Quarterly Report (10-q)

Date : 02/14/2020 @ 5:51PM
Source : Edgar (US Regulatory)
Stock : Timberline Resources Corporation (QB) (TLRS)
Quote : 0.07  -0.0089 (-11.28%) @ 6:24PM
Timberline Resources (QB) share price Chart

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to           

 

Commission file number: 001-34055

PICTURE 1  

 

 

 

 

TIMBERLINE RESOURCES CORPORATION

(Exact Name of Registrant as Specified in its Charter)

DELAWARE

 

82-0291227

(State of other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

101 EAST LAKESIDE AVENUE

 

 

COEUR D’ALENE, IDAHO

 

83814

(Address of Principal Executive Offices)

 

(Zip Code)

 

(208) 664-4859

(Registrant’s Telephone Number, including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value

TLRS

TBR

OTCQB

TSX-V

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x   Yes  o  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  xYes  o  No

 

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

 

Large Accelerated Filer   o

Accelerated Filer  o

Non-Accelerated Filer    x

 

Small Reporting Company   x

Emerging Growth Company  o

 

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

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

 

Number of shares of issuer’s common stock outstanding at February 14, 2020: 74,895,260


1



INDEX 

 

 

 

Page 

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION 3 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 16 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28 

ITEM 4. CONTROLS AND PROCEDURES 28 

PART II — OTHER INFORMATION 29 

ITEM 1. LEGAL PROCEEDINGS. 29 

ITEM 1A. RISK FACTORS 29 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 29 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES. 29 

ITEM 4.  MINE SAFETY DISCLOSURES 29 

ITEM 5.  OTHER INFORMATION 29 

SIGNATURES 31 

 

 

 

 

 


2



PART I — FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

 

Contents

 

 

 

Page 

 

FINANCIAL STATEMENTS:

 

Consolidated balance sheets4 

 

Consolidated statements of operations5 

 

Consolidated statements of stockholders’ equity6 

 

Consolidated statements of cash flows7 

 

Notes to consolidated financial statements8 - 15 


3



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

September 30,

 

 

 

 

 

2019

 

2019

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash

$

196,714

$

30,757

 

 

Prepaid expenses and other current assets

 

59,870

 

21,132

 

 

Account receivable

 

19,963

 

118,525

 

 

 

TOTAL CURRENT ASSETS

 

276,547

 

170,414

 

 

 

 

 

 

 

PROPERTY, MINERAL RIGHTS, AND EQUIPMENT, net (NOTE 3)

 

14,991,738

 

15,023,843

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

Reclamation bonds

 

292,684

 

305,184

 

 

Deposits and other assets

 

5,700

 

5,700

 

 

 

TOTAL OTHER ASSETS

 

298,384

 

310,884

 

 

 

 

 

 

 

TOTAL ASSETS

$

15,566,669

$

15,505,141

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable

$

41,397

$

103,485

 

 

Accrued expenses

 

32,506

 

102,236

 

 

Accrued interest

 

25

 

10,956

 

 

Accrued interest – related party

 

112,267

 

83,107

 

 

Accrued payroll, benefits and taxes

 

17,308

 

24,038

 

 

Payment obligation

 

150,239

 

178,533

 

 

Senior unsecured note payable – related party, current portions, net of discount

 

193,383

 

-

 

 

 

TOTAL CURRENT LIABILITIES

 

547,125

 

502,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

Asset retirement obligation

 

170,651

 

168,619

 

 

Senior unsecured note payable – related party, net of discount (NOTE 6)

 

300,000

 

452,255

 

 

 

TOTAL LONG-TERM LIABILITIES

 

470,651

 

620,874

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

1,017,776

 

1,123,229

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTES 3, 5 and 9)

 

-

 

-

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY: (NOTE 8)

 

 

 

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized,

 

 

 

 

 

 

    none issued and outstanding

 

-

 

-

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,

 

 

 

 

 

 

 

74,895,260 and 67,395,260 shares issued and outstanding, respectively

 

74,895

 

67,395

 

 

Additional paid-in capital

 

75,492,358

 

74,568,258

 

 

Accumulated deficit

 

(61,018,360)

 

(60,253,741)

 

 

 

TOTAL STOCKHOLDERS' EQUITY

 

14,548,893

 

14,381,912

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

15,566,669

$

15,505,141

 

 

See accompanying notes to consolidated financial statements.


4



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Mineral exploration

 

$

146,482

$

271,525

 

 

 

Salaries and benefits

 

 

125,290

 

43,318

 

 

 

Professional fees

 

 

68,851

 

92,792

 

 

 

Insurance

 

 

18,742

 

22,636

 

 

 

Other general and administrative

 

 

152,172

 

81,259

 

 

 

 

TOTAL OPERATING EXPENSES

 

 

511,537

 

511,530

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(511,537)

 

(511,530)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

Foreign exchange gain and other

 

 

18

 

956

 

 

 

Loss on extinguishment of debt – related party

 

 

(195,611)

 

-

 

 

 

Interest expense

 

 

(17,363)

 

(24,849)

 

 

 

Interest expense – related party

 

 

(40,126)

 

(14,250)

 

 

 

 

TOTAL OTHER INCOME (EXPENSE)

 

 

(253,082)

 

(38,123)

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

 

(764,619)

 

(549,653)

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX PROVISION (BENEFIT)

 

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

$

(764,619)

$

(549,653)

 

 

 

 

 

 

 

 

 

NET LOSS PER SHARE,

 

 

 

 

 

 

 

BASIC AND DILUTED

 

$

(0.01)

$

(0.01)

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,

 

 

 

 

 

 

 

 

BASIC AND DILUTED

 

 

73,020,260

 

60,791,369

 

 

 

 

 

See accompanying notes to consolidated financial statements.


5



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

 

 

 

 

Common Stock

Shares

 

Common Stock Amount

 

Additional

Paid-in

Capital

 

Accumulated

Deficit

 

Total

Stockholders’

Equity

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2019

 

67,395,260

$

67,395

$

74,568,258

$

(60,253,741)

$

14,381,912

Common stock and warrants issued for cash

 

7,500,000

 

7,500

 

592,500

 

-

 

600,000

Stock-based compensation

 

-

 

-

 

161,100

 

-

 

161,100

Warrants issued for extinguishment of debt - related party

 

-

 

-

 

170,500

 

-

 

170,500

Net loss

 

-

 

-

 

-

 

(764,619)

 

(764,619)

Balance, December 31, 2019

 

74,895,260

$

74,895

$

75,492,358

$

(61,018,360)

$

14,548,893

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2018

 

53,527,819

$

53,528

$

73,197,430

$

(58,596,458)

$

14,654,500

Common stock and warrants issued for cash

 

7,500,000

 

7,500

 

592,500

 

-

 

600,000

Stock-based compensation

 

-

 

-

 

5,000

 

-

 

5,000

Warrants issued for joint venture to AGEI

 

-

 

-

 

176,000

 

-

 

176,000

Net loss

 

-

 

-

 

-

 

(549,653)

 

(549,653)

Balance, December 31, 2018

 

61,027,819

$

61,028

$

73,970,930

$

(59,146,111)

$

14,885,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.


