NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE COMPANY AND OUR BUSINESS
WestMountain Gold, Inc. (“WMTN” or the “Company”) is an exploration stage mining company, in accordance with applicable guidelines of the SEC, which pursues gold projects that are expected to have low operating costs and high returns on capital.
The Company 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). The Company’s financial statements before the date of Share Exchange are those of TMC with the results of WMTN being consolidated from the date of Share Exchange. The equity section and earnings per share have been retroactively restated to reflect the reverse acquisition and no goodwill has been recorded. The Company adopted TMC’s fiscal year, which is October 31.
WMTN’s wholly owned subsidiary, Terra Gold Corporation (“TGC”), is a joint venture partner with Raven Gold Alaska, Inc. (“Raven”) on a high-grade gold system called the TMC project. The Company is currently focused on mineral production from mineralized material at this project in the state of Alaska. The TMC project consists of 344 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 lesser, dependent upon the gold price) covering 223 square kilometers (22,300 hectares). The property is centered on an 8-km-long (800 hectares) trend of high-grade gold vein occurrences. All government permits and reclamation plans for continued exploration through 2013 were renewed in 2010. The $92,560 of fees to maintain the Terra claims through 2014 were paid by the Company on November 18, 2013. The property lies approximately 200 km (20,000 hectares) west-northwest of Anchorage and is accessible via helicopter or fixed-wing aircraft. The property has haul roads, a mill facility and adjoining camp infrastructure, a tailings pond and other infrastructure. The remote camp is powered by diesel powered generators and water is supplied to the mill by spring fed sources and year round water wells.
The Company is considered and exploration stage company under SEC criteria because it has not demonstrated the existence of proven or probable reserves at the TMC project. Accordingly, as required under SEC guidelines and U.S. GAAP for companies in the exploration stage, substantially all of our investment in mining properties to date, including construction of the mill, mine facilities and exploration expenditures, have been expensed as incurred and therefore do not appear as assets on our balance sheet. We expect construction expenditures and underground mine exploration and capital improvements will continue during 2014 and subsequent years. We expect to remain as an exploration stage company for the foreseeable future. We do not exit the exploration stage until such time that we demonstrate the existence of proven or probable reserves that meet SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine exploration and construction will continue to be expensed as incurred.
As of February 13, 2014, we have $2,852,115 plus accrued interest of $495,938 due to BOCO Investments LLC on three secured promissory notes that are now in default. We are currently attempting to negotiate an extension or other modification as we do not have the ability to repay the amount due. The Company has budgeted expenditures for the TMC project for the next twelve months of approximately $2,900,000, depending on additional financing, for general and administrative expenses and exploration. The Company must expend an additional $2,100,000 for a total of $9,500,000 plus option payments of $450,000 by December 31, 2014 as an “earn in” on the TMC project to own rights to 80% of the project. Even if economic reserves are found, if the Company is unable to raise this capital, it will not be able to complete its earn in on this project.
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 project and as each step is successfully completed, raise the capital for the next phase. WMTN believes this will reduce the cost of capital as compared to trying to raise all the anticipated capital at once up front. However, since WMTN’s ability to raise additional capital will be affected by many factors, most of which are not within our control (see “Risk Factors”), no assurance can be given that WMTN will in fact be able to raise the additional capital as it is needed.
The Company may choose to scale back operations to operate at break-even with a smaller level of business activity, while adjusting overhead depending on the availability of additional financing. In addition, the Company expects that it will need to raise additional funds if the Company decides to pursue more rapid expansion, appropriate responses to competitive pressures, or the acquisition of complementary businesses or technologies, or if it must respond to unanticipated events that require it to make additional investments. The Company cannot assure that additional financing will be available when needed on favorable terms, or at all.
NOTE 2. GOING CONCERN
The Company’s independent registered accounting firm has expressed substantial doubt about the Company’s ability to continue as a going concern as a result of its history of net loss. The Company’s 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-K. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue its business.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the consolidated financial statements.
Accounting Method
The Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
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.
Foreign Currency Translation
The consolidated financial statements are presented in US dollars.
Cash and Cash Equivalents
The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at US banks are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit. As of October 31, 2013, the Company had no uninsured cash amounts.
Metal and Other Inventory
Inventories were $66,485 and $0 as of October 31, 2013 and 2012, respectively. Inventories include doré. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Metal inventory costs include direct labor, materials, depreciation, as well as administrative overhead costs relating to mining activities.
Prepaid expenses
Prepaid expenses were $6,355 and $7,017 as of October 31, 2013 and 2012, respectively. The prepaid expenses primarily reflect expenses that are being amortized over the life of the service agreements.
Equipment
Equipment consists of machinery, furniture and fixtures and software, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives or lease period of the relevant asset, generally 3 -5 years.
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.
Mineral properties are periodically assessed for impairment of value and any diminution in value. The Company has access to the camp by airplane. There is road access from camp to the project area where drilling and bulk sampling mining occurs. It is approximately 1 1/2 miles from camp to the project area. Power generation is by diesel generator at the camp. Fuel is brought in for the generators by a cargo plane to the airstrip.
Long-Lived Assets
The Company reviews its long-lived assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results. As of October 31, 2013, there are no impairments recognized.
Alaska Reclamation and Remediation Liabilities
The Company operates in Alaska. The State of Alaska Department of Natural Resources requires a pool of funds from all permittees with exploration and mining projects to cover reclamation. There is a $750 per acre disturbance reclamation bond that is required for disturbance of 5 acres or more and/or removal of more the 50,000 cubic yards of material. The Company exceeded the minimum requirements in 2013 and posted a reclamation bond of $22,358 on December 23, 2013.
The Company expects to record reclamation bond as a liability in the period in which the Company is required to pay a reclamation bond. A corresponding asset is also recorded and depreciated over the life of the asset. After the initial measurement of the asset retirement obligation, the liability will be adjusted at the end of each reporting period to reflect changes in reclamation bond.
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;
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Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and
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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.
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Liabilities measured at fair value on a recurring basis are summarized as follows:
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Fair Value Measurements Using Inputs
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Carrying Amount at
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Financial Instruments
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Level 1
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Level 2
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Level 3
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October 31, 2013
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Liabilities:
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Forward contract
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$
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-
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$
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794,760
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$
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-
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$
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794,760
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Derivative Instruments -Warrants
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$
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-
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$
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2,000,000
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$
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-
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$
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2,000,000
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Total
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$
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-
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$
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2,794,760
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$
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-
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$
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2,794,760
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Market price and estimated fair value of common stock:
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October 31, 2013
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Market price and estimated fair value of common stock:
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$
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1.06
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Exercise price
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$
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0.75
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Expected term (years)
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4.8 years
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Dividend yield
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-
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Expected volatility
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112
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%
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Risk-free interest rate
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0.95
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%
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The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the warrants.
The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities at October 31, 2013 and 2012 based upon the short-term nature of the assets and liabilities.
Derivative Instruments – Warrants
May and June 2013, the Company received a total of $1.0 million and entered into Promissory Notes, Security a Agreement, Loan Agreement and Warrants to Purchase Stock Agreement (collectively, the “Transaction Documents”) with BOCO Investments LLC, (“BOCO”).
