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WESTMOUNTAIN GOLD, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) Forward-looking statements in this report reflect the good-faith judgment of our management and the statements are based on facts and factors as we currently know them. Forward-looking statements are subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, but are not limited to, those discussed below as well as those discussed elsewhere in this report (including in Part II, Item 1A (Risk Factors)). Readers are urged not to place undue reliance on these forward-looking statements because they speak only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report. GENERAL DEVELOPMENT OF BUSINESS THE COMPANY AND OUR BUSINESS WestMountain Gold, Inc. ("WMTN" or the "Company") is an exploration stage mining company, in accordance with applicable guidelines of the SEC, which pursues gold projects that are anticipated to have low operating costs and high returns on capital. We acquired Terra Mining Corporation ("TMC") on February 28, 2011 and accounted for the transaction as a reverse acquisition using the purchase method of accounting, whereby TMC is deemed to be the accounting acquirer (legal acquiree) and WMTN to be the accounting acquiree (legal acquirer). Our financial statements before the date of the acquisition are those of TMC with the results of WMTN being consolidated from the date of the acquisition. The equity section and earnings per share have been retroactively restated to reflect the reverse acquisition and no goodwill has been recorded. We adopted TMC's fiscal year, which is October 31. TMC's wholly owned subsidiary, Terra Gold Corporation ("TGC"), was a joint venture partner with Raven Gold Alaska, Inc. ("Raven") on a gold system called the TMC Project until February 12, 2014. On February 12, 2014, the Company, through its wholly owned subsidiary, Terra Gold Corp, acquired 100% ownership interest in the TMC Project from Raven, which is a wholly owned subsidiary of Corvus Gold Inc. (TSX:KOR, OTCQX:CORVF) for $1.8 million in cash and 200,000 shares of WMTN. We are currently focused on mineral production from mineralized material at the TMC Project in the state of Alaska. The TMC Project consists of 344 Alaska state mining claims including 5 unpatented lode mining claims held under lease (subject to a 3-4% NSR royalty to the lessor, dependent upon the gold price) covering 223 square kilometers (22,300 hectares). The property is centered on an 8-km-long (800 hectares) trend of gold vein occurrences. All government permits and reclamation plans for continued exploration through 2013 were renewed and the fees to maintain the Terra claims through 2014 were paid by the Company. The property lies approximately 200 km (20,000 hectares) west-northwest of Anchorage and is accessible via helicopter or fixed-wing aircraft. The property has haul roads, a mill facility and adjoining camp infrastructure, a tailings pond and other infrastructure. The remote camp is powered by diesel powered generators and water is supplied to the mill by spring fed sources and year round water wells. Outcropping gold veins were first discovered at Terra in the late 1990's by Kennecott Exploration. The claims were transferred to Mr. Ben Porterfield in 2000. AngloGold Ashanti (USA) Exploration Inc. optioned these claims in 2004 and staked additional claims in the vicinity. Initial detailed soil and rock surveys were conducted at Terra that same year with results leading to the definition of an initial zone of gold veins over a 2.5 km (250 hectares) strike length. AngloGold followed up with a discovery drill program of 12 holes in 2005 and drilled three additional holes in 2006. A total of 587 rock samples were collected on the property. The Terra Project was joint-ventured to International Tower Hill Mines Ltd. ("ITH") in August of 2006. On September 15, 2010, TMC and its wholly owned subsidiary, TGC, and Raven signed an Exploration, Development and Mine Operating Agreement ("JV Agreement") pertaining to the TMC Project. On February 12, 2014, the Company, through TGC, acquired 100% ownership interest in the TMC Project from Raven for $1.8 million cash and 200,000 shares of WMTN. No further payments are due to Raven from TGC under the JV Agreement (including but not limited to any royalty or residual payments), and each party is fully released from its obligations to the other under the JV Agreement. We have budgeted expenditures for the TMC Project for the next twelve months of approximately $2,100,000, depending on additional financing, for general and administrative expenses and exploration. 