6



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

Three Months Ended December 31,

 

 

 

 

2019

 

2018

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

$

(764,619)

$

(549,653)

 

 

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

 Stock-based compensation

 

161,100

 

5,000

 

 

 Accretion of asset retirement obligation

 

2,032

 

1,935

 

 

 Amortization of discount on senior unsecured notes payable – related party

 

16,017

 

20,071

 

 

 Loss on extinguishment of debt – related party

 

195,611

 

-

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 Prepaid expenses and other current assets

 

(38,738)

 

(48,251)

 

 

 Account receivable

 

98,562

 

-

 

 

 Accounts payable

 

(62,088)

 

(11,322)

 

 

 Accrued expenses

 

(69,730)

 

34,887

 

 

 Accrued interest

 

(10,931)

 

18,890

 

 

 Accrued interest – related party

 

29,160

 

14,250

 

 

 Accrued payroll, benefits, and taxes

 

(6,730)

 

(18,449)

 

 

     Net cash used by operating activities

 

(450,354)

 

(532,642)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 Purchase of mineral rights

 

-

 

(18,000)

 

 

 Refund of reclamation bond

 

12,500

 

-

 

 

 Proceeds from lease of mineral rights

 

32,105

 

25,594

 

 

   Net cash provided by investing activities

 

44,605

 

7,594

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 Proceeds from sale of common stock and warrants, net

 

600,000

 

600,000

 

 

 Cash paid on payment obligation

 

(28,294)

 

-

 

 

   Net cash provided by financing activities

 

571,706

 

600,000

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

165,957

 

74,952

 

 

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

30,757

 

110,736

 

 

 

 

 

 

 

 

 

CASH AT END OF PERIOD

$

196,714

$

185,688

 

 

 

 

 

 

 

 

 

NON-CASH FINANCING AND INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

  Warrants issued for purchase of mineral properties

$

-

$

176,000

 

 

 

 

See accompanying notes to consolidated financial statements.


7


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS:

 

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

 

Basis of Presentation - The unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, as well as the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three-month period ended December 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020.

 

For further information refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the financial statements.

 

a.Going Concern – The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. The Company has incurred losses since its inception. The Company does not have sufficient cash to fund normal operations and meet all of its obligations for the next 12 months without raising additional funds. The Company currently has no historical recurring source of revenue, and its ability to continue as a going concern is dependent on its ability to raise capital to fund future exploration and working capital requirements, or the Company’s ability to profitably execute its business plan. The Company’s plans for the long-term return to and continuation as a going concern include financing its future operations through sales of common stock and/or debt and the eventual profitable exploitation of its mining properties. Additionally, the current capital markets and general economic conditions in the United States and Canada are significant obstacles to raising the required funds. While the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern. 

The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.

b.New Accounting Pronouncements - In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to the disclosure requirements on fair value measurements. The update is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Management is evaluating the impact of this update on the Company’s fair value measurement disclosures. 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

c.Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Staccato Gold Resources, Ltd.; BH Minerals USA, Inc.; Wolfpack Gold (Nevada) Corp.; and Talapoosa Development Corp., after elimination of intercompany accounts and transactions. 


8


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


d.Reclassifications - Certain reclassifications may have been made to conform prior period’s data to the current presentation. These reclassifications have no effect on the results of reported operations or stockholders’ equity or cash flows. 

e.Reclamation Bonds – Bonds paid to assure reclamation of properties covered by exploration permits are capitalized in the period paid, reduced as refunds are received or expensed as they are applied to reclamation obligations. 

f.Estimates and Assumptions – The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management assumptions and estimates relate to asset impairments, asset retirement obligations, stock-based compensation, and valuation of equity securities, such as warrants. Actual results could differ from these estimates and assumptions and could have a material effect on the Company’s reported financial position and results of operations. 

g.Stock-based Compensation – The Company estimates the fair value of its stock-based option compensation using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), employee forfeiture rate, the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation.  

The value of common stock awards is determined based upon the closing price of the Company’s stock on the grant date of the award. Compensation expense for grants that vest is recognized ratably over the vesting period. The fair value of stock unit or stock awards is determined by the closing price of the Company’s common stock on the date of the grant

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

The dilutive effect of convertible and outstanding securities as of December 31, 2019 and 2018 is as follows:

 

December 31, 2019

 

December 31, 2018

Stock options

5,650,000

 

3,280,000

Warrants

53,541,908

 

49,106,373

Total potential dilution

59,191,908

 

52,386,373

 

At December 31, 2019 and 2018, the effect of the Company’s common stock equivalents would have been anti-dilutive.


9


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


NOTE 3 – PROPERTY, MINERAL RIGHTS, AND EQUIPMENT:

 

The following is a summary of property, mineral rights, and equipment and accumulated depreciation at December 31, 2019 and September 30, 2019, respectively:

 

 

Expected Useful Lives (years)

 

December 31, 2019

 

September 30, 2019

 

 

 

 

 

 

Mineral rights – Eureka

-

$

13,671,546

$

13,703,651

Mineral rights – Elder Creek

-

 

1,218,715

 

1,218,715

Mineral rights – Other

-

 

50,000

 

50,000

Total mineral rights

 

 

14,940,261

 

14,972,366

 

 

 

 

 

 

Equipment and vehicles

2-5

 

53,678

 

53,678

Office equipment and furniture

3-7

 

70,150

 

70,150

Land

-

 

51,477

 

51,477

Total property and equipment

 

 

175,305

 

175,305

   Less accumulated depreciation

 

 

(123,828)

 

(123,828)

Property, mineral rights, and equipment, net

 

$

14,991,738

$

15,023,843

 

Depreciation expense for the quarters ended December 31, 2019 and 2018, was nil and nil, respectively.

 

For the quarters ended December 31, 2019 and 2018, the Company received lease payments of $32,105 and $25,594, respectively, from a third party on two of the Company’s leases at the Company’s Eureka property. Monthly payments in the amount of approximately $8,500 are expected to continue to be received. These receipts are recorded as a reduction to property, mineral rights, and equipment.

 

Elder Creek property:

 

The Company met the 2018 work commitment, and issued 5,000,000 Class G warrants during the quarter ended December 31, 2018 as required by the amended agreement, which were fair valued at $176,000 on the date the commitment was satisfied.

 

Lookout Mountain LLC:

 

On June 28, 2019, the Company entered into a Limited Liability Company Agreement to form a Limited Liability Company (the “Agreement”) with PM&Gold Mines, Inc. (“PM&G”) for the advanced exploration, and if determined feasible, the development of the Company’s Lookout Mountain Gold project.

 

The LLC Agreement calls for PM&G to fund exploration and development activities in two stages for an earned equity in the project. Timberline contributed certain claims that constitute the Lookout Mountain project and adjacent historical Oswego Mine area (the “Project”) to the limited liability company in exchange for its ownership position. Timberline will manage the project at least through Stage I of investment. PM&G shall retain the right to manage all Stage II activities with or without Timberline’s participation.

 

Concurrent with completion of the Agreement, PM&G also participated in a private placement and acquired 3,367,441 shares, or 4.99%, of Timberline’s common shares. The placement includes the right of PM&G to maintain its position in Timberline by pro-rata participation in future financings. The initial interests in the LLC are 51% PM&G and 49% Timberline. The Company accounts for its investment in the LLC on the cost basis.

 

During the quarter ended December 31, 2019, the Company paid $19,963 for Stage I exploration costs incurred by the Company on behalf of Lookout Mountain LLC, predominantly consulting and related expenses paid to consultants employed by the Company. The reimbursable costs were included as an Account receivable on the Company’s balance sheet.


10


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


NOTE 4 – RELATED-PARTY TRANSACTIONS:

 

In addition to the related-party transactions described in Notes 3 and 6, during the quarter ended December 31, 2019, a member of the Board of Directors, William Matlack, participated in a private placement offering of Units of the Company, purchasing 7,500,000 units for total proceeds of $600,000. Mr. Matlack subscribed to 7,125,000 units for a total of $570,000. See Note 7 for details of the private placement.

 

In connection with the definitive agreement with AGEI for the purchase of two joint venture interests during the fiscal year ended September 30, 2018, Mr. Donald J. McDowell and Mr. Dave Mathewson were appointed to the Company’s Board of Directors on June 21, 2018.  Mr. McDowell is the majority owner of AGEI and is the beneficial owner of the majority of the consideration for the Transaction. Therefore, he is the beneficial owner of the majority of the 5,000,000 Class G warrants issued to AGEI at December 31, 2018.

