You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes appearing elsewhere in this report. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including, but not
limited to, those set forth under "Risk Factors and Uncertainties" and elsewhere
in this document. See "Cautionary Note Regarding Forward-Looking Statements"
above.
Overview
We are an exploration company, using tried and proven methods to search for
gold, silver, and other metals as become indicated, on properties located in the
State of Nevada in the Western United States. Our significant properties
consist of our Eureka Projects (Lookout Mountain, Windfall, Oswego and other
targets) in the Battle Mountain - Eureka Trend located in the North-Central
portion of the state, and the Seven Troughs Project, located in the Northwest
portion of the state.
We raised funds to acquire these properties through private placements of our
common stock and warrants with investors, through debt placements, and through
joint venture arrangements with other mining exploration and development
companies in our business sector. Our business plans employ strategies to locate
and analyze gold and silver properties to determine the existence, quantity and
quality of mineral deposits and advance those deposits for the benefit of our
shareholders. We may seek to develop those properties ourselves or engage larger
mining companies to purchase, develop, joint venture and otherwise exploit the
properties for the purpose of production of these discovered precious metals.
During the fiscal year ended September 30, 2020, we accomplished the following:
1.We announced and closed two private placements of units of our equity for a
total of $4,198,000 cash;
2.We paid off approximately $428,500 of outstanding debt and the interest that
accrued thereon;
3.We issued shares for exercise of warrants for a total of approximately
$248,000;
4.We added a qualified person to the Board of Directors;
5.We granted stock options to the Board members and to officers;
6.We extended the terms of the $300,000 Senior Note Payable for an additional
three years to January 20, 2023;
7.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) (The Elder
Creek project was subsequently terminated due to our inability to pay the
required holding costs, coupled with the joint venture partner's refusal to
renegotiate the agreement to bring in another partner on the property);
8.We confirmed the presence of structural-hosted gold and porphyry-hosted gold
on our Paiute Project in the Battle Mountain district of Nevada (announced
January 16, 2020);
9.We completed core relogging and geologic modelling of high-grade gold
mineralization at the Lookout Mountain Deposit;
10.The Lookout Mountain LLC agreement was terminated, with PM&G resigning from
the joint venture as a result of not meeting the minimum earn-in investment
requirements; and
11.We initiated a significant exploration program of drilling, geology, and
geophysics on our flagship Eureka Project that will extend into FY 2021.
Exploration Plans and Budgets
Our exploration focus during fiscal 2020 was on the Elder Creek, Paiute and
Eureka Projects.
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Elder Creek Project:
Timberline management considered the initial geophysical and drilling program at
Elder Creek to be encouraging and to validate the potential for a significant
porphyry copper-gold system on the property. However, the next phases of
exploration and development at Elder Creek would have been very capital
intensive, so the Company sought to bring in a major company partner to farm
into its rights under the agreement with McEwen Mining. As of November 2019, the
search had resulted in a potential agreement with a major company. However, the
proposed agreement required the consent of McEwen Mining, which was not obtained
prior to the June 30, 2020 anniversary deadline for payment of holding costs.
McEwen Mining was unwilling to renegotiate the agreement and consent to the
assignment to a third party, therefore Timberline elected to terminate the
agreement on the anniversary date.
On June 30, 2020, Timberline opted not to make the required payment of the BLM
and county fees to McEwen. As a result, pursuant to the terms of the McEwen JV
agreement, the agreement terminated on July 9, 2020. As a result of the
termination of the agreement, operations of the Elder Creek Project reverted
back to McEwen and we retain no interest. A loss of $1,218,715 was recognized
for the quarter ended June 30, 2020 due to management's decision to terminate
the agreement concurrent with the non-remittance of the required payment at the
end of the quarter, this to focus our exploration resources on Lookout Mountain.
The entire investment in Elder Creek was expensed in fiscal 2020.
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. Both RC holes were terminated in hard, silicified and mineralized
rock. Timberline currently owns approximately 76% of the Paiute project in a
joint venture with Nevada Gold Mines.
During the fiscal year, we also acquired historical IP and magnetic geophysical
survey data to guide future drilling of the largely untested structural zone and
porphyry gold targets. Timberline management believes that 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 combined with the
geological and geophysical targets remaining to be tested.