In addition, the Company issued Warrants to purchase 2,500,000 shares of common stock at an exercise price that is the lesser of $0.75 per s hare or a price per s hare equal to eighty percent (80%) of the lowest price at which a common s hare in the Company has been issued in any round of financing commenced or closed after the date of this Warrant and prior to Holder’s exercise of its rights under the Warrant. The Warrants expire five years from the issuance date in 2018. There are no registration requirements. The Trans action Documents place certain operating restrictions on the Company.
These warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. Therefore, the fair value of these warrants were recorded as a liability in the consolidated balance sheet and are marked to market each reporting period until they are exercised or expire or otherwise extinguished.
During 2013, the Company recognized $2,000,000 of other expense resulting from the increase in the fair value of the warrant liability at October 31, 2013.
Revenue Recognition:
Revenue is recognized 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.
Forward Contract
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 is required to tender no less than 600 ounces of gold in bar form to the three accredited investors by September 15, 2013. As of October 31, 2013, the value of the gold obligation is $794,760. 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.
On November 1, 2013, the Company settled with one of the parties that had a forward sale and loan agreement for 200 ounces of gold for 310,000 shares of common stock valued at $1.00 and warrants for an additional 310,000 shares of common stock with an exercise price of $1.50 per share. As of the date of this filing, the Company is in default under the other agreements and is still negotiating with the other two investors to reach a settlement agreement with them.
Mineral Exploration 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, are 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.
Provision for Income Taxes
Income taxes are provided based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
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 October 31, 2013, the Company had (i) warrants for the purchase of 16,505,308 common shares; (ii) 2,083,248 common shares related promissory notes; (iii) 605,000 common shares related to the conversion of Series A Convertible Preferred Stock; (iv) 159,000 shares due to Mark Scott under his Separation Agreement and Full Release of Claims dated November 15, 2013; and (v) 250,000 shares of common stock to be issued in 2014 to International Tower Hill Ltd. which were considered but were not included in the computation of loss per share at October 31, 2013 because they would have been anti-dilutive.
As of October 31, 2012, the Company had warrants for the purchase of 11,259,491 common shares and 1,643,639 common shares related promissory notes to which were considered but were not included in the computation of loss per share at October 31, 2012 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. Actual results could differ from those estimates.
Recent Accounting Pronouncements
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements.
In February 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-04,
Liabilities (Topic 405),
which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. ASU 2013-04 is effective for fiscal years beginning after December 15, 2013, which is effective for the Company’s first quarter of fiscal year 2015. The Company does not believe the adoption of ASU 2013-04 will have a material effect on the Company’s consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.
ASU 2013-02 requires disclosure of the amounts reclassified out of each component of accumulated other comprehensive income and into net earnings during the reporting period and is effective for reporting periods beginning after December 15, 2012. The Company does not believe the adoption of ASU 2013−02 in the first quarter of fiscal year 2014 will have a material impact on the measurement of net earnings or other comprehensive income.
In December 2011, the FASB issued ASU 2011-11,
Disclosures about Offsetting Assets and Liabilities
and in January 2013, the FASB issued ASU 2013-01,
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.
ASU 2011-11, as clarified, enhances disclosures surrounding offsetting (netting) assets and liabilities. The clarified standard applies to derivatives, repurchase agreements and securities lending transactions and requires companies to disclose gross and net information about financial instruments and derivatives eligible for offset and to disclose financial instruments and derivatives subject to master netting arrangements in financial statements. The clarified standard did not have a material effect on the Company’s financial position or results of operations.
In October 2012, the FASB issued ASU 2012-04,
Technical Corrections and Improvements,
which makes certain technical corrections (i.e., relatively minor corrections and clarifications) and “conforming fair value amendments” to the FASB Accounting Standards Codification (the “Codification”). The corrections and improvements include technical corrections based on feedback on the Codification and conforming amendments primarily related to fair value in areas outside of ASC 820. The amendments affect various Codification topics and apply to all reporting entities within the scope of those topics and became effective for the Company on December 20, 2012. The adoption of ASU 2012-04 did not have a material effect on the Company’s financial position or results of operations.
In July 2012, the FASB issued ASU 2012−02,
Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment
. The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU 2012-02 did not have a material effect on the Company’s financial position or results of operations.
In December 2011, the FASB issued ASU 2011−12,
Comprehensive Income
. The amendments in ASU 2011-12 supersede certain pending paragraphs in ASU 2011−05,
Presentation of Comprehensive Income
to effectively defer only those changes in ASU 2011−05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements became effective in the first quarter of fiscal 2013. The adoption of ASU 2011−12 did not impact the Company’s measurement of net earnings or other comprehensive income.
NOTE 4. TMC PROJECT AND AGREEMENTS
Summary
Gregory Schifrin, our CEO, has worked as a geologist and manager for 28 years in mining and mineral exploration industry where he has been involved in precious, base metals, and uranium exploration and development. Mr. Schifrin has provided technical services and project management for major and junior mining companies.
From 1985 to the Present, Mr. Schifrin was the co-founder and President of Minex Exploration, a mining industry known exploration consulting and service company, where Mr. Schifrin managed a staff of 15 to 20 personnel, clients and contracts, accounting, legal and regulatory requirements, as well as managing exploration projects, grassroots through drilling and development phase, throughout North America for major and junior mining companies.
Because of limited staff, the Company relies on Minex Exploration and other outside parties, including geologists, surveyors, laboratories, etc. in our business operations. The Company has historical data and drilling results on mining operations at the TMC project. Mr. Schifrin oversees the TMC project during the mining season.
This property does not have any known reserves and the Company’s proposed activities are exploratory in nature.The Company expects to finance its plan through investors, BOCO and the production and sale of gold doré.
The Company’s current and future operations are and will be governed by laws and regulations, including:
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laws and regulations governing mineral concession acquisition, prospecting, exploration, mining and production;
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· laws and regulations related to exports, taxes and fees;
· labor standards and regulations related to occupational health and mine safety;
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environmental standards and regulations related to clean water, waste disposal, toxic substances, land use and environmental protection; and
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· other matters.
Companies engaged in mining exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Failure to comply with applicable laws, regulations and permits may result in enforcement actions, including the forfeiture of claims, orders issued by regulatory or judicial authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or costly remedial actions. We may be required to compensate those suffering loss or damage by reason of our mineral exploration activities and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and permits.
All phases of our operations are subject to environmental regulation. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Compliance with environmental laws and regulations and future changes in these laws and regulations may require significant capital outlays and may cause material changes or delays in our operations and future activities. It is possible that future changes in these laws or regulations could have a significant adverse impact on our properties or some portion of our business, causing us to re-evaluate those activities at that time.
U.S. Federal Laws
. The Comprehensive Environmental, Response, Compensation, and Liability Act (CERCLA), and comparable state statutes, impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (RCRA), and comparable state statutes, govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances found on exploration, mining and processing sites long after activities on such sites have been completed.
The Company may also be subject to compliance with other federal environmental laws, including the Clean Air Act, National Environmental Policy Act (NEPA) and other environmental laws and regulations.
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 the 50,000 cubic yards of material. The Company exceeded the minimum requirements in 2013 and posted a reclamation bond of approximately $23,000 on December 23, 2013.