 

During the quarter ended December 31, 2018, the Company issued 100,000 stock options to acquire shares of common stock of the Company to Mr. Ted R. Sharp, the Company’s Chief Financial Officer, appointed to the position in September of 2018.  The options were valued at $5,000 based on a fair value computation using a Black-Scholes model at the date of grant.

 

During the quarter ended December 31, 2018, two executive officers participated in a private placement offering of Units of the Company purchasing, in the aggregate, 1,062,500 units for proceeds of $85,000. Each Unit was priced at $0.08 and consisted of one share of common stock of the Company and one common share Class E Warrant, with each warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.14 per share until April 30, 2021.  The participation of the executive officers of the Company was done at the same terms as the other investors in the private placement offering.  The Board of Directors approved the insiders’ participation in the private placement.  

 

NOTE 5 – PAYMENT OBLIGATION:

 

On September 12, 2017, the Company entered into an agreement (the “Payment Agreement”) with a creditor (the “Creditor”) to pay by way of a payment plan an existing obligation of $250,000 (the “Payment Obligation”) related to a potential corporate transaction in 2015 that was not completed. Pursuant to the Payment Agreement, the Company agreed to pay the Payment Obligation to the Creditor, including interest, on or before September 12, 2020. Interest accrues on the unpaid principal amount of the Payment Obligation at the Wells Fargo Bank prime rate (4.75% at December 31, 2019), as such rate may change from time to time, plus 3% per annum. The Company agreed to pay the Creditor 5% of the gross proceeds of any funds raised, whether through equity sales, borrowings or sales of assets. If the gross proceeds of any equity financing are at least $1 million, then the Company agreed to also commence monthly installment payments of $10,000 until the Payment Obligation is paid.

 

On December 30, 2019, the Company entered into Addendum 1 to the Payment Agreement under which Creditor has agreed to waive a default condition in consideration of a $5,000 fee and a payment of $12,500, 5% of the second Senior unsecured note of $250,000. Payment of the remaining $40,470 of delinquent amounts, representing 5% of thee private placements of $80,000, $160,000 and $269,395 respectively and 5% on a Senior unsecured notes payable totaling $300,000, will be paid from the next equity or debt raise in addition to any 5% fee due thereon. The obligation to commence monthly installment payments of $10,000 until the Payment Obligation is paid has not yet been triggered because the Company has not completed a financing with gross proceeds of at least $1 million. The due date of the Payment Agreement was not modified by the Addendum.

 

During the quarter ended December 31, 2019, the Company paid $42,500 including interest of $14,206 to the Creditor. At December 31, 2019, an additional cash payment of $40,470 is due to the Creditor. The balance of the Payment Obligation was $150,239 and $178,533 at December 31, 2019 and September 30, 2019, respectively.

 

NOTE 6 – SENIOR UNSECURED NOTE PAYABLE – RELATED PARTY:

 

On July 30, 2018, the Company entered into a loan agreement and promissory note with William Matlack, a significant shareholder and a director as of October 29, 2019, (the “Lender”), thereafter becoming a related party. Under the loan agreement, the Lender loaned the Company $300,000 in the form of a senior unsecured note, with the principal bearing interest at an annual rate of 18%, compounded monthly. The loan is unsecured and the principal and accrued interest will become due for repayment on January 20, 2020, but may be repaid early without penalty. Pursuant to the terms of the loan agreement, the Company issued to the Lender 3,265,500 non-transferrable Series F Warrants to purchase common shares of the Company.


11


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


The exercise price of the warrants was $0.09, and the warrants contained a provision restricting their exercise in the event any such exercise would cause the Lender to own 10% or more of the Company’s outstanding common shares. The relative fair value of the warrants issued in connection with the senior unsecured note was estimated at $110,900, based upon a total fair value as calculated by a Black-Scholes option-pricing model.

 

On October 4, 2019, the Company entered into an agreement with the note holder to extend the due date of the note for a period of three years to mature on January 20, 2023, with the terms of the original note staying the same. The Series F Warrants were cancelled and replaced with 4,000,000 Series K Warrants issued solely in relation to the extension of the note, with expiration at February 1, 2023 and an exercise price of $0.08. As a result of the extension of the due date, this note has been included in long-term debt on the Company’s consolidated balance sheet. The modifications to the terms of this note are being accounted for as a Troubled Debt Restructure and extinguishment of debt under ASC 470-60-55 Debt, due to the factors such as the Company not being current with its debt obligations, the significant doubt of the Company continuing as a going concern, and the inability of the Company to obtain funds from sources other than the existing creditor at a rate equal to the market interest rate for similar debt for an untroubled debtor.  The fair value of the Series K Warrants issued in connection with the extension of the senior unsecured note and the fair value of the Series F Warrants at the date of cancelation were estimated at $227,600 and $57,100, respectively, based upon fair values as calculated by a Black-Scholes option-pricing model using the following assumptions.

 

 

Series K Warrants Issued October 4, 2019

Series F Warrants Canceled October 4, 2019

Expected volatility

147.20%

147.20%

Stock price on date of grant

$0.07

$0.07

Exercise price

$0.08

$0.09

Expected dividends

-

-

Expected term (in years)

3.333

.333

Risk-free rate

1.34%

1.34%

Expected forfeiture rate

0%

0%

 

The unamortized discount related to the Series F warrants was $25,111. The net difference in the fair values of the warrants of $170,500, together with the unamortized discount, were recorded as a loss on extinguishment of debt of $195,611 in the quarter ended December 31, 2019.

 

At December 31, 2019, the note payable was $300,000, with all discounts fully amortized. At September 30, 2019, the note payable was $274,889, which is net of the unamortized discount of $25,111.

 

On May 8, 2019, the Company entered into an additional binding loan agreement and promissory note with William Matlack (the “Lender”). Under the loan agreement, the Lender loaned the Company $250,000 in the form of a senior unsecured note, with the principal bearing interest at an annual rate of 18%, compounded monthly. The loan is unsecured and the principal and accrued interest will become due for repayment on November 7, 2020, but may be repaid early without penalty.

 

Pursuant to the terms of the May 8, 2019 loan agreement, the Company issued to the Lender 3,543,600 non-transferrable Series I Warrants to purchase common shares of the Company. The exercise price of the warrants is $0.07, with a term of eighteen months, and the warrants contain a provision restricting their exercise in the event any such exercise would cause the Lender to own 10% or more of the Company’s outstanding common shares.

 

The relative fair value of the warrants issued in connection with the senior unsecured note was estimated at $94,300, based upon a total fair value as calculated by a Black-Scholes option-pricing model. The relative fair value of the warrants was recorded as a discount of the note, with $16,017 amortized to interest expense in the quarter ended December 31, 2019. At December 31, 2019, the note payable was $193,383, net of the unamortized discount of $56,617. At September 30, 2019, the note payable was $177,366, net of the unamortized discount of $72,634.


12


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


 

Warrants Issued During the Year Ended

September 30, 2019

Expected volatility

138.5%

Stock price on date of the note

$0.07

Exercise price

$0.07

Expected dividends

-

Expected term (in years)

1.5

Risk-free rate

2.26%

Expected forfeiture rate

0%

 

The amortization of discounts was $34,907 and $20,071 for the quarters ended December 31, 2019 and 2018, respectively. The accrued interest on the senior unsecured notes payable was $86,953 and $25,314 at December 31, 2019 and September 30, 2019, respectively. Interest expense related to the Senior unsecured notes payable to this related party was $26,160 for the three months ended December 31, 2019, and $73,714 for the year ended September 30, 2019.

 

The senior unsecured notes payable are senior to all other debt with the exception of the Payment obligation. The notes require that when the Company enters into any other financings, 25% of the proceeds of such financings will be paid toward reduction of the principal and interest accrued on these notes. No such payments have been made by the Company to the Lender, and the Lender has provided a waiver of default on the Notes that would otherwise exist due to these non-payments.

