UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
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 number: 001-34055

TIMBERLINE RESOURCES CORPORATION

 (Exact Name of Registrant as Specified in its Charter)

DELAWARE		82-0291227
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
101 EAST LAKESIDE AVENUE
COEUR D’ALENE, IDAHO		83814
(Address of Principal Executive Offices)		(Zip Code)

 

(208) 664-4859

(Registrant’s Telephone Number, including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

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 past 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.   x   Yes  o  No

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  xYes  o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer   £	Accelerated Filer  £
Non-Accelerated Filer    £ (Do not check if a smaller reporting company)	Small Reporting Company    S Emerging Growth Company  £

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  £

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o  Yes  x   No

Number of shares of issuer’s common stock outstanding at May 10, 2018: 43,527,819

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INDEX

Page

PART I — FINANCIAL INFORMATION

3

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

20

ITEM 4. CONTROLS AND PROCEDURES

20

PART II — OTHER INFORMATION

20

ITEM 1. LEGAL PROCEEDINGS.

20

ITEM 1A. RISK FACTORS

20

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

20

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

20

ITEM 4.  MINE SAFETY DISCLOSURES

21

ITEM 5.  OTHER INFORMATION.

21

ITEM 6. EXHIBITS.

21

SIGNATURES

22

2

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PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

Contents

Page

FINANCIAL STATEMENTS:

Consolidated balance sheets

4

Consolidated statements of operations and comprehensive income (loss)

5

Consolidated statements of cash flows

6

Notes to consolidated financial statements

7 - 12

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TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
		March 31, 2018		September 30, 2017
		(unaudited)		(audited)
ASSETS
CURRENT ASSETS:
Cash	$	15,318	$	67,154
Prepaid expenses		204,788		20,716
Accounts receivable		-		2,633
TOTAL CURRENT ASSETS		220,106		90,503
PROPERTY, MINERAL RIGHTS AND EQUIPMENT, net		13,947,319		17,125,519
OTHER ASSETS:
Restricted cash		285,128		285,128
Deposits and other assets		9,750		9,750
TOTAL OTHER ASSETS		294,878		294,878
TOTAL ASSETS	$	14,462,303	$	17,510,900
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	107,753	$	109,680
Accrued expenses		8,853		9,923
Accrued payroll, benefits and taxes		70,269		85,730
Payment obligation		212,273		250,000
TOTAL CURRENT LIABILITIES		399,148		455,333
LONG-TERM LIABILITIES:
Asset retirement obligation		156,718		152,940
TOTAL LONG-TERM LIABILITIES		156,718		152,940
COMMITMENTS AND CONTINGENCIES (Notes 5 and 10)		-		-
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized,       none issued and outstanding		-		-
Common stock, $0.001 par value; 200,000,000 shares authorized,       36,027,819 and 33,146,952 shares issued and outstanding, respectively		36,028		33,147
Additional paid-in capital		71,434,030		70,408,144
Accumulated deficit		(57,563,621)		(53,538,664)
TOTAL STOCKHOLDERS' EQUITY		13,906,437		16,902,627
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	14,462,303	$	17,510,900

See accompanying notes to consolidated financial statements.

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TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
		Three months ended				Six months ended
		March 31,				March 31,
		2018		2017		2018		2017
OPERATING EXPENSES:
Mineral exploration	$	21,094	$	36,392	$	47,268	$	82,120
Abandonment of mineral rights		3,231,700		-		3,231,700		-
Salaries and benefits		231,266		109,400		314,520		185,934
Professional fees		28,025		46,425		100,571		138,240
Insurance expense		24,057		23,517		47,236		43,643
Gain on disposal of equipment		-		-		-		(2,500)
Other general and administrative		155,588		328,032		288,092		401,118
TOTAL OPERATING EXPENSES		3,691,730		543,766		4,029,387		848,555
LOSS FROM OPERATIONS		(3,691,730)		(543,766)		(4,029,387)		(848,555)
OTHER INCOME (EXPENSE):
Foreign exchange gain (loss)		(122)		123		(89)		(798)
Interest expense		(3,943)		-		(10,114)		-
Gain on sale of available-for-sale securities		-		23,826		-		23,826
Miscellaneous other income		-		2		14,633		5
TOTAL OTHER INCOME (EXPENSE)		(4,065)		23,951		4,430		23,033
LOSS BEFORE INCOME TAXES		(3,695,795)		(519,815)		(4,024,957)		(825,522)
INCOME TAX PROVISION (BENEFIT)		-		11,632		-		32,632
NET LOSS		(3,695,795)		(531,447)		(4,024,957)		(858,154)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain (loss) on available-for-sale equity
securities, net of tax		-		-		-		(39,000)
Reclassification of (gain) on available-for-sale
securities sold		-		(21,601)		-		(21,601)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)		-		(21,601)		-		(60,601)
COMPREHENSIVE LOSS	$	(3,695,795)	$	(553,048)	$	(4,024,957)	$	(918,755)
NET LOSS PER SHARE AVAILABLE TO COMMON
STOCKHOLDERS, BASIC AND DILUTED	$	(0.10)	$	(0.02)	$	(0.11)	$	(0.04)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED		36,027,819		25,244,952		35,296,269		24,669,699

See accompanying notes to consolidated financial statements.

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TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Six Months Ended March 31,
		2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,024,957)	$	(858,154)
Adjustments to reconcile net loss to net cash used by operating activities:
Deferred income tax provision		-		32,632
Gain on disposal of equipment		-		(2,500)
Stock-based compensation		207,000		15,000
Abandonment of mineral properties		3,231,700		-
Accretion of asset retirement obligation		3,778		3,598
Gain on sale of available-for-sale securities		-		(23,826)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(184,072)		(11,824)
Accounts receivable		2,633		(2,633)
Accounts payable		(1,927)		2,017
Accrued expenses		(1,070)		(48,150)
Accrued payroll, benefits and taxes		(15,461)		9,634
Net cash used by operating activities		(782,376)		(884,206)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, mineral rights and equipment		(53,500)		(1,051,000)
Proceeds from disposal of equipment		-		2,500
Proceeds from sale of available-for-sale securities		-		77,856
Refund of reclamation and road use bonds		-		379,175
Net cash (used) by investing activities		(53,500)		(591,469)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of units, net		821,767		1,538,750
Proceeds from subscriptions agreements				100,000
Payment obligation		(37,727)		-
Net cash provided by financing activities		784,040		1,638,750
Net increase (decrease) in cash and cash equivalents		(51,836)		163,075
CASH AT BEGINNING OF PERIOD		67,154		82,275
CASH AT END OF PERIOD	$	15,318	$	245,350
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock payable for mineral rights		-		480,000

See accompanying notes to consolidated financial statements.

