |
| Weighted Average Remaining Life |
| Weighted Average Exercise Price |
| Shares Exercisable | |
230,000 |
| 3.17 |
| $ | 0.25 |
| 230,000 |
200,000 |
| 3.11 |
| $ | 0.50 |
| 200,000 |
78,000 |
| 5.23 |
| $ | 0.75 |
| 78,000 |
10,000 |
| 1.08 |
| $ | 0.88 |
| 10,000 |
375,000 |
| 1.02 |
| $ | 1.00 |
| 375,000 |
398,750 |
| 1.29 |
| $ | 1.50 |
| 398,750 |
1,291,750 |
| 2.07 |
| $ | 0.927 |
| 1,291,750 |
Options:
On September 8, 2014 the Company issued 1,000,000 options to an employee to purchase shares of our common stock at $0.50 per share for a period of seven years. 250,000 of the options vested immediately and 250,000 options vest each subsequent year. On the date of the grant, the Company valued the options at $490,714 using the Black-Scholes option pricing model with the following assumptions: expected life of the options of 7 years, expected volatility of 175.8%, risk-free rate of 2.16% and no dividend yield, and the value of the options are being expensed over the vesting period.
Under the terms the employment contract, the change of control that occurred on May 26, 2015 would have caused these options to vest immediately, but the Company negotiated an agreement with the employee to cancel the existing options and reissue new options to purchase shares under new terms.
On July 6, 2015, the Company cancelled the existing options and issued 1,000,000 options to an employee to purchase shares of our common stock at $0.12 per share for a period of approximately 6.25 years. 500,000 of the options vested immediately and 250,000 options vest on each of September 8, 2015 and September 8, 2016. The transaction was treated as a modification of the terms to the initial grant. In accordance with ASC 718 the incremental fair value of the new options was calculated and compared to the current fair value of the original grant using the Black-Scholes option pricing model with the following assumptions: expected life of the options of 6.25 years, expected volatility of 148.3%, risk-free rate of 2.00% and no dividend yield. The incremental value of $6,849 is being expensed over the remaining vesting period of the options in addition to the expense schedule of the existing options, which was adjusted for the new vesting schedule. The company recognized $31,098 in option expense for the quarter ended January 31, 2016.
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A summary of the options issued and outstanding as of January 31, 2016 is as follows:
| January 31, 2016 | |||
| Shares |
| Weighted Average Exercise Price | |
Outstanding at beginning of period | 1,000,000 |
| $ | 0.12 |
Issued | 1,000,000 |
|
| 0.12 |
Exercised | - |
|
| - |
Forfeited | 1,000,000 |
|
| 0.50 |
Expired | - |
|
| - |
Outstanding at end of period | 1,000,000 |
| $ | 0.12 |
Exercisable at end of period | 750,000 |
|
| 0.12 |
| January 31, 2016 | ||||||
|
|
|
|
|
|
|
|
Number of Options |
| Weighted Average Remaining Life |
| Weighted Average Exercise Price |
| Shares Exercisable | |
1,000,000 |
| 5.60 |
| $ | 0.12 |
| 750,000 |
|
|
|
|
|
|
|
|
1,000,000 |
| 5.60 |
| $ | 0.12 |
| 750,000 |
NOTE 9. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
Except as disclosed, there are no pending legal proceedings against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations.
29
EMPLOYMENT AGREEMENTS
On September 15, 2014, the Company signed an Employment Agreement with James W. Creamer III and appointed him as Chief Financial Officer. Under the terms of the agreement, Mr. Creamers salary will be $96,000 per year and is eligible for annual bonuses and incentive plans determined by the Companys Compensation Committee. Mr. Creamer was also granted 1,000,000 options to purchase the Companys common stock for $0.50 per share for a period of seven years. 250,000 of the options vested immediately and 250,000 options shall vest on each of the first, second and third anniversaries of employment. On July 6, 2015, the Company cancelled the existing options and issued 1,000,000 options to an employee to purchase shares of our common stock at $0.12 per share for a period of approximately 6.25 years. 500,000 of the options vested immediately and 250,000 options vest on each of September 8, 2015 and September 8, 2016. The transaction was treated as a modification of the terms to the initial grant (See Note 8).
