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EX-32.1 - EXHIBIT 32.1 - WESTMOUNTAIN GOLD, INC.exhibit32_1.htm
EX-31.1 - EXHIBIT 31.1 - WESTMOUNTAIN GOLD, INC.exhibit31_1.htm
EX-10.39 - EXHIBIT 10.39 - WESTMOUNTAIN GOLD, INC.exhibit10_39.htm
EX-10.38 - EXHIBIT 10.38 - WESTMOUNTAIN GOLD, INC.exhibit10_38.htm
EX-10.37 - EXHIBIT 10.37 - WESTMOUNTAIN GOLD, INC.exhibit10_37.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 July 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. 000-53028

 

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 February 13, 2017:  76,221,319 shares.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

PART I – FINANCIAL INFORMATION

 

Page

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

Consolidated Balance Sheets as of July 31, 2016 (unaudited) and October 31, 2015

 

3

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended July 31, 2016 and 2015 (unaudited)

 

4

 

 

 

 

 

Consolidated Statement of Stockholders' Deficit for the period ended October 31, 2015 and July 31, 2016 (unaudited)

 

5

 

 

 

 

 

Consolidated Statement of Cash Flows for the nine months ended July 31, 2016 and 2015 (unaudited)

 

6

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

Item 4.

Controls and Procedures

 

38

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

39

 

 

 

 

Item 1A.

Risk Factors

 

39

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

Item 3.

Defaults Upon Senior Securities

40

 

 

 

 

Item 4.

Mine Safety Disclosure

40

Item 5.

Other Information

 

40

Item 6.

Exhibits

 

41-42

 

 

 

 

Signatures

 

43

 

 

2


 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

WestMountain Gold, Inc.

An Exploration Stage Company

Consolidated Balance Sheets

July 31,

2016

October 31,

2015

ASSETS

(unaudited)

Current Assets

 

 

 

 

 

Cash and cash equivalents

$

7,543

$

383,412

Prepaid expenses

 

62,132

 

 

26,704

Inventory

 

1,411,063

 

559,432

Total current assets

 

1,480,738

 

 

969,548

Equipment, net

 

334,721

 

 

318,804

Other Assets

 

 

 

 

 

Prepaid royalties

480,763

362,830

Mining claims

 

                          -  

 

 

2,446,458

Security deposits

10,618

10,618

Asset retirement cost

 

162,905

 

 

180,149

Total Assets

$

2,469,745

$

4,288,407

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities

 

 

 

 

 

Accounts payable

$

1,283,304

$

1,134,428

Accounts payable - related parties

 

                          -  

 

 

11,300

Accrued expenses

407,825

159,313

Accrued interest

 

655,343

 

 

346,289

Forward contract

250,761

250,612

Derivative liability

 

                          -  

 

 

867,557

Lines of credit - related parties ($640,000 facility and $150,000 facility)

640,000

109,346

Promissory notes - related parties, net of discounts of $657,210 and $0, respectively

 

3,529,251

 

 

                          -  

Promissory notes, net of discounts of $0 and $469,237, respectively

 

1,200,000

 

4,882,878

Total current liabilities

 

7,966,484

 

 

7,761,723

Long-Term Liabilities

 

 

 

 

 

Asset retirement obligation

 

200,382

 

184,045

Total liabilities

 

8,166,866

 

 

7,945,768

Commitments and Contingencies

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

Preferred stock, $0.10 par value; 987,900 shares authorized, 0 shares issued and outstanding at July 31, 2016 and
     October 31, 2015, respectively

                          -  

                          -  

Preferred Series A Convertible Stock, $0.10 par value; 12,100 shares authorized, issued and outstanding at July 31, 2016
     and October 31, 2015

 

1,210

 

 

1,210

Common stock, $0.001 par value; 200,000,000 shares authorized, 76,056,319 and 61,650,537 shares issued and outstanding at
     July 31, 2016 and October 31, 2015, respectively

76,056

61,651

Additional paid in capital

 

19,458,493

 

 

17,831,364

Accumulated deficit

 

(25,232,880)

 

(21,551,586)

Total stockholders' deficit

 

(5,697,121)

 

 

(3,657,361)

Total Liabilities and Stockholders' Deficit

$

2,469,745

$

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

Nine Months Ended

July 31,

2016

July 31,

2015

July 31,

2016

July 31,

2015

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Sales, net

$

100,524

$

277,959

$

169,609

$

1,009,504

Total revenue

 

100,524

 

 

277,959

 

 

169,609

 

 

1,009,504

Cost of sales

 

45,073

 

 

163,555

 

 

45,073

 

 

765,375

Total cost of sales

45,073

163,555

45,073

765,375

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

55,451

114,404

124,536

244,129

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

434,256

 326,078

1,101,123

                 770,986

Impairment of mining claims

 

2,446,458

 

 

                      -  

 

 

2,446,458

 

 

                  -  

Total operating expenses

2,880,714

326,078

3,547,581

770,986

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

(2,825,263)

(211,674)

(3,423,045)

(526,857)

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense)

Interest expense

 

(363,177)

 

 

(196,755)

 

 

(1,095,355)

 

 

(966,901)

Gain(Loss) on change - derivative liability

 

514,574

 

(407,460)

 

867,557

 

355,887

Total other income/(expense)

 

151,397

 

 

(604,215)

 

 

(227,798)

 

 

(611,014)

Loss before income taxes

 

(2,673,866)

 

 

(815,889)

 

 

(3,650,843)

 

 

(1,137,871)

Income tax expense

 

                      -  

 

                      -  

 

                  -  

 

                  -  

Net loss

$

(2,673,866)

 

$

(815,889)

 

$

(3,650,843)

 

$

(1,137,871)

Preferred stock dividends

 

(201)

 

(30,250)

 

(30,451)

 

(66,940)

Net loss attributable to common shareholders

$

(2,674,067)

 

$

(846,139)

 

$

(3,681,294)

 

$

(1,204,811)

 

 

 

 

 

 

 

 

Basic and diluted net loss per share attributable to common shareholders

$

(0.04)

 

$

(0.02)

 

$

(0.06)

 

$

(0.03)

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

68,613,200

 

 

55,943,003

 

 

64,158,214

 

 

37,110,275

See notes to consolidated financial statements.

 

4


 

WestMountain Gold, Inc.

An Exploration Stage Company

Consolidated Statement of Stockholders' Deficit

Total

Preferred Stock

Common Stock

Additional Paid

Accumulated

Stockholders'

Shares

 

Amount

Shares

 

Amount

 In Capital

Deficit

Deficit

Balance as of October 31, 2014

12,100

 

 

1,210

 

27,296,403

 

 

27,296

 

 

13,163,655

 

 

(20,300,957)

 

 

(7,108,796)

Issuance of common stock related to convertible debentures

 

 

 

 

 

21,325,908

 

 

21,326

 

 

2,537,779

 

 

 

 

 

2,559,105

Debt discount on convertible notes

562,063

562,063

Issuance of common stock related to the exercise of warrants

 

 

 

 

 

6,886,615

 

 

6,887

 

 

490,944

 

 

 

 

 

497,831

Issuance of common stock for services

5,743,350

5,743

759,459

765,202

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

250,923

 

 

 

 

 

250,923

Preferred stock dividend paid in common stock

398,261

399

66,541

(66,940)

-

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,183,689)

 

 

(1,183,689)

Balance as of October 31, 2015

12,100

$

1,210

61,650,537

$

61,651

$

17,831,364

$

(21,551,586)

$

(3,657,361)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debt to common stock

1,816,296

1,817

216,140

217,957

Issuance of common stock for cash

 

 

 

 

 

12,000,000

 

 

12,000

 

 

348,000

 

 

 

 

 

360,000

Stock based compensation

93,294

93,294

Preferred stock dividend paid in common stock

 

 

 

 

 

589,486

 

 

588

 

 

29,863

 

 

(30,451)

 

 

-

Troubled debt restructuring with related party

939,832

939,832

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,650,843)

 

 

(3,650,843)

Balance as of July 31, 2016

12,100

$

1,210

76,056,319

$

76,056

$

19,458,493

$

(25,232,880)

$

(5,697,121)

See notes to consolidated financial statements.

.

 

5


 

WestMountain Gold, Inc.

An Exploration Stage Company

Consolidated Statement of Cash Flows

(unaudited)

Nine Months Ended

July 31,

2016

2015

Cash flows from operating activities

 

 

 

 

 

Net (loss) income

$

(3,650,843)

$

(1,137,871)

Adjustments to reconcile net loss to net cash (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

181,029

135,566

Amortization of debt discount

 

175,926

 

 

45,568

Accretion expense

16,337

-

Impairment of mining claims

 

2,446,458

 

 

-

Stock based compensation

93,294

218,970

(Gain) Loss on forward contract

 

149

 

 

(47)

(Gain) Loss on derivative liability

(867,557)

(355,887)

Royalties expense

 

7,067

 

 

-

Changes in operating assets and operating liabilities:

Prepaid expenses

 

(35,428)

 

 

(14,085)

Inventory

(851,631)

209,489

Other assets

 

-

 

 

84,078

Accrued interest

884,987

921,380

Accounts payable and accrued liabilities

 

415,345

 

 

(370,343)

Accounts payable and accrued liabilities - related parties

(11,300)

95,094

Prepaid royalties

 

(125,000)

 

 

(100,000)

Net cash (used in) operating activities

(1,321,167)

(268,088)

 

 

 

 

 

 

Cash flows from investing activities:

Capital expenditures

 

(179,702)

 

 

(48,246)

Net cash (used in) investing activities

(179,702)

(48,246)

 

 

 

 

 

 

Cash flows from financing activities:

Proceeds from promissory note, related party

 

125,000

 

 

100,000

Repayment of forward contract

-

(50,000)

Proceeds from warrants exercised

 

-

 

 

264,331

Proceeds from line of credit, related party

640,000

58,380

Proceeds from the issuance of common stock

 

360,000

 

 

-

Net cash provided by financing activities

1,125,000

372,711

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(375,869)

 

56,377

Cash and cash equivalents, beginning of period

 

383,412

 

 

22,766

Cash and cash equivalents, end of period

$

7,543

$

79,143

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

Interest paid

$

-

 

 $

-

Taxes paid

$

-

 $

-

Non-cash investing and financing activities:

 

 

 

 

 

Common stock issued in exchange for account payable

$

-

$

765,201

Preferred stock dividend

$

30,451

 

$

66,940

Issuance of common stock for convertible debentures and interest

$

-

$

2,559,105

Issuance of common stock related to the exercise of warrants

$

-

 

$

233,500

Asset retirement obligation

$

-

$

34,118

Troubled debt restructing with related party

$

939,832

 

$

-

Conversion of debt and accrued interest to common stock

$

217,956

$

-

See notes to consolidated financial statements.