Eureka Project:
On July 11, 2019, we entered into a 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, a
substantial portion of the larger Eureka property. PM&G had the right to earn an
initial 51% interest in the project, by expending $6 million on exploration and
development over a 2-year period. The joint venture was terminated with PM&G
resigning as a result of not meeting the minimum earn-in investment
requirements.
During the fiscal year ended September 30, 2020, we completed re-logging of all
project drill core and advanced our understanding of the project geologic model
and high-grade gold mineralization in the historic pit area. Furthermore, an
amendment to the Plan of Operations work plan was completed and approved by the
Bureau of Land Management. The amendment permitted 249 additional drill sites in
the historic pit area, and for drill expansion of the resource area to the north
and east of the pit. We remitted an additional $246,013 of reclamation bond fees
to the BLM in preparation for drilling at the Lookout Mountain target in late
FY2020 and FY2021.
Based on the extensive relogging and new geological work on the high-grade zone,
Company geologists developed an initial drill plan to further advance the
Lookout Mountain Target. This plan included approximately 8,000 ft (>In
addition, in-fill RC drilling was designed to target gaps in the existing
resource drilling, as well as offset and confirm historic drill intercepts from
rotary and RC drilling.
Subsequent to the end of FY2020, the drill program at Lookout Mountain was
completed in December 2020. Drilling completed in the program included twelve RC
holes totaling 8,000 ft (2,438m) and three core holes totaling 4,478 ft (1,365
m). Assay results received to-date include those from only the RC drill holes of
the 2020 program. These holes comprise 1,219m, or approximately 50% of the
2,400m RC program.
We also initiated a major program of geophysical exploration at the beginning of
FY2021. This geophysical work is aimed primarily at improving our understanding
of the major structures that control the historic gold occurrences and future
exploration targets. The derived data will assist our geologists in targeting
future drilling and interpreting the existing drilling database in the
subsurface.
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Our private placement in August 2020, which added $3,598,000 cash to our
coffers, will drive near-term exploration activities during which we anticipate
advancements that will in turn drive additional cash raising activities and
further exploration activities. We expect total exploration expenses for fiscal
year 2021 to be at least $2,000,000, significantly higher than levels we have
been able to maintain in recent years.
Results of Operations for Years Ended September 30, 2020 and 2019
Consolidated Results
Year Ended September 30,
2020 2019
Exploration expenses:Eureka/Lookout Mountain, net of non-cash expenses $907,777 $721,914
Other exploration properties - 199
Total exploration expenditures $907,777 $722,113Non-cash expenses:
Abandonment of Elder Creek and Talapoosa $1,218,715 $48,500
Stock option and stock issuance expense 161,100 5,000
Depreciation, amortization, and accretion 97,065 108,152
Gain on change in ARO estimate (83,050) -
Loss on extinguishment of debt 195,611 -
Total non-cash expenses $1,589,441 $161,652
Operating expenses paid in cash:
Salaries and benefits, net of non-cash expenses $227,240 $174,811
Professional fees expense 172,362 267,100
Other general and administrative expenses 334,193 246,708
Interest and other (income) expense, net of non-cash 146,078 84,899
expenses
Income tax provision (benefit) - -
Net loss $3,377,091 $1,657,283Our consolidated net loss for the fiscal year ended September 30, 2020 increased
significantly from the prior year, primarily as a result of the non-cash costs
in fiscal year 2020 related to the abandonment of the Elder Creek property
compared with a much smaller abandonment of claims in fiscal 2019. We also
issued more stock options to officers and directors in fiscal 2020 than we did
in fiscal 2019, and incurred a loss on extinguishment of debt in fiscal 2020
that had not occurred in fiscal 2019. These were partially offset by a gain on
change in ARO estimate. We increased our exploration expenditures in 2020 as a
result of exploration programs at our Eureka, Elder Creek and Paiute properties.
Professional fees expenses were lower as a result of decreased utilization of
legal professionals during fiscal 2020. Other expenses for fiscal 2020 were
generally consistent with the prior year. We may increase the level of general
and administrative expenses as we now have funds to perform marketing, investor
relations and other tasks that we have minimized out of necessity to conserve
cash during fiscal 2020 and 2019. We expect our Salaries and benefits to
increase in fiscal 2021 as we have taken on a new position of VP-Exploration. We
will also focus our resources on the advancement of our Eureka Project in the
fiscal year ending September 30, 2021.