The State of Alaska requires the annual rental payment is $140 per claim during the first five years after staking, $280 during the second five years after staking, and $680 per claim thereafter. A minimum of $400 per claim must be expended annually.
TMC Project
The TMC project is summarized below.
The TMC project consists of 344 Alaska state mining claims including 5 unpatented lode mining claims held under lease (subject to a 3-4% net smelter return (“NSR”) royalty to the lesser, dependent upon the gold price) covering 223 square kilometers (22,300 hectares). The property is centered on an 8-km-long (800 hectares) trend of high-grade gold vein occurrences. All government permits and reclamation plans for continued exploration through 2013 were renewed in 2010. The $92,560 of fees to maintain the Terra claims through 2014 were paid by the Company on November 18, 2013. The property lies approximately 200 km west-northwest of Anchorage between the Revelation and Terra Cotta mountains of the Alaska Range in southwestern Alaska at 61° 41’ 52.17”N latitude by 153° 41’ 05.59W longitude 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 wells.
2013 Mining Season
The 2013 operations included an upgrade of the pilot mill facility, construction of a 4 mile road network between mine site and mill site, construction of a 5000 foot, C-130 aircraft capable, runway, road construction and mine portal construction. Details are follows:
1.
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The construction of the expansion of the mill to accommodate new equipment.
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2.
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The construction of a 4 mile road network connecting the mill site to mine site.
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3.
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The mining and level benching of the Ben Vein and Fish Vein.
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4.
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The near completion of construction of a 5000 foot airstrip to accommodate C-130 aircraft.
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5.
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Drilled water well at mill site for year round water supply for mill operation.
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6.
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Core Drilled-one exploration drill hole and four infill drill holes.
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7.
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Surface sampled Camp Creek Midway porphyry target.
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8.
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Approximately 183 flights, June to September, to the Terra Project with equipment, fuel and supplies.
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9.
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During the 2013 season, the Company produced 165 Troy ounces in limited production.
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A drill program occurred later in the 2013 season.
Five drill holes were completed, for a total of 875m (2870 feet) drilled, at the TMC project in 2013. There was one exploration drill hole along the extension of the vein system and four infill drill holes, between previous years drill sites, to upgrade the level of the resource and to provide information in proximity to the location where the underground tunnel entrance construction is planned. The drill core indicated the presence of the gold bearing veins and were logged and sampled. The drill hole sample data is pending.
The sampling work program involved geologists and geotechnicians collecting samples from outcrops, and talus in the area of the Ben Vein system and the Camp Creek Midway Porphyry area.. The samples were submitted for assaying to ALS Global an accredited laboratory.
The sacks of samples are delivered to the preparation laboratory of ALS Global In Anchorage, AK. From this point onward, the external laboratory crushes and pulverizes the samples. The pulverized pulp is placed in kraft sample bags and the un-pulverized portions are returned to the original sample bags. Batches of the sample pulps are shipped by couriers to the ALS Global in Vancouver, BC Canada laboratories "Pulverize pulp samples rejects" are taken back to the project for storage. The sample rejects are thus available for re-testing when required. In Richmond, BC, the sample pulps are analyzed by inductively coupled plasma for 30 elements. Gold is tested by fire assay and silver is tested by atomic absorption spectrometry. Each method has a lower and upper calibration range for which the results are accurately determined. The laboratories also perform a duplicate analysis on every twelfth sample, insuring that there is at least one duplicate run with every batch.
TMC has spent $7,400,000 of project expenses through October 31, 2013 as defined by the JV Agreement. The Company filed its annual JV report on December 13, 2013. TMC is reviewing the project expenses with Raven to determine if the Company has achieved its 51% interest in the JV.
2014 Mining Season
The 2014 mining season, subject to the availability of funding, includes (i) road, mill, runway and infrastructure construction; (ii) mining and milling; and (iii) resource definition and expansion; and obtaining new permits.
The Company’s capital budget for 2014 is as follows:
Expenditures
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$
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Drilling costs
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$
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250,000
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Camp and labor costs
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500,000
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Claims payments
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100,000
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Mining and milling
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500,000
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Underground portal
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475,000
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Property payments
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275,000
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Total mining
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$
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2,100,000
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The Company expects to prepare detailed project budgets for the TMC project for 2015 and later one year in advance, subject to the availability to cash.
Exploration, Development and Mine Operating Agreements
Joint Venture Agreement
On September 15, 2010, WMTN and its wholly owned subsidiary, TGC, and Raven signed an Exploration, Development and Mine Operating Agreement (“JV Agreement”). WMTN agreed to have 250,000 shares of WMTN common stock issued to Raven no later than one year after the closing of the acquisition of TMC by WMTN and an additional 250,000 shares of WMTN common stock issued on or before each of December 31, 2011 and December 31, 2012. The $50,000 due with the signing of the Letter of Intent in February 2010 was paid September 17, 2010.
The JV Agreement has a term of twenty years, which can continue longer as long as products are produced on a continuous basis and thereafter until all materials, equipment and infrastructure are salvaged and disposed of, environmental compliance is completed and accepted and the parties have completed a final accounting. The JV Agreement defines terms and conditions where TGC earns a 51% interest in the JV with the following payments and stock issuances:
Pay the following preproduction royalty payments:
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Payment of $10,000 with the signing of the Letter of Intent in February 2010 (paid September 2010).
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Payment of $40,000 with the signing of the JV Agreement (paid September 2010).
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Payment of $100,000 on or before December 31, 2011 (paid in December 2011).
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Payment of $150,000 on or before December 31, 2012 (paid in January 2013).
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Provide the following project funding-
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Payment of $1 million in project expenses on or before December 31, 2011, including $100,000 to Raven for camp equipment (paid).
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Payment of $2.5 million in additional project expenses on or before December 31, 2012, including $100,000 to Raven for camp equipment (paid in January 2013).
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Payment of $2.5 million in additional project expenses on or before December 31, 2013. The payments were made and all documentation and details have been provided by December 31, 2013.
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Issue the following common stock, which is subject to a two year trading restriction, upon the completion of the acquisition of TMC by WMTN:
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Issue 250,000 shares of WMTN common stock no later than one year after the closing of the acquisition of TMC (issued).
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Issue 250,000 shares of WMTN common stock on or before December 31, 2011 (issued), and December 31, 2012 (issued).
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WMTN then can increase their interest to 80% in the project with the following payments and stock issuances:
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Payment of $150,000 on or before December 31, 2013.
This payment was not made as we are in negotiation to buy out the remaining interest in the joint venture.
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Payment of $3.50 million in additional project expenses on or before December 31, 2014.
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Issue 250,000 shares of WMTN common stock on or before December 31, 2014.
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Failure to operate in accordance with the JV Agreement could result in the Company’s interest in the JV being revoked or the JV Agreement being terminated.
All costs related to the JV Agreement have been recorded as exploration expenses. Raven has not completed their review to confirm that the Company has achieved its 51% interest in the JV. Therefore, the joint venture is not consolidated in the Company’s financial statements. At such time as the Company earns its 51% or gains control of the joint venture, it will consolidate the operations of the joint venture. TMC has spent $7,400,000 of project expenses through October 31, 2013 as defined by the JV Agreement. The Company filed its annual JV report on December 13, 2013. TMC is reviewing the project expenses with Raven to determine if the Company has achieved its 51% interest in the JV.