 

NOTE 7 – COMMON STOCK AND WARRANTS:

 

Common Shares - Private Placement

 

On October 23, 2019, the Company closed a private placement offering of 7,500,000 Units of the Company at a price of US$0.08 per Unit, for total proceeds to the Company of $600,000. Each Unit consisted of one share of common stock of the Company and one-half common share purchase Class J Warrant (each whole such warrant a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of US$0.12 per share until the Warrant expiration date of October 15, 2024.

 

As a result, 7,500,000 shares of common stock of the Company and 3,750,000 Warrants were issued and 3,750,000 shares of common stock were reserved for issuance pursuant to Warrant exercises. A director of the Company, William Matlack, participated in the Offering and subscribed for 7,125,000 Units. The Warrants comprised in Mr. Matlack’s Units contain a voluntary restriction on exercise preventing Mr. Matlack from completing any Warrant exercise if such exercise would cause him to beneficially own or control 20% or more of the issued and outstanding common shares of the Company.

 

The fair value of warrants was determined with a Black-Scholes option-pricing model to be $266,500. The assumptions used to calculate fair values are noted in the following table:

 

 

Series J Warrants Issued October 23, 2019

Expected volatility

149.30%

Stock price on date of grant

$0.08

Exercise price

$0.12

Expected dividends

-

Expected term (in years)

5

Risk-free rate

1.58%

Expected forfeiture rate

0%

 

The fair value of the warrants was charged to additional paid-in capital as a deemed dividend, due to the warrants being issued with common shares and being immediately exercisable.


13


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


Warrants

 

During the quarter ended December 31, 2019, there were 3,750,000 Series J Warrants issued pursuant to the private placement offering and 4,000,000 Series K Warrants issued pursuant solely to extension of the Senior unsecured note payable, with 3,265,500 Series F Warrants canceled in connection with the extension. Additionally, there were 3,367,441 Series H Warrants issued pursuant to PM&G’s participation in a private placement in July 2019 that had not been issued or included in the September 30, 2019 warrants outstanding. As a result of these issuances, there were 53,541,908 and 45,689,967 warrants outstanding as of December 31, 2019 and September 30, 2019, respectively. The warrants expire from January 31, 2020 through October 15, 2024. The weighted average exercise price was $0.20 and $0.21 as of December 31, 2019 and September 30, 2019, respectively.

 

NOTE 8 – STOCK-BASED AWARDS:

 

On October 29, 2019, the Company granted to directors and management stock options to acquire an aggregate of 2,450,000 common shares of the Company’s common stock.  The options vested immediately and are exercisable at a price of $0.08 per common share for a period of five years from the date of the grant. Also, in connection with his appointment to the Board of Directors, Mr. Matlack was granted 100,000 options to acquire shares of the Company’s common stock.  The options have an exercise price of $0.08 per share, vested immediately, and have a term of five years.

The fair value of the option awards granted during the quarter ended December 31, 2019 was $161,100, measured on the date of the grant with a Black-Scholes option-pricing model using the assumptions noted in the following table:

 

 

Options Granted During the Quarter Ended December 31, 2019

Expected volatility

149.5%

Stock price on date of grant

$0.07

Exercise price

$0.08

Expected dividends

-

Expected term (in years)

5

Risk-free rate

1.66%

Expected forfeiture rate

0%

 

During the quarter ended December 31, 2018, the Board of Directors issued 100,000 stock options to the Chief Financial Officer. The fair value of the option award was $5,000 and measured on the date of the grant with a Black-Scholes option-pricing model.

 

During the quarter ended December 31, 2018, 100,000 options were terminated as a result of the resignation of a member of the Board of Directors.

 

The following is a summary of options issued and outstanding at December 31, 2019:

 

 

Options

 

Weighted Average

Exercise Price

Outstanding at September 30, 2018

 

3,280,000

 

$

0.26

     Granted

 

100,000

 

 

0.10

     Terminated

 

(100,000)

 

 

(0.10)

Outstanding at September 30, 2019

 

3,280,000

 

 

0.26

 

Granted

 

2,550,000

 

 

0.08

 

Expired

 

(180,000)

 

 

(0.48)

Outstanding and exercisable at December 31, 2019

 

5,650,000

 

$

0.17

 

The aggregate of options exercisable as of December 31, 2019 had an intrinsic value of nil, based on the closing price of $0.07 per share of the Company’s common stock on December 31, 2019.


14


TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 (Unaudited)


NOTE 9 – COMMITMENTS AND CONTINGENCIES:

 

Mineral Exploration

 

The Company has the following commitments and contingencies:

 

The Elder Creek Project is subject to certain future work expenditure requirements in order for the Company to earn an ownership portion of the property. The Year 1 and Year 2 work commitments were completed by December 31, 2018 and December 31, 2019, respectively:

Year 3: $750,000 work commitment by December 31, 2020 

Year 4: $750,000 work commitment by December 31, 2021  

65% Earn-In for an additional $2.5M work commitment for a total of $5.1M over 6 years by December 31, 2023. 

 

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

 

The Company pays federal and county claim maintenance fees on unpatented claims that are included in the Company’s mineral exploration properties. Should the Company continue to explore all of the Company’s mineral properties, it expects annual fees to total approximately $184,906 per year in the future, of which $113,014 is for the two joint venture mineral property interests (See Note 3). The claims maintenance fees for Lookout Mountain LLC are expected to be $97,587 and will be remitted from the earn-in funds provided by PM&G as part of the LLC Agreement.

 

Real Estate Lease Commitments

 

At September 30, 2019, the Company had real estate lease commitments for certain mineral property exploration facilities totaling $72,000 annually. The Company’s office in Coeur d’Alene, Idaho and its facilities in Eureka, Nevada are rented on a month-to-month basis.

 

NOTE 10 – SUBSEQUENT EVENTS:

 

 

There are no subsequent events to be reported at the date of filing of this report.


15



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

 

As used in herein, the terms “Timberline,” the “Company,” “we,” “us,” and “our” refer to Timberline Resources Corporation.

 

This discussion and analysis contains forward-looking statements that involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Except for historical information, the matters set forth herein, which are forward-looking statements, involve certain risks and uncertainties that could cause actual results to differ. Potential risks and uncertainties include, but are not limited to, unexpected changes in business and economic conditions; significant increases or decreases in gold prices; changes in interest and currency exchange rates; unanticipated grade changes; metallurgy, processing, access, availability of materials, equipment, supplies and water; results of current and future exploration and production activities; local and community impacts and issues; timing of receipt and maintenance of government approvals; accidents and labor disputes; environmental costs and risks; competitive factors, including competition for property acquisitions; and availability of external financing at reasonable rates or at all, and those set forth under the heading “Risk Factors” in our Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”) on December 27, 2018. Forward- looking statements can be identified by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are made based on management’s beliefs, estimates, and opinions on the date the statements are made, and the Company undertakes no obligation to update such forward-looking statements if these beliefs, estimates, and opinions should change, except as required by law.

 

This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that the Company believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but the Company does not believe such differences will materially affect our consolidated financial position or results of operations. Critical accounting policies, the policies the Company believes are most important to the presentation of its consolidated financial statements and require the most difficult, subjective and complex judgments are outlined below in “Critical Accounting Policies” and have not changed significantly.

 

Corporate Overview

 

Our business is mineral exploration in Nevada with a focus on district-scale gold, and copper-gold projects such as our Eureka and Elder Creek projects, respectively.