21 -------------------------------------------------------------------------------- We are considered an exploration stage company under SEC criteria because we have not demonstrated the existence of proven or probable reserves at the TMC Project. Accordingly, as required under SEC guidelines and U.S. GAAP for companies in the exploration stage, substantially all of our investment in mining properties to date, including construction of the mill, mine facilities and exploration expenditures, have been expensed as incurred and therefore do not appear as assets on our balance sheet. We expect construction expenditures and underground mine exploration and capital improvements will continue during 2014 and subsequent years. We expect to remain as an exploration stage company for the foreseeable future. We do not exit the exploration stage until such time that we demonstrate the existence of proven or probable reserves that meet SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine exploration and construction will continue to be expensed as incurred. As of July 31, 2014, we have $4,352,115 plus accrued interest of $1,007,679 due to BOCO Investments LLC on eight secured promissory notes, all of which are in default. See Note 7 in the notes to the consolidated financial statements. Our principal source of liquidity for the next several years will need to be the continued raising of capital through the issuance of equity or debt. WMTN plans to raise funds for each step of the project and as each step is successfully completed, raise the capital for the next phase. WMTN believes this will reduce the cost of capital as compared to trying to raise all the anticipated capital at once up front. However, since WMTN's ability to raise additional capital will be affected by many factors, most of which are not within our control (see "Risk Factors"), no assurance can be given that WMTN will in fact be able to raise the additional capital as it is needed. We may choose to scale back operations to operate at break-even with a smaller level of business activity, while adjusting overhead depending on the availability of additional financing. In addition, we expect that we will need to raise additional funds if we decide to pursue more rapid expansion, appropriate responses to competitive pressures, or the acquisition of complementary businesses or technologies, or if we must respond to unanticipated events that require us to make additional investments. We cannot assure that additional financing will be available when needed on favorable terms, or at all. Our independent registered accounting firm has expressed substantial doubt about our ability to continue as a going concern as a result of the Company's history of net loss. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully execute the plans to pursue the TMC Project. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue our business. CORPORATE INFORMATION We were incorporated in the state of Colorado on October 18, 2007. Our principal executive office is located at 120 E. Lake St. Ste., 401, Sandpoint, ID 83864, and our telephone number is (208)265-1717. Our principal website address is located at www.westmountaingold.com. The information on our website is not incorporated as a part of this Form 10-Q. THE COMPANY'S COMMON STOCK Our common stock currently trades on the OTCQB Exchange ("OTCQB") under the symbol "WMTN." KEY MARKET PRIORITIES Our primary key market priority will be to proceed with the TMC Project and other mining opportunities that may present themselves from time to time. We cannot guarantee that the TMC Project will be successful or that any project that we embark upon will be successful. Our goal is to build our Company into a successful mineral exploration and development company. PRIMARY RISKS AND UNCERTAINTIES We are exposed to various risks related to the volatility of the price of gold, our need for additional financing, our joint venture agreements, our reserve estimates, operating as a going concern, unique difficulties and uncertainties in mining exploration ventures, and a volatile market price for our common stock. These risks and uncertainties are discussed in more detail below in this item. 22 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following table presents certain consolidated statement of operations information and presentation of that data as a percentage of change from period-to-period. THREE MONTHS ENDED JULY 31, 2014 COMPARED TO THE THREE MONTHS ENDED JULY 31, 2013 Three Months Ended July 31, 2014 2013 $ Variance % Variance Revenue $ 157,726 $ - $ 157,726 100.0% Cost of sales 88,092 - $ 88,092 -100.0% Gross profit 69,634 - $ 69,634 100.0% Selling, general and administrative expenses 63,968 1,067,037 $ (1,003,069) 94.0% Exploration expenses 287,330 920,523 $ (633,193) -68.8% Operating loss (281,664) (1,987,560) $ 1,705,896 -85.8% Other income (expense): Interest income (expense) (148,262) (6,800) $ (141,462) -2080.3% Financing fee - (131,967) $ 131,967 100.0% Gain(Loss) on derivative liability 446,319 (2,175,000) $ 2,621,319 120.5% Loss on settlement of forward contract - - $ - -100.0% Total other expense 298,057 (2,313,767) $ 2,611,824 112.9% Net income (loss) $ 16,393 $ (4,301,327) $ 4,317,720 100.4% EXPENSES Revenue for the three months ended July 31, 2014 increased by $157,726 from $0 for the three months ended July 31, 2013. The increase in revenues is due to the commencement of operations at the mine during the current period. Management anticipates revenues to grow as mining operations continue to increase in scale. Cost of goods sold during the three months ended July 31, 2014 increased by $88,092 from $0 for the three months ended July 31, 2013, which correlates to our gold production. Selling, general and administrative expenses for the three months ended July 31, 2014 decreased $1,003,069 to $63,968 as compared to $1,067,037 for the three months ended July 31, 2013. In 2014 we had a decrease in payroll, adjustment of inventory and consulting which was offset by increases in interest and outside services. Exploration expenses for the three months ended July 31, 2014 decreased $633,193 to $287,330 as compared to $920,523 for the three months ended July 31, 2013. The decrease is due to the Company's focus on starting production during the period rather than exploration. As the Company deploys more resources toward production and exploration going forward, exploration expenses will likely increase. 