                                                                                                                                                                                                                                                                                                               

6


 

WESTMOUNTAIN GOLD, INC.

AN EXPLORATION STAGE COMPANY

NOTES TO UNAUDITED 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.

 

WMTN’s 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 exploration and bulk sample 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 2019 were renewed and the fees to maintain the Terra claims through September 2017 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 well.

 

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 several occasions with respect to all of its outstanding debt, including approximately $4.9 million of notes payable to BOCO Investments LLC (“BOCO”), our largest creditor and majority shareholder.  During the initial default, these notes had default interest rates of 18% and 45%.  During 2015, the Company engaged BOCO and other creditors to restructure the debt as it existed at the time so as to allow the Company to focus on execution of its business plan.

 

On May 26, 2015, the Company received from BOCO a fully executed Loan and Note Modification Agreement dated as of May 15, 2015 (the “2015 Loan Modification Agreement”) between the Company, its directors, BOCO, and two other creditors of the Company. The 2015 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 2015 Loan Modification Agreement, BOCO agreed to convert $2,221,159 in unpaid interest, plus principal of $300,000 into shares of the Company’s 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.

 

7


 

The company had a total of $909,346 of principal payments to BOCO due on November 15, 2015, pursuant to the 2015 Loan Modification Agreement, which BOCO extended to December 15, 2015.  The Company was unable to make these payments and again defaulted on all notes to BOCO.  As of the date of this default, the notes payable to BOCO accrued interest at various default interest rates of 18% per annum, 20% per annum, and 45% per annum.  In May 2016, the Company received from BOCO a notice of default and demand for immediate payment in full of the notes and subsequently engaged BOCO to resolve the matter.

 

At that time, the following promissory notes made by the Company in favor of BOCO (collectively, the “Notes”) were in default:

 

·

September 17, 2012, Amended and Restated Secured Convertible Promissory Note in the principal amount of $1,852,115 (the “September 2012 Note”);

 

 

·

May 7, 2013, Promissory Note in the principal amount of $500,000 (the “May 2013 Note”);

 

 

·

June 27, 2013, Promissory Note in the principal amount of $500,000 (the “June 2013 Note”);

 

 

·

February 14, 2014, Secured Promissory Note in the principal amount of $1,000,000 (the “February 2014 Note”);

 

 

·

May 23, 2014, Secured Convertible Promissory Note in the principal amount of $100,000 (the “May 2014 Note”);

 

 

·

June 9, 2014, Secured Convertible Promissory Note in the principal amount of $100,000 (the “June 2014 Note”);

 

 

·

May 1, 2015, Promissory Note in the principal amount of $100,000 (the “May 2015 Note”);

 

 

·

June 26, 2015, Secured Promissory Note in the principal amount of $109,346.31 (the “June 2015 Note”);

 

 

·

March 22, 2016, Secured Promissory Note in the principal amount of $125,000 (the “March 2016 Note”); and

 

 

·

April 12, 2016, Secured Promissory Note in the principal amount of $531,317 (the “April 2016 Note”).

 

On June 22, 2016 (the “Effective Date”), the Company and BOCO entered into and closed a Loan and Note Modification Agreement (the “Modification Agreement”) to resolve the default and restructure the debt due under the Notes.  The total amount due under the Notes immediately prior to entering into the Modification Agreement was approximately, $5,879,797.

 

Pursuant to the Modification Agreement, BOCO waived all current defaults and default interest due on the Notes.  Additionally, BOCO converted all outstanding principal and interest due under the May 2014 Note and June 2014 Note, totaling $217,956, into 1,816,296 shares of the Company’s common stock, par value $0.001, at a conversion rate of $0.12 per share.  As a result of the conversion, the May 2014 Note and June 2014 Note were canceled.

 

Furthermore, pursuant to the Modification Agreement, the base interest rate was decreased from 8% to 5% as of the Effective Date on the following Notes: the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note.  The base interest rate of the September 2012 Note (collectively with the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note, the “Remaining Notes”) remains at 8% per annum.  With respect to the Remaining Notes, in the event of a default under the Modification Agreement, any of the Remaining Notes or agreements related thereto, the default interest rate was adjusted to the maximum interest rate allowable under Colorado law.  As of the Effective Date, the Remaining Notes will accrue interest at their respective base interest rates.

 

Additionally, the Modification Agreement extended the maturity date of the following Notes to December 15, 2018: the May 2013 Note, the June 2013 Note, the May 2015 Note, the June 2015 Note, and the March 2016 Note.  The maturity date for the other Remaining Notes remains unchanged, as follows: the September 2012 Note due on November 15, 2017, the February 2014 Note due on November 15, 2016, and the April 2016 Note due on October 31, 2018.

 

8


 

The Remaining Notes continue to be secured by the assets of the Company pursuant to the Security Agreement entered into by the Company and BOCO dated June 27, 2013, and the Security and Inter-Creditor Agreement entered into by the Company and BOCO dated May 15, 2015 (collectively, the “Security Agreements”).  Furthermore, BOCO retains certain protective and oversight rights over Company operations and requires the Company to maintain covenants that are substantially similar to the protective and oversight rights and covenants contained in the prior 2015 Loan and Note Modification Agreement.

 

As part of the Modification Agreement, the Company appointed Richard Bloom and Brian Klemsz as directors of the Company to serve until the next election of directors.

 

The preceding descriptions of the Modification Agreement, the Notes and the Security Agreements are incomplete and qualified in their entirety by reference to the complete text of the Modification Agreement, the Notes and the Security Agreements, respectively, which were attached as Exhibits to previously filed reporting documents of the Company.

 

As of July 31, 2016, the Company had eight secured promissory notes with BOCO Investments, LLC, and has recorded $4,826,461 in principal plus $424,631 in accrued interest.

 

Additionally, on August 11, 2016, the Company and BOCO entered into a Second Amendment To Secured Promissory Note (the “BOCO Amendment”) amending the April 2016 Note. The BOCO Amendment increases the maximum amount of the line of credit from six hundred forty thousand dollars ($640,000) to one million dollars ($1,000,000).  All other terms of the April 2016 Note remain unchanged.  Since August 11, 2016, the Company has drawn advances in the aggregate amount of two hundred twenty-five thousand dollars ($225,000) from BOCO on the increased credit line (see Note 10, Subsequent Events, for further discussion).

 

On November 18, 2016, the Company and BOCO entered into a Secured Promissory Note in the principal amount of $172,520 (the “November 2016 Note”).  The November 2016 Note accrues interest at 8% per annum and is due in full on November 17, 2017 (see Note 10, Subsequent Events, for further discussion).

 

As further discussed below in Note 2, Going Concern, and Note 10, Subsequent Events, the Company is currently in default under the promissory notes held by BOCO under the terms of each such promissory note and the Modification Agreement (as described in Note 7, Promissory Notes) for failure to make payments when due (as of November 15, 2016).  BOCO has not made a demand for payment or otherwise indicated an intent to initiate foreclosure activities as of the date of this Quarterly Report.

 

Notice of Violation from Alaska Department of Natural Resources

 

On October 28, 2016, we received a Notice of Violation correspondence (together with follow up correspondence from ADNR received December 13, 2016, the “Notice of Violation”) from the Alaska Department of Natural Resources (“ADNR”) (the Notice of Violation was addressed to our wholly owned subsidiary, Terra Gold Corporation, which holds the Miscellaneous Land Use Permit (“MLUP”) pursuant to which we operate at the TMC Project).  The Notice of Violation was issued pursuant to a July 29, 2016, ADNR site visit inspection at the TMC Project (the “Site Visit”).

 

The Notice of Violation cited several significant observations made by ADNR representatives during the Site Visit that required the Company to take corrective action.  Failure to take all corrective action required by the Notice of Violation could result in revocation of the MLUP, which would require us to vacate the TMC Project.  In response to the Notice of Violation, the Company took the following corrective action:

 

1)      The Company submitted a report to ADNR regarding a petroleum release that occurred at the TMC Project during late July that was non reportable.

 

2)      The Company submitted a report to ADNR regarding the slough event (described in further detail above), confirming that the Company ceased operations at the bulk sample mine site at the TMC Project in accordance with applicable regulations.  A courtesy copy of the report was voluntarily provided to the U.S. Department of Labor and the Mine Safety Health Administration.

 

9


 

 

3)      The Company submitted to ADNR an amendment to our plan of operations previously submitted with the Application for Permits to Min in Alaska (“APMA”).  The purpose of the amendment was to add our mill schematics and to include additional settling ponds and baseline water sample data (Acid Base Analysis) from the TMC Project.  Additionally, the Company submitted to ADNR original lab results of all baseline data, as well as lab custody documentation and a map identifying the sampling locations.

 

4)      The Company constructed additional secondary containment structures for hazardous material containers in compliance with applicable regulations.  Additionally, all barrels and other containers holding hazardous materials were labeled and placed into secondary containment in accordance with applicable regulations.

 

5)      The Company submitted to ADNR a work plan detailing revisions to the road grade at the TMC Project to bring all road grades in compliance with applicable regulations.

 

6)      The Company obtained and submitted to ADNR estimates of costs for reclamation work that must be completed at the TMC Project.

 

Based on the reclamation work estimates, ADNR requires the Company to obtain a performance guarantee related to the reclamation and rehabilitation work required at the TMC Project.  The Company must obtain the performance guarantee in the approximate amount of $1,224,140 no later than February 2, 2017.  The performance guarantee may be in the form of a personal bond accompanied by a letter of credit, certificate of deposit in favor of ADNR, or cash deposit in the amount of the bond; in the form of a corporate surety bond; or other security acceptable to ADNR. With BOCO's conditional provision of the performance guarantee (as further discussed below), the Company received correspondence from ADNR dated February 9, 2017, confirming it has satisfied all of the requirements set forth in the Notice of Violation.

