Timberline Resources Corp - Quarter Report: 2018 June (Form 10-Q)

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-Q

For the transition period from              to           

Commission file number: 001-34055

TIMBERLINE RESOURCES CORPORATION

 (Exact Name of Registrant as Specified in its Charter)

(208) 664-4859

(Registrant’s Telephone Number, including Area Code)

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

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

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

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

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

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

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

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INDEX

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PART I — FINANCIAL INFORMATION

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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 4. CONTROLS AND PROCEDURES

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PART II — OTHER INFORMATION

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ITEM 1. LEGAL PROCEEDINGS.

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ITEM 1A. RISK FACTORS

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

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ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

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ITEM 4.  MINE SAFETY DISCLOSURES

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ITEM 5.  OTHER INFORMATION.

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ITEM 6. EXHIBITS.

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SIGNATURES

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PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

Contents

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FINANCIAL STATEMENTS:

Consolidated balance sheets

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Consolidated statements of operations and comprehensive income (loss)

5

Consolidated statements of cash flows

6

Notes to consolidated financial statements

7 - 13

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See accompanying notes to consolidated financial statements.

4

See accompanying notes to consolidated financial statements.

5

See accompanying notes to consolidated financial statements.

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NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS:

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a.

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

The consolidated financial statements for the three and nine month periods ended June 30, 2018 were prepared on the basis that the Company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.  The Company’s ability to continue as a going concern is dependent upon its ability to receive cash flow from its operations or to successfully obtain additional financing. While the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

b.

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

The dilutive effect of outstanding securities, in periods of future income as of June 30, 2018 and 2017, would be as follows:

At June 30, 2018 and 2017, the effect of the Company’s outstanding options and warrants would have been anti-dilutive.  

c.

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

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

d.

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

e.

New accounting pronouncements:

Leases - In February 2016, the FASB issued ASU No. 2016-02, “Leases.” The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the adoption of this standard’s impact on its financial statements.

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

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

f.

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

g.

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

NOTE 3 – FAIR VALUE MEASUREMENTS:

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

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Any expenses paid prior to the related services being rendered will be recorded as prepaid expenses.  At June 30, 2018 prepaid expenses and other current assets included $125,000 related to a prepaid marketing consulting agreement, $95,759 related to land holding fees paid in June 2018 for the Elder Creek property joint venture interest that the Company has agreed to acquire, with the remainder related to prepaid conference fees, prepaid insurance premiums, and prepaid annual exchange listing fees.

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NOTE 5 – PROPERTY AND MINERAL RIGHTS:

During the three months ended June 30, 2018, our management and Board of Directors determined that certain payments received by the Company beginning in August 2017, which had been held and not recorded or deposited pending an expected resolution of circumstances relating to two historic leases at our Eureka property, should be deposited.  The payments had been received from a third party with whom we are in discussions to resolve matters that had been under negotiation since we acquired the Eureka property.  The total amount of these payments received through June, 2018 was $87,424.  Monthly payments in the amount of $8,326 are expected to continue to be received, recorded and deposited until the situation concerning the leases is resolved.  These receipts are recorded as a reduction to property, mineral rights, and equipment.

ICBM Sale

On May 23, 2018, we sold a participating interest in a joint venture on the ICBM Project (“ICBM”), a mineral interest located in Humboldt and Lander counties, Nevada.  The purchaser was Americas Gold Exploration, Inc. (“AGEI”) and the consideration we received for the sale was $100,000 cash, which was recorded as a decrease to mineral interests.  The total consideration also included a 0.5% net smelter return royalty on the gross production of all minerals extracted from the ICBM Project properties.  In connection with a concurrent definitive agreement with AGEI to acquire an additional joint venture interest, we decided to re-acquire this joint venture interest, now renamed as the Paiute property joint venture, as a component of the AGEI transaction.