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NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS:

Timberline Resources Corporation (“Timberline” or “the Company”, “we”, “us”, “our”) was incorporated in August of 1968 under the laws of the State of Idaho as Silver Crystal Mines, Inc., for the purpose of exploring for precious metal deposits and advancing them to production.  In 2008, we reincorporated into the State of Delaware pursuant to a merger agreement approved by our shareholders.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a.

Basis of Presentation and Going Concern – The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, as well as the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of our management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and six month periods ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2018.  All amounts presented are in U.S. dollars.  For further information, refer to the financial statements and footnotes thereto in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

The consolidated financial statements for the three and six month periods ended March 31, 2018 were prepared on the basis that the Company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.  The Company’s ability to continue as a going concern is dependent upon its ability to receive cash flow from its operations or to successfully obtain additional financing. While the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

b.

Net Income (Loss) per Share – Basic earnings per share (“EPS”) is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities.

The dilutive effect of outstanding securities, in periods of future income as of March 31, 2018 and 2017, would be as follows:

	2018		2017
Stock options	2,980,000		2,297,085
Warrants	20,840,873		16,155,006
Total possible dilution	23,820,873		18,452,091

At March 31, 2018 and 2017, the effect of the Company’s outstanding options and warrants would have been anti-dilutive.  

c.

Asset retirement obligation – We account for asset retirement obligations by following the uniform methodology for accounting for estimated reclamation and abandonment costs as prescribed by authoritative accounting guidance.  This guidance provides that the fair value of a liability for an asset retirement obligation (“ARO”) will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The ARO is capitalized as part of the carrying value of the assets to which it is associated and depreciated over the useful life of the asset. Adjustments are made to the liability for changes resulting from passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation. We have an ARO associated with our exploration program at the Lookout Mountain exploration project.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):

d.

Available-for-sale equity securities – Available-for-sale equity securities are recorded at fair value.  Unrealized gains and losses relating to equity securities classified as available-for-sale are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity unless an other-than-temporary impairment in value has occurred, in which case such accumulated loss would be charged to current period net income (loss).  Unrealized gain and losses originally included in accumulated other comprehensive income are reclassified to the current period net income (loss) when the sale or determination of other-than-temporary-impairment of securities occurs.  Realized gains and losses on the sale of securities are recognized on a specific identification basis.

e.

New accounting pronouncements:

Statement of cash flows – Restricted cash - In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows - Restricted Cash." ASU No. 2016-18 requires that restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. ASU No. 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently assessing the adoption of this standard’s impact on its financial statements.

Compensation – Stock compensation – In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation." ASU No. 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. ASU No. 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company believes adoption of this standard will not have a material impact on its financial statements.

f.

Restricted cash – Cash that is restricted as to withdrawal or use under the terms of certain contractual arrangements, generally with regulatory agencies, is recorded in Other Assets as Restricted cash on our balance sheet.

g.

Reclassifications - Certain reclassifications have been made to prior periods’ balances to conform with the current period’s presentation.  These reclassifications have no effect on previously reported results from operations or net equity as previously disclosed.

NOTE 3 – FAIR VALUE MEASUREMENTS:

The table below sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category.

		March 31,   2018		September 30, 2017			Input Hierarchy Level
Assets:
Cash	$	15,318		$	67,154			Level 1
Restricted cash		285,128			285,128			Level 1

NOTE 4 – PREPAID EXPENSES:

Any expenses paid prior to the related services being rendered will be recorded as prepaid expenses.  At March 31, 2018 prepaid expenses included $166,667 related to a prepaid marketing consulting agreement, with the remainder related to prepaid insurance premiums and prepaid annual exchange listing fees.

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NOTE 5 – PROPERTY OPTION AGREEMENT:

On March 12, 2015 (the “Effective Date”), we entered into a property option agreement (“Agreement”) with Gunpoint Exploration Ltd. (“Gunpoint”), which closed on March 31, 2015 and was amended on October 19, 2016 (“Amended Agreement”).  Pursuant to the Agreement, Gunpoint granted us an exclusive and irrevocable option (“Option”) to purchase a 100% interest in Gunpoint’s Talapoosa project (the “Project”) in western Nevada.  We acquired the right to exercise the Option at any time beginning on March 31, 2015 and ending within thirty (30) months of March 12, 2015, unless sooner terminated (“Option Period”).  Pursuant to the Amended Agreement, we had the right to exercise the Option through March 31, 2019 (“Amended Option Period”), subject to certain interim payments and cumulative project expenditures.    

As consideration for the Option, we issued two million (2,000,000) shares of common stock and paid $300,000 in cash.  The common stock was valued at fair value on the Effective Date and combined with the cash payments of $300,000 for total consideration of $1,500,000.  The common stock was issued on March 31, 2015 into escrow with periodic releases to Gunpoint.  The shares were irrevocable and were released to Gunpoint as follows:  25% on September 12, 2015; 25% on March 12, 2016; 25% on September 12, 2016; and 25% on March 12, 2017.  All of the shares have been released from escrow.  Gunpoint retained the total of 2,000,000 shares, even though we did not exercise the Option.  

Pursuant to the Amended Agreement, during the Amended Option Period, we were required to make the following expenditures and stock issuances in order to retain the Option:

·

Payment of $1 million and issuance of one million common shares of the Company by March 31, 2017 (completed – the shares were valued at $480,000, the quoted value of the shares at issuance);

·

Payment of $2 million and issuance of one million common shares of the Company by March 31, 2018;

·

Cumulative project expenditures of a minimum of $7.5 million by December 31, 2018;

·

Final payment of $8 million and issuance of 1.5 million common shares of the Company by March 31, 2019.