LEASES
The Company is obligated under various non-cancelable operating leases for their various facilities.
The aggregate unaudited future minimum lease payments, to the extent the leases have early cancellation options and excluding escalation charges, are as follows:
Years ended October 31, | Total | |
|
|
|
2016 | $ | 45,372 |
2017 | $ | 46,382 |
2018 | $ | 12,000 |
2019 | $ | 12,000 |
Total | $ | 115,754 |
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to the Companys business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words believes, project, expects, anticipates, estimates, intends, strategy, plan, may, will, would, will be, will continue, will likely result, and similar expressions. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and the Company is including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the Companys operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, generally accepted accounting principles, and the Risk Factors set forth in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the Securities and Exchange Commission (the SEC) on February 16, 2016. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning the Companys business, including additional factors that could materially affect the Companys financial results, is included herein and in the Companys other filings with the SEC.
OVERVIEW OF THE BUSINESS
(a) Business Background and Historical Transactions
WestMountain Gold, Inc. (WMTN, the Company, we, us, our, and similar phrases, as the context requires) is an exploration stage mining company, in accordance with applicable guidelines of the Securities and Exchange Commission (SEC), which pursues gold projects that are anticipated to have low operating costs and high returns on capital.
We were incorporated in the state of Colorado on October 18, 2007, under the name WestMountain Index Advisor, Inc. We acquired Terra Mining Corporation (TMC) on February 28, 2011 and accounted for the transaction as a reverse acquisition using the purchase method of accounting, whereby TMC is deemed to be the accounting acquirer (legal acquiree) and WMTN to be the accounting acquiree (legal acquirer). Our financial statements before the date of the acquisition are those of TMC with the results of WMTN being consolidated from the date of the acquisition. The equity section and earnings per share have been retroactively restated to reflect the reverse acquisition and no goodwill has been recorded. We adopted TMCs fiscal year, which is October 31. On February 28, 2013, we changed our name to WestMountain Gold, Inc.
TMCs wholly owned subsidiary, Terra Gold Corporation (TGC), is currently focused on mineral production from mineralized material at a high-grade gold system called the TMC project in the state of Alaska. The TMC project consists of 399 Alaska state mining claims plus an additional 5 unpatented lode mining claims held under lease (subject to a 3-4% NSR royalty to the lessor, dependent upon the gold price) covering 223 square kilometers (22,300 hectares). The property is centered on an 8-km-long (800 hectares) trend of high-grade gold vein occurrences. All government permits and reclamation plans for continued exploration through 2013 were renewed in 2010. The $136,730 of fees to maintain the Terra claims through 2015 were paid by us on November 20, 2014. The property lies approximately 200 km (20,000 hectares) west-northwest of Anchorage and is accessible via helicopter or fixed-wing aircraft. The property has haul roads, a mill facility and adjoining camp infrastructure, a tailings pond and other infrastructure. The remote camp is powered by diesel powered generators and water is supplied to the mill by spring fed sources and year round water wells.
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Outcropping gold veins were first discovered at Terra in the late 1990's by Kennecott Exploration. The claims were transferred to Mr. Ben Porterfield in 2000. AngloGold Ashanti (USA) Exploration Inc. optioned these claims in 2004 and staked additional claims in the vicinity. Initial detailed soil and rock surveys were conducted at Terra that same year with results leading to the definition of an initial zone of high-grade gold veins over a 2.5 km (250 hectares) strike length. AngloGold followed up with a discovery drill program of 12 holes in 2005 and drilled three additional holes in 2006. A total of 587 rock samples were collected on the property. The TMC project was joint-ventured to International Tower Hill Mines Ltd. (ITH) in August of 2006.
On September 15, 2010, WMTN and its wholly owned subsidiary, TGC, and Raven Gold Alaska, Inc. (Raven) signed an Exploration, Development and Mine Operating Agreement (JV Agreement) pertaining to the TMC Project. WMTN made payments of cash and stock to Raven pursuant to the JV Agreement.