 

As of the date of this Quarterly Report, the Company believes that its assets alone are not sufficient to satisfy the performance guarantee.  The Company will need to rely on BOCO to maintain the performance guarantee (as further discussed below) and ultimately to raise capital through the issuance of equity and/or debt as the principal source of liquidity to satisfy the performance guarantee on its own.  The Company’s prospects of raising capital now are greatly diminished due to several factors, including the recent substantial write down of Company assets (as described throughout the Notes above), the improbability of generating substantial revenue soon due to the cessation of operations at the TMC Project resulting from the September 2016 slough event (as described in this Footnote 10 above), and the Company’s current capital structure.  If the Company fails to satisfy the performance guarantee as required by ADNR, the Company’s MLUP will likely be revoked and the Company will lose access to the TMC Project.  In light of the circumstances, the Company is considering all avenues with regard to the performance guarantee and our loans and other outstanding obligations.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016), no assurance can be given that the Company will in fact be able to raise the required capital in a timely manner or that the proposed terms of any such financing will be favorable or acceptable to the Company.  If we are unsuccessful in obtaining or agreeing to financing, the Company may be forced to discontinue all operations and will fail, which will likely result in the Company’s shareholders losing their entire investment.

 

BOCO Provision of Performance Guarantee

 

On January 31, 2017, the Company, its wholly owned subsidiary, Terra Gold Corporation (“TGC”), and BOCO entered into a Pledge Agreement (the “Pledge Agreement”), pursuant to which BOCO agreed to provide, on behalf of the Company, the performance guarantee as required by ADNR for a period of at least 2 years and 1 week.  BOCO agreed to provide a certificate of deposit in the full amount of the performance guarantee, $1,224,140 (the “CD”), which was pledged to and accepted by ADNR on February 1, 2017.

 

BOCO maintains rights to the full amount of the CD and is entitled to all interest generated by the CD (the principal and all interest generated by not paid to BOCO, the “Guaranteed Amount”).  In consideration of BOCO posting the CD as the performance guarantee, the Company is required to pay BOCO an annual fee calculated as 10% of the maximum Guaranteed Amount during the prior one year period (the “Guaranty Fee”), which will be prorated in the event of a partial year.  The initial Guaranty Fee in the amount of $122,414 became payable on the date the CD was pledged and has not yet been paid.

 

Additionally, the Company must take steps to replace the BOCO CD within two years and protect against ADNR taking deductions from the CD.  In the event ADNR does take a deduction from the CD, the Company will be required to immediately repay BOCO in full for the deduction and cause the release of the remaining amount of the CD from the performance guarantee.  Finally, the Company, TGC, Fidelity Title Company, as Trustee, and BOCO also entered a Deed of Trust, Security Agreement, Assignment of Production, Rents and Leasehold Interests, Financing Statement and Fixture Filing dated January 31, 2017 (the “Deed of Trust”).  The Deed of Trust secures the Company’s obligations under the Pledge Agreement in the full amount of the CD by providing to BOCO a general security interest over all assets of the Company, including all the Company’s rights related to the entire TMC project, including all related mining claims and leases, the Company’s after acquired property interests, and all gold, silver, and other ores and minerals extracted by the Company.  In the event of the Company’s default of the Pledge Agreement, BOCO will have the right to foreclose on all the assets of the Company without the necessity of going to court.

 

10


 

As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company.  The preceding descriptions of the Pledge Agreement and the Deed of Trust are incomplete and qualified in their entirety by reference to the complete text of the Pledge Agreement and the Deed of Trust, respectively, which are attached as Exhibits to this Quarterly Report.

 

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 $25,232,880 as of July 31, 2016, and further losses are anticipated in the development of its business.  Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

 

The Company’s 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, given the recent slough event at the TMC Project, the Company is currently evaluating its options for alternative revenue generating operations.  These evaluations may result in a change of the Company’s current business plan, including the possible acceleration of implementing underground mining development and capital raising to fund those activities (as further discussed in Note 10, Subsequent Events).  Alternatively, 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. Since WMTN’s ability to raise additional capital will be affected by many factors, most of which are not within the Company’s control (including the “Risk Factors” set forth in the Company’s 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 is currently in default under the promissory notes held by BOCO under the terms of each such promissory note and the Modification Agreement (as described in Note 7, Promissory Notes) for failure to make payments when due (as of November 15, 2016).  BOCO has not made a demand for payment or otherwise indicated an intent to initiate foreclosure activities as of the date of this Quarterly Report.  The Company currently has insufficient funds to pay any amount on the BOCO promissory notes and will need to raise capital through the issuance of equity and/or debt as the principal source of liquidity to make such payments (see Note 10, Subsequent Events, for additional discussion). 

 

The Company is considering all avenues with regard to satisfying its obligations under the promissory notes and provide the required performance guarantee bond.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016), no assurance can be given that the Company will in fact be able to raise the required capital in a timely manner or that the proposed terms of any such financing will be favorable or on terms acceptable to the Company.  If we are unsuccessful in obtaining or agreeing to financing, the Company may be forced to discontinue all operations and will fail, which will likely result in the Company’s shareholders losing their entire investment.  Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

 

11


 

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 July 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 Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for a full fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Company’s 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 Company’s 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 2 -5 years.

 

Metal and Other Inventory

Inventories were $1,411,063 and $559,432 as of July 31, 2016 and October 31, 2015, respectively. Inventories may include ore stockpiles (in process inventory), doré and gold bullion. The inventory at July 31, 2016 and October 31, 2015 was represented by ore stockpiles.  All inventories, as of July 31, 2016 and October 31, 2015, 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 overhead costs directly 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.  Bulk sampling operations to date have been de minimis therefore no amortization has been recorded.

 

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.

 

Given the operational challenges encountered during the 2016 mining season to date and the valuation of the Company’s Common Stock (see Note 6, Certain Relations and Related Party Transactions), the Company engaged a valuation firm to assist in the valuation of the company’s common stock. The valuation concluded that the fair value of the Common Stock was de minimis, thus the Company concluded that the mining claims should also be recorded with a fair value of de minimis and accordingly recorded an impairment of the full value of the mining claims in the amount of $2,446,458 as of July 31, 2016.  Impairments recognized as of July 31, 2016 and October 31, 2015 are $2,446,458 and $0, respectively.

 

12


 

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 Company’s 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 Company’s 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 asset’s useful life. The Company’s 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 entity’s 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.

 

Liabilities measured at fair value on a recurring basis are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Amount at

July 31,

2016

 

Fair Value Measurements Using Inputs

 

Financial Instruments

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Forward contract

$

-

 

$

250,761

 

$

-

 

$

250,761

Derivative Instruments

$

-

 

$

-

 

$

-

 

$

-

Total

$

-

 

$

250,761

 

$

-

 

$

250,761


13


 

 

 

 

 

 

 

 

 

 

Carrying Amount at

October 31,

2015

 

Fair Value Measurements Using Inputs

 

Financial Instruments

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Forward contract

$

-

 

$

250,612

 

$

-

 

$

250,612

Derivative Instruments

$

-

 

$

867,557

 

$

-

 

$

867,557

Total

$

-

 

$

1,118,169

 

$

-

 

$

1,118,169

  

The estimated fair value of common stock used to measure the Derivative Instruments at October 31, 2015:

 

July 31,

2016

 

October 31,

2015

 

 

Estimated fair value of common stock:

$

0.00

 

$

0.09

Exercise price

$

0.12

 

$

0.12

Expected term (years)

 

1.25

 

 

2.00

Dividend yield

 

-

 

 

-

Expected volatility

 

114.23%

 

 

133.29%

Risk-free interest rate

 

0.750%

 

 

0.75%

 

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 July 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.  As of July 31, 2016, the Company concluded that embedded derivative features no longer met the definition of a derivative.  The liability recorded for these embedded derivatives as of July 31, 2016 and October 31, 2015 was $0 and $867,557 respectively.

 

During the three and nine months ended July 31, 2016, the Company recognized $514,574 and $867,557 of other income. This is partially a result of a decrease in the fair value of the embedded derivatives from May 31, 2016 and October 31, 2015, respectively.

 

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.

 

14


 

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 paid Snowmass the sum of $50,000 during the year ended October 31, 2015.

 

As of July 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 July 31, 2016, the Company recorded additional interest expense of $35 for the change in the value of gold from April 30, 2016. During the nine months ended July 31, 2016, the Company recorded additional interest expense of $149 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.

 

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 July 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 July 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 Company’s 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 Company’s 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.

 

15


 

 

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50The 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 vendor’s 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 nine months ended July 31, 2016.

 

Recent Accounting Pronouncements

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

 

This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and tangible assets within the scope of Topic 350, Intangibles – Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

 

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

 

 

·

Identify the contract(s) with a customer.

 

 

·

Identify the performance obligations in the contract.

 

16


 

 

·

Determine the transaction price.

 

 

·

Allocate the transaction price to the performance obligations in the contract.

 

 

·

Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

 

ASU No. 2014-15, Presentation of Financial Statements - Going Concern (subtopic 205-40)

 

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about the Company’s ability to continue as a going concern and to provide related footnote disclosures. This standard will be effective for the Company beginning the quarter ending on January 31, 2017. Early application is permitted.  The Company is evaluating the effect this ASU may have on its consolidated financial statements.

 

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. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

 

FASB Accounting Standards Update No. 2016-02, Leases (Topic 832)

 

Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

 

·

A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

 

·

A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

 

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The Company is evaluating the effect this ASU may have on its 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.

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.

 

 

2016 payment of $125,000 due on March 22, 2016 was made on April 14, 2016.

 

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 July 31, 2016, the Company has capitalized $975,000 related to this Claims Agreement.

 

17


 

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. 