Amended Claims and Lease Agreements with Ben Porterfield
On January 7, 2011, 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 Terra Project. As part of this Amended Claims Agreement, Ben Porterfield consented to certain conveyances, assignments, contributions and transfers related to this 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 royalties:
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Payment of $100,000 annually on March 22, 2011 (paid).
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Payment of $100,000 annually on March 22, 2012(paid), 2013 (paid) through March 22, 2015.
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Payment of $125,000 annually on March 22, 2016 through the termination of the Amended Claims Agreement.
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The Company can terminate the Amended Lease Agreement with the payment of $875,000, less $75,000 paid during the years 2006-2011
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The payment maybe paid over three annual payments.
TMC has paid in total $400,000 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 $.50 per share. Mr. Porterfield is to receive 200 tons of Bens Vein materials over the next two years. The investment in the exclusive rights to the mineral properties is accounted for at cost. As of July 31, 2013, the Company has capitalized $650,000 related to this Claims Agreement.
The Amended Claims Agreement, which incorporates the Lease dated March 22, 2005, provides for a production royalty of 4% of the net smelter return for all minerals produced or sold. The Company may repurchase 1% of the production royalty right for $1,000,000 and an additional 1% for $3,000,000.
The failure to operate in accordance with the Amended Claims or Lease Agreements could result in the Lease being terminated.
NOTE 5. EQUIPMENT, NET
Equipment, net comprises of the following:
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Estamated Useful Lives
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October 31, 2013
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October 31, 2012
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Mining and other equipment
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3-5 years
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$
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772,418
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$
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518,179
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Less: accumulated depreciation
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(243,445
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)
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(100,377
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)
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$
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528,973
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$
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417,802
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Depreciation expense for the year ended October 31, 2013 and 2012 was $143,068 and $97,800, respectively.
NOTE 5. CERTAIN RELATIONS AND RELATED PARTY TRANSACTIONS
The following relationships are material or are related as indicated.
Other Reverse Merger Agreements
WMTN entered into a Consulting Agreement with WestMountain Asset Management, Inc. (“WASM and WASM Agreement”), a WMTN shareholder. Under the terms of the WASM Agreement, WASM agreed to advise WMTN on the acquisition of TMC, funding of WMTN and strengthening the WMTN balance sheet during the period ending December 31, 2011. WASM received a Warrant for 925,000 shares at $0.001 per share. WMTN agreed to file a registration statement with the SEC with regard to the shares issuable upon exercise of the warrant within ninety days on a best efforts basis. As of January 22, 2012, WASM has exercised a portion of the warrant and 873,000 shares of WMTN common stock were issued. As of October 31, 2013, 52,000 common stock warrants from this transaction are outstanding.
Transactions with Minex Exploration LLP
The Company has six full-time and part-time employees. The Company shares offices with Minex Exploration LLP, an Idaho partnership affiliated with the Company’s Chief Executive Officer. Also, the Company utilizes Minex Mining contractors for exploration of the Alaska property. The Company has recorded accounts payable- related party of $659,024 and $493,164 as of October 31, 2013and 2012, respectively.
Secured Promissory and Promissory Notes with BOCO
From time to time, the Company entered into promissory notes and other agreements with BOCO Investment, LLC (“BOCO”) related to loans from BOCO to the Company. The current status of BOCO loans to the Company and their terms are described in Note 8, Promissory Notes and Note 11, Subsequent Events, below.
Series A Convertible Preferred Stock with BOCO
On July 31, 2013, the Company entered into a Series A Convertible Preferred Stock with BOCO. The terms are described in Note 9, Equity Transactions, below.
Fees Paid to Capital Peak Partners LLC
Our independent non-employee directors are not compensated in cash. Capital Peak Partners LLC, an entity affiliated with Michael Lavigne, was paid $97,500 and $90,000 during the years ended October 31, 2013 and 2012, respectively. The fees were paid to consultants consulting services and Mr. Lavigne did not receive any of the payments.
Any material related party transactions are reported in applicable sections of this Form 10-K.
NOTE 7. FORWARD CONTRACT
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 is required to tender no less than 600 ounces of gold in bar form to the three accredited investors by September 15, 2013. As of October 31, 2013, the value of the gold obligation is $794.760. 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. On November 1, 2013, the Company settled with one of the parties that had an agreement for 200 ounces of gold for 310,000 shares of common stock valued at $1.00 per share, plus warrants for an additional 310,000 shares at an exercise price of $1.50 per share. As of the date of this filing, the Company is in default under the other two agreements and is still negotiating with the two investors to reach a settlement agreement with them. Under these two agreements, the Company is obligated to tender no less than 400 ounces of gold or pay the principal sum of $600,000.
NOTE 8. PROMISSORY NOTES
As of October 31, 2013 and 2012, the Company has the following promissory notes outstanding:
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October 31, 2013
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October 31, 2012
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BOCO September 17, 2012 Promissory Note
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$
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1,852,115
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$
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1,852,115
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BOCO May 14, 2013 Promissory Note
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500,000
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-
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BOCO June 27, 2013 Promissory Note
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500,000
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-
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Andres Promisorry Notes
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200,000
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200,000
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Silver Verde May Promissory Notes
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31,113
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85,000
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Other Promissory Notes
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-
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1,850
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Total
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$
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3,083,228
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$
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2,138,965
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Secured Promissory Notes dated September 17, 2012
On September 17, 2012, the Company entered into an Amended and Restated Revolving Credit Loan and Security and Secured Convertible Promissory Note Agreements with BOCO Investments, LLC (“BOCO”), an existing lender to and shareholder in the Company. On October 1, 2012, the Company entered into a Warrant to Purchase Stock Agreement with BOCO related to this financing (such Agreements and Warrant, the “Transaction Documents”). This transaction consolidated previously issued promissory note agreements and warrants purchase agreements into one amended agreement.
Under the Transaction Documents, the Company issued an Amended and Restated Secured Convertible Promissory Note (“Note”) in the principal amount of $1,852,115. The Note was due July 31, 2013 and provided for interest at 15% payable in arrears. The Note and accrued interest are convertible into common stock at the lesser of $3.00 or the lowest price at which common shares in the Company are issued in any round of financing commencing after the date of this Note and prior to the conversion, at the discretion of BOCO. The Note is secured by a security interest in the Company’s assets to secure the Company’s performance under the Note. In addition, the Company issued a Warrant to purchase 1,852,115 shares of common stock at the lesser of $1.50 or the lowest price at which common shares in the Company are issued in any round of financing commencing after the date of this Note. The Warrant expires September 30, 2017. There are no registration requirements. The Transaction Documents place certain operating restrictions on the Company. As of October 31, 2013, the principal and accrued interest due on the note is $2,162,722.
The Agreements also contain certain representations and warranties of the Company and BOCO, including customary investment-related representations provided by BOCO, as well as acknowledgements by BOCO that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. The representations and warranties made to BOCO are qualified in their entirety (to the extent applicable) by the Company’s disclosures in the reports it files with the SEC. The Company also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Agreement.