23 -------------------------------------------------------------------------------- NET INCOME (LOSS) Net income for the three months ended July 31, 2014 was $16,393 as compared to a net loss of $4,301,327 for the three months ended July 31, 2013. The net income for the three months ended July 31, 2014 included a gross profit of $69,634, exploration expenses of $287,330, adjustment to inventory of (287,030), consulting and professional fees of $60,684, payroll and benefits of $240,489, company insurance of $20,626, interest expense of $148,262 and gain on the change in value of the derivative of $446,319. NINE MONTHS ENDED JULY 31, 2014 COMPARED TO THE NINE MONTHS ENDED JULY 31, 2014 Nine Months Ended July 31, 2014 2013 $ Variance % Variance Revenue $ 361,975 $ - $ 361,975 100.0% Cost of sales 224,867 - $ 224,867 -100.0% Gross profit 137,108 - $ 137,108 100.0% Selling, general and administrative expenses 793,549 1,767,794 $ (974,245) 55.1% Exploration expenses 357,940 1,796,695 $ (1,438,755) -80.1% Operating loss (1,014,381) (3,564,489) $ 2,550,108 -71.5% Other income (expense): Interest income (expense) (814,527) (433,841) $ (380,686) -87.7% Financing fee (228,238) (131,967) $ (96,271) -73.0% Loss on derivative liability 700,569 (2,175,000) $ 2,875,569 132.2% Gain on settlement of forward contract (349,779) - $ (349,779) -100.0% Total other expense (691,975) (2,740,808) $ 2,048,833 74.8% Net loss $ (1,706,356) $ (6,305,297) $ 4,598,941 72.9% Revenue for the nine months ended July 31, 2014 increased by $361,975 from $0 for the nine months ended July 31, 2013. The increase in revenues is due to the commencement of operations at the mine during the current period. Management anticipates revenues to grow as mining operations continue to increase in scale. Cost of goods sold during the nine months ended July 31, 2014 increased by $224,867 from $0 for the nine months ended July 31, 2013, which correlates to our gold production. Selling, general and administrative expenses for the nine months ended July 31, 2014 decreased $974,245 to $793,549 as compared to $1,767,794 for the nine months ended July 31, 2013. Exploration expenses for the nine months ended July 31, 2014 decreased $1,438,755 to $357,940 as compared to $1,796,695 for the nine months ended July 31, 2013. The decrease is due to the Company's focus on starting production during the period rather than exploration. As the Company deploys more resources toward production and exploration going forward, exploration expenses will likely increase. 24 -------------------------------------------------------------------------------- NET LOSS Net loss for the nine months ended July 31, 2014 was $1,706,356 as compared to a net loss of $6,305,297 for the nine months ended July 31, 2013. The net loss for the nine months ended July 31, 2014 included $435,345 of non-cash expenses, including $347,275 for issuances of common stock and warrants for services and expenses, a gain of $700,569 for the change in the value of a derivative liability, a loss of $348,721 related to the issuance of stock and warrants for the settlement of the forward contract, a loss of $93,944 on the change in value of the forward contract, $227,977 for issuances of common stock for fees, and $117,997 of depreciation and amortization expense. LIQUIDITY AND CAPITAL RESOURCES We had cash of $43,698, a working capital deficit of $9,068,357, (excluding the derivative liability- warrants of $1,299,431) as of July 31, 2014. In addition, we have $739,500 due under operating leases in 2014 and future years. Further, we have $2,100,000 in mining expenditures planned by October 31, 2014. We will have to raise substantial additional capital in order to fully implement the business plan. If economic reserves of gold and/or other minerals are proven, additional capital will be needed to actually develop and mine those reserves. Our principal source of liquidity for the next several years will need to be the continued raising of capital through the issuance of equity or debt. WMTN plans to raise funds for each step of the TMC Project and as each step is successfully completed, raise the capital for the next phase. WMTN believes this will reduce the cost of capital as compared to trying to raise all the anticipated capital at once up front. However, since WMTN's ability to raise additional capital will be affected by many factors, most of which are not within our control (see "Risk Factors"), no assurance can be given that WMTN will in fact be able to raise the additional capital as it is needed. Our primary activity will be to proceed with the TMC Project and other mining opportunities that may present themselves from time to time. We cannot