On February 12, 2014, the Company, through TGC, acquired 100% ownership interest in the TMC Project from Raven for $1.8 million in cash and 200,000 shares of WMTN. No further payments are due to Raven from TGC under the JV Agreement, (including but not limited to any royalty or residual payments), and each party is fully released from its obligations to the other under the JV Agreement. The $1.8 million of cash paid and 200,000 shares of common stock of the Company (valued at $136,000 at the time) that were issued to Raven is recorded as Mining Claims in the accompanying consolidated balance sheet.
(b) Material Transactions and Other Significant Business Transactions Overview
The Company did not enter into any business transactions that we consider significant during the three months ended January 31, 2016.
(c) Business of Issuer
We intend to devote substantially all of our efforts on growing the Companys operations in the mineral exploration and mining sector. We are currently focused on further exploration of the TMC project for mineral reserves and to gauge the prospects for efficient mining operations if such reserves are discovered. Additionally, we are engaged in limited extraction and exploitation of mineralized material through surface mining techniques at the TMC project. Our primary key market priority will be to proceed with the TMC project and other mining opportunities that may present themselves from time to time. We cannot guarantee that the TMC project, or any project that we embark upon, will be successful. We have budgeted expenditures for the TMC project for the next twelve months of approximately $2,400,000, depending on additional financing, for general and administrative expenses and exploration, mining and exploration to implement the business plan as described above. Approximately $1.3 million of these budgeted expenditures are for mining and exploration expenses and the other $1.1 million are for corporate general and administrative expenses.
We are currently considered an exploration stage company under SEC criteria because it has not demonstrated the existence of proven or probable reserves at the TMC project. Accordingly, as required under SEC guidelines and U.S. GAAP for companies in the exploration stage, substantially all of our investment in mining properties to date, including construction of the mill, mine facilities and exploration expenditures, have been expensed as incurred and therefore do not appear as assets on our balance sheet. We expect construction expenditures and underground mine exploration and capital improvements will continue during 2016 and subsequent years. We expect to remain as an exploration stage company for the foreseeable future. We do not exit the exploration stage until such time that we demonstrate the existence of proven or probable reserves that meet SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine exploration and construction will continue to be expensed as incurred.
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We may choose to scale back operations to operate at break-even with a smaller level of business activity, while adjusting overhead depending on the availability of additional financing. In addition, we expect that we will need to raise additional funds if we decide to pursue more rapid expansion, appropriate responses to competitive pressures, or the acquisition of complementary businesses or technologies, or if we must respond to unanticipated events that require us to make additional investments. We cannot assure that additional financing will be available when needed on favorable terms, or at all.
We are exposed to various risks related to the volatility of the price of gold, our need for additional financing, our joint venture agreements, our reserve estimates, operating as a going concern, unique difficulties and uncertainties in mining exploration ventures, and a volatile market price for our common stock. These risks and uncertainties are discussed in more detail below in this report and the Risk Factors set forth in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016.
RESULTS OF OPERATIONS
As we are an early stage company, we have commenced only limited operations and have yet to reach full operations; therefore, we have little operations to report at this time. Our main focus has been on the development of our business plan. Our seasonal operations currently consist solely of surface mining and processing of mineralized material at the TMC project and the sale of commercially viable minerals recovered from such activities.
Comparison of Three Months Ended January 31, 2016, to Three Months Ended January 31, 2015
REVENUE
Revenue for the three months ended January 31, 2016, decreased $542,985 to $69,085 as compared to $612,070 for the three months ended January 31, 2015. During the fiscal year ended October 31, 2014, we were unable to sale all gold processed as a result of the 2014 season. This unsold gold was subsequently sold in the quarter ended January 31, 2015, generating higher than normal revenue for that period. During 2015, we improved our gold sale process and were able to sell all of our gold bullion inventory for the 2015 season during the fiscal year ended October 31, 2015. Due to these process improvements, revenue dropped substantially for the three months ended January 31, 2016, as compared to the three months ended January 31, 2015, and the only revenue the Company had during three months ended January 31, 2016, was from the reprocessing of ore concentrates which were a byproduct of the 2015 season milling process. Because of the seasonality of the Companys operations, revenue during the quarters ended January 31 are expected to be minimal until we are able to commence year-round operations.