We did not make the payment of $2 million nor issue the one million common shares of the Company by March 31, 2018, and, therefore, the Amended Agreement was terminated per its terms on March 31, 2018.  As a result, in the three months ended March 31, 2018, we wrote off our entire investment of $3,231,700 in the Talapoosa property option pursuant to the Amended Agreement.  This was recognized as an abandonment of mineral rights during the period ended March 31, 2018.  

NOTE 6 – ACCRUED EXPENSES:

As of March 31, 2018 and September 30, 2017, we had accrued $8,853 and $9,923 in expenses, respectively.  

The components of the accrued expenses are:   

Description	March 31,  2018	September 30, 2017
Interest expense	$          3,853	$                -
Other expenses	5,000	9,923
Total accrued expenses	$         8,853	$        9,923

NOTE 7 – PAYMENT OBLIGATION:

On September 12, 2017, we entered into an agreement (the “Payment Agreement”) with a creditor (the “Creditor”) to pay by way of a payment plan an existing obligation of $250,000 (the “Debt”) related to a potential corporate transaction in 2015 that was not completed.

Pursuant to the Payment Agreement, we agreed to pay the Debt to the Creditor, including interest, on or before September 12, 2020.  Interest accrues on the unpaid principal amount of the Debt at the prime rate, as such rate may change from time to time, plus 3% per annum.  We agreed to pay the Creditor 5% of the gross proceeds of any funds raised, whether though equity sales, debt, or sales of assets.  If the gross proceeds of any equity financing are at least $1 million, then we agreed to also commence monthly installment payments of $10,000 until the Debt is paid.

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NOTE 7 – PAYMENT OBLIGATION (continued):

During the three months and six months ended March 31, 2018, we paid $8,850 and $43,213, respectively, to the Creditor, which represented 5% of the gross proceeds of two tranches of a private placement completed in December 2017.  During the three months and six months ended March 31, 2018, $7,684 and $37,727, respectively, was applied to principal of the Debt and $1,166 and $5,486, respectively, was applied to interest.  The payment made during the three months ended March 31, 2018 was paid in early January 2018 even though the final private placement proceeds were received in late December 2017.  Interest on the Debt, in the amount of $3,853, was included in accrued expenses at March 31, 2018.  The obligation to commence monthly installment payments of $10,000 until the Debt is paid has not yet been triggered because we have not completed a financing with gross proceeds of at least $1 million.

NOTE 8 – COMMON STOCK, WARRANTS AND PREFERRED STOCK:

Private Placement

On October 12, 2017, we initiated a $1,250,000 private placement offering of Units of the Company at a price of $0.30 per Unit, with an over-allotment option to increase the offering by up to 20%, solely to persons who qualify as accredited investors (the "Offering").  

Each Unit in the Offering consisted of one share of common stock of the Company and one common share purchase warrant (each a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.45 per share until the warrant expiration date of October 31, 2022.

During the six months ended March 31, 2018, we closed the sale of two tranches of the Offering.  In the aggregate, we sold a total of 2,880,867 Units at a price of $0.30 per unit for gross proceeds of $864,260 and net proceeds, net of offering costs, of $821,767.  

Stock Issued for Stock Options

We did not issue any stock pursuant to the exercise of stock options or stock unit awards during the three months or the six months ended March 31, 2018.  

Warrants

During the six months ended March 31, 2018, 2,880,867 warrants were issued pursuant to the Offering.  No warrants expired during the three or six months ended March 31, 2018.  At March 31, 2018, there were 9,960,006 warrants outstanding with an exercise price of $0.25 per share that expire on May 31, 2019, 8,000,000 warrants outstanding with an exercise price of $0.40 per share that expire on January 31, 2020, and 2,880,867 warrants outstanding with an exercise price of $0.45 that expire on October 31, 2022.  In aggregate, as of March 31, 2018, there were 20,840,873 warrants outstanding at a weighted average exercise price of $0.335.

Preferred Stock

We are authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value. Our board of directors is authorized to issue the preferred stock from time to time in series, and is further authorized to establish such series, to fix and determine the variations in the relative rights and preferences as between series, to fix voting rights, if any, for each series, and to allow for the conversion of preferred stock into common stock.  There is no preferred stock issued as of March 31, 2018.

NOTE 9 – STOCK-BASED AWARDS:

During the three months ended March 31, 2018, 1,600,000 stock options with an exercise price of $0.17 and a five-year term where granted to our employees and directors.  All of the awarded stock options vested immediately.  The fair value of all of the options that were granted and vested during the three months ended March 31, 2018 was $192,000 ($0.12 per option).  

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NOTE 9 – STOCK-BASED AWARDS (continued):

During the three months ended March 31, 2017, 250,000 stock options with an exercise price of $0.33 and a three-year term where granted to a consultant company.  The options vested quarterly over a one-year period.  The fair value of the 62,500 options that were vested during the three months ended March 31, 2017 was $15,000 ($0.24 per option) and was classified as other general and administrative expense.  The value of the remaining 187,500 options was $45,000 and was recognized evenly over the following three quarters as the options vested, including $15,000 that was recognized during the three months ended December 31, 2017, which is included in the compensation cost of options for non-employees for the six months ended March 31, 2018.  

The value of the options was estimated on the date of grant with a Black-Scholes option-pricing model using the assumptions noted in the following table:

	2018		2017
Expected volatility	121.6%		128.2%
Stock price on date of grant	$0.17		$0.33
Expected dividends	-		-
Expected term (in years)	3		3
Risk-free rate	2.33%		1.68%
Expected forfeiture rate	0%		0%

For the three and six months ended March 31, 2018 and 2017, the total compensation cost of stock options for employees was $120,000 and nil, respectively.  These costs were classified under salaries and benefits expense.  

For the three months ended March 31, 2018 and 2017, the total compensation cost of options for non-employees was $72,000 and $15,000, respectively.  These costs were classified under other general and administrative expense.

For the six months ended March 31, 2018 and 2017, the total compensation cost of options for non-employees was $87,000 and $15,000, respectively.  These costs were classified under other general and administrative expense.