In addition to the Transaction Documents described above, on September 11, 2012, the Company entered into a Warrant to Purchase Stock Agreement with BOCO. The Company issued a Warrant to purchase 1,250,000 shares of common stock at $0.25 per share. The Warrant expires September 30, 2017. There are no registration requirements.
On August 29, 2013, the Company entered into the First Amendment to the Amended and Restated Secured Convertible Promissory Note with BOCO. The First Amendment is effective August 1, 2013 and extends the due date under the September 17, 2012 Secured Convertible Promissory Note Agreement for $1,852,115 from July 31, 2013 to October 31, 2013.
Promissory Note with BOCO dated May 14, 2013
In May 2013, the Company issued a Promissory Note for $500,000 to BOCO
by entering into a Promissory Note, a Security Agreement and warrants to Purchase Stock Agreement and a Loan Agreement (collectively the May “Transaction Documents”).
Under the Transaction Documents, the Company issued a Promissory Note in the principal amount of $500,000. The Note is due October 31, 2013 and provides for interest at 15% payable in arrears. The Note is secured by a security interest in the Company’s assets to secure the Company’s performance under the Note. As of October 31, 2013, the principal and accrued interest due on the note is $536,370.
In addition, the Company issued a Warrant to purchase 1,250,000 shares of common stock at an exercise price that is the lesser of $0.75 per share or a price per share equal to eighty percent (80%) of the lowest price at which a common share in the Company has been issued in any round of financing commenced or closed after the date of this Warrant and prior to Holder’s exercise of its rights under the Warrant. The Warrant expires May 17, 2018. There are no registration requirements. The Transaction Documents place certain operating restrictions on the Company.
The Transaction Documents also contain certain representations and warranties of the Company and BOCO, including customary investment-related representations provided by BOCO, as well as acknowledgements by BOCO that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. The representations and warranties made to BOCO are qualified in their entirety (to the extent applicable) by the Company’s disclosures in the reports it files with the SEC. The Company also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Loan Agreement.
Promissory Note with BOCO dated June 27, 2013
On June 27, 2013, the Company entered into a Promissory Note, a Security Agreement and a Loan Agreements with BOCO. On June 27, 2013, the Company entered into a Warrant to Purchase Stock Agreement with BOCO related to this financing. All Agreements and the Warrant are the (“June Transaction Documents”).
Under the June Transaction Documents, the Company issued a Promissory Note in the principal amount of $500,000. The Note is due December 31, 2013 and provides for interest at 15% payable in arrears. The Note is secured by a security interest in the Company’s assets to secure the Company’s performance under the Note. As of October 31, 2013, the principal and accrued interest due on the note is $525,890.
In addition, the Company issued a Warrant to purchase 1,250,000 shares of common stock at an exercise price that is the lesser of $0.75 per share or a price per share equal to eighty percent (80%) of the lowest price at which a common share in the Company has been issued in any round of financing commenced or closed after the date of this Warrant and prior to Holder’s exercise of its rights under the Warrant. The Warrant expires June 27, 2018. There are no registration requirements. The June Transaction Documents place certain operating restrictions on the Company.
The Agreements also contain certain representations and warranties of the Company and BOCO, including customary investment-related representations provided by BOCO, as well as acknowledgements by BOCO that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. The representations and warranties made to BOCO are qualified in their entirety (to the extent applicable) by the Company’s disclosures in the reports it files with the SEC. The Company also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Agreement.
Unsecured Promissory Notes
On March 21, 2012 the Company entered into Promissory Note Documents with Fabin Andres and Bill Andres, existing shareholders in the Company. Under the Promissory Note Documents, the Company issued a Convertible Promissory Note (“Andres Notes”) in the principal amount of $100,000 and $100,000, respectively. The Andres Notes are due in twelve months and provide for interest at 5% payable in arrears. The Andres Notes are convertible into common stock as $1.00 per share. In addition, the Company issued 50,000 shares of restricted common stock to each party that was expensed to interest at $1.00 per share or $100,000 during the three months ended April 30, 2012. On May 29, 2013, the Company entered into an Amendment Convertible Promissory Note extending the due date to October 31, 2013. As of October 31, 2013, the principal and accrued interest due on the notes is $216,055. On October 31, 2013, the Company entered into the Second Amendment to Convertible Promissory Notes extending the due date to October 31, 2014.
On April 30, 2012 the Company entered into Promissory Note Documents with Silver Verde May Mining Company Inc. (“SVM”), a party related to an existing shareholder and a Director of the Company. Under the Promissory Note Documents, the Company issued Convertible Promissory Notes (“SVM Notes”) in the principal amounts totaling $85,000. The Notes were November 6, 2012, respectively, and provide for interest at 5% payable in arrears. The SVM Notes are convertible into common stock as $1.00 per share. In addition, the Company issued 42,500 shares of restricted common stock to SVM in connection with the issuance of the SVM Notes that was expensed to interest at $1.00 per share or $42,500 during the three months ended April 30, 2012. On May 29, 2013, the Company entered into an Amendment to Convertible Promissory Note extending the due date to July 31, 2013. As of October 31, 2013, the principal and accrued interest due on the notes is $35,656. As of October 31, 2013, the Company has repaid $53,867 to SVM. On October 31, 2013, the Company entered into the Second Amendment to Convertible Promissory Note extending the due date to October 31, 2014.
NOTE 9. EQUITY TRANSACTIONS
Preferred Stock
The Company’s preferred stock is $0.10 par value, 1,000,000 shares authorized and as of October 31, 2013, the Company had 12,100 shares issued and outstanding. On November 29, 2013, the Company’s Board of Directors of the Company approved a Certificate of Designation of Rights and Preferences of Series A Convertible Preferred Stock. The Certificate of Designation was filed with the state of Colorado on December 2, 2013 and approval was received on December 3, 2013. Each holder of outstanding shares of Series A Preferred shall be entitled to the number of votes equal to the number of whole shares of common stock of the Corporation into which the shares of Series A Preferred held by such holder are then convertible as of the applicable record date. The Company cannot not amend, alter or repeal any preferences, rights, or other terms of the Series A Preferred so as to adversely affect the Series A Preferred , without the written consent or affirmative vote of the holders of at least sixty-six and two-thirds percent (66.66%) of the then outstanding shares of Series A Preferred, voting as a separate voting group, given by written consent or by vote at a meeting called for such purpose for which notice shall have been duly given to the holders of the Series A Preferred.
During August and September 2013, the Company sold 12,100 units at $50.00 per unit to three accredited investors of Series A Convertible Preferred Stock totaling $605,000 that is convertible into 605,000 shares of common stock at $1.00 over the next five years. The Preferred Stock has voting rights and may be called if the underlying common stock is registered and the common stock of the Company closes above $1.75 for 20 consecutive trading days with an average daily trading volume of 75,000 shares. In addition, at the Company’s option, it may repay the preferred Stock at 120% of the issue price. The Preferred Stock provides for a 10% per annum dividend that may be paid in kind every six months. The Company also issued a three year warrant for 151,250 shares of common stock at $1.50 per share. The warrants have piggyback registration rights. A notice filing under Regulation D was filed with the SEC on October 4, 2013 with regard to these stock issuances.