As of January 31, 2016, the Company had ore inventory valued at $559,432, which we anticipate being able to process and convert into revenues during the third quarter of 2016.
COST OF SALES
Cost of sales for the three months ended January 31, 2016, decreased $368,192 to $-0- as compared to $368,192 for the three months ended January 31, 2015. This decrease was attributable the fact that all sales for the three months ended January 31, 2016, were the result of reprocessing ore concentrates for which the costs were accounted for during the original milling process. The cost of sales for the three months ended January 31, 2015, was the result of high amounts of unsold gold from the 2014 season due to poor gold sales processes (which were subsequently improved during the 2015 season). Additionally, the Company was able to decrease the per ounce cost of sales from approximately $700 per ounce in 2014 to approximately $575 per ounce in 2015 and management believes that in can maintain this lower cost per ounce or even continue to decrease the cost going forward.
33
EXPENSES
Selling, general and administrative expenses for the three months ended January 31, 2016, increased $235,288 to $340,926 as compared to $105,638 for the three months ended January 31, 2015. Such expenses for the three months ended January 31, 2016, and 2015 consisted primarily of employee and independent contractor expenses, expenses related to share and warrant issuances, rent, audit, overhead, amortization and depreciation, professional and consulting fees, sales and marketing costs, investor relations, legal, and other general and administrative costs.
NET LOSS
Net loss for the three months ended January 31, 2016, was $940,411 as compared to a net income of $201,754 for the three months ended January 31, 2015. The net loss for the three months ended January 31, 2016, included $515,161 of non-cash expenses comprised of $31,098 in expenses related to stock option expense, $56,676 related to depreciation and amortization of fixed assets, $49,020 related to the amortization of debt discount, and $370,196 of loss on our derivative liability. The net loss for the three months ended January 31, 2015, included $361,830 of non-cash expenses comprised of $100,000 in expenses related to the issuance of common stock for services, gain on derivative liability of $536,597, loss on forward sale contracts and loan agreements of $63, expense in the amount of $30,671 related to stock option expense and $44,033 related to depreciation and amortization of fixed asset and asset retirement cost.
The increase in net loss was due to a combination of decreasing revenues an increase in our operating expenses. While operating expenses should remain fairly stable for the next year, management believes that it can grow revenues during the remainder of 2016 and should be able to realize decreases in our net loss compared to the prior year periods.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2016, we had a working capital deficit of approximately $7,636,663. We had a cash balance of $58,193, prepaid expenses of $156,906, and ore inventory of $559,432 offset by current liabilities of $8,411,194. Current liabilities consisted of forward contract of $250,635, derivative liabilities of $1,237,753 and promissory notes and line of credit of $5,461,461, debt discount of $420,218 and accumulated interest of $590,351 as of January 31, 2016.
Over the course of the last two years, the Company became in default on all of its outstanding debt, including approximately $4.3 million of debt to BOCO Investments, our largest creditor. These notes carried a default interest rate of 18% and 45%, which over the past two years has accrued to an additional $2.2 million. In early 2015, the Company engaged BOCO and our other creditors to restructure our debt in a way that allows us to execute our business plan and puts us on a path to repay our debts over a reasonable amount of time.
34
On May 26, 2015, the Company received from BOCO the fully executed Loan and Note Modification Agreement dated as of May 15, 2015 (the Loan Modification Agreement) between the Company, its directors, BOCO, and two other creditors of the Company. The Loan Modification Agreement modifies all outstanding Loan Agreements, Security Agreements and related Promissory Notes between the Company and BOCO (collectively, the Loan Documents) that were previously in default and extends the repayment and maturity dates over the course of a three year period in addition converting all outstanding accrued interest in the amount of $2,221,159 and principal in the amount of $300,000 under notes to equity and lowering the annual interest rate on all BOCO notes to 8%.