 

Summary of the quarter ended December 31, 2019:

 

During the quarter ended December 31, 2019, we accomplished the following:

 

1.We announced and closed a private placement of units of the Company’s equity for $600,000 cash, 

2.We added a qualified person to the Board of Directors, 

3.We granted stock options to the new Board members and to the other directors and officers,  

4.We extended the terms of the $300,000 Senior Note Payable for an additional three years to January 20, 2023, 

5.We drilled a long interval of copper-silver porphyry-style mineralization in the initial test of the Morning Glory Hill target at our Elder Creek project in the Battle Mountain district of Nevada (announced January 8, 2020), and 

6.We confirmed a porphyry hosted gold discovery on our Paiute project in the Battle Mountain district of Nevada (announced January 16, 2020). 

7.We completed core relogging and geologic modelling of high-grade gold mineralization at the Lookout Mountain project.  


16



Each of these is discussed below, not necessarily in the order listed above.

 

Elder Creek Project

 

Timberline’s Elder Creek copper-gold, and adjacent Paiute properties lie within the prolific Battle Mountain District of Nevada, approximately 11 miles (18 km) north of Nevada Gold Mines’ Phoenix mining complex. Timberline has the right to acquire a 65% interest in the 16 square mile (41 km2) Elder Creek property through an earn-in agreement with McEwen Mining Inc. The Company is actively seeking a strategic partner for Elder Creek.

 

Data compiled from historic exploration on the property includes only limited shallow (most less than 500 ft (152 m)), drilling targeted primarily at gold. Geologic and geophysical characteristics, and rock geochemical sampling results at Elder Creek (see press release dated June 18, 2018 at http://timberlineresources.co/press-releases/) are common to major porphyry copper deposits.

 

Drilling completed in the quarter ending December 31, 2019, together with drilling completed in 2018, at Elder Creek documents a large mineralized copper-gold-silver porphyry system with multiple intrusive and mineralizing events. We have identified six priority target areas (Figure 1) over only a small portion of the porphyry system. Three of these targets have been tested by initial drill holes, most of which bottomed in long intervals of porphyry-related mineralization.

 

Morning Glory Hill Target

 

On January 8, 2020, we reported that we drilled a long interval of copper-silver porphyry-style mineralization in the initial test of the Morning Glory Hill target at the Elder Creek project (Figure 1). Reverse circulation (“RC”) hole RCEC 19-05 intercepted 305 feet (ft) (93 meters (m)) grading 0.25% Cu, 0.08 g/t Au, and 9 g/t Ag and bottomed in mineralization at 555 ft (169 m).

 

RCEC19-05 tested an area of outcropping mineralized porphyry breccia coincident with a large IP chargeability and resistivity geophysical anomaly (Figure 1). Assay results are summarized in Table 1. The mineralized interval is intensely altered with silica (quartz), sericite, and chlorite and contains from 2% to >10% disseminated sulfides including pyrite, chalcopyrite, and minor molybdenite. Silver has a strong positive correlation with copper values.

 

Table 1.  Summary of Elder Creek Drilling Assay Results by Target Area

 

Drill Hole

From (feet)

To (feet)

Total (feet)

From (meters)

To (meters)

Total (meters)

Cu

(%)

Mo (ppm)

Au

(g/t)

Ag (g/t)

Morning Glory Hill Target

RCEC19-05

75

250

175

22.9

76.2

53.4

0.03

181

0.017

4

 

250

555 TD

305

76.2

169.2 TD

93.0

0.25

122

0.083

9

including:

255

345

90

77.7

105.2

27.4

0.34

141

0.138

14

 

255

265

10

77.7

80.8

3.0

0.74

69

0.280

38

 

RCEC 19-01

270

1960 TD

1690

82.3

597.6 TD

515.3

0.07

212

-

2

including:

475

680

205

144.8

207.3

62.5

0.12

222

-

4

 

1115

1180

65

339.9

359.8

19.9

0.25

181

-

5

 

1615

1630

15

492.4

497.0

7.6

0.21

233

-

5

Valmy Pit Target

RCEC 18-01

      0

 500 TD

 500

         0

152.4 TD

152.4

0.21

145

-

3

including:

160

270

110

48.8

82.3

33.5

0.44

181

-

5

including:

195

210

15

59.5

64.0

4.6

0.55

132

0.33

13

 

RCEC 19-02

85

270

185

25.9

82.3

56.4

0.22

-

-

3

 

415

565 TD

150

126.5

172.2 TD

45.7

0.16

-

-

3

 

RCEC 19-03

0

405 TD

405

0

123.5 TD

123.5

0.16

-

-

2

including:

0

100

100

0

30.5

30.5

0.20

-

-

5

 

RCEC 19-04

0

30

30

0

9.2

9.2

0.19

-

-

6

 

150

165

15

45.7

50.3

4.6

0.34

-

-

9

*True thickness of drill intercepts is unknown; **TD:  drill hole total depth


17



Valmy Pit Target

 

Drilling of three RC holes at the Valmy Pit target area further delineated a broad area of thick, near-surface copper oxide mineralization drilled previously by the Company in 2018. RCEC19-02, 03 & 04, totaling 1,470 ft (448 m) (see Table 1), were drilled to offset and expand the mineralization identified in RCEC 18-01 (Figure 1) which averaged 0.21% Cu over its entire 500 ft (152 m) length, including 110 ft (34 m) grading 0.44% Cu. RCEC19-02 contained intercepts of 185 ft (56 m) grading 0.22% Cu and 150 ft (46 m) grading 0.16% Cu, while RCEC 19-03 averaged 0.16% Cu across its entire 405 ft (124 m) length. Each drill hole bottomed in mineralization with drilling terminated because of intense silica alteration and groundwater. These holes extended the footprint of the shallow copper oxide mineralization at the Valmy Pit target area to approximately 575 ft (175 m) by 400 ft (122 m). The mineralization remains open in all directions and to depth, where it transitions to sulfide mineralization.

 

Only a small portion of the Elder Creek porphyry system has been evaluated to date with three of six target areas drill tested and each containing substantial Cu ± Mo-Ag-Au mineralization. Future objectives include offsetting and deepening these drill holes, and testing new targets.

 

Paiute Project:

 

On January 16, 2020, we announced that our first two drill holes at the Paiute project in the Battle Mountain district of Nevada intercepted long intervals of disseminated gold mineralization in granodiorite porphyry and metamorphosed sandstone (Figure 2, Table 2). Both RC holes were terminated in hard, silicified and mineralized rock. Timberline currently owns approximately 78% of the Paiute project in a Joint Venture (“JV”) with Nevada Gold Mines. 

 

Hole PCRC 19-01 intercepted 125 feet (ft) (38 meters (m)) grading 0.36 g/t Au with associated pyrrhotite-pyrite-arsenopyrite in silicified, metamorphosed arkosic sandstone (see Table 2). The hole bottomed in 160 ft (49 m) of silicified granodiorite porphyry. The previously identified 2 km-long gold “Lone Tree-type” structural zone (see Figure 2) remains largely untested below 500 feet depth of historic drilling. The structural zone includes surface rock chip samples which previously returned multiple values greater than 1.0 gram per tonne (“g/t”) of gold including two samples over 10 g/t gold and one sample with 42.9 g/t gold and 527 g/t silver (see press release dated May 24, 2018 @ http://timberlineresources.co/press-releases). 

 

PCRC 19-02 twinned and deepened historical hole ICBM-95-06, which intercepted gold mineralization within highly silica-altered, sulfide-poor (trace – 1% pyrite) granodiorite porphyry. The hole intercepted multiple zones of gold mineralization in granodiorite porphyry and metamorphosed arkosic sandstone, including 40 ft (12 m) of 0.61 g/t , 80 ft (24 m) of 0.51, 25 ft (8 m) of 1.12 g/t, and 25 ft (8 m) of 0.48 g/t over its 710 feet (216 m) length and bottomed in mineralization. The mineralization in PCRC 19-02 expands on multiple intercepts in nearby historic holes (see Table 3).