The following is a summary of our options issued under the Amended 2005 Equity Incentive Plan and the 2015 Stock and Incentive Plan:

			Options			Weighted  Average  Exercise Price
Outstanding at September 30, 2017				2,233,334		$	0.41
	Granted			1,600,000			0.17
	Expired			(853,334)			(0.43)
Outstanding and exercisable at March 31, 2018				2,980,000		$	0.28
Weighted average fair value of options granted during the three months ended March 31, 2018						$	0.12
Average remaining contractual term of options outstanding and exercisable at March 31, 2018 (years)							3.91

The aggregate of options exercisable as of March 31, 2018 had an intrinsic value of nil, based on the closing price of $0.17 per share of our common stock on March 31, 2018.

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NOTE 10 – COMMITMENTS AND CONTINGENCIES:

Mineral Exploration

A portion of our mining claims on our properties are subject to lease and option agreements with various terms, obligations, and royalties payable in certain circumstances.

Pursuant to the Amended Option Agreement at Talapoosa (see Note 5), we had an obligation to make a payment of $2 million by March 31, 2018, which payment was not made and, therefore, the Amended Option Agreement was terminated per its terms on March 31, 2018.  We have no future obligations related to the Amended Option Agreement at Talapoosa.  

We pay federal and county claim maintenance fees on unpatented claims that are included in our mineral exploration properties.  Should we continue to explore all of our mineral properties we expect annual fees to total approximately $158,000 per year in the future.

While we recognize that we will not be able to meet these payments with our current cash balances, we do expect to make these payments with proceeds from expected capital raises.  We expect to obtain additional capital through refunds of excess restricted cash held for exploration bonds and financing transactions such as equity investments, asset sales, joint ventures, debt facilities, or other types of strategic arrangements.

Real Estate Lease Commitments

As of March 31, 2018, the Company has no real estate lease commitments. The Company’s office in Coeur d’Alene, Idaho and its facilities in Sparks, Nevada and Eureka, Nevada are rented on a month-to-month basis.

Total office lease and rental expense from continuing operations is included in the following line items in the consolidated statements of operations and comprehensive income (loss):

		Three months ended March 31,			Six months ended March 31,
		2018		2017		2018		2017
Mineral exploration expenses	$	12,900	$	12,900	$	25,800	$	25,800
Other general and administrative expenses		10,500		10,500		21,000		21,000
Total	$	23,400	$	23,400	$	46,800	$	46,800

Employment Agreements

The Company has employment agreements with two executive employees that require certain termination benefits and payments in defined circumstances.

NOTE 11 – SUBSEQUENT EVENTS:

Eureka Property Lease Payments

Subsequent to March 31, 2018, our management and Board of Directors determined that certain payments received by the Company, which had been held and not recorded or deposited pending an expected resolution of circumstances relating to two historic leases at our Eureka property, should be deposited.  The payments had been received from a third party with whom we are in discussions to resolve matters that had been under negotiation since we acquired the Eureka property.  The funds are subject to potential return to the third party pending the outcome of the negotiations.  The total amount of these payments received through April 2018 was $70,772.  Monthly payments in the amount of $8,326 are expected to continue to be received, recorded and deposited until the situation concerning the leases is resolved.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis should be read in conjunction with our unaudited condensed interim consolidated financial statements as at and for the three and six months ended March 31, 2018 and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). This discussion and analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors, including, but not limited to, those set forth elsewhere in this Quarterly Report on Form 10-Q. See section heading “Note Regarding Forward-Looking Statements” below.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the United States Exchange Act of 1934, as amended, and “forward-looking information” within the meaning of applicable Canadian securities legislation, collectively “forward-looking statements.”  Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned exploration and development of our properties, plans related to our business and other matters that may occur in the future.  These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.  These statements include, but are not limited to, comments regarding:

· the establishment and estimates of mineralization and reserves;

· the grade of mineralization and reserves;

· anticipated expenditures and costs in our operations;

· planned exploration activities and the anticipated timing and outcomes of such exploration activities;

· planned production of technical reports, economic assessments, and feasibility studies on our properties;

· plans and anticipated timing for obtaining permits and licenses for our properties;

· expected future financing, strategic and other transactions and the anticipated outcomes;

· plans and anticipated timing regarding production dates;

· anticipated gold and silver prices;

· anticipated liquidity to meet expected operating costs and capital requirements;

· our ability to obtain financing to fund our estimated expenditure and capital requirements; and

· factors expected to impact our results of operations

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements.  Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:

· risks related to our limited operating history;

· risks related to our ability to continue as a going concern;

· risks related to our history of losses and our expectation of continued losses;

· risks related to our properties being in the exploration or, if warranted, development stage;

· risks related to our bringing our projects into production;

· risks related to our mineral operations being subject to government and environmental regulations;

· risks related to future legislation and administrative changes to mining laws;

· risks related to future legislation regarding climate change

· risks related to our ability to obtain additional capital for exploration or to develop our reserves, if any;

· risks related to land reclamation requirements and costs;

· risks related to mineral exploration and development activities being inherently hazardous;

· risks related to our insurance coverage for operating risks;

· risks related to cost increases for our exploration and development projects;

· risks related to a shortage of skilled personnel, equipment, & supplies adversely affecting our ability to operate;

· risks related to mineral resource and economic estimates;

· risks related to the fluctuation of prices for precious and base metals, such as gold, silver and copper;

· risks related to the competitive industry of mineral exploration;

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· risks related to our title and rights in our mineral properties;

· risks related to integration issues with acquisitions;

· risks related to our common stock trading on the Over-the-Counter markets

· risks related to joint ventures and partnerships;

· risks related to potential conflicts of interest with our management;

· risks related to our dependence on key management;

· risks related to our  Lookout Mountain, Windfall, Seven Troughs, and other acquired growth projects;

· risks related to our business model;

· risks related to evolving corporate governance standards for public companies;

· risks related to our Canadian regulatory requirements; and

· risks related to our shares of common stock or other securities.

This list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the sections titled “Risk Factors”, “Description of Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended September 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on December 20, 2017.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected.  We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as otherwise required by law.

We qualify all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.

Corporate Overview

Our business is mineral exploration, with a focus on district-scale gold projects such as our Eureka project in Nevada.