guarantee that the TMC Project will be successful or that any project that we embark upon will be successful. Our goal is to build our Company into a successful mineral exploration and development company. We have budgeted expenditures for the next twelve months of approximately $2,100,000 depending on additional financing, for general and administrative expenses and exploration and development to implement the business plan as described above. Mining costs are detailed below: Expenditures Amout Drilling costs $ 250,000 Camp and labor costs 500,000 Claims payments 100,000 Mining and milling 500,000 Underground portal 475,000 Property payments 275,000 Total mining $ 2,100,000 25 -------------------------------------------------------------------------------- OPERATING ACTIVITIES Net cash used in operating activities for the nine months ended July 31, 2014 was $638,831. This amount was primarily related to a net loss of $1,706,356, $435,345 of non-cash expenses, that included $347,275 for issuances of common stock and warrants for services and expenses, a gain of $700,569 for the change in value of a derivative liability, a loss of $348,721 related to the issuance of stock and warrants for the settlement of the forward contract, a loss of $93,944 on the change in value of the forward contracts, $227,977 for issuances of common stock for fees, and $117,997 of depreciation and amortization expense. INVESTING ACTIVITIES There was $1,900,000 used in investing activities during the nine months ended July 31, 2014 related to $1,800,000 cash paid for the purchase of the balance of the interest in the TMC Project and a $100,000 payment to Ben Porterfield for contractual rights. FINANCING ACTIVITIES Net cash provided by financing activities for the nine months ended July 31, 2014 was $2,500,153. This amount was primarily related to the proceeds from promissory notes of $2,500,000. Our unaudited contractual cash obligations as of July 31, 2014 are summarized in the table below: Less Than 1-2 3-4 Greater Than Contractual Cash Obligations Total 1 Year Years Years 4 Years Operating leases $ 739,500 $ 139,500 $ 225,000 $ 250,000 $ 125,000 Capital lease obligations - - - - - Note payable - - - - - Mining expenditures 2,100,000 2,100,000 - - - Forward contracts 523,920 523,920 - - - $ 3,363,420 $ 2,763,420 $ 225,000 $ 250,000 $ 125,000 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The application of GAAP involves the exercise of varying degrees of judgment. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies (see summary of significant accounting policies more fully described in Note 2 to the financial statements set forth in this report), the following policies involve a higher degree of judgment and/or complexity: Cash and Cash Equivalents We classify highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at US banks are insured by the Federal Deposit Insurance Corporation up to $250,000. We have not experienced any losses in such accounts and believe it is not exposed to any significant risk for cash on deposit. As of July 31, 2014, we had no uninsured cash amounts. 26 -------------------------------------------------------------------------------- Equipment Equipment consists of machinery, furniture and fixtures and software, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives or lease period of the relevant asset, generally 3-5 years. Metal and Other Inventory Inventories were $252,956 and $66,485 as of July 31, 2014 and October 31, 2013, respectively. Inventories include doré. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Metal inventory costs include direct labor, materials, depreciation, as well as administrative overhead costs relating to mining activities. Mineral Properties Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. The Company has access to the camp by airplane. There is road access from the camp to the project area where drilling and bulk sampling mining occurs. It is approximately 1 1/2 miles from camp to the project area. Power generation is by diesel generator at the camp. Fuel is brought in for the generators by a cargo plane to the airstrip. Long-Lived Assets We review our long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results. As of July 31, 2014, there are no impairments recognized. Alaska Reclamation and Remediation Liabilities TMC operates in Alaska. The State of Alaska Department of Natural Resources requires a pool of funds from all permittees with exploration and mining projects to cover reclamation. There is a $750 per acre disturbance reclamation bond that is required for disturbance of 5 acres or more and/or removal of more than 50,000 cubic yards of material. The Company has exceeded the minimum requirements in 2014 and was required to file a reclamation bond. Mineral Exploration and Development Costs All exploration expenditures are expensed as incurred. Significant property acquisition payments for active exploration properties are capitalized. If no minable ore body is discovered, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on a unit of production basis over proven and probable reserves. Should a property be abandoned, its capitalized costs are charged to operations. We charge to operations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area. |