 

NOTE 5. EQUIPMENT, NET

 

Equipment, net consists of the following: 

 

 

Estimated

Useful

Lives

 

 

July 31,

2016

 

 

October 31,

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mining and other equipment

2-5 years

 

$

1,073,961

 

$

894,259

Less: accumulated depreciation

 

 

 

(739,240)

 

 

(575,455)

 

 

 

$

334,721

 

$

318,804

 

Depreciation expense for the nine months ended July 31, 2016 and 2015 was $163,785 and $135,567, respectively. Depreciation expense for the three months ended July 31, 2016 and 2015 was $63,739 and $47,501, 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 Company’s 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 $-0- and $11,300 as of July31, 2016 and October 31, 2015, respectively.  Cash payments of $11,354 were made to Minex mainly for services during the nine months ended July 31, 2016.

 

On May 26, 2015, as part of the Company’s Loan and Note Modification Agreement dated as of May 15, 2015, Minex converted the full $665,201 of payables to 5,543,350 shares of the Company’s common stock. (see Note 7 to the accompanying financial statements, Promissory Notes)

 

On June 17, 2016, the Company entered into and closed an equity investment in the Company pursuant to certain Common Stock and Warrant Purchase Agreements (the “Purchase Agreements”) with certain accredited investors discussed in further detail in Note 8 (collectively, the “Investors”).  Pursuant to the Purchase Agreements, the Company sold twelve million (12,000,000) shares of its common stock, par value $0.001 (each a “Share” and, collectively, the “Shares”).  The Shares were sold at a purchase price of three cents ($0.03) per Share, for an aggregate purchase price of three hundred sixty thousand dollars ($360,000).

 

Each Share purchased also includes 3.25 warrants, each for the purchase of an additional Share at a purchase price of seven cents ($0.07) per Share (each a “Warrant” and, collectively, the “Warrants”), exercisable on or before the date that is seven (7) years from the date of issuance thereof pursuant to those certain Warrant for the Purchase of Common Stock of  WestMountain Gold, Inc. forms (the “Warrant Forms”).  A total of thirty-nine million (39,000,000) Warrants were sold by the Company as a result of this transaction.

 

The Company engaged a valuation firm to assist in the valuation of the June 17, 2016 equity investment transaction. The valuation considered the income, market, and cost approaches in determining the fair value of the shares. As a result of this valuation, the Company recorded an impairment to the mining claim asset.

 

One of the accredited investors involved in this investment was Joseph C. Zimlich who is the President of the Managing Member of BOCO.  As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company.

 

 

Secured Promissory and Promissory Notes with BOCO

From time to time, the Company entered into promissory notes and other agreements with BOCO, our majority shareholder, related to loans from BOCO to the Company.  As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock.  The current status of BOCO loans to the Company and their terms are described in Note 7, Promissory Notes, and Note 10, Subsequent Events.

 

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 “2015 Loan Modification Agreement”) between the Company, its directors, BOCO, and two other creditors of the Company. The 2015 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:

 

19


 

 

$100,000 plus interest was due and payable on October 1, 2015;

 

 

 

Approximately $700,000 plus interest was 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 2015 Loan Modification Agreement, BOCO agreed to convert $2,221,159 in unpaid interest, plus principal of $300,000 into shares of the Company’s 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 Company’s 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 2015 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 2015 Loan Modification Agreement, the Company and a related party vendor, Minex Exploration, agreed to convert payables of $665,202 into shares of the Company’s 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 Company’s 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.

 

The 2015 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 2015 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 2015 Loan Modification Agreement was executed.

 

The Company had a total of $909,346 of principal payments to BOCO due on November 15, 2015, pursuant to the 2015 Loan Modification Agreement, which BOCO extended to December 15, 2015.  The Company was unable to make these payments and again defaulted on all notes to BOCO.  After receiving from BOCO a notice of default and demand for payment in full of the notes, the Company and BOCO negotiated the following resolution to the default.

 

At that time, the following promissory notes made by the Company in favor of BOCO (collectively, the “Notes”) were in default:

 

20


 

 

·

September 17, 2012, Amended and Restated Secured Convertible Promissory Note in the principal amount of $1,852,115 (the “September 2012 Note”);

 

 

·

May 7, 2013, Promissory Note in the principal amount of $500,000 (the “May 2013 Note”);

 

 

·

June 27, 2013, Promissory Note in the principal amount of $500,000 (the “June 2013 Note”);

 

 

·

February 14, 2014, Secured Promissory Note in the principal amount of $1,000,000 (the “February 2014 Note”);

 

 

·

May 23, 2014, Secured Convertible Promissory Note in the principal amount of $100,000 (the “May 2014 Note”);

 

 

·

June 9, 2014, Secured Convertible Promissory Note in the principal amount of $100,000 (the “June 2014 Note”);

 

 

·

May 1, 2015, Promissory Note in the principal amount of $100,000 (the “May 2015 Note”);

 

 

·

June 26, 2015, Secured Promissory Note in the principal amount of $109,346.31 (the “June 2015 Note”);

 

 

·

March 22, 2016, Secured Promissory Note in the principal amount of $125,000 (the “March 2016 Note”); and

 

 

·

April 12, 2016, Secured Promissory Note in the principal amount of $531,317 (the “April 2016 Note”).

 

On June 22, 2016 (the “Effective Date”), the Company and BOCO entered into and closed a Loan and Note Modification Agreement (the “Modification Agreement”) to resolve the default and restructure the debt due under the Notes.  The total amount due under the Notes immediately prior to entering into the Modification Agreement was approximately, $5,879,797.

 

Pursuant to the Modification Agreement, BOCO waived all current defaults and default interest due on the Notes.  Additionally, BOCO converted all outstanding principal and interest due under the May 2014 Note and June 2014 Note, totaling $217,956, into 1,816,296 shares of the Company’s common stock, par value $0.001, at a conversion rate of $0.12 per share.  As a result of the conversion, the May 2014 Note and June 2014 Note were canceled.

 

Furthermore, pursuant to the Modification Agreement, the base interest rate was decreased from 8% to 5% as of the Effective Date on the following Notes: the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note.  The base interest rate of the September 2012 Note (collectively with the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note, the “Remaining Notes”) remains at 8% per annum.  With respect to the Remaining Notes, in the event of a default under the Modification Agreement, any of the Remaining Notes or agreements related thereto, the default interest rate was adjusted to the maximum interest rate allowable under Colorado law.  As of the Effective Date, the Remaining Notes will accrue interest at their respective base interest rates.

 

Additionally, the Modification Agreement extended the maturity date of the following Notes to December 15, 2018: the May 2013 Note, the June 2013 Note, the May 2015 Note, the June 2015 Note, and the March 2016 Note.  The maturity date for the other Remaining Notes remains unchanged, as follows: the September 2012 Note due on November 15, 2017, the February 2014 Note due on November 15, 2016, and the April 2016 Note due on October 31, 2018.

 

The Remaining Notes continue to be secured by the assets of the Company pursuant to the Security Agreement entered into by the Company and BOCO dated June 27, 2013, and the Security and Inter-Creditor Agreement entered into by the Company and BOCO dated May 15, 2015 (collectively, the “Security Agreements”).  Furthermore, BOCO retains certain protective and oversight rights over Company operations and requires the Company to maintain covenants that are substantially similar to the protective and oversight rights and covenants contained in the prior 2015 Loan and Note Modification Agreement.

 

As part of the Modification Agreement, the Company appointed Richard Bloom and Brian Klemsz as directors of the Company to serve until the next election of directors.

 

The 2016 modification was accounted for as a troubled debt restructuring which resulted in a $939,532 decrease in outstanding debt.  The modified debt was recorded at fair value which was determined using a discounted cash flow model.  Because BOCO is a related party with a controlling interest in the Company, the decrease in the debt obligation was recorded directly to additional paid-in capital.

 

21


 

The preceding descriptions of the Modification Agreement, the Notes and the Security Agreements are incomplete and qualified in their entirety by reference to the complete text of the Modification Agreement, the Notes and the Security Agreements, respectively, which were attached as Exhibits to previously filed reporting documents of the Company.

 

As of July 31, 2016 and October 31, 2015, the Company has the following promissory notes outstanding:

 

July 31,

2016

October 31,

2015

BOCO September 17, 2012 Promissory Note

$

1,852,115

 

$

1,852,115

BOCO May 7, 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

BOCO June 9, 2014 Promissory Note

-

100,000

BOCO May 1, 2015 Promissory Note

 

100,000

 

 

100,000

BOCO June 26, 2015 Line of Credit

109,346

109,346

BOCO March 22, 2016 Promissory Note

 

125,000

 

 

-

BOCO April 12, 2016 Line of Credit

640,000

-

Dessi December 17, 2013, Promissory Note

 

1,000,000

 

 

1,000,000

Andres Promissory Notes

 

200,000

 

200,000

SUBTOTAL

 

6,026,461

 

 

5,461,461

Debt Discount

 

(657,210)

 

(469,237)

TOTAL

$

5,369,251

 

$

4,992,224

 

Dividends Issued on 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 Company’s discretion, may be paid in the Company’s common shares.  During the three ended July 31, 2016, the Company issued 387,820 shares of common stock and recorded the dividends at par value.

 

Equity Investment

 

On June 17, 2016, the Company entered into and closed an equity investment in the Company pursuant to certain Common Stock and Warrant Purchase Agreements (the “Purchase Agreements”) with certain accredited investors listed below (collectively, the “Investors”).  Pursuant to the Purchase Agreements, the Company sold twelve million (12,000,000) shares of its common stock, par value $0.001 (each a “Share” and, collectively, the “Shares”).  The Shares were sold at a purchase price of three cents ($0.03) per Share, for an aggregate purchase price of three hundred sixty thousand dollars ($360,000).

 

Each Share purchased also includes 3.25 warrants, each for the purchase of an additional Share at a purchase price of seven cents ($0.07) per Share (each a “Warrant” and, collectively, the “Warrants”), exercisable on or before the date that is seven (7) years from the date of issuance thereof pursuant to those certain Warrant for the Purchase of Common Stock of WestMountain Gold, Inc. forms (the “Warrant Forms”).  A total of thirty-nine million (39,000,000) Warrants were sold by the Company as a result of this transaction.

 

22


 

As a condition to the investment, the Company is required to indemnify each of the Investors with respect to certain events and to release all claims that may be brought by or on behalf of the Company against each of the Investors, as described more fully in the Purchase Agreements.  The Purchase Agreements and Warrant Forms otherwise include customary terms for a transaction of this nature, including registration rights related to the underlying Shares.