Common Stock
Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect.
We have compensated consultants and service providers with restricted common stock during the Company’s exploration stage or when our capital resources were not adequate to provide payment in cash.
All of the following transactions were to accredited investors All issuances were structured to comply with the requirements of the safe harbor afforded by Rule 506 of Regulation D.
The Company had the following equity transactions during the year ended October 31, 2013:
During the six months ended April 30, 2013, the Company signed Subscription Agreements with accredited investors for $1,139,752, net of costs and issued 2,147,901 shares of restricted common stock. The restricted common stock does not have registration rights. In addition, the Company issued warrants for 2,192,901 shares at $1.50 per share. The warrants expire three years from the issuance date and do not have registration rights. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. A notice filing under Regulation D was filed with the SEC on January 15, 2013 with regard to these stock issuances.
On December 21, 2012, the Company issued 250,000 shares WMTN restricted common stock to International Tower Hill Mines Limited related to the JV Agreement. The shares do not have registration rights. The shares were valued at the date of grant and $127,500 was expensed to exploration during the six months ended April 30, 2013. A notice filing under Regulation D was filed with the SEC on February 26, 2013 with regard to this stock issuance.
During the six months ended April 30, 2013, the Company issued 25,000 restricted shares of common stock to Arlan and Byron Ruen under a Consulting Agreement. The shares do not have registration rights. The shares were valued on the date of issuance and $12,750 was expensed to services. A notice filing under Regulation D was filed with the SEC on January 14, 2013 with regard to this stock issuance.
During the year months ended October 31, 2013, the Company converted $15,300 in accounts payable into 30,000 shares of restricted common stock. The stock was valued on the date of issuance. In addition, Fifth Avenue Law Group PLLC, our corporate counsel, converted $20,000 of accounts payable into 26,666 shares of restricted common stock at $0.75 per share. The stock was valued on the date of issuance. The restricted common stock does not have registration rights. The Company issued warrants to Fifth Avenue Law Group, PLLC for 26,666 shares at an exercise price of $1.00 per share for services performed. The warrants expire three years after issuance and do not have registration rights. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. The warrants were valued at $0.50 per share based on Black-Scholes and $13,333 was expensed during the six months ended April 30, 2013. A notice filing under Regulation D was filed with the SEC during the three months ended January 31, 2013 with regard to these stock issuances. On October 30, 2013, Fifth Avenue Law Group PLLC converted $50,000 of accounts payable into 50,000 shares of restricted common stock at $1.00 per share. The stock was valued on the date of issuance. The restricted common stock does not have registration rights. A notice filing under Regulation D was filed with the SEC on November 26, 2013 with regard to this stock issuance. The Company issued warrants to Fifth Avenue Law Group, PLLC for 50,000 shares at an exercise price of $1.00 per share for services performed. The warrants expire three years after issuance and do not have registration rights. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. The warrant was valued at $0.55 per share or $$27,500 based on Black-Scholes.
On June 6, 2013, the Company issued 598,000 shares of common stock that were valued at $1.00 per share or $598,000 to nineteen individuals, employees and officers for services to the company. In addition, the Company issued warrants for the purchase of 225,000 common shares to five individuals, employees and officers that were valued at $0.55 per share or $123,750 based on Black-Scholes who provided services to the Company.
During the three months ended October 31, 2013, the Company issued 99,489 shares of common stock that were valued at $1.00 per share or $99,489 to one, four individuals and GVC Capital LLC employees for services to the company. A notice filing under Regulation D was filed with the SEC on November 26, 2013 with regard to these stock issuances.
On September 10, 2013, the Company issued 50,000 restricted shares of common stock to Silver Fox LLC pursuant to a signed agreement. The shares do not have registration rights. The shares were valued on the date of issuance and $50,000 was expensed to services. A notice filing under Regulation D was filed with the SEC on October 4, 2013 with regard to this stock issuance. The Company issued warrants to Silver Fox LLC for 100,000 shares at an exercise price of $1.00 per share for services performed. The warrants expire five years after issuance and do not have registration rights. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. The warrant was valued at $0.55 per share or $$55,000 based on Black-Scholes.
It is the Company’s understanding that approximately ten of the individuals, employees and officers were not accredited investors. However, all of them were involved in the Company’s business and operations, and the Company believed that each of them had such knowledge and experience in financial and business matters that they were capable of evaluating the merits and risks of an investment in the Company.
The Company had the following equity transactions during the year ended October 31, 2012:
On November 6, 2011, the Company issued 7,000 shares of WMTN restricted common stock to Edward Hall upon the exercise of warrants. A notice filing under Regulation D was filed with the SEC on December 14, 2011 with regard to this stock issuance.
On November 13, 2011, the Company issued a warrant for the purchase of 92,000 shares of common stock of the Company at $2.00 per share to Hinman Au for advisory services. The warrant expires November 12, 2014 and does not have registration rights. The warrant may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. The warrants were valued at $2.05 per share based on Black-Scholes and $188,600 was expensed as consulting expense during the three months ended January 31, 2012.
The Company issued 500,000 shares WMTN restricted common stock to Raven during November and December, 2011 at $0.50 per share related to the JV Agreement. The shares do not have registration rights. The shares were valued at $0.50 per share and $250,000 was expensed to exploration during the three months ended January 31, 2012.
On January 24, 2012, the Company issued 60,000 restricted shares of common stock at $.50 per share to Gary Courtney under a Consulting Agreement. The shares do not have registration rights. The shares were valued at $.50 per share and $30,000 was expensed to services during the three months ended January 31, 2012.
On March 28, 2012, the Company issued 200,000 shares of WMTN common stock to the Sterling Group upon the cashless exercise of warrants. A notice filing under Regulation D was filed with the SEC on March 28, 2012 with regard to these stock issuances.
On September 19, 2012, the Company issued a warrant for the purchase of 5,080 shares of common stock of the Company at $2.00 per share to Hinman Au for advisory services. The warrant expires September 18, 2015 and does not have registration rights. The warrant may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. The warrants were valued based on Black-Scholes and $1,727 was expensed as consulting expense during the year ended October 31, 2012.
On October 12, 2012, Mark Macklin converted debt of $100,000 and accrued interest of $2,500 into 102,500 shares of restricted common stock. The restricted common stock does not have registration rights. In addition, the Company issued warrants dated September 19, 2012 for 102,500 shares at $2.00 per share. The warrants expire three years after issuance and do not have registration rights. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. The warrants were valued at $0.17 per share based on Black-Scholes and $17,425 was expensed during the year ended October 31, 2012. A notice filing under Regulation D was filed with the SEC on October 31, 2012 with regard to this stock issuance.
On October 24, 2012, the Company granted 25,000 shares of restricted common stock to a director valued at $25,000. A notice filing under Regulation D was filed with the SEC on October 31, 2012 with regard to this stock issuance.
During the year ended October 31, 2012, the Company signed Subscription Agreements with accredited investors for $1,279,601, net of costs and issued 1,715,422 shares of restricted common stock. The restricted common stock does not have registration rights. In addition, the Company issued warrants for 1,804,701 shares at $2.00 per share. The warrants expire three years from the issuance date and do not have registration rights. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. A notice filing under Regulation D was filed with the SEC with regard to these stock issuances.