Additionally, in connection with the Loan Modification Agreement, the Company obtained a $150,000 line of credit facility from BOCO Investments LLC. As of January 31, 2016 we had drawn $109,346 on this facility, along with balances due on six secured promissory notes to BOCO Investments, LLC of $4,261,461 plus accrued interest of $381,831. (see Note 7 to the financial statements). Under the terms of the Note and Loan Modification Agreement, the Company was due to repay all outstanding balances of the $150,000 credit facility by October 1, 2015 and $700,000 of the BOCO Notes by November 15, 2015.
This restructuring of this debt not only resolved the Companys default situation at that time, but also significantly lowered our interest expense moving forward and positioned the Company to be able to continue mining operations and pay these notes down over a three-year period. Unfortunately, the Company was unable to repay $909,346 of notes that were due on October 1, 2015, and November 15, 2015. Although BOCO extended the notes until December 15, 2015, the notes are once again in default and we are currently working with BOCO to resolve the matter. Management believes that the Company and BOCO will reach a resolution on the default issue prior to the end of the Companys second quarter.
In the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016, our independent registered accounting firm expressed substantial doubt about our ability to continue as a going concern as a result of the Companys history of net loss. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully execute the plans to pursue the TMC project as described in this Form 10-Q. The outcome of these matters cannot be predicted at this time. The Companys consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue our business.
Our primary activity will be to proceed with the TMC project and other mining opportunities that may present themselves from time to time. We cannot guarantee that the TMC project will be successful or that any project that we embark upon will be successful. Our goal is to build our Company into a successful mineral exploration and development company.
We have budgeted the following expenditures for the next twelve months for general and administrative expenses, mining and exploration to implement the business plan as described above, in the approximate aggregate amount of $2,400,000, depending on additional financing. Approximately $1.3 million of these budgeted expenditures are for mining and exploration expenses and the other $1.1 million are for corporate general and administrative expenses.
35
NET CASH PROVIDED BY/USED IN OPERATING ACTIVITIES
Net cash used in operating activities for the three months ended January 31, 2016, was $325,219. This amount was primarily related to accrued interest of $244,062, and non-cash expenses of $515,161; offset by the net loss of 940,411, decreases in accounts payable and accrued liabilities of $13,829 and an increase in prepaid expenses of $130,202. Non-cash expenses include $56,676 of depreciation and amortization, $49,020 of amortization of debt discount, $5,270 of accretion expense, stock option expense of $31,098, loss on forward contracts of $23, loss on derivative liabilities of $370,196; and $2,878 of royalty expense during the three months ended January 31, 2016.
NET CASH PROVIDED BY/USED IN INVESTING ACTIVITIES
The Company did not engage in any activities that it classified as investing activities during the three months ended January 31, 2016 and January 31, 2015.
NET CASH USED IN FINANCING ACTIVITIES
The Company did not engage in any activities that it classified as financing activities for the three months ended January 31, 2016. During the three months ended January 31, 2015, we had a $50,000 payment to Ben Porterfield for prepaid royalties.
Our unaudited contractual cash obligations as of January 31, 2016, are summarized in the table below:
Years ended October 31, | Total | ||
2016 |
| $ | 170,372 |
2017 |
| $ | 171,382 |
2018 |
| $ | 137,000 |
2019 |
| $ | 137,000 |
Total |
| $ | 615,754 |
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Inflation
We do not believe that inflation has had in the past or will have in the future any significant negative impact on the Companys operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Mineral Properties
Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves.
36
Long-Lived Assets
We review our long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results.