 

The Shares and Warrants were purchased by the respective Investors as follows:

 

Investor Name

Purchase

Price Paid

Shares

Purchased

Warrants

Purchased

Richard Bloom

$

57,000

 

1,900,000

 

6,175,000

Bloom Family Investments Limited Partnership

$

57,000

1,900,000

6,175,000

Patrick J. Kanouff

$

18,000

 

600,000

 

1,950,000

Brian Klemsz

$

114,000

3,800,000

12,350,000

Joseph C. Zimlich

$

114,000

 

3,800,000

 

12,350,000

 

As a result of the transaction, each of Richard Bloom (directly and indirectly through Bloom Family Investments Limited Partnership), Brian Klemsz, and Joseph C. Zimlich is, or has rights to become, the beneficial owner of greater than 10% of the issued and outstanding shares of the Company’s common stock.

 

Joseph C. Zimlich is the President of the Managing Member of BOCO.  As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company.

 

The preceding descriptions of the Purchase Agreements and the Warrant Forms are incomplete and qualified in their entirety by reference to the complete text of the Purchase Agreements and the Warrant Forms, respectively, forms of which were attached as Exhibits to a previously filed Quarterly Report of the Company.  The Purchase Agreements and the Warrant Forms for each of the Investors are substantially identical but for the amounts of the investment and number of Shares and Warrants issued.

 

The Company engaged a valuation firm to assist in the valuation of the June 17, 2016 equity investment transaction. The valuation considered the income, market, and cost approaches in determining the fair value of the shares. The valuation found that the fair value of the Company’s Common Stock shares is de minimis due to the uncertainty in the Company’s ability to develop the resources and the significant doubt of the ability of the Company to continue as a going concern. Additionally, as a result of the valuation, the Company recorded an impairment to the mining claim asset. The de minimis dollar fair value impacted the valuation of the common stock issued as preferred stock dividends and the common stock options that were granted during the three months ended July 31, 2016, to reflect the Company’s Common Stock fair value of de minimis.


The transactions described above were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

 

A summary of the warrants issued and outstanding as of July 31, 2016 is as follows:

 

 23


 

 

July 31, 2016

 

Shares

Weighted

Average

Exercise Price

Outstanding at beginning of period

2,838,084

 

$

1.235

Issued

39,000,000

 

 

0.07

Exercised

-

 

 

-

Forfeited

-

 

 

-

Expired

(1,771,334)

 

 

1.302

Outstanding at end of period

40,066,750

 

$

0.092

Exercisable at end of period

40,066,750

 

 

 

 

 

 

July 31, 2016

 

Weighted

Average

Remaining

Life

Weighted

Average

Exercise

Price

 

 

 

Number of

Warrants

Shares

Exercisable

39,000,000

6.88

$

0.07

39,000,000

230,000

2.67

$

0.25

230,000

200,000

2.61

$

0.50

200,000

78,000

4.73

$

0.75

78,000

10,000

0.58

$

0.88

10,000

150,000

1.52

$

1.00

150,000

398,750

0.79

$

1.50

398,750

40,066,750

1.82

$

0.927

40,066,750


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 granted to James W. Creamer, CFO, pursuant to his employment agreement, and issued 1,000,000 options to him 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 $93,294 in option expense for the nine months ended July 31, 2016.

 

24


 

On May 3, 2016, the Company issued 7,250,000 options to five employees to purchase shares in our common stock at $0.10 per share for a period of 7 years.  25% of the options vested immediately upon their issuance and 25% will vest each subsequent year. On the date of the grant, the Company valued the options at $0 using the Black-Scholes option pricing model with the following assumptions: estimated fair value of the stock of $0, expected life of the options of 7 years, expected volatility of 126.15%, risk-free rate of 1.57% and no dividend yield, and the value of the options are being expensed over the vesting period.

 

A summary of the options issued and outstanding as of July 31, 2016 is as follows:

 

 

July 31, 2016

 

 

 

Weighted

Average

Exercise

Price

 

 

 

 

 

 

 

Shares

 

Outstanding at beginning of period

1,000,000

 

$

0.12

Issued

7,250,000

 

 

0.102

Exercised

-

 

 

-

Forfeited

-

 

 

0.50

Expired

-

 

 

-

Outstanding at end of period

8,250,000

 

$

0.102

Exercisable at end of period

2,562,500

 

 

0.106

 

 

 

July 31, 2016

 

 

Weighted

Average

Remaining

Life

 

Weighted

Average

Exercise

Price

 

 

 

Shares
Exercisable

 

 

 

 

Number of

Options

 

 

 

 

 

 

1,000,000

 

5.33

 

$

0.12

 

750,000

7,250,000 

 

6.76

 

 

0.10

 

 1,812,500

8,250,000

 

6.56

 

$

0.106

 

2,562,500

 

Except as disclosed, including default conditions on outstanding debt, there are no pending legal proceedings or unasserted claims against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations.  However, due to the Company’s various obligations and recent events adversely affecting the Company’s ability to generate revenue or raise capital, there is substantial doubt about the Company’s ability to continue as a going concern (see Note 2, Going Concern, for further discussion).

 

25


 

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. Creamer’s salary will be $96,000 per year and is eligible for annual bonuses and incentive plans determined by the Company’s Compensation Committee.  Mr. Creamer was also granted 1,000,000 options to purchase the Company’s 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).  Mr. Creamer resigned from his positions with the Company on October 28, 2016.  As a result of Mr. Creamer’s resignation, the Employment Agreement was terminated.

 

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

$

39,372

2017

$

46,382

2018

$

12,000

2019

$

12,000

Total

$

109,754

 

NOTE 10. SUBSEQUENT EVENTS

 

Promissory Notes

 

On August 11, 2016, the Company and BOCO entered into a Second Amendment To Secured Promissory Note (the “BOCO Amendment”) amending the Secured Promissory Note in the amount of up to six hundred forty thousand dollars ($640,000) entered into by the Company and BOCO on April 12, 2016, as amended by the Modification Agreement (collectively, the “Note”).

 

The BOCO Amendment increases the maximum amount of the line of credit from six hundred forty thousand dollars ($640,000) to one million dollars ($1,000,000).  All other terms of the Note remain unchanged, including interest continuing to accrue at 5% per annum and the maturity date remaining October 31, 2018.  Since August 11, 2016, the Company has received additional advances in the aggregate amount of two hundred twenty-five thousand dollars ($225,000) from BOCO out of the increased credit line under to the terms of the BOCO Amendment and Note.

 

Brian Klemsz, Richard Bloom (either directly or through an affiliate), and James W Creamer III, the directors of the Company (Mr. Creamer resigned from the Company on October 28, 2016), had collectively committed to provide bridge loans to the Company in the aggregate amount of up to one hundred sixty thousand dollars ($160,000).  This commitment was provided, in part, as consideration for the BOCO Amendment.  The directors advanced a total of eighty thousand dollars ($80,000) to the Company pursuant to promissory notes dated August 3, 2016 (collectively, the “Director Notes”), accruing 5% interest and a maturity date of August 31, 2016.  The directors advanced funds in the following amounts (individually, unless otherwise specified): Brian Klemsz $30,000; Bloom Family Investments Limited Partnership (Richard Bloom is a manager of Bloom Family Management LLC, its general partner) $25,000; and James W Creamer III $25,000.  The proceeds from the Director Notes and the BOCO Amendment have been used to finance the Company’s immediate operational expenses.  These borrowings were necessitated by unexpected delays in revenue generation caused by operational problems at the Company’s Terra camp.  The Company repaid the Director Notes in full, plus interest on September 1, 2016, in the amounts of $30,115.07 to Mr. Klemsz, $25,095.89 to Bloom Family Investments Limited Partnership, and $25,095.89 to Mr. Creamer.

 

26


 

On November 18, 2016, the Company and BOCO entered into a Secured Promissory Note in the principal amount of $172,520 (the “November 2016 Note”).  The November 2016 Note accrues interest at 8% per annum and is due in full on November 17, 2017.  The funds were used to pay fees to maintain the Company’s claims at the TMC project.

 

As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company, and each of Richard Bloom (either directly or through an affiliate such as, Bloom Family Investments Limited Partnership (Richard Bloom is a manager of Bloom Family Management LLC, its general partner)), and Brian Klemsz is, or has rights to become, the beneficial owner of greater than 10% of the issued and outstanding shares of the Company’s common stock.  At the time of the execution of the Director Notes, James W. Creamer III was also the Chief Financial Officer of the Company (until his resignation on October 28, 2016).

 

The preceding descriptions of the BOCO Amendment, the Note, the Modification Agreement, the Director Notes, and the November 2016 Note are incomplete and qualified in their entirety by reference to the complete text of the BOCO Amendment, the Note, the Modification Agreement, and the Director Notes, respectively, all of which were attached as Exhibits to previously filed reporting documents of the Company and, the November 2016 Note, which is attached as an Exhibit to this Quarterly Report.

 

Default on Promissory Notes

 

The Company is currently in default under the promissory notes held by BOCO under the terms of each such promissory note and of the Modification Agreement (as described above in Note 7, Promissory Notes) for failure to make payments when due (as of November 15, 2016).  BOCO has not made a demand for payment or otherwise indicated an intent to initiate foreclosure activities as of the date of this Quarterly Report.  The Company currently has insufficient funds to pay any amount on the BOCO promissory notes and will need to raise capital through the issuance of equity and/or debt as the principal source of liquidity to make such payments.  The Company is considering all avenues with regard to satisfying its obligations under the promissory notes.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016), no assurance can be given that the Company will in fact be able to raise the required capital in a timely manner or that the proposed terms of any such financing will be favorable or acceptable to the Company.  If we are unsuccessful in obtaining or agreeing to financing, the Company may be forced to discontinue all operations and will fail, which will likely result in the Company’s shareholders losing their entire investment.  Accordingly, there is a substantial doubt about the Company’s ability to continue as a going concern.