In June 2010, we acquired Staccato Gold Resources Ltd. (“Staccato”), a Canadian-based resource company listed on the TSX Venture Exchange that was in the business of acquiring, exploring and developing mineral properties with a focus on gold exploration in the dominant gold producing trends in Nevada.  As a result of this acquisition, we obtained Staccato’s Eureka Property, which included their flagship gold exploration project, the Lookout Mountain Project (“Lookout Mountain”) and the Windfall project, along with several other projects at various stages of exploration in the Battle Mountain/Eureka gold trend in Nevada, along with Staccato’s wholly owned U.S. subsidiary, BH Minerals USA, Inc.  

In August 2014, we acquired Wolfpack Gold (Nevada) Corp. (“Wolfpack”), a U.S. company that was in the business of acquiring, exploring, and developing mineral properties with a focus on gold exploration in the dominant gold producing trends in Nevada.  As a result of this acquisition, we obtained cash and several projects at various stages of exploration in the gold trends of Nevada.  

In March 2015, we acquired an option from Gunpoint Exploration Ltd. (“Gunpoint”) to purchase a 100% interest in Gunpoint’s Talapoosa exploration project in western Nevada.  The option agreement, as amended (the “Amended Agreement”), granted us the right to exercise the purchase option at any time through March 31, 2019, subject to certain interim payments and cumulative project expenditures.  We did not make the required payment of $2 million nor issue the one million common shares of the Company by March 31, 2018 as required by the Amended Agreement, and, therefore, the Amended Agreement was terminated per its terms at 11:59 p.m. on March 31, 2018.

Recent Events

In December 2017, we closed a private placement offering of 2,880,867 Units of the Company at a price of $0.30 per Unit for gross proceeds of $864,260 (the “Offering”).   Each Unit in the Offering consisted of one share of common stock of the Company and one common share purchase warrant.

On September 12, 2017, we entered into an agreement (the “Payment Agreement”) with a creditor (the “Creditor”) to pay by way of a payment plan an existing obligation of $250,000 (the “Debt”) related to a potential corporate transaction in 2015 that was not completed.  Pursuant to the Payment Agreement, we agreed to pay the Debt to the Creditor, including interest, on or before September 12, 2020.  Interest accrues on the unpaid principal amount of the Debt at the prime rate, as such rate may change from time to time, plus 3% per annum.  We agreed to pay the Creditor 5% of the gross proceeds of any funds raised, whether though equity sales, debt, or sales of assets.  If the gross proceeds of any equity financing are

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at least $1 million, then we agreed to also commence monthly installment payments of $10,000 until the Debt is paid.  

During the three months and six months ended March 31, 2018, we paid $8,850 and $43,213, respectively, to the Creditor, which represented 5% of the gross proceeds of two tranches of a private placement completed in December 2017.  During the three months and six months ended March 31, 2018, $7,684 and $37,727, respectively, was applied to principal of the Debt and $1,166 and $5,486, respectively, was applied to interest.  The payment made during the three months ended March 31, 2018 was paid in early January 2018 even though the final private placement proceeds were received in late December 2017.  The obligation to commence monthly installment payments of $10,000 until the Debt is paid has not yet been triggered because we have not completed a financing with gross proceeds of at least $1 million.

Mineral Exploration

Talapoosa, Nevada

In March 2015, we acquired an option from Gunpoint Exploration Ltd. (“Gunpoint”) to purchase a 100% interest in Gunpoint’s Talapoosa exploration project in western Nevada.  Talapoosa is a 14,870-acre district-scale property comprising U.S. Bureau of Land Management (“BLM”) claims, fee lands, and water rights.  The option agreement, as amended (the “Amended Agreement”), granted us the right to exercise the purchase option at any time through March 31, 2019, subject to certain interim payments and cumulative project expenditures.  We did not make the required payment of $2 million nor issue the one million common shares of the Company by March 31, 2018, as required by the Amended Agreement, and, therefore, the Amended Agreement was terminated per its terms on March 31, 2018.    We have no future plans or obligations related to the Talapoosa project.  

Eureka Project, Nevada

The Eureka Project, which includes Lookout Mountain, comprises an area of approximately 15,000 acres, or more than 23 square miles.  The Eureka Project is located within the southern portion of Nevada’s Battle Mountain-Eureka gold trend and includes three structurally controlled zones of gold mineralization, each approximately 3- 4 miles in strike length, all zones of which are open and will require additional in-fill and step-out drilling. The project has an extensive exploration, drilling, and gold production history by a number of companies since 1975, including Idaho Mining Corp., Norse-Windfall Mining, Amselco, Echo Bay Mines, Newmont and Barrick Gold. A total of 533 holes, totaling 267,000 feet, were drilled on the property prior to its acquisition by Timberline in 2010. Gold mineralization tested to date is typical sediment-hosted “Carlin-type” gold mineralization, most of which may be amenable to low-cost, heap-leach processing.

In 2010-2011, we completed an exploration program that culminated in the release of an NI 43-101 compliant technical report, entitled, Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA, dated May 2, 2011 (the “Lookout Mountain Technical Report”).  The Lookout Mountain Technical Report was prepared by Mine Development Associates (“MDA”) of Reno, Nevada under the supervision of Michael M. Gustin, Senior Geologist, who is a qualified person under NI 43-101.  The Lookout Mountain Technical Report details mineralization at Lookout Mountain.

Cautionary Note to U.S. Investors: The Lookout Mountain Technical Report uses the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource” and “inferred mineral resource”. We advise investors that these terms are defined in and required to be disclosed by Canadian regulations (NI 43-101); however, these terms are not defined terms under Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. As a reporting issuer in Canada, we are required to prepare reports on our mineral properties in accordance with NI 43-101. We reference the Lookout Mountain Technical Report in this Quarterly Report on Form 10-Q for informational purposes only, and the Lookout Mountain Technical Report is not incorporated herein by reference.  Investors are cautioned not to assume that all or any part of a mineral deposit in the above categories will ever be converted into Guide 7 compliant reserves.  “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.  Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.  Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.  

The Lookout Mountain Technical Report describes gold mineralization which was modeled and estimated by MDA.  MDA statistically evaluated available drill data utilizing geologic interpretations provided by Timberline to interpret gold mineral domains on cross sections spaced at 50- to 100-foot intervals across the extent of the Lookout Mountain mineralization.  The cross sections were rectified with mineral-domain interpretations on level plans spaced at 10-foot intervals.  The modeled mineralization was analyzed using geostatistics to aid in the establishment of estimation parameters, and interpolating grades into a three-dimensional block model.