 

The Paiute project has the potential for bulk-mineable, open-pit gold mineralization based on the near surface thicknesses and gold grades drilled to date. The Company is acquiring historical IP/Resistivity, and magnetic survey data to guide future drilling of the largely untested structural zone and porphyry gold targets. Pending the availability of capital, we will expand our exploration plans accordingly.


18



Figure 1.  Elder Creek Property Geology, IP Geophysics, Drilling, and Target Areas

 

 

PICTURE 2  


19



Table 2.  2019 Drill Hole Assay Results

 

Drill Hole

From (feet)

To

(feet)

Total (feet)

From (meters)

To (meters)

Total (meters)

Au

(g/t)

Ag (g/t)

As (ppm)

Ba (ppm)

S

(%)

PCRC19-01

295

420

125

89.9

128.0

38.1

0.356

0.4

673

266

1.5

including:

340

420

80

103.6

128.0

24.4

0.442

0.5

968

185

1.9

PCRC19-02

0

710 (TD)

710

0.0

216.4

216.4

0.271

0.5

72

849

0.3

including:

0

40

40

0.0

12.2

12.2

0.606

0.9

292

648

0.0

 

110

140

30

33.5

42.7

9.1

0.488

0.5

43

872

0.1

 

150

230

80

45.7

70.1

24.4

0.514

0.4

27

1123

0.2

 

190

215

25

57.9

65.5

7.6

1.123

0.6

12

1280

0.2

 

280

390

110

85.3

118.9

33.5

0.359

0.3

39

720

0.2

 

490

500

10

149.4

152.4

3.0

0.511

0.1

30

1070

0.2

 

525

545

20

160.0

166.1

6.1

0.340

0.2

20

598

0.3

 

610

640

30

185.9

195.1

9.1

0.400

1.0

33

1023

0.8

 

685

710

25

208.8

216.4

7.6

0.478

0.8

38

680

0.6

*True thickness of drill intercepts is unknown. **TD: drill hole total depth

 

Table 3.  Summary of Historic Porphyry Hosted Drilling Gold Assay Results

 

Drill Hole

From (feet)

To (feet)

Total (feet)

From (meters)

To (meters)

Total (meters)

Au

(g/t)

ICBM 95-1

260

295

35

79.2

89.9

10.7

0.831

 

320

350

30

97.5

106.7

9.1

0.552

 

385

460

75

117.3

140.2

22.9

0.462

ICBM 96-3

   45

65

 

13.7

19.8

6.1

0.431

 

345

370

25

105.2

112.8

7.6

0.497

 

405

415

10

123.4

126.5

3.0

1.000

 

480

580

100

146.3

176.8

30.5

0.962

ICBM 96-3C

221

246

25

67.4

75.0

7.6

0.626

 

455

465

10

138.7

141.7

3.0

1.276

 

475

505

30

144.8

153.9

9.1

0.609

 

996

1001

5

303.6

305.1

1.5

3.655

ICBM 96-4

340

370

30

103.6

112.8

9.1

0.683

ICBM 96-5

90

100

10

27.4

30.5

3.0

0.741

 

320

350

30

97.5

106.7

9.1

0.377

 

575

590

15

175.3

179.8

4.6

1.501

3899

10

180

170

3.0

54.9

51.8

0.695

3632

0

100

100

0.0

30.5

30.5

0.945

 

350

400

50

106.7

121.9

15.2

0.55

4062

30

60

30

9.1

18.3

9.1

0.460

 

220

260

40

67.1

79.2

12.2

0.644

4006

95

145

50

29.0

44.2

15.2

0.483

 

280

300

20

85.3

91.4

6.1

0.948

3206

210

280

70

64.0

85.3

21.3

0.493


20



Lookout Mountain LLC:

 

The Lookout Mountain project lies within Timberline’s 23 square-mile Eureka property which is strategically located within the greater Eureka Mining District (see a detailed description and maps at http://timberlineresources.co/projects/). Lookout Mountain is a large “Carlin-style” gold-system with a defined gold resource (see Updated Technical Report on the Lookout Mountain Project, MDA, Effective March 1, 2013, filed on SEDAR April 12, 2013) and drill-indicated mineralization which extends over a north-south trend of approximately 3 miles (~ 5 km). High-grade gold mineralization near the historical open pit (Figure 3) includes 18 intercepts ranging from 0.136 ounces gold per ton (“opt”) to 2.250 opt gold (see Table 4) (see press release dated July 10, 2018 at http://timberlineresources.co/press-releases). The mineralization is associated with extensive zones of fault breccias, collapse-breccias, and with orpiment and realgar (arsenic sulfides) which are commonly found in many major Carlin-style gold deposits.

 

On July 11, 2019, we entered into the Definitive Agreement to form a joint venture with PM & Gold Mines, Inc. whereby the JV Partners formed a limited liability company to conduct operations on the Company’s Lookout Mountain Project. PM&G can earn an initial 51% interest in the project, which is located on the southern end of the Battle Mountain-Eureka Trend, by expending $6 million on exploration and development over a 2-year period.

 

During the quarter ended December 31, 2019, we completed re-logging of all project drill core and we advanced our understanding of the project geologic model and high-grade gold mineralization in the historic pit area. Based on this model and previous drilling, proposed sites for follow-up core drilling have been selected based on windows in the existing drill spacing, geologic data gaps, and/or to twin historic reverse circulation or conventional rotary holes. Furthermore, a work plan amendment to the existing Plan of Operations was completed and approved by the Bureau of Land Management. The amendment permits 249 additional drill sites in the historic pit area and for drill expansion of the resource are to the north and east of the pit (Figure 3).

 

Table 4.  Representative High-Grade Gold Drill Intercepts from the Lookout Mountain Deposit

 

Drill Hole

From (feet)

Length (feet)(1)

Gold (opt)(2)

From (meters)

Length (meters)(1)

Gold (g/t) (2)

BH05-01

270

65

0.344

82.3

19.8

11.79

including

275

25

0.641

83.8

7.6

21.98

BH05-03

193

3

2.250

58.8

0.9

77.14

BH06-02

445

27

0.364

135.7

8.2

12.48

BH06-07

406

92

0.217

123.8

28.0

7.44

BH06-13

148

3

1.47

45.1

0.9

50.40

BR-19

220

15

0.323

67.1

4.6

11.07

BR-19

385

75

0.283

117.4

22.9

9.70

BR-26

440

20

0.323

134.1

6.1

11.07

RTR-134

415

55

0.345

126.5

16.8

11.83

RTR-180

365

10

0.345

111.3

3.0

11.83

RTR-181

365

15

0.197

111.3

4.6

6.75

RTR-258

500

10

0.430

152.4

3.0

14.74

BHSE-126C

31

15

0.967

9.5

4.6

33.15

BHSE-151C

506

8.6

1.023

154.3

2.6

35.07

BHSE-152

1,030

10

0.165

314.0

3.0

5.66

BSE-171

1,020

10

0.230

311.0

3.0

7.89

BHSE-172

900

40

0.136

82.3

19.8

11.79

(3)Drill thickness - True widths of drill intercepts have not been determined 

(2)opt: oz gold / ton; g/t: grams/tonne 

(3)See press release dated July 10, 2018 at http://timberlineresources.co/press-releases) and Updated Technical Report on the Lookout Mountain Project, MDA, Effective March 1, 2013, Filed on SEDAR April 12, 2013 


21



Figure 2.  Paiute Project Geology and Primary Target Areas

 

PICTURE 3  


22



Figure 3.  Lookout Mountain Open Pit-area Drill Holes with High-grade Gold Intercepts

 

PICTURE 4  

 

Timberline has previously reported a gold resource estimate at Lookout Mountain, which was prepared by Mine Development Associates (“MDA”) of Reno, Nevada. The MDA resource estimates includes 508,000 gold oz (Measured & Indicated) and 141,000 oz (Inferred) as summarized below at the noted cut-off grades:


23



Table 2.  Lookout Mountain Gold Resource(1)(2)(3)

 

Resource Category

Tons

Tonnes

Gold (opt)

Gold

(g/t)

Gold Ounces

Measured

3,043,000

2,761,000

0.035

1.200

106,000

Indicated

25,897,000

23,493,000

0.016

0.549

402,000

Measured & Indicated

28,940,000

26,254,000

0.018

0.617

508,000

 

 

 

 

 

 

Inferred

11,709,000

10,622,000

0.012

0.411

141,000

Notes:

(1)0.006 opt (0.21 g/t) cut-off applied to oxidized material to capture mineralization potentially available to open pit extraction and heap leach processing. 0.030 opt (1.03 g/t) cut-off applied to unoxidized material to capture mineralization potentially available to open pit extraction and lower heap leach recoveries or sulfide processing. 