Alaska Reclamation and Remediation Liabilities
The Company operates in Alaska. The State of Alaska Department of Natural Resources requires a pool of funds from all permittees with exploration and mining projects to cover reclamation. There is a $750 per acre disturbance reclamation bond that is required for disturbance of 5 acres or more and/or removal of more than 50,000 cubic yards of material. The Companys asset retirement obligation (ARO), consisting of estimated future mine reclamation and closure costs, may increase or decrease significantly in the future as a result of changes in regulations, mine plans, estimates, or other factors. The Companys ARO is recognized as a liability at fair value in the period incurred. An ARO, which is initially estimated based on discounted cash flow estimates, is accreted to full value over time through charges to accretion expense. Resultant ARO cost assets are depreciated on a units-of-production method over the related long-lived assets useful life. The Companys ARO is adjusted annually, or more frequently at interim periods if necessary, to reflect changes in the estimated present value resulting from revisions to the timing or amount of reclamation and closure costs.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entitys own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 Quoted prices in active markets for identical assets and liabilities; |
Level 2 Inputs other than level one inputs that are either directly or indirectly observable; and |
Level 3 Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. |
Revenue Recognition:
Revenue is recognized, net of royalties, when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable. The passing of title to the customer is based on the terms of the sales contract. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets, for example the London Bullion Market for both gold and silver, in an identical form to the product sold.
Metal and Other Inventory
Inventories may include unprocessed ore, doré and unsold gold and silver. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Metal inventory costs include direct labor, materials, depreciation, as well as administrative overhead costs relating to mining activities.
37
Stock-Based Compensation
FASB ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, but primarily focuses on transactions whereby an entity obtains employee services for share-based payments. FASB ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments.
The Companys accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendors performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with FASB ASC 718.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As we are a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2016. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive and principal financial officers concluded as of January 31, 2016 that our disclosure controls and procedures were not effective at the reasonable assurance level due to limited accounting and reporting personnel and a lack of segregation of duties due to limited financial resources and the size of our Company. We will need to adopt additional disclosure controls and procedures prior to commencement of material operations. Consistent therewith, on an on-going basis we will evaluate the adequacy of our controls and procedures.
A material weakness is a significant deficiency, or combination of significant deficiencies, that result in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. During the assessment for the three months ended January 31, 2016, management identified the following material weaknesses:
Lack of Segregation of Duties. We have an inadequate number of personnel to properly implement control procedures.
Lack of Disclosure Controls. There is a lack of disclosure controls to ensure adequate disclosures are made in our periodic filings.
Lack of Continuity in Key Personnel. We have not maintained continuity in key personnel or have adequate staffing to ensure adequately efficient preparation of financial and operational statements.
Lack of Inventory Management Control. The Company lacks sufficient personnel and financial resources to implement adequate handling, tracking, accounting, and safeguarding of ore and finished goods inventory assets.
Management is committed to improving its internal controls and will continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities. At this time, however, management has not established a time table for when it intends to address the aforementioned material weaknesses.
38
b) Changes In Internal Control Over Financial Reporting
During the quarter ended January 31, 2016, there were no changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations.
ITEM 1A. RISK FACTORS
As we are a smaller reporting company, we are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities from the Federal Mine Safety and Health Administration, or MSHA, under the Federal Mine Safety and Health Act of 1977, or the Mine Act. During the quarter ended January 31, 2016, the TMC project was in production and as such, we were subject to regulation by MSHA under the Mine Act.