In 2012, we released updated exploration data for Lookout Mountain and filed an updated Lookout Mountain Technical Report.   As a result of the most recently completed exploration program, we have successfully extended the mineralized

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zone at Lookout Mountain 600 feet to the south of the mineralized zone boundary defined in the 2011 Lookout Mountain Technical Report, and have expanded mineralization along the west margin of the deposit. Results from Lookout Mountain, and from the South Adit area, significantly increased the currently reported mineralization at Lookout Mountain.  In early 2013, we completed our 2012 exploration program at Lookout Mountain, including 26,140 feet total of infill-drilling.  This program focused on expansion of mineralization, metallurgical, geotechnical, and permitting studies.

Assay results from drilling were incorporated into an updated Lookout Mountain Technical Report which was completed in early 2013.  Drilling also provided data for on-going metallurgical studies directed at characterization of gold mineralization recovery, and for initial assessment of pit-slope stabilities.  Permitting-related activities were advanced through completion of quarterly monitoring, and installation of three monitoring wells. Conceptual designs for site facilities (heap leach pads, mine rock storage, access roads) have also been prepared.  

In 2013, we continued geochemical waste rock environmental characterization, completed independent metallurgical leach testing, continued water quality monitoring and defined hydrologic work plans.  We also continued the baseline environmental data collection and analysis at Lookout Mountain.  In addition, we reduced costs by consolidating our Elko field office into our Eureka facility.  

During most of 2014, the Company limited exploration related activities to low cost field surveys including soil and rock sampling, drill site reclamation, site archeological surveys, and geologic mapping.  The mapping led to identification of new targets on each of the three structural zones of gold mineralization.  In December 2014, drilling resumed at Eureka with an initial test of one new target completed before year-end.  RC drill hole BHSE-171 identified a new zone of gold mineralization and intersected 25 feet of 0.144 ounces of gold per ton (“opt”) (7.62 meters (m) of 4.93 grams of gold per tonne (“g/t”)) within a longer 65-foot interval assaying 0.094 opt (19.82 m of 3.22 g/t) in the Lookout Mountain area.  This hole was offset 140 feet from BHSE-152 (drilled in 2012) which first encountered the new zone in 2012 but was not completed due to drilling difficulties.  

In follow-up to the successful results in RC drill hole BHSE-171, two diamond drill core holes were completed in January, 2015.  BHSE-172 intersected 25.2 feet of 0.15 opt (7.7 m of 5.02 g/t) within an interval of 46.6 feet of 0.10 opt (14.2 m of 5.02 g/t).  BHSE-173 intercepted 57.4 feet of 0.06 opt (17.5 m @ 1.92 g/t).  The two core hole intercepts of the mineralized zone were offset approximately 140 feet from BHSE-171.  The intercepts are well-correlated, as the gold occurs in mineralized collapse breccia within the pyritic Dunderberg Shale-Hamburg Dolomite contact zone.  The intercepts are thought by Timberline geologists to be related to stratigraphic traps associated spatially with a higher-grade feeder system as recognized in many Carlin-type systems.  Two additional RC holes were completed as infill drilling within the existing resource area at Lookout Mountain.  Results were highlighted by hole BHSE-174, which intercepted 75.0 feet of 0.02 opt (22.9 m of 0.57 g/t) which is very consistent with surrounding intercepts.  

We also completed a six-hole RC drill program on the Windfall target within the Eureka project.  The drilling successfully tested on-strike, offset, and down-dip extensions of gold mineralization that was previously mined at Windfall.  Six drill holes completed over a strike length of approximately 3,000 feet intersected gold mineralization consistent with results from over 600 historic drill holes, highlighted by BHWF-40 which intersected 80 feet at 0.09 opt of gold (24.9 m @ 3.04 g/t) which included a subsection of 20 feet @ 0.26 opt of gold (6.1 m @ 8.79 g/t).    The data for Windfall will support potential development of an estimate of the gold mineralization at the project.  

Subject to available capital, we plan to resume work at Eureka with a focus on the Windfall Project where we anticipate completion of geologic modelling and engagement of an independent qualified expert to complete a resource calculation of gold ounces and grade.  We also plan to initiate exploration on a new target area called Oswego where we have identified geologic indicators of a potential gold mineralized location.

There are no proven and probable reserves as defined under Guide 7 at the Eureka Project, and our activities there remain exploratory in nature.

Summary

We believe the global economic environment and monetary climate continue to favor a relatively steady gold price for the foreseeable future with potential for long-term price improvements.  While volatility is to be expected, our expectation is that we can identify and pursue opportunities to advance our projects, despite the current gold price and market volatility.  

As a company, we are considering financing and strategic corporate opportunities with our focus on providing for the advancement of projects comprising our Eureka property and other property interests we may acquire.  While our focus has previously been on Talapoosa, with the relinquishment of the Talapoosa option, we plan to advance multiple project areas and targets on our Eureka property.

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We believe that with appropriate funding, the Windfall project at our Eureka property can advance with determination of an initial gold mineralization estimate and follow-up drilling targeted to expand the mineralization.  Further potential will be developed with the advancement of new targets at Oswego and the potential acquisition of other prospective property interests in Nevada.  We believe that our management and our board of directors have the knowledge and experience to evaluate financing and strategic opportunities and to provide for the advancement of multiple projects.       