Financial Condition and Liquidity
At September 30, 2020, we had assets of $16,886,921, consisting of cash of
$2,520,726; property, mineral rights and equipment, net of depreciation, of
$13,807,655, reclamation bonds of $538,696, and other assets in the amount of
$19,844.
On September 30, 2020, we had total liabilities of $792,085 and total assets of
$16,886,921. This compares to total liabilities of $1,123,229 and total assets
of $15,505,141 on September 30, 2019. As of September 30, 2020, our liabilities
consist of $112,615 for asset retirement obligations, $300,000 of senior
unsecured notes payable - related party, net of discount, and $236,978 of trade
payables and accrued liabilities and $142,492 interest payable to a related
party. Of these liabilities, $379,470 are due within 12 months. The decrease in
liabilities compared to September 30, 2019 is largely due to payments on the
payment obligation and senior unsecured note payable as we were able to apply
funds raised during fiscal 2020. We also experienced an increase in interest
payable to a related party on the senior note payable and a decrease in the
asset retirement obligation as a result of our evaluation of acres disturbed and
estimates of credit-adjusted risk-free rates and estimated reclamation costs as
a result of our exploration activities. Other liabilities were affected
positively or negatively by individual small changes in other components of
liabilities. The increase in total current assets was due to an increase in cash
as a result of a private placement shortly before the end of the fiscal year,
offset by a decrease in a receivable from a related company as they remitted
cash for expenses we had paid for on that company's behalf in anticipation of it
receiving funding, which occurred subsequent to the end of the fiscal 2019 year.
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On September 30, 2020, we had working capital of $2,155,400 and stockholders'
equity of $16,094,836 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
from the private placement, reduced by payments against the payment obligation
and payroll, benefits and taxes.
During the fiscal year ended September 30, 2020, we used cash from operating
activities of $1,606,489, compared to $1,451,279 used for fiscal 2019. There was
a net loss of $3,377,091 for fiscal 2020 compared to a net loss of $1,657,283
for fiscal 2019. The causal factors are disclosed above in the comparative
table. At the end of fiscal 2020, we have accumulated approximately $49.6
million and $19.9 million in federal and state net operating losses,
respectively, which may enable us to generate like amounts in net income prior
to incurring any significant income tax obligation. Federal net operating losses
of $44.8 million will expire in various amounts from 2024 through 2038, while
$4.8 million do not expire. The state net operating loss will expire in fiscal
years ending September 30, 2021 through September 30, 2040.
During the fiscal year ended September 30, 2020, cash of $78,939 was provided by
investment activities, compared with cash used of $32,178 in fiscal 2019. During
fiscal 2020, we paid $33,000 to purchase mineral properties, while receiving
$110,487 for lease payments to us for company-owned mineral properties, $205,194
for advance from Lookout Mountain LLC and $29,770 of cash acquired upon
obtaining control of Lookout Mountain LLC, and $233,512 to increase reclamation
bonds. During fiscal 2019, we paid $72,715 to purchase mineral properties, while
receiving $102,791 for lease payments to us for company-owned mineral
properties.
During the fiscal year ended September 30, 2020, cash of $4,017,519 was provided
by financing activities, compared to cash of $1,339,122 provided during the
fiscal year ended September 30, 2019. For the fiscal year ended September 30,
2020, cash of $4,198,000 was provided through the sale of stock and warrants,
net of offering costs, $248,052 was provided from exercise of warrants, reduced
by $178,533 paid on the payment obligation and $250,000 paid on a senior
unsecured note payable. This compares to cash of $1,109,395 provided through the
sale of stock and warrants, net of offering costs, $250,000 was provided from a
senior unsecured note payable and associated warrants, reduced by $20,273 paid
on the payment obligation for the fiscal year ended September 30, 2019.
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. If we are unable to obtain financing through equity
investments, we will seek multiple solutions including, but not limited to,
asset sales, corporate transactions, credit facilities or debenture issuances in
order to continue as a going concern.
Prior to the close of fiscal 2020, we closed on a private placement of our
common stock and warrants to generate $3,598,000 cash, a portion of which was
used to reduce debt obligation of $428,533 together with interest thereon. At
September 30, 2020, we had working capital of $2,155,400. We have approximately
$379,470 outstanding in current liabilities and a cash balance of approximately
$2,520,726. As of the date of this Annual Report on Form 10-K, we have
sufficient cash to meet our normal operating commitments for the next 12 months.