The TMC project had no health and safety violations, orders or citations under the Federal Mine Safety and Health Act of 1977, during the quarter ended January 31, 2016 and the Company had no injuries or fatalities. Additionally, during the three months ended January 31, 2016, and as of the date of the filing of this Annual Report, there are no pending legal actions involving the TMC project.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit No. | Description |
*3.1 | Articles of Incorporation (Previously filed with Form SB-2 Registration Statement, January 2, 2008, as amended per the 8-K filed on Oct. 12, 2010). |
*3.2 | Articles of Amendment dated February 28, 2013 (Attached as an exhibit to the Companys Form 8-K dated March 8, 2013 and filed with the SEC on March 12, 2013). |
*3.3 | Bylaws (Previously filed with Form SB-2 Registration Statement, January 2, 2008). |
*3.4 | Certificate of Designation of Rights, Preferences and Privileges of Series A Convertible Preferred Stock (Attached as an exhibit to the Companys Form 8-K dated December 3, 2013 and filed with the SEC on December 6, 2013). |
*4.1 | WestMountain Gold, Inc. 2012 Stock Incentive Plan (Filed as an Exhibit to the Companys Definitive Proxy Statement on Schedule 14A filed with the SEC on December 31, 2013, and hereby incorporated by reference). |
*10.1 | Amended Porterfield Lease dated February 18, 2011 by and between Terra Gold Corp and Ben Porterfield (Attached as an Exhibit to the Companys Form 10-K dated October 31, 2011 and filed with the SEC on December 20, 2011). |
*10.2 | Amended and Restated Revolving Credit Loan and Security Agreement dated September 17, 2012 by and between WestMountain Index Advisor, Inc. and BOCO (Filed as exhibits on Form 8-K/A dated September 11, 2012 and filed with the SEC on October 10, 2012. Investments, LLC). |
*10.3 | Amended and Restated Secured Convertible Promissory Note dated September 17, 2012 by and between WestMountain Index Advisor, Inc. and BOCO (Filed as exhibits on Form 8-K/A dated September 11, 2012 and filed with the SEC on October 10, 2012. Investments, LLC). |
*10.4 | Loan Agreement dated May 7, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K/A dated May 14, 2013 and filed with the SEC on June 6, 2013). |
*10.5 | Promissory Note dated May 7, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K/A dated May 14, 2013 and filed with the SEC on June 6, 2013). |
*10.6 | Security Agreement dated May 7, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K/A dated May 14, 2013 and filed with the SEC on June 6, 2013). |
*10.7 | Warrant for the Purchase of Common Stock dated May 7, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K/A dated May 14, 2013 and filed with the SEC on June 6, 2013). |
*10.8 | Loan Agreement dated June 27, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K dated June 27, 2013 and filed with the SEC on July 1, 2013). |
*10.9 | Promissory Note dated June 27, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K dated June 27, 2013 and filed with the SEC on July 1, 2013). |
*10.10 | Security Agreement dated June 27, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K dated June 27, 2013 and filed with the SEC on July 1, 2013). |
*10.11 | Warrant for the Purchase of Common Stock dated June 27, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K dated June 27, 2013 and filed with the SEC on July 1, 2013). |
*10.12 | First Amendment to Amended and Restated Secured Convertible Promissory Note dated August 1, 2013 by and between WestMountain Gold, Inc. and BOCO Investments, LLC. Attached as an exhibit to the Companys Form 8-K dated August 29, 2013 and filed with the SEC on August 30, 2013. |
*10.13 | Form of Warrant for the Purchase of Preferred Stock. (Attached as an exhibit to the Companys Form 10-K dated October 31, 2013 and filed with the SEC on February 12, 2014). |
*10.14 | Form of Warrant for the Purchase of Common Stock (Attached as an exhibit to the Companys Form 10-K dated October 31, 2013 and filed with the SEC on February 12, 2014). |
*10.15 | Form of Subscription Agreement for the Purchase of Preferred Stock (Attached as an exhibit to the Companys Form 10-K dated October 31, 2013 and filed with the SEC on February 12, 2014). |
*10.16 | Lease Agreement signed January 1, 2015, by and between WestMountain Gold, Inc. and TLC Properties, LLC. |
*10.17 | Commercial Lease Amendment II signed June 5, 2013 by and between WestMountain Index Advisor, Inc. and Waterfront Property Management LLC. (Attached as an exhibit to the Companys Form 10-K dated October 31, 2013 and filed with the SEC on February 12, 2014). |