Results of Operations for the three months ended March 31, 2018 and 2017

Consolidated Results

(US$)		Three Months Ended  March 31,					Six Months Ended March 31,
		2018		2017					2018			2017
Exploration expenses:
	Eureka	$	9,494		$	4,138		$		21,846	$	19,979
	Talapoosa	11,532		31,969					25,354			58,105
	Other exploration properties	68		285					68			4,036
Total exploration expenditures		21,094		36,392					47,268			82,120
Non-cash expenses:
	Stock option expenses	192,000		15,000					207,000			15,000
	Abandonment of mineral rights	3,231,700		-					3,231,700			-
	Income tax provision	-		11,632					-			32,632
	Gain on disposal of equipment	-		(2,500)					-			(2,500)
	Gain on sale of available-for-sale securities	-		(23,826)					-			(23,826)
	Depreciation, amortization and accretion	1,935		1,843					3,778			3,598
Total non-cash expenses		3,425,635		2,149					3,442,478			24,904
Professional fees expenses		28,025		46,425					100,571			138,240
Insurance expenses		24,057		23,517					47,236			43,643
Salaries and benefits expenses		111,266		109,400					194,520			185,934
Interest and other (income) expense		4,065		(125)					(4,430)			793
Other general and administrative expenses		81,653		313,689					197,314			382,520
Net loss		$	(3,695,795)		$	(531,447)		$		(4,024,957)	$	(858,154)

Our consolidated net loss for the three months ended March 31, 2018 was $3,695,795, including a charge of $3,231,700 related to the relinquishment of the Talapoosa option.  Excluding the abandonment of mineral rights expense, the net loss for the three months ended March 31, 2018 was $464,095 compared to a consolidated net loss of $531,447 for the three months ended March 31, 2017.  The year-over-year difference is primarily related to greater other general and administrative expenses in 2017, partially offset by increased non-cash stock option expense due to options granted in 2018.  Other general and administrative expenditures were higher in 2017 primarily related to marketing and consulting costs aimed at increasing our market exposure and supporting our marketing efforts during the quarter ended March 31, 2017.  We anticipate that the net loss, excluding abandonment of mineral rights expenses, will increase as our exploration activity increases, subject to changes in non-cash option expenses and general and administrative expenditures which vary according to transaction activity.  Exploration expenditures during the three months ended March 31, 2018 decreased compared to the same period in 2017 due to reduced exploration activity at Talapoosa.  We anticipate that exploration expenditures will increase year-over-year in the next quarter, subject to available capital, as we seek to advance projects on our Eureka property.  

Our consolidated net loss for the six months ended March 31, 2018 was $4,024,957, including a charge of $3,231,700 related to the relinquishment of the Talapoosa option.  Excluding the abandonment of mineral rights expense, the net loss for the three months ended March 31, 2018 was $793,257 compared to a consolidated net loss of $858,154 for the six months ended March 31, 2017.  The year-over-year difference is primarily related to greater professional fees, other general and administrative expenses, and expenses related to exploration at Talapoosa in 2017, partially offset by increased non-cash stock option expense due to options granted in 2018.  Other general and administrative expenditures were higher in 2017 primarily related to marketing and consulting costs aimed at increasing our market exposure and supporting our marketing efforts during the six months ended March 31, 2017.  We anticipate that the net loss, excluding abandonment of mineral rights expenses, will remain relatively flat, subject to changes in non-cash option expenses and general and administrative expenditures which are subject to transaction activity.  Exploration expenditures during the six

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months ended March 31, 2018 decreased compared to the same period in 2017 due to reduced exploration activity at Talapoosa.  We anticipate that exploration expenditures will increase in future periods, subject to available capital, as we seek to advance projects on our Eureka property.  

Subject to adequate funding in 2018, we expect to continue to incur exploration expenses for advancing exploration initiatives at the Lookout Mountain and Windfall projects on our Eureka property.

Financial Condition and Liquidity

At March 31, 2018, we had assets of $14,462,303, consisting of cash in the amount of $15,318; property, mineral rights and equipment, net of depreciation of $13,947,319, restricted cash held for exploration bonds of $285,128, and other assets in the amount of $214,538.  

During the six months ended March 31, 2018, we closed the sale of two tranches of an equity financing.  In the aggregate, we sold a total of 2,880,867 Units at a price of $0.30 per unit for gross proceeds of $864,260 and net proceeds after the costs of the financing of $821,767.  

These consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of our assets and the settlement of our liabilities in the normal course of our operations. In recent years, commodity prices and mining equities have seen significant volatility which increases the risk to precious metal investors.  Commodity price expectations, global economic uncertainties, and market factors, among other things, make it more difficult for us to obtain, or increase our cost of obtaining, capital and financing for our operations.  Our access to additional capital may not be available on terms acceptable to us or at all.  If we are unable to obtain financing through equity investments, we will seek multiple solutions including, but not limited to, return of excess restricted cash held for exploration bonds, asset sales, credit facilities or debenture issuances in order to continue as a going concern.  

At March 31, 2018, we had a working capital deficit of $179,042.  As of the date of this report, we have approximately $325,000 outstanding in current liabilities and a cash balance of approximately $550,000.  As of the date of this Quarterly Report on Form 10-Q, we do not anticipate that we will be able to continue as a going concern, meet our property expenditure obligations and execute our business plan for the next 12 months without receiving significant additional capital.  We estimate that in order to meet our minimum obligations and continue as a going concern for the next twelve months, we need to raise at least $1 million during the next year, and to conduct our anticipated exploration program at Eureka for the next twelve months would require an estimated additional $1 million.  Therefore, we expect to engage in financial transactions to increase our cash balance and/or decrease our cash obligations in the near term, which may include equity financings, joint venture agreements, sales of non-core assets, credit facilities, debenture issuances, or other strategic transactions.  

We are working to increase and maintain sufficient working capital by prioritizing our expenditures toward added-value activities and advancing transactions aimed at improving our cash position.  We have also implemented significant cost-cutting measures, reduced staff, and curtailed discretionary exploration expenditures to preserve cash.  We are also working to increase our working capital by exploring multiple financing alternatives to fund the execution of our business plan.    

We recognize that we will not be able to execute our operating plans with our current cash balances.  However, with our current cash balance, proceeds from sales of non-core assets, our expected ability to acquire additional capital and complete necessary financing transactions, and our ability to curtail discretionary exploration expenditures as needed, we believe that we will have sufficient working capital to meet our ongoing, non-discretionary operating expenses for the next 12 months and maintain our primary mineral properties.  Additional capital may be obtained through financing transactions such as equity investments, asset sales, joint ventures, debt facilities, or other types of strategic arrangements.