(2)Rounding may cause apparent discrepancies. 

(3)The effective date of the Lookout Mountain updated gold resources is February 20, 2013. 

 

The full MDA Resource Estimate with various cut-off grades can be seen at:

 http://timberlineresources.co/wp-content/uploads/2015/07/LookoutMt_-43-101_2013.pdf.

 

Results of Operations for the quarters ended December 31, 2019 and 2018

 

Consolidated Results

 

 

(US$)

Three Months Ended

December 31,

 

2019

2018

Exploration expenses:

 

 

 

Eureka

$   146,482

$      252,239

 

Other exploration properties

-

19,286

Total exploration expenditures

146,482

271,525

Non-cash expenses:

 

 

 

Stock option expenses

161,100

5,000

 

Depreciation, amortization and accretion

2,032

1,935

 

Accretion of discount on senior note payable

16,017

20,071

Total non-cash expenses

179,149

27,006

Professional fees expenses

54,471

87,792

Insurance expenses

18,742

22,636

Salaries and benefits expenses

67,570

43,318

Loss on extinguishment of debt

195,611

-

Interest and other (income) expense

41,454

38,123

Other general and administrative expenses

61,140

59,253

Net loss

$  764,619

$  549,653

 

Our consolidated net loss for the three months ended December 31, 2019 was $764,619, compared to a consolidated net loss of $549,653 for the three months ended December 31, 2018. The year-over-year increase in net loss is due to decreased exploration expenses, increased salaries and benefits expense and increased accretion of discount on senior note payable, which were more than offset by the increase in stock-based compensation expense and increased salaries and benefits expenses. Other general and administrative expenditures held steady in the quarter ended December 31, 2019. Exploration expenditures during the three months ended December 31, 2019 decreased compared to the same period in 2018 due to significant exploration activity performed on Elder Creek earlier in calendar year 2019 as we satisfied our work commitment for Year 2 of the agreement.

 

In addition to the operating causal factors enumerated above, we incurred a loss on an extinguishment of debt of $195,611. On October 4, 2019, we entered into an agreement with a note holder to extend the due date of a $300,000 senior unsecured note for a period of three years to mature on January 20, 2023 on the same terms as the original note. The 3,265,500 Series F Warrants issued with the note at its inception were cancelled and replaced with 4,000,000 Series K Warrants with expiration at February 1, 2023 and an exercise price of $0.08. As a result of the extension of the due date, this note has been included in long-term debt on the Company’s consolidated balance sheet. The fair value of the Series K


24



Warrants issued in connection with the extension of the senior unsecured note and the fair value of the Series F Warrants at the date of cancelation were estimated at $227,600 and $57,100, respectively, based upon fair values as calculated by a Black-Scholes option-pricing model using the following assumptions.

 

The unamortized discount related to the Series F warrants was $25,111. The net difference in the fair values of the warrants of $170,500, together with the unamortized discount, were recorded as a loss on extinguishment of debt of $195,611 in the quarter ended December 31, 2019. The modifications to the terms of this note are being accounted for as a Troubled Debt Restructure and extinguishment of debt under ASC 470-60-55 Debt, due to the factors such as the Company not being current with its debt obligations, the significant doubt of the Company continuing as a going concern, and the inability of the Company to obtain funds from sources other than the existing creditor at a rate equal to the market interest rate for similar debt for an untroubled debtor.  

 

Subject to adequate funding in 2020, we expect to continue to invest in exploration activities for the advancement of Lookout Mountain LLC, Elder Creek and exploration at Eureka.

 

Financial Condition and Liquidity

At December 31, 2019, we had assets of $15,566,669, consisting of cash in the amount of $196,714; property, mineral rights and equipment of $14,991,738, net of depreciation, reclamation bonds of $292,684, and prepaid expenses, deposits and other assets in the amount of $85,533.

On December 31, 2019, we had total liabilities of $1,017,776 and total assets of $15,566,669. This compares to total liabilities of $1,123,229 and total assets of $15,505,141 on September 30, 2019. As of December 31, 2019, our liabilities consist of $170,651 for asset retirement obligations, $493,383 of senior unsecured notes payable, net of discount, $150,239 of payment obligation, and $203,503 of trade payables and accrued liabilities. Of these liabilities, $547,125 are due within twelve months. The decrease in liabilities compared to September 31, 2019, is largely due to reduction of current liabilities as they were paid in the normal course of business and the increase in senior unsecured notes payable due to amortization of discounts against them, and offset by a reduction in the payment obligation. The increase in total assets was due to increased cash from a private placement and lease payments received on mineral properties. Increases in cash and prepaid expenses also contributed to the increase in assets for the three-month period ended December 31, 2019.

On December 31, 2019, we had negative working capital of $270,578 and stockholders’ equity of $14,548,893 compared to negative working capital of $206,378 and stockholders’ equity of $14,381,912 for the year ended September 30, 2019. Working capital experienced a favorable change because of an increase in cash and prepaid expenses while current liabilities decreased due to cash payments made.

During the quarter ended December 31, 2019, we used cash from operating activities of $450,354 compared to $532,642 used for the quarter ended December 31, 2018. Net loss of $764,619 for the three-month period ended December 31, 2019 compared to net loss of $549,653 for the quarter ended December 31, 2018. The causal factors are disclosed in the comparative table above.

During the three-month period ended December 31, 2019, cash of $44,605 was provided by investment activities for lease payments to us for company-owned mineral properties and a refund of $12,500 for a reclamation bond, compared with cash provided of $7,594 for the three-month period ended December 31, 2018. During the three-month period ended December 31, 2019, we paid $18,000 for mineral properties while receiving $25,594 for lease payments to us for company-owned mineral properties.

During the three-month period ended December 31, 2019, cash of $571,706 was provided by financing activities, compared to cash of $600,000 provided during the three-month period ended December 31, 2018. For the three-month period ended December 31, 2019, cash of $600,000 was provided through the sale of stock and warrants, net of offering costs, and cash of $28,294 was used for payment of the payment obligation. This compares to cash of $600,000 provided through the sale of stock and warrants, net of offering costs, for the three-month period ended December 31, 2018.

Going Concern:

 

The audit opinion and notes that accompany our consolidated financial statements for the year ended September 30, 2019 disclose a ‘going concern’ qualification to our ability to continue in business. The accompanying consolidated financial statements have been prepared under the assumption that we will continue as a going concern. We have incurred losses since our inception. We do not have sufficient cash to fund normal operations and meet all of our obligations for the next 12 months without deferring payment on certain current liabilities and/or raising additional funds. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. We believe that the going concern condition cannot be removed with confidence until the Company has entered


25



into a business climate where funding of its activities is more assured. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.

These consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of our assets and the settlement of our liabilities in the normal course of our operations. Disruptions in the credit and financial markets over the past several years have had a material adverse impact on a number of financial institutions and investors and have limited access to capital and credit for many companies. In addition, commodity prices and mining equities have seen significant volatility which increases the risk to precious metal investors. Market disruptions and alternative investment options, among other things, make it more difficult for us to obtain, or increase our cost of obtaining, capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all.