 

Slough Event

 

WestMountain Gold, Inc. (the “Company”) recently experienced a significant slough event at its mining property located in Alaska (referred to in our prior periodic filings as the “TMC Project” or “Terra”).  The slough event occurred sometime between the evening hours of September 1, 2016, and the early afternoon hours of September 2, 2016, in the area of the TMC Project where the Company was conducting bulk surface sampling operations.  No injuries were reported and no equipment was lost or damaged as a result of the significant slough event due to the Company taking safety precautions to evacuate that area after earlier minor slough events.  However, the slough event caused approximately 25,000 tons of rock material to completely cover the main vein in the bulk surface sampling area.

 

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Due to the extensive coverage and ongoing safety concerns in this area caused by the slough event, the Company ceased all surface bulk sampling operations at the TMC Project and believes it is likely that the surface bulk sampling operations at the TMC Project will remain closed permanently.  The Company’s strategy had been to use cash flow generated from its surface bulk sampling operations to help fund the expansion of resources and the pursuit of underground mining development at the TMC Project.  If surface bulk sampling operations remain closed permanently or for any extended period of time, the Company will be forced to change its business plan, which may include implementing underground mining development sooner than expected and relying solely on that underground mining development to exploit the TMC Project and generate revenues.  Additionally, in the absence of expected revenues from surface bulk sampling operations, the Company believes it will be necessary to raise more equity or debt financing than originally planned to commence underground mining development.  We expect the build out of such operations would cost a minimum of $3,000,000 to $5,000,000 and that commencement of underground development could occur no earlier than June 2017.  Accordingly, the Company will likely remain in the exploration stage of its mining operations longer than originally anticipated.

 

The Company’s 2016 Operations Plan (the “2016 Operations Plan”; included as an Exhibit to the Company’s Current Report on Form 8-K dated January 29, 2016) relied on revenue expected to be generated almost exclusively from our surface bulk sampling operations at the TMC Project to fund our operational costs for the 2016 season and other upcoming obligations.  Prior to the slough event, we excavated approximately 1,357 tons of vein material from our surface bulk sampling operations (compared to 2,250 to 2,500 tons that we expected to mine from the surface sampling operations for the entire 2016 season).  To date, we have processed approximately 890 tons of vein material (including vein material remaining from the 2015 season) and have an estimated additional 1,470 tons of vein material that has yet to be processed.  Even if we are able to process the estimated remaining 1,470 tons of vein material, our total processed tonnage will fall well short of the 3,600 tons projected in the 2016 Operations Plan.  Due to the decrease in actual excavated vein material compared to expected excavated vein material caused by the slough event, actual revenues for the 2016 season will fall well short of the Company’s projections set forth in the 2016 Operations Plan.

 

As a result of the expected reduced revenue caused by the slough event, the Company will most likely be unable to fund future operational costs, including planning and commencement of any potential underground mining development.  Additionally, we will likely be unable to meet certain loan obligations that come due in 2016 and are secured by the assets of the Company (a full description of the Company’s outstanding loans may be found in Note 7, Promissory Notes).  Failure to pay the loan obligations when they come due may result in the lenders accelerating all amounts due and foreclosing on the assets of the Company to satisfy the balances.  If foreclosure occurs, it will likely result in the Company’s shareholders losing their entire investment.

 

With the complete cessation of surface bulk sampling operations at the TMC Project, and no immediate prospects for alternative surface bulk sample operations, the Company’s potential revenue stream is limited to the remaining vein material that has already been excavated and is either currently in process or waiting to be processed.  Because the Company expects this revenue will be insufficient to fund our current and future operational expenses and obligations, the Company is currently assessing its options.  It is likely that the Company will need to raise additional new capital through the issuance of equity and/or debt in the near term to fund our loan obligations and continue operations, in addition to the capital that would need to be raised for the commencement of underground mining development at the TMC Project.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016), no assurance can be given that the Company will in fact be able to raise the required capital in a timely manner or that the proposed terms of any such financing will be favorable or acceptable to the Company.  If we are unsuccessful in obtaining or agreeing to financing, the Company may be forced to discontinue all operations and will fail, which will likely result in the Company’s shareholders losing their entire investment.

 

Notice of Violation from Alaska Department of Natural Resources

 

On October 28, 2016, we received a Notice of Violation correspondence (together with follow up correspondence from ADNR received December 13, 2016, the “Notice of Violation”) from the Alaska Department of Natural Resources (“ADNR”) (the Notice of Violation was addressed to our wholly owned subsidiary, Terra Gold Corporation, which holds the Miscellaneous Land Use Permit (“MLUP”) pursuant to which we operate at the TMC Project).  The Notice of Violation was issued pursuant to a July 29, 2016, ADNR site visit inspection at the TMC Project (the “Site Visit”).

 

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The Notice of Violation cited several significant observations made by ADNR representatives during the Site Visit that required the Company to take corrective action.  Failure to take all corrective action required by the Notice of Violation could result in revocation of the MLUP, which would require us to vacate the TMC Project.  In response to the Notice of Violation, the Company took corrective action.

 

The Alaska Department of Natural Resources recently notified the Company that we must provide a performance guarantee bond related to reclamation and rehabilitation work required at the TMC Project.  The Company must provide the performance guarantee in the approximate amount of $1,224,140 no later than February 2, 2017.  While the Company believes that its assets are not sufficient to satisfy the performance guarantee bond and we will likely need to raise capital through the issuance of equity and/or debt as the principal source of liquidity to satisfy the performance guarantee bond, BOCO has agreed to temporarily provide the performance guarantee bond on behalf of the Company. (see Note 1, Business, for additional discussion). In a correspondence from ADNR dated February 9, 2017, the Company received confirmation that it has satisfied all of the requirements set forth in the Notice of Violation.

 

ITEM 2.  MANAGEMENT’S 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s business, including additional factors that could materially affect the Company’s financial results, is included herein and in the Company’s 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.

 

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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 TMC’s fiscal year, which is October 31.  On February 28, 2013, we changed our name to WestMountain Gold, Inc.

 

TMC’s wholly owned subsidiary, Terra Gold Corporation (“TGC”), is currently focused on exploration and bulk sampling 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 339 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 2019 were renewed in 2015.  On November 18, 2016, we paid a total of $172,520 in fees to maintain the Terra claims from September 2016 through September 2017.   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 well.

 

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 2005 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 and collected a total of approximately 1,108 rock, soil and stream samples on the property in 2005.  AngloGold sold the TMC project to International Tower Hill Mines Ltd. ("ITH"), in 2006 pursuant to an Asset Purchase Agreement, where the property was then held by Raven Gold Alaska, Inc., a subsidiary of ITH. ITH drilled a total of 18 holes in drillings operations it conducted in 2006 and 2007.

 

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 entered into the following business transactions that we consider significant during the three months ended July 31, 2016.

 

BOCO Debt Restructure

 

On June 22, 2016 (the “Effective Date”), the Company and BOCO entered into and closed a Loan and Note Modification Agreement (the “Modification Agreement”) to resolve the default and restructure the debt due under all promissory notes made by the Company in favor of BOCO (listed below, collectively, the “Notes”):

 

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·

September 17, 2012, Amended and Restated Secured Convertible Promissory Note in the principal amount of $1,852,115 (the “September 2012 Note”);

 

 

·

May 7, 2013, Promissory Note in the principal amount of $500,000 (the “May 2013 Note”);

 

 

·

June 27, 2013, Promissory Note in the principal amount of $500,000 (the “June 2013 Note”);

 

 

·

February 14, 2014, Secured Promissory Note in the principal amount of $1,000,000 (the “February 2014 Note”);

 

 

·

May 23, 2014, Secured Convertible Promissory Note in the principal amount of $100,000 (the “May 2014 Note”);

 

 

·

June 9, 2014, Secured Convertible Promissory Note in the principal amount of $100,000 (the “June 2014 Note”);

 

 

·

May 1, 2015, Promissory Note in the principal amount of $100,000 (the “May 2015 Note”);

 

 

·

June 26, 2015, Secured Promissory Note in the principal amount of $109,346.31 (the “June 2015 Note”);

 

 

·

March 22, 2016, Secured Promissory Note in the principal amount of $125,000 (the “March 2016 Note”); and

 

 

·

April 12, 2016, Secured Promissory Note in the principal amount of $531,317 (the “April 2016 Note”).

 

Prior to the Effective Date, the Notes were in default due to non-payment and were accruing interest at the respective default rates set forth in the Notes (ranging from 18% to 45%).  At that time, the total amount due under the Notes immediately prior to entering into the Modification Agreement was approximately, $5,879,797.

 

Pursuant to the Modification Agreement, BOCO waived all current defaults and default interest due on the Notes.  Additionally, BOCO converted all outstanding principal and interest due under the May 2014 Note and June 2014 Note, totaling $217,956, into 1,816,296 shares of the Company’s common stock, par value $0.001, at a conversion rate of $0.12 per share.  As a result of the conversion, the May 2014 Note and June 2014 Note were canceled.

 

Furthermore, pursuant to the Modification Agreement, the base interest rate was decreased from 8% to 5% as of the Effective Date on the following Notes: the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note.  The base interest rate of the September 2012 Note (collectively with the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note, the “Remaining Notes”) remains at 8% per annum.  With respect to the Remaining Notes, in the event of a default under the Modification Agreement, any of the Remaining Notes or agreements related thereto, the default interest rate was adjusted to the maximum interest rate allowable under Colorado law.  As of the Effective Date, the Remaining Notes will accrue interest at their respective base interest rates.

 

Additionally, the Modification Agreement extended the maturity date of the following Notes to December 15, 2018: the May 2013 Note, the June 2013 Note, the May 2015 Note, the June 2015 Note, and the March 2016 Note.  The maturity date for the other Remaining Notes remains unchanged, as follows: the September 2012 Note due on November 15, 2017, the February 2014 Note due on November 15, 2016, and the April 2016 Note due on October 31, 2018.

 

The Remaining Notes continue to be secured by the assets of the Company pursuant to the Security Agreement entered into by the Company and BOCO dated June 27, 2013, and the Security and Inter-Creditor Agreement entered into by the Company and BOCO dated May 15, 2015 (collectively, the “Security Agreements”).  Furthermore, BOCO retains certain protective and oversight rights over Company operations and requires the Company to maintain covenants that are substantially similar to the protective and oversight rights and covenants contained in the prior 2015 Loan and Note Modification Agreement.