We plan, as funding allows, to execute exploration programs at Eureka to follow-up on previous drill results and historical data, which are expected to include drilling, surface mapping and sampling, metallurgical tests, and initiating and upgrading gold resource estimates at Eureka.  Based upon identified potential funding opportunities, we are revising our corporate and exploration budgets, with a focus on the advancement the Eureka and Windfall projects at our Eureka property.  We recognize that we will require additional funding in order to execute our operating plans and advance toward development of our properties.

Given current market conditions, we cannot provide assurance that necessary financing will be available to us on acceptable terms or at all.  Over the past two years, we have significantly curtailed our corporate, exploration and other expenditures, however, we recognize that we will still require additional funding to provide sufficient capital to meet our property obligations, fund our planned, non-discretionary expenditures for the next 12 months, and maintain our primary mineral properties.  If we cannot obtain sufficient additional financing, we may be unable to make required property

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payments on a timely basis and be forced to return some or all of our leased or optioned properties to the underlying owners.   

Financing Activities

On December 21, 2017, we closed a private placement offering of 2,880,867 Units of the Company at a price of $0.30 per Unit for gross proceeds of $864,260 (the "Offering").  Each Unit in the Offering consisted of one share of common stock of the Company and one common share purchase warrant (each a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.45 per share until the warrant expiration date of October 31, 2022.  The private placement offering was completed under Rule 506(b) of Regulation D promulgated by the SEC under the Securities Act of 1933, as amended, solely to persons who qualified as accredited investors.  Subscribers who were resident in Canada were required to qualify as accredited investors under Canadian National Instrument 45-106 Prospectus Exemptions.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Critical Accounting Policies and Estimates

See Note 2 to the financial statements contained in this Quarterly Report for a summary of the significant accounting policies used in the presentation of our financial statements. We are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue and expenses.  We believe that our most critical accounting estimates are related to asset impairments and asset retirement obligations.

Our critical accounting policies and estimates are as follows:

Asset Impairments

Significant property acquisition payments for active exploration properties are capitalized.  The evaluation of our mineral properties for impairment is based on market conditions for minerals, underlying mineralized material associated with the properties, and future costs that may be required for ultimate realization through mining operations or by sale.  If no mineable ore body is discovered, or market conditions for minerals deteriorate, there is the potential for a material adjustment to the value assigned to such mineral properties.

We review the carrying value of equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment or abandonment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the equipment is used, and the effects of obsolescence, demand, competition, and other economic factors.

Asset Retirement Obligations

We have an obligation to reclaim our properties after the surface has been disturbed by exploration methods at the site. As a result, we have recorded a liability for the fair value of the reclamation costs we expect to incur at our Lookout Mountain Project.  We estimate applicable inflation and credit-adjusted risk-free rates as well as expected reclamation time frames. To the extent that the estimated reclamation costs change, such changes will impact future reclamation expense recorded. A liability is recognized for the present value of estimated environmental remediation (asset retirement obligation) in the period in which the liability is incurred if a reasonable estimate of fair value can be made. The offsetting balance is charged to the related long-lived asset. Adjustments are made to the liability for changes resulting from passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act as of the end of the period covered by this report). Based on that evaluation, our management, including the Principal Executive Officer and the Principal Financial Officer, has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective in ensuring that: (i) information required to be disclosed by the Company in reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

Management determined that the Company’s disclosure controls and procedures were not effective because of a material weakness in our internal control over financial reporting due primarily to minimal staffing at the Company and the resulting weakness related to appropriate segregation of duties. While the Company does adhere to a system of internal controls and processes that were designed and implemented by a respected, national accounting firm, it is difficult with a very limited staff to maintain appropriate segregation of duties in the initiating and recording of transactions, thereby creating a segregation of duties weakness.  Subject to available capital, we anticipate improving the effectiveness of our disclosure controls and procedures on a long-term basis by increasing staffing levels and segregating certain duties.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.  

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are not aware of any material pending litigation or of any proceedings known to be contemplated by governmental authorities which are, or would be, likely to have a material adverse effect upon us or our operations, taken as a whole.  No director, officer or affiliate of Timberline and no owner of record or beneficial owner of more than 5% of our securities or any associate of any such director, officer or security holder is a party adverse to Timberline or has a material interest adverse to Timberline in reference to any currently pending litigation.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2017, which was filed with the SEC on December 20, 2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

All sales of unregistered equity securities during the fiscal quarter covered by this Quarterly Report on Form 10-Q were previously reported on Form 8-K.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

 

None.

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ITEM 4.  MINE SAFETY DISCLOSURES

We consider health, safety and environmental stewardship to be a core value for the Company.

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 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 with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). During the quarter ended March 31, 2018, our U.S. exploration properties were not subject to regulation by the MSHA under the Mine Act.  

ITEM 5.  OTHER INFORMATION.

 

None.

ITEM 6. EXHIBITS.   

3.1	Certificate of Incorporation of the Registrant as amended through October 31, 2014, incorporated by reference to the Company’s Form 10-K as filed with the Securities and Exchange Commission on December 23, 2014
3.2	Amended By-Laws of the Registrant, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on August 13, 2015.
4.1	Specimen of the Common Stock Certificate, incorporated by reference to the Company’s Form 10SB as filed with the Securities Exchange Commission on September 29, 2005
4.2	Form of Warrant Agreement for May and June 2016 Offering incorporated by reference to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 11, 2016
4.3	Form of Warrant Agreement for March and April 2017 Offering of Units, incorporated by reference to the Company’s 10-Q filed with the Securities and Exchange Commission on May 15, 2017
4.4	Form of Warrant Agreement for November and December 2017 Offering, incorporated by reference to the Company’s 10-Q filed with the Securities and Exchange Commission on January 26, 2018
10.1*#	Randal Hardy Employment Agreement dated March 14, 2018, with an effective date of December 16, 2016
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (18 U.S.C. 1350)
32.2*	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (18 U.S.C. 1350)
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* - Filed herewith

# - Denotes management contract or compensatory plan

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	TIMBERLINE RESOURCES CORPORATION
	By:  /s/ Steven A. Osterberg        ___________________________________        Steven A. Osterberg        President and Chief Executive Officer        (Principal Executive Officer) Date:  May 10, 2018
	By:  /s/ Randal L. Hardy        ___________________________________        Randal L. Hardy        Chief Financial Officer        (Principal Financial and Accounting Officer) Date:  May 10, 2018

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