During the year ended October 31, 2012, the Company issued to BOCO a Warrant to purchase 1,250,000 shares of common stock at the exercise price of $0.25 and a warrant to purchase 1,852,115 shares of common stock at $1.50 or the lowest price at which common shares in the Company are issued in any round of financing commencing after the date of the convertible note, and a Warrant to purchase 200,000 shares of common stock at $4.00 per share. These Warrants expire September 2017, September 2017 and November 2021, respectively. There are no registration requirements. The warrants were valued based on Black-Scholes at $1,044,500, this amount was expensed as interest during the year ended October 31, 2012.
The Company issued Warrants to purchase 130,000 shares of common stock at a price of $2.00 per share with shares issued in payment of accounts payable. The warrants were valued based on Black-Scholes and $16,900 was expensed during the year ended October 31, 2012.
During the year ended October 31, 2012, the Company issued 192,500 shares of common stock to convertible debt holders. The stock was valued at $192,500 and recorded as additional interest expense.
During the three months ended October 31, 2012, the Company converted $110,000 in accounts payable into 110,000 shares of restricted common stock at $1.00 per share. In addition, Fifth Avenue Law Group PLLC, our corporate counsel, converted $20,000 of accounts payable into 20,000 shares of restricted common stock at $1.00 per share. The restricted common stock does not have registration rights. In addition, the Company issued warrants for 130,000 shares at $1.85 per share. The warrants expire three years after issuance and do not have registration rights. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $4.00 or more for the Company’s common stock has been sustained for five trading days. The warrants were valued at $0.13 per share based on Black-Scholes and $16,900 was expensed during the year ended October 31, 2012. A notice filing under Regulation D was filed with the SEC during the three months ended October 31, 2012 with regard to these stock issuances.
The Company issued Warrants to 102,500 shares of common stock at a price of $2.00 per share with shares issued in payment of a convertible note. The warrants were valued based on Black-Scholes and $17,425 was expensed during the year ended October 31, 2012.
A summary of the warrants issued as of October 31, 2013 were as follows:
|
|
October 31, 2013
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at beginning of period
|
|
|
11,259,491
|
|
|
$
|
1.152
|
|
Issued
|
|
|
5,245,817
|
|
|
|
0.925
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at end of period
|
|
|
16,505,308
|
|
|
$
|
1.062
|
|
Exerciseable at end of period
|
|
|
16,505,308
|
|
|
|
|
|
A summary of the status of the warrants outstanding as of October 31, 2013 is presented below:
|
|
|
|
|
|
October 31, 2013
|
|
|
Number of Warrants
|
|
|
Weighted Average Remaining Life
|
|
|
Weighted Average Exercise Price
|
|
|
Shares Exerciseable
|
|
Weighted Average Exercise Price
|
|
62,000
|
|
|
|
0.42
|
|
|
$
|
0.001
|
|
|
|
62,000
|
|
|
|
1,250,000
|
|
|
|
4.00
|
|
|
$
|
0.250
|
|
|
|
1,250,000
|
|
|
|
250,000
|
|
|
|
0.42
|
|
|
$
|
0.500
|
|
|
|
250,000
|
|
|
|
6,111,095
|
|
|
|
2.16
|
|
|
$
|
0.750
|
|
|
|
6,111,095
|
|
|
|
2,346,666
|
|
|
|
1.02
|
|
|
$
|
1.000
|
|
|
|
2,346,666
|
|
|
|
1,852,115
|
|
|
|
4.00
|
|
|
$
|
1.500
|
|
|
|
1,852,115
|
|
|
|
4,433,432
|
|
|
|
1.84
|
|
|
$
|
1.500
|
|
|
|
4,433,432
|
|
|
|
200,000
|
|
|
|
8.05
|
|
|
$
|
4.250
|
|
|
|
200,000
|
|
|
|
16,505,308
|
|
|
|
|
|
|
$
|
1.062
|
|
|
|
16,505,308
|
|
$ 1.062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant weighted average assumptions relating to the valuation of the Company’s warrants for the year ended October 31, 2013 were as follows:
Dividend yield
|
|
|
0
|
%
|
Expected life
|
|
3-10 years
|
|
Expected volatility
|
|
|
100-143
|
%
|
Risk free interest rate
|
|
|
2-3.25
|
%
|
At October 31, 2013, vested warrants totaling 10,019,761 shares had an aggregate intrinsic value of $3,854,583.
NOTE 10. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
There are no pending legal proceedings against the Company that are expected to have a material adverse effect on cash flows, financial condition or results of operations.
Employment Agreements
On October 1, 2010, TMC signed an Employment Agreement with Gregory Schifrin, which was acquired by WMTN as a result of the acquisition of TMC. Under the terms of the Schifrin Agreement, Mr. Schifrin was appointed Chief Executive Officer for an indefinite period at a salary of $120,000 per year. Mr. Schifrin is eligible for annual bonuses and incentive plans as determined by the Company’s Compensation Committee. Mr. Schifrin is also eligible for employee benefit programs, including 4 weeks of vacation per year, medical benefits and $500 per day spent on the Company’s project sites. Mr. Schifrin may resign with 60 days’ notice. If Mr. Schifrin is terminated without cause, including a change in control (after six months), he is to receive in a lump sum, two times his annual salary, two times his targeted annual bonus, two times his last year’s bonus, any accrued vacation and employee benefit programs for up to one year.
On October 1, 2010, TMC signed an Employment Agreement with James Baughman, which was acquired by WMTN as a result of the acquisition of TMC. Under the terms of the Baughman Agreement, Mr. Baughman was appointed Chief Operating Officer for an indefinite period at a salary of $120,000 per year. Mr. Baughman is eligible for annual bonuses and incentive plans as determined by the Company’s Compensation Committee. Mr. Baughman is also eligible for employee benefit programs, including 4 weeks of vacation per year, medical benefits and $500 per day spent on the Company’s project sites. Mr. Baughman may resign with 60 days’ notice. If Mr. Baughman is terminated without cause, including a change in control (after six months), he is to receive in a lump sum, two times his annual salary, two times his last year’s bonus, any accrued vacation and employee benefit programs for up to one year. Mr. Baughman resigned his employment early in 2014.
On April 18, 2011, the Company entered into an Employment Agreement with Mark Scott as the Company’s Chief Financial Officer, which was effective April 9, 2011. The Scott Employment Agreement replaced the Scott Consulting Agreement dated February 18, 2011 and which expired on April 8, 2011.
Under the terms of the Scott Employment Agreement, Mr. Scott was appointed Chief Financial Officer for an indefinite period at a salary of $96,000 per year plus incentive compensation of $3,000 per month. Mr. Scott is eligible for annual bonuses and incentive plans as determined by the Company’s Compensation Committee. Mr. Scott is eligible for employee benefit programs, including 4 weeks of vacation per year, medical benefits, life and disability insurance. Mr. Scott may resign with 60 days’ notice. If Mr. Scott is terminated without cause, including a change in control (after six months), he is to receive in a lump sum, one times his annual salary, one times his targeted annual bonus, two times his last year’s bonus, any accrued vacation and two times his last year’s bonus, any accrued vacation and employee benefit programs for up to two years. If Mr. Scott resigns for good cause, he is to receive in a lump sum, two times his annual salary and employee benefit programs for up to two years.