 

As part of the Modification Agreement, the Company appointed Richard Bloom and Brian Klemsz as directors of the Company to serve until the next election of directors.

 

As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company.

 

The preceding descriptions of the Modification Agreement, the Notes and the Security Agreements are incomplete and qualified in their entirety by reference to the complete text of the Modification Agreement, the Notes and the Security Agreements, respectively, which were attached as Exhibits to previously filed reporting documents of the Company.

 

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(c)                 Business of Issuer

 

We intend to devote substantially all of our efforts on growing the Company’s 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 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.  Due to the adverse effect of the recent slough event on our operations and ability to effectively exploit the TMC project, we are currently assessing our operational options and are unsure whether construction expenditures, underground mine exploration and capital improvements will continue in the foreseeable future. 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.

 

In light of the recent slough event at the TMC Project, as well as other significant events that adversely affect the Company’s capabilities to raise capital and commence operations (as further discussed above and in Notes 1, Business, and 10, Subsequent Events, to the accompanying financial statements) many of the existing plans and expectations of the Company’s management are unlikely to be realized and the Company is currently evaluating its business plan and options for alternative revenue generating operations.  Our analysis may result in a change of the Company’s current business plan from what is described in this Item 2 (and the descriptions of our business in reports previously filed by the Company), including the possible acceleration of implementing underground mining development and capital raising to fund those activities (as further discussed in Note 10 to the accompanying financial statements, Subsequent Events).  Due to the slough event, we have ceased operations at the TMC project and have not yet determined whether we will be able to recommence operations there in the coming season.

 

Moreover, we expect that we will need to raise additional funds to respond to our immediate obligations and if we decide to pursue recommencing operations at the TMC project, more rapid underground mining 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. However, in light of the recent developments for the Company, including, among other factors, the slough event, the impairment of mining claims, and requirement of a substantial performance guarantee by Alaska Department of Natural Resources (see Notes 1, Business, and 10, Subsequent Events, to the accompanying financial statements for a more detailed discussion of these factors and events), the Company is considering all avenues with regard to our ability to satisfy the performance guarantee and our loans and other outstanding obligations, as well as potential future operations.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with 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.

 

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 July 31, 2016, to Three Months Ended July 31, 2015

 

REVENUE

 

Revenue for the three months ended July 31, 2016, decreased $177,435 to $100,524 as compared to $277,959 for the three months ended July 31, 2015.  The Company’s 2016 season operations commenced during the three months ended July 31, 2016, however we experienced various operational problems at the beginning of the season which delayed our revenue generating activities at the TMC Project.  Due to these operational problems and corresponding delay in commencement of revenue generating activities, revenue dropped substantially for the three months ended July 31, 2016, as compared to the three months ended July 31, 2015.  Because of the seasonality of the Company’s operations, revenue during the quarters ended July 31 are expected to be minimal until we are able to commence year-round operations.

 

As of July 31, 2016, the Company had ore inventory valued at $1,411,063.  

 

COST OF SALES

 

Cost of sales for the three months ended July 31, 2016, decreased $118,482 to $45,073 as compared to $163,555 for the three months ended July 31, 2015.  This decrease is primarily related to the lower revenues during the three months ended July 31, 2016, compared to the three months ended July 31, 2015. 

 

EXPENSES

 

Selling, general and administrative expenses for the three months ended July 31, 2016, decreased $98,493 to $227,585 as compared to $326,078 for the three months ended July 31, 2015.  Such expenses for the three months ended July 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.  The main decrease was due to the options granted in May 2016 being valued at de minimis.

 

NET LOSS

 

Net loss for the three months ended July 31, 2016, was $2,673,866 as compared to a net loss of $815,889 for the three months ended July 31, 2015. The main variance is associated with an increase in interest expense, impairment of the mining claims, and decrease in gross profit partially offset by a gain on the change to the Company derivative liabilities.

 

Comparison of Nine Months Ended July 31, 2016, to Nine Months Ended July 31, 2015

 

REVENUE

 

Revenue for the nine months ended July 31, 2016, decreased $839,895 to $169,609 as compared to $1,009,504 for the nine months ended July 31, 2015.  During the fiscal year ended October 31, 2014, we were unable to sell all gold processed as a result of the 2014 season.  This unsold gold was subsequently sold during the nine months ended July 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.  Additionally, we experienced various operational problems at the beginning of the 2016 season which delayed our revenue generating activities at the TMC Project during the three months ended July 31, 2016.  Due to the process improvements made during 2015 and the operational issues experienced during the three months ended July 31, 2016, revenue dropped substantially for the nine months ended July 31, 2016, as compared to the nine months ended July 31, 2015.  Because of the seasonality of the Company’s operations, revenue during the nine month periods ended July 31 are expected to be minimal until we are able to commence year-round operations.

 

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As of July 31, 2016, the Company had ore inventory valued at $1,411,063.

 

COST OF SALES

 

Cost of sales for the nine months ended July 31, 2016, decreased $720,302 to $45,073 as compared to $765,375 for the nine months ended July 31, 2015.  This decrease was attributable the fact that some of the sales for the nine months ended July 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 nine months ended July 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).

 

EXPENSES

 

Selling, general and administrative expenses for the nine months ended July 31, 2016, increased $123,466 to $894,452 as compared to $770,986 for the nine months ended July 31, 2015.  Such expenses for the nine months ended July 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. The main decrease was due to the options granted in May 2016 being valued at de minimis.

 

NET LOSS

 

Net loss for the nine months ended July 31, 2016, was $3,650,843 as compared to a net loss of $1,137,871 for the nine months ended July 31, 2015. The net loss for the nine months ended July 31, 2016, included $2,052,703 of non-cash expenses comprised of $93,294 in expenses related to stock option expense, $181,029 related to depreciation and amortization of fixed assets, $175,926 related to the amortization of debt discount, $16,337 related to accretion expense, $2,446,458 related to the impairment of the Company mining claims, $867,557 gain on our derivative liability, and $7,216 other expense. The net loss for the nine months ended July 31, 2015, included $44,170 of non-cash expenses comprised of $355,887 gain on derivative liability, $218,970 of stock option expense, $135,566 related to depreciation and amortization of fixed assets, $45,568 related to amortization of debt discount, and $47 gain on forward contract.  

 

The increase in net loss was due to a combination of an increase in interest expense, impairment of the mining claims, and decrease in gross profit partially offset by a gain on the change to the Company derivative liabilities.  As discussed above, any expectation of the Company’s ability to maintain stable operating expenses or grow revenue moving forward will likely be adversely affected by the slough event that occurred at the TMC Project in September 2016 and any potential changes to the Company’s business plan as a result of the slough event (see Note 10 to the accompanying financial statements, Subsequent Events).

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of July 31, 2016, we had a working capital deficit of approximately $6,485,746.  We had a cash balance of $7,543, prepaid expenses of $62,132, and ore inventory of $1,411,063 offset by current liabilities of $7,966,484.  Current liabilities consisted of a forward contract of $250,761, promissory notes and line of credit of $5,369,251, accumulated interest of $655,343, and accounts payable and accrued expenses of $1,691,129 as of July 31, 2016.

 

Over the course of the last two years, the Company was in default on several occasions with respect to all of its outstanding debt, including approximately $4.9 million of debt to BOCO, our largest creditor and majority shareholder.  During the initial default, these notes had default interest rates of 18% and 45%. During 2015, the Company engaged BOCO and our other creditors to restructure our debt as it existed at the time so as to allow the Company to focus on execution of its business plan and put us on a path to repay our debts over a reasonable amount of time. We entered into a Loan and Note Modification Agreement (the “2015 Loan Modification Agreement”) with our directors, BOCO, and two other creditors on May 26, 2015 (see Note 1 to the accompanying financial statements, Business, for more details).

 

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On December 15, 2015, the Company again defaulted on the notes subject to the 2015 Loan Modification Agreement due to non-payment.  As of the date of this default, the notes payable to BOCO accrued interest at various default interest rates of 18% per annum, 20% per annum, and 45% per annum.  In May 2016, the Company received from BOCO a notice of default and demand for immediate payment in full of the notes and subsequently engaged BOCO to resolve the matter.  On June 22, 2016, the Company and BOCO entered into and closed the Modification Agreement (as described more fully in part (b) of this Item 2, “Material Transactions and Other Significant Business Transactions Overview”) to resolve the default and restructure the debt.  As of July 31, 2016, we have a total of $6,026,461 in outstanding principal (not inclusive of accrued interest) due to various parties pursuant to promissory notes (including $4,826,461 in principal due to BOCO).  The Company is again in default of these notes pursuant to the June 22, 2016 Modification Agreement due to failure to make a payment when it became due on November 15, 2016.  See Note 10 to the accompanying financial statements, Subsequent Events, for more details.

 

In the course of its start-up activities, the Company has sustained operating losses.  Expenses incurred from October 18, 2007, (date of inception) through July 31, 2016, relate primarily to the Company’s formation, general administrative activities, property acquisition, and limited operations.  Although our limited operations had begun to generate revenue, which provided some capital and liquidity for the Company, there can be no assurance if and when such revenue will be sufficient to fully support our operations in light of the slough event that ceased our operations.  Therefore, we will need to continue raising of capital through the issuance of equity and/or debt as our principal source of liquidity over the next several years to fund recommencing of operations and growth.  The Company had planned to raise funds for each step of the project in an effort to reduce the cost of capital as compared to trying to raise all the anticipated capital at once up front.  However, in light of the recent developments for the Company, including, among other factors, the slough event, the impairment of mining claims, and requirement of a substantial performance guarantee by Alaska Department of Natural Resources (see Notes 1, Business, and 10, Subsequent Events, to the accompanying financial statements for a more detailed discussion of these factors and events) the Company is considering all avenues with regard to our ability to satisfy the performance guarantee and our loans and other outstanding obligations.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with 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.

 

In the Company’s 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 Company’s 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 Company’s 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. 