 

We recognize that we will not be able to execute our operating plans with our current cash balances. We expect to engage in financial transactions to increase our cash balance or decrease our cash obligations in the near term. With our current cash balance, our anticipated ability to acquire additional capital by way of asset sales and/or financing transactions, and our ability to curtail discretionary exploration expenditures as needed; however, we believe that we will be able to generate sufficient working capital to meet our ongoing, non-discretionary operating expenses for the next 12 months and maintain our primary mineral properties. We recognize that additional capital will be required shortly and may be obtained through financing transactions such as asset sales, corporate transactions, equity investments, joint ventures, debt facilities, or other types of strategic arrangements. If we cannot obtain sufficient additional financing, we may be unable to make required property payments on a timely basis and be forced to return some or all of our leased or optioned properties to the underlying owners.

 

We plan, as funding allows, to follow up on our positive results for drilling and the Induced Polarization (IP)/Resistivity survey on our Elder Creek prospect, and further surface preparations and tests at our Paiute prospect. Also, subject to available capital, we may continue prudent exploration programs on our material exploration properties and/or fund some exploratory activities on early-stage properties.

 

Financing Activities

 

Payment Obligation:

 

On September 12, 2017, we entered into an agreement (the “Payment Agreement”) with a creditor (the “Creditor”) to pay by way of a payment plan an existing obligation of $250,000 (the “Payment Obligation”) related to a potential corporate transaction in 2015 that was not completed. Pursuant to the Payment Agreement, we agreed to pay the Payment Obligation to the Creditor, including interest, on or before September 12, 2020. Interest accrues on the unpaid principal amount of the Payment Obligation at the Wells Fargo Bank prime rate (4.75% at December 31, 2019), as such rate may change from time to time, plus 3% per annum. We agreed to pay the Creditor 5% of the gross proceeds of any funds raised, whether through equity sales, borrowings or sales of assets. If the gross proceeds of any equity financing are at least $1 million, then we agreed to also commence monthly installment payments of $10,000 until the Payment Obligation is paid.

 

On December 30, 2019, we entered into Addendum 1 to the Payment Agreement under which Creditor has agreed to waive a default condition in consideration of a $5,000 fee and a payment of $12,500 relating to the second Senior unsecured note of $250,000. Payment of the remaining $40,470 of delinquent amounts, representing 5% of thee private placements of $80,000, $160,000 and $269,395 respectively and 5% on a Senior unsecured notes payable totaling $300,000, will be paid from the next equity or debt raise in addition to any 5% fee due thereon. The obligation to commence monthly installment payments of $10,000 until the Payment Obligation is paid has not yet been triggered because we have not completed a financing with gross proceeds of at least $1 million.

 

During the quarter ended December 31, 2019, we paid $42,500 including interest of $14,206. At December 31, 2019, an additional cash payment of $40,470 is due to the Creditor. The balance of the Payment Obligation was $150,239 and $178,533 at December 31, 2019 and September 30, 2019, respectively.

 

Private Placements:

 

On October 23, 2019, we closed a private placement offering of 7,500,000 Units of the Company at a price of US$0.08 per Unit, for total proceeds to us of $600,000. Each Unit consisted of one share of our common stock and one-half common share purchase Class J warrant (each whole such warrant a “Warrant”), with each Warrant exercisable to acquire an additional share of our common stock at a price of US$0.12 per share until the warrant expiration date of October 15, 2024.


26



Accredited investors subscribed for 7,500,000 Units on a private placement basis at a price of US$0.08 per unit for total proceeds of US$600,000. As a result, 7,500,000 shares of our common stock and 3,750,000 Warrants were issued and 3,750,000 shares of common stock were reserved for issuance pursuant to Warrant exercises. A director of the Company, William Matlack, participated in the Offering and subscribed for 7,125,000 Units. The Warrants comprised in Mr. Matlack’s Units contain a voluntary restriction on exercise preventing Mr. Matlack from completing any Warrant exercise if such exercise would cause him to beneficially own or control 20% or more of our issued and outstanding common shares.

 

Senior Unsecured Notes Payable:

 

On July 30, 2018, we entered into a binding loan agreement and promissory note with William Matlack, a significant shareholder and a director as of October 29, 2019, (the “Lender”). Under the loan agreement, the Lender loaned us $300,000 in the form of a senior unsecured note, with the principal bearing interest at an annual rate of 18%, compounded monthly. The loan is unsecured and the principal and accrued interest will become due for repayment on January 20, 2020, but may be repaid early without penalty. Pursuant to the terms of the loan agreement, we issued to the Lender 3,265,500 non-transferrable Series F Warrants to purchase our common shares. The exercise price of the warrants was $0.09, and the warrants contain a provision restricting their exercise in the event any such exercise would cause the Lender to own 10% or more of our outstanding common shares.

 

On October 4, 2019, we entered into an agreement with the note holder to extend the due date of the note for a period of three years to mature on January 20, 2023 on the same terms as the original note. The Series F Warrants were cancelled and replaced with 4,000,000 warrants of a new series designation with expiration at February 1, 2023 and an exercise price of $0.08, the fair value at the date of issuance. As a result of the extension of the due date, this note has been included in long-term debt on our consolidated balance sheet. At December 31, 2019, the note payable was $300,000, with all discounts amortized.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies and Estimates

 

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

 

Our critical accounting policies and estimates are as follows:

 

Asset Impairments

 

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

 

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


27



Asset Retirement Obligations

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

 

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

 

Management determined that the Company’s disclosure controls and procedures were not effective because of a material weakness in our internal control over financial reporting due primarily to minimal staffing at the Company and the resulting weakness related to appropriate segregation of duties. In addition, during the quarter ended December 31, 2019, we had a material weakness relating to our failure to identify and account for a material debt modification. While the Company does adhere to a system of internal controls and processes that were designed and implemented by a respected national accounting firm, it is difficult with a very limited staff to maintain appropriate segregation of duties in the initiating and recording of transactions, thereby creating a segregation of duties weakness. Subject to available capital, we anticipate improving the effectiveness of our disclosure controls and procedures on a long-term basis by increasing staffing levels and segregating certain duties.

 

Changes in Internal Control over Financial Reporting

 

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


28



PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

 

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

ITEM 1A. RISK FACTORS

 

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2019, which was filed with the SEC on January 10, 2020.

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

 

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

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

 

None.

ITEM 4.  MINE SAFETY DISCLOSURES

 

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

 

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). During the quarter ended December 31, 2019, our U.S. exploration properties were not subject to regulation by the MSHA under the Mine Act.

ITEM 5.  OTHER INFORMATION

 

None.


29



ITEM 6. EXHIBITS

 

 

 

 

3.1

Certificate of Incorporation of the Registrant as amended through October 31, 2014, incorporated by reference to the Company’s Form 10-K as filed with the Securities and Exchange Commission on December 23, 2014

3.2

Amended By-Laws of the Registrant, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on August 13, 2015.

4.1

Specimen of the Common Stock Certificate, incorporated by reference to the Company’s Form 10SB as filed with the Securities Exchange Commission on September 29, 2005

4.2*

Form of Series K Warrant

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

31.2*

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

32.1*

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

32.2*

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

 

* - Filed herewith


30



SIGNATURES

 

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

 

 

TIMBERLINE RESOURCES CORPORATION

 

 

By:  /s/ Steven A. Osterberg

      ___________________________________

      Steven A. Osterberg

      President and Chief Executive Officer

      (Principal Executive Officer)

 

Date:  February 14, 2020

 

 

 

 

 

By:  /s/ Ted R. Sharp

      ___________________________________

      Ted R. Sharp

      Chief Financial Officer

      (Principal Financial and Accounting Officer)

 

Date:  February 14, 2020

 

 

 

 

 

 

 

 

 


31

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