*10.18 | Commercial Lease April 1, 2011 by and between WestMountain Index Advisor, Inc. and Waterfront Property Management LLC. (Attached as an exhibit to the Companys Form 10-K dated October 31, 2013 and filed with the SEC on February 12, 2014). |
*10.19 | Secured Promissory Note between WestMountain Gold, Inc. and BOCO dated February 14, 2014 (Attached as an exhibit to the Company's Form 10-Q/A dated January 31, 2014 and filed with the SEC on March 26, 2014) |
*10.20 | Convertible Promissory Note dated December 17, 2013 between West Mountain Gold Inc. and BOCO Investments, LLC. (Attached as an exhibit to the Companys Form 8-K dated December 31, 2013 and filed with the SEC on January 3, 2014). |
*10.21 | Letter Agreement between Raven Gold Alaska, Inc. and Terra Gold Corporation dated February 12, 2014 (Attached as an exhibit to the Company's Form 10-Q/A dated January 31, 2014 and filed with the SEC on March 26, 2014) |
*10.22 | Convertible Promissory Note between WestMountain Gold, Inc. and Dessi dated December 17, 2013 (Attached as an exhibit to the Company's Form 10-Q/A dated January 31, 2014 and filed with the SEC on March 26, 2014) |
*10.23 | Purchase Agreement between WestMountain Gold, Inc. and Lincoln Park Capital, LLC dated November 20, 2013 (Attached as an exhibit to the Company's Form 10-Q/A dated January 31, 2014 and filed with the SEC on March 26, 2014) |
*10.24 | Registration Rights Agreement between WestMountain Gold, Inc. and Lincoln Park Capital, LLC dated November 20,2013 (Attached as an exhibit to the Company's Form 10-Q/A dated January 31, 2014 and filed with the SEC on March 26, 2014) |
*10.25 | Separation and Full Release of Claims Agreement between WestMountain Gold, Inc. and Mark Scott dated November 15, 2013 (Attached as an exhibit to the Company's Form 10-Q/A dated January 31, 2014 and filed with the SEC on March 26, 2014) |
*10.26 | Loan and Note Modification Agreement beween WestMountain Gold, Inc and BOCO Investments, LLC dated April 15, 2014 (Attached as an exhibit to the Company's Form 8-K dated April 23, 2014 and file with the SEC on April 24, 2014) |
*10.27 | Amendment to Loan and Note Modification Agreement dated May 27, 2014 between WestMountain Gold, Inc. and BOCO Investments, LLC (Attached as an exhibit to the Company's Form 8-K dated June 2, 2014 and filed with the SEC on June 6, 2014) |
*10.28 | Employment Agreement between WestMountain Gold, Inc. and James W. Creamer III effective September 8, 2014, executed and formally excepted on September 15, 2014 (Attached as an exhibit to the Company's Form 8-K dated September 15, 2014 and filed with the SEC on September 19, 2014) |
*10.29 | Loan and Note Modification Agreement by and among WestMountain Gold, Inc, BOCO Investments, LLC, Minex Exploration, Slver Verde May Mining Co., Dale L. Rasmussen and Michael Lavigne (Attached as an exhibit to the Company's Form 8-K dated May 26, 2015 and filed with the SEC on June 1, 2015) |
*14.1 | Code of Conduct & Ethics dated November 30, 2012. (Attached as an exhibit to the Companys Form 8-K dated November 26, 2012 and filed with the SEC on November 30, 2012). |
21.1 | Subsidiaries (Attached as an exhibit to the Companys Form 10-K dated October 31, 2013 and filed with the SEC on February 12, 2014). |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. |
32.1 and 32.2 | Section 906 Certifications. |
*99.1 | Audit Committee Charter dated November 30, 2012. (Attached as an exhibit to the Companys Form 8-K dated November 26, 2012 and filed with the SEC on November 30, 2012). |
*99.2 | Compensation Committee Charter dated November 30, 2012. (Attached as an exhibit to the Companys Form 8-K dated November 26, 2012 and filed with the SEC on November 30, 2012). |
*99.3 | Nominations and Governance Committee Charter dated November 30, 2012. (Attached as an exhibit to the Companys Form 8-K dated November 26, 2012 and filed with the SEC on November 30, 2012). |
101 | Interactive data files pursuant to Rule 405 of Regulation S-T. (1) |
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* | Included in previously filed reporting documents. |
| Filed herewith |
| Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: March 21, 2016 | WESTMOUNTAIN GOLD, INC. | |
| (Registrant) | |
| ||
By: | /s/ Gregory Schifrin | |
| Gregory Schifrin | |
|
| Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
|
|
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| By: | /s/ James W. Creamer III |
|
| James W. Creamer III |
|
| Chief Financial Officer |
|
| (Principal Financial Officer) |
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