 

In light of the recent slough event at the TMC Project, as well as other significant events that adversely affect the Company’s capabilities to raise capital and commence operations (see Notes 1, Business, and 10, Subsequent Events, to the accompanying financial statements for a more detailed discussion of these factors and events, many of the existing plans and expectations of the Company’s management (as described above) are unlikely to be realized. The Company is currently evaluating its options for alternative revenue generating operations and addressing our significant liabilities.  These evaluations may result in a change of the Company’s current business plan from what is described in this Item 2 (and the descriptions of our business in reports previously filed by the Company), including the possible acceleration of implementing underground mining development and capital raising to fund those activities (as further discussed in Note 10 to the accompanying financial statements, Subsequent Events), or pursuing other strategic restructuring negotiations or strategies.

 

35


 

NET CASH USED IN OPERATING ACTIVITIES

 

Net cash used in operating activities for the nine months ended July 31, 2016, was $1,321,167. This amount was primarily related to accrued interest of $884,987, accounts payable and accrued liabilities of $415,345 and non-cash expenses of $2,052,703; offset by the net loss of $3,650,843, decreases in accounts payable and accrued liabilities-related parties of $11,300, an increase in prepaid expenses of $35,428, an increase in prepaid royalties of $125,000, and an increase in inventory of $851,631. Non-cash expenses of $2,052,703 comprised of $2,446,458 expenses related to impairment of the Company’s mining claims, $93,294 in expenses related to stock option expense, $181,029 related to depreciation and amortization of fixed assets, $175,926 related to the amortization of debt discount, $16,337 related to accretion expense, $867,557 gain on our derivative liability, and $7,217 other expense. Net cash used in operating activities for the nine months ended July 31, 2015, was $268,088.

 

NET CASH USED IN INVESTING ACTIVITIES

 

Net cash used in investing activities for the nine months ended July 31, 2016 was $179,702. The Company purchased some heavy equipment in the amount of $179,702. Net cash used in investing activities for the nine months ended July 31, 2015 was $48,246.

 

NET CASH PROVIDED BY/ FINANCING ACTIVITIES

 

Net cash provided by financing activities for the nine months ended July 31, 2016 was $1,125,000. This amount consisted of two debt transactions with BOCO Investments, a promissory note in the amount of $125,000 and a line of credit facility of $640,000. In a subsequent event, the Company received additional funding from other investors in the amount of $360,000 (See Note 10 to the accompanying financial statements, Subsequent Events for a discussion of this transaction). Net cash provided by financing activities during the nine months ended July 31, 2015 was $372,711. This amount consisted of three debit transactions with BOCO Investments, a promissory note in the amount of $100,000, funding from a line of credit in the amount of $58,380, and the exercise of warrants in the amount of $264,331. The remaining $50,000 was related to a payment on the forward contract.

 

Our unaudited contractual cash obligations as of July 31, 2016, are summarized in the table below:

 

Years ended October 31,

Total

 

 

 

2016

$

42,372

2017

$

171,382

2018

$

137,000

2019

$

137,000

Total

$

487,754

 

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 Company’s 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 Company’s operations.

 

 

36


 

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.  Bulk sampling operations to date have been de minimis therefore no amortization has been recorded.

 

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. 

 

Given the operational challenges encountered during the 2016 mining season to date and the valuation of the Company’s Common Stock (see Note 6, Certain Relations and Related Party Transactions), the Company engaged a valuation firm to assist in the valuation of the company’s common stock. The valuation concluded that the fair value of the Common Stock was de minimis, thus the Company concluded that the mining claims should also be recorded with a fair value of de minimis and accordingly recorded an impairment of the full value of the mining claims in the amount of $2,446,458 as of July 31, 2016.  Impairments recognized as of July 31, 2016 and October 31, 2015 are $2,446,458 and $0, respectively.

 

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 Company’s 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 Company’s 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 asset’s useful life. The Company’s 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 entity’s 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.

 

37


 

Metal and Other Inventory

Inventories may include unprocessed ore, doré and unsold gold and silver. All inventories, as of July 31, 2016 and October 31, 2015, 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.

 

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 entity’s equity instruments or that may be settled by the issuance of those equity instruments.

 

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50The 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 vendor’s 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 July 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 July 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 nine months ended July 31, 2016, management identified the following material weaknesses:

 

38


 

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.

 

b) Changes In Internal Control Over Financial Reporting

 

During the nine months ended July 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

 

On June 17, 2016, the Company entered into and closed an equity investment in the Company pursuant to certain Common Stock and Warrant Purchase Agreements (the “Purchase Agreements”) with certain accredited investors listed below (collectively, the “Investors”).  Pursuant to the Purchase Agreements, the Company sold twelve million (12,000,000) shares of its common stock, par value $0.001 (each a “Share” and, collectively, the “Shares”).  The Shares were sold at a purchase price of three cents ($0.03) per Share, for an aggregate purchase price of three hundred sixty thousand dollars ($360,000) (see Footnote 10-Subsequent Event, for further discussion of this transaction).

 

Each Share purchased also includes 3.25 warrants, each for the purchase of an additional Share at a purchase price of seven cents ($0.07) per Share (each a “Warrant” and, collectively, the “Warrants”), exercisable on or before the date that is seven (7) years from the date of issuance thereof pursuant to those certain Warrant for the Purchase of Common Stock of WestMountain Gold, Inc. forms (the “Warrant Forms”).  A total of thirty-nine million (39,000,000) Warrants were sold by the Company as a result of this transaction.

 

As a condition to the investment, the Company is required to indemnify each of the Investors with respect to certain events and to release all claims that may be brought by or on behalf of the Company against each of the Investors, as described more fully in the Purchase Agreements.  The Purchase Agreements and Warrant Forms otherwise include customary terms for a transaction of this nature, including registration rights related to the underlying Shares.

 

39


 

 

The Shares and Warrants were purchased by the respective Investors as follows:

 

Investor Name

Purchase

Price Paid

Shares

Purchased

Warrants

Purchased

Richard Bloom

$

57,000

 

1,900,000

 

6,175,000

Bloom Family Investments Limited Partnership

$

57,000

1,900,000

6,175,000

Patrick J. Kanouff

$

18,000

 

600,000

 

1,950,000

Brian Klemsz

$

114,000

3,800,000

12,350,000

Joseph C. Zimlich

$

114,000

 

3,800,000

 

12,350,000

 

As a result of the transaction, each of Richard Bloom (directly and indirectly through Bloom Family Investments Limited Partnership (Richard Bloom is a manager of Bloom Family Management LLC, its general partner)), Brian Klemsz, and Joseph C. Zimlich is, or has rights to become, the beneficial owner of greater than 10% of the issued and outstanding shares of the Company’s common stock.

 

Joseph C. Zimlich is the President of the Managing Member of BOCO.  As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company (as discussed above, the Company is currently in default on all loans made by BOCO to the Company).

 

The preceding descriptions of the Purchase Agreements and the Warrant Forms are incomplete and qualified in their entirety by reference to the complete text of the Purchase Agreements and the Warrant Forms, respectively, forms of which were attached as Exhibits to previously filed reporting documents of the Company.


The transactions described above were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

 

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 three months ended July 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 three months ended July 31, 2016 and the Company had no injuries or fatalities.  Additionally, during the three months ended July 31, 2016, and as of the date of the filing of this Annual Report, there are no pending legal actions involving the TMC project.  However, the Company received a Notice of Violation from Alaska Department of Natural Resources (“ADNR”) as a result of a site visit conducted by ADNR during the three months ended July 31, 2016 (see Note 10 to the accompany financial statements, Subsequent Events, for a full discussion of the Notice of Violation). The Company voluntarily submitted to the U.S. Department of Labor and the Mine Safety Health Administration courtesy copies of certain of its responses to the ADNR Notice of Violation.

 

ITEM 5. OTHER INFORMATION

 

None.

 

40


 

 

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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)

 

41


 

 

*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 between 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, Silver 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)

*10.30

Secured Promissory Note between WestMountain Gold, Inc. and BOCO Investments, LLC dated March 22, 2016 (Attached as an exhibit to the Company's Form 8-K dated and filed with the SEC on March 28, 2016)

*10.31

Secured Promissory Note between WestMountain Gold, Inc. and BOCO Investments, LLC dated April 12, 2016 (Attached as an exhibit to the Company's Form 8-K dated and filed with the SEC on April 19, 2016)

*10.32

 

Form of Common Stock and Warrant Purchase Agreements between WestMountain Gold, Inc. and certain accredited investors dated June 17, 2016 (Attached as an exhibit to the Company's Form 10-Q dated and filed with the SEC on June 20, 2016)

*10.33

 

Form of Warrant for the Purchase of Common Stock of WestMountain Gold, Inc. issued by WestMountain Gold, Inc. to certain accredited investors dated June 17, 2016 (Attached as an exhibit to the Company's Form 10-Q dated and filed with the SEC on June 20, 2016)

*10.34

 

Loan and Note Modification Agreement effective June 22 2016, by and between WestMountain Gold, Inc. and BOCO Investments, LLC (Attached as an exhibit to the Company's Form 8-K dated and filed with the SEC on June 27, 2016)

*10.36

 

Form of Promissory Note dated August 3, 2016, by and between WestMountain Gold, Inc. and Brian Klemsz, Bloom Family Investments Limited Partnership, and James W. Creamer III (Attached as an exhibit to the Company's Form 8-K dated and filed with the SEC on August 18, 2016)

†10.37

Secured Promissory Note between WestMountain Gold, Inc. and BOCO Investments, LLC dated November 18, 2016

†10.38

Pledge Agreement by and among WestMountain Gold, Inc., Terra Gold Corporation and BOCO Investments, LLC dated January 31, 2017

†10.39

Deed of Trust, Security Agreement, Assignment of Production, Rents and Leasehold Interests, Financing Statement and Fixture Filing given by WestMountain Gold, Inc. and Terra Gold Corporation on behalf of Fidelity Title Company, as Trustee, and BOCO Investments, LLC dated January 31, 2017

*14.1

Code of Conduct & Ethics dated November 30, 2012. (Attached as an exhibit to the Company’s 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 Company’s 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.

‡32.1

Section 906 Certifications.

*99.1

Audit Committee Charter dated November 30, 2012. (Attached as an exhibit to the Company’s 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 Company’s 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 Company’s 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)

*

Included in previously filed reporting documents.