Therefore, we do not expect to be required to engage in financial transactions
to increase our cash balance or decrease our cash obligations in the near term.
However, we are an exploration company with exploration programs that require
significant cash expenditures. A significant drilling program, such are those we
have planned, can result in in depletion of cash and return us to a position of
insufficient cash to support normal operations for the following 12 months. Such
cash-raising efforts may include equity financings, corporate transactions,
joint venture agreements, sales of assets, credit facilities or debenture
issuances, or other strategic transactions.
The audit opinion and notes that accompany our consolidated financial statements
for the year ended September 30, 2020 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 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.
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We plan, as funding allows, to follow up on our positive drill results on our
Eureka and Paiute Projects. Principally, we plan to execute drilling as part of
the ongoing exploration program at Eureka. 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.
We will require additional funding and/or reductions in exploration and
administrative expenditures in future periods. Given current economic
conditions, we cannot provide assurance that necessary financing transactions
will be available on terms acceptable to us, or at all. Without additional
financing, we would have to curtail our exploration and other expenditures while
we seek alternative funding arrangements to provide sufficient capital to meet
our ongoing, non-discretionary expenditures, and maintain our primary mineral
properties. 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.
Financing activities
Private Placements:
On October 23, 2019, we closed a private placement offering with accredited
investors for 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 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 our common stock 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
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.
On August 17, 2020, we closed a private placement offering with accredited
investors for 33,636,364 units of the Company at a price of US$0.11 per unit,
for total proceeds to us of $3,700,000. Each unit consisted of one share of
common stock of the Company and one common share purchase Class L Warrant, with
each warrant exercisable to acquire an additional share of our common stock at a
price of US$0.20 per share until the warrant expiration date of August 15, 2023.
We incurred total costs of $102,000 related to this financing. As a result of
this placement, 33,636,364 shares of our common stock and 33,636,364 warrants
were issued and 33,636,364 shares of common stock were reserved for issuance
pursuant to warrant exercises. Two directors of the Company, William Matlack and
Steven Osterberg, participated in the offering and subscribed for 909,091 units
for total proceeds of $100,000. 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.
The private placement offerings were completed under Rule 506(b) of Regulation D
promulgated by the SEC under the Securities Act of 1933, as amended, solely to
persons who qualified as accredited investors. Subscribers who were resident in
Canada were required to qualify as accredited investors under Canadian National
Instrument 45-106 Prospectus Exemptions.
Senior Unsecured Note Payable:
On October 4, 2019, we entered into an agreement with the holder of the Senior
unsecured note payable, a related party, 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 that had been issued with
the original note were cancelled and replaced with 4,000,000 Series K Warrants.
These Warrants were 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. We accounted for the change in terms
of this Senior unsecured note payable as a debt modification in accordance with
ASC 470.
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 amendment were estimated at $227,600 and $57,100, respectively. The
unamortized discount related to the Series F warrants was $25,111 at the time of
the amendment. 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 for
fiscal 2020. At September 30, 2020, the note payable was $300,000, with all
discounts fully amortized.
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The Senior unsecured note payable is senior to all other debt. The note requires
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 holder has provided a waiver of default on the Note that would
otherwise exist due to these non-payments.
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 our consolidated financial statements contained in Item 8 of this
Annual Report for a complete summary of the significant accounting policies used
in the presentation of our financial statements. As described in Note 2, 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 and
the fair value of equity instruments, including common shares and warrants,
issued for 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
mineral properties.
We review the carrying value of long-lived assets 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
asset is used, and the effects of obsolescence, demand, competition, and other
economic factors.
Asset Retirement Obligations
We have an obligation to reclaim our properties after the surface has been
disturbed by exploration methods at the site. As a result, we have recorded a
liability for the fair value of the reclamation costs we expect to incur in
association with our Eureka Property. We estimate applicable inflation and
credit-adjusted risk-free rates, as well as expected reclamation time frames. To
the extent that the estimated reclamation costs change, such changes will impact
future reclamation expense recorded. A liability is recognized for the present
value of estimated environmental remediation (asset retirement obligation) in
the period in which the liability is incurred, if a reasonable estimate of fair
value can be made. The offsetting balance is charged to the related long-lived
asset. Adjustments are made to the liability for changes resulting from passage
of time and changes to either the timing or amount of the original present value
estimate underlying the obligation.
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