On November 15, 2013, Mark Scott and the Company entered into Separation Agreement and Full Release of Claims (the “Separation Agreement”), wherein Mr. Scott will stay with the Company until December 31, 2013 as Chief Financial Officer, primarily to complete the Company’s filing of its 2013 Form 10-K. Mr. Scott did not resign due to any disagreement with the Company relating to the Company’s operations, policies or practices. Pursuant to the Separation Agreement, the Company agreed to provide the following consideration to Mr. Scott:
|
|
|
|
o
|
The Company agrees to pay $48,000 in accrued and unpaid salary and unpaid expenses of approximately $4,500 by December 31, 2013 or when financing complete out of funds (but no later than March 31, 2014) received from gold sales or other equity and debt financing, in full satisfaction of any and all accrued but unpaid salary and expenses.
|
|
|
|
|
o
|
Issuance of 63,000 shares of Company common stock within eight days of the effective date of the Separation Agreement (issued).
|
|
|
|
|
o
|
Salary remains at $96,000 per year up through December 31, 2013 and health benefits continue through that same time period. No future bonuses will be accrued after December 31, 2013.
|
|
|
|
|
o
|
Issuance of 96,000 restricted shares of West Mountain Gold, Inc. stock within thirty days of the effective date of the Separation Agreement (issued).
|
Leases
The Company is obligated under various non-cancelable operating leases for their various facilities and certain equipment.
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
|
|
2014
|
|
$
|
280,000
|
|
2015
|
|
$
|
100,000
|
|
2016
|
|
$
|
100,000
|
|
2017
|
|
$
|
125,000
|
|
2018
|
|
$
|
125,000
|
|
Beyond
|
|
$
|
125,000
|
|
Total
|
|
$
|
855,000
|
|
NOTE 11. INCOME TAXES
The Company has incurred losses since inception, which have generated net operating loss carryforwards. The net operating loss carryforwards arise from United States sources.
Pretax losses arising from United States operations were approximately $7,610,000 for the year ended October 31, 2013.
Pretax losses arising from United States operations were approximately $5,550,000 for the year ended October 31, 2012.
The Company has net operating loss carryforwards of approximately $14,200,000, which expire in 2020-2032. Because it is not more likely than not that sufficient tax earnings will be generated to utilize the net operating loss carryforwards, a corresponding valuation allowance of approximately $4,825,000 and $2,623,000 was established as of October 31, 2013 and 2012 respectively. Additionally, under the Tax Reform Act of 1986, the amounts of, and benefits from, net operating losses may be limited in certain circumstances, including a change in control.
Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. There can be no assurance that the Company will be able to utilize any net operating loss carryforwards in the future.
For the year ended October 31, 2013, the Company’s effective tax rate differs from the federal statutory rate principally due to net operating losses, warrants issued for services and the derivative liability related to warrants issued in connection with promissory notes.
The principal components of the Company’s deferred tax assets at October 31, 2013 and 2012 are as follows:
|
|
2013
|
|
|
2012
|
|
U.S. operations loss carry forward at statutory rate of 34%
|
|
$
|
(4,824,815
|
)
|
|
$
|
(2,623,141
|
)
|
Total
|
|
|
(4,824,815
|
)
|
|
|
(2,623,141
|
)
|
Less Valuation Allowance
|
|
|
4,824,815
|
|
|
|
2,623,141
|
|
Net Deferred Tax Assets
|
|
|
-
|
|
|
|
|
|
Change in Valuation Allowance
|
|
|
4,824,815
|
|
|
|
2,623,141
|
|
A reconciliation of the United States Federal Statutory rate to the Company’s effective tax rate for the year ended October 31, 2013 and 2012 is as follows:
|
|
2013
|
|
|
2012
|
|
Federal Statutory Rate
|
|
|
-34.0
|
%
|
|
|
-34.0
|
%
|
Increase in Income Taxes Resulting from:
|
|
|
|
|
|
|
|
|
Change in Valuation Allowance
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Effective Tax Rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
NOTE 12. SUBSEQUENT EVENTS
The Company evaluates subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements are available.
Loan and Note Modification Agreement
On November 1, 2013, the Company entered into a loan and note modification agreement with and individual lender regarding the forward sale of gold. The lender agreed to settle the note in full for 310,000 shares of common stock at a $1.00 value and 310,000 warrants at a $1.50 exercise price.
Mark Scott Separation Agreement
On November 15, 2013, the Company entered into Separation Agreement and Full Release of Claims with Mark Scott, which is described in Note 10.
Lincoln Park Transaction
On November 20, 2013, the Company entered into a Purchase Agreement, together with a Registration Rights Agreement, with Lincoln Park Capital Fund, LLC.
Under the terms and subject to the conditions of the Purchase Agreement, Lincoln Park purchased 113,636 shares of our Common Stock for $100,000 and we have the right to sell to and Lincoln Park is obligated to purchase up to an additional $10 million in shares of Common Stock, subject to certain limitations, from time to time, over the 24-month period commencing on the date that a registration statement, which we agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed. There are no penalties to the Company for failure to file a registration statement.
The Company may direct Lincoln Park, at our sole discretion and subject to certain conditions, to purchase shares of Common Stock in amounts up to 50,000 shares on any single business day so long as at least one business day have passed since the most recent purchase. We also can accelerate the amount of Common Stock to be purchased under certain circumstances to up to 100,000 shares per purchase. However, Lincoln Park’s committed obligation under any single purchase will not exceed $500,000. The purchase price of shares of Common Stock related to the future funding will be based on the prevailing market prices of such shares immediately preceding the date of sales, but in no event will shares be sold to Lincoln Park on a day the Common Stock closing price is less than the floor price of $0.50 per share as defined in the Purchase Agreement. The Company’s sales of shares of Common Stock to Lincoln Park under the Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 9.99% of the then outstanding shares of the Common Stock.
In connection with the Purchase Agreement, we also issued to Lincoln Park 242,529 shares of Common Stock and we are required to issue up to 404,216 additional shares of Common Stock pro rata as we sell Lincoln Park Common Stock under the Purchase Agreement over the term of the Purchase Agreement. Lincoln Park represented to us, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)), and we sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) under the Securities Act. The securities sold may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. We have the right to terminate the Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for us and our operations. There are no trading volume requirements or restrictions under the Purchase Agreement. Lincoln Park has no right to require any sales by us, but is obligated to make purchases from us as we directs in accordance with the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares.
Certificate of Designation of Rights and Preferences of Series A Convertible Preferred Stock
On November 29, 2013, our Board of Directors of the Company approved a Certificate of Designation of Rights and Preferences of Series A Convertible Preferred Stock. The Certificate of Designation was filed with the state of Colorado on December 2, 2013.
Resignation of Officer and Director
On February 7, 2014, the Board of Directors accepted and ratified the resignation of Mr. James Baughman as a director and Chief Operating Officer of the Company. Mr. Baughman tendered his resignation on January 6, 2014. Mr. Baughman did not have any disagreement with the Company on any matter relating to the registrant’s operations, policies or practices.