AGEI Definitive Agreement

On May 23, 2018, we executed a definitive agreement with Americas Gold Exploration, Inc. (“AGEI”) (the “Definitive Agreement”) for the purchase of two joint venture ownership interests (the “JV Interests”) in Nevada (the “Transaction”).  As of June 30, 2018, we had not yet closed on the Transaction; however we expect to close on the Transaction upon completion of a financing that provides sufficient capital to meet the obligations of the two joint venture agreements for at least six months, and the receipt of final approval for the Transaction from the TSX Venture Exchange.  The JV Interests include the Elder Creek property joint venture with McEwen Mining Inc., which includes an option to acquire up to 65% of the project interest, and an approximate 73.7% interest in the Paiute property joint venture with LAC Minerals (USA) LLC, a wholly owned subsidiary of Barrick Gold Corporation.  Upon closing of the Transaction, we expect to be the operator at both of these joint venture projects.

The consideration for the Transaction is expected to consist of ten million shares of the Company’s common stock and five million non-transferrable share purchase warrants (the “Consideration Warrants”), with each warrant exercisable to acquire one share of the Company’s common stock for US$0.24 for a period of three years. In addition, we will deliver to AGEI, subject to any required regulatory approval, an additional 5,000,000 common stock purchase warrants with the same terms and in the same form as the Consideration Warrants if and when the earlier of the following occurs: (i) Timberline enters into an arrangement with a funding partner for the advancement of the Elder Creek Joint Venture, or (ii) Timberline has met the 2018 work commitment of $500,000.

On June 18, 2018, we entered into an amendment to the Definitive Agreement wherein we agreed, upon closing of the Transaction, to reimburse AGEI for the initial payment of $100,000 due under the Elder Creek JV agreement.  Upon executing the Definitive Agreement, it was our intention to pay this initial payment, but because the TSX Venture Exchange had not provided final approval for the Transaction when the initial payment was due, AGEI paid the initial payment, and we will reimburse AGEI for the $100,000 payment upon TSX-V approval and closing of the Transaction.  

On June 29, 2018, we paid the property holding costs for the Elder Creek property which were due to be paid to McEwen Mining on or before June 30, 2018.  Given that the Transaction had not closed as of June 30, 2018, the property holding cost payment of $95,759 was recorded as other current assets at June 30, 2018.

Talapoosa Option Agreement (Terminated)

On March 12, 2015 (the “Effective Date”), we entered into a property option agreement (“Agreement”) with Gunpoint Exploration Ltd. (“Gunpoint”), which closed on March 31, 2015 and was amended on October 19, 2016 (“Amended Agreement”).  Pursuant to the Agreement, Gunpoint granted us an exclusive and irrevocable option (“Option”) to purchase a 100% interest in Gunpoint’s Talapoosa project (the “Project”) in western Nevada.  

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NOTE 5 – PROPERTY AND MINERAL RIGHTS (continued):

Pursuant to the Amended Agreement, during the Amended Option Period, we were required to pay $2 million and issue one million common shares of the Company by March 31, 2018.  We did not make the payment of $2 million nor issue the one million common shares of the Company by March 31, 2018, and, therefore, the Amended Agreement was terminated per its terms on March 31, 2018.  As a result, on March 31, 2018, we wrote off our entire investment of $3,231,700.  

NOTE 6 – RELATED-PARTY TRANSACTIONS:

In connection with the definitive agreement with AGEI for the purchase of two joint venture interests, Mr. Donald J. McDowell and Mr. Dave Mathewson were appointed to our Board of Directors on June 21, 2018.  Mr. McDowell is the majority owner of AGEI and will be the beneficial owner of the majority of the consideration for the Transaction.

During the quarter ended June 30, 2018, the Company granted 200,000 stock options to acquire shares of common stock of the Company to Mr. McDowell and Mr. Mathewson, our newly appointed Directors.  The options were granted by our Board of Directors and were valued at $16,000 based upon the closing price of our shares of common stock on the date the options were granted.

During the quarter ended June 30, 2018, two executive officers participated in a private placement offering of Units of the Company purchasing, in the aggregate, 250,000 units for proceeds of $20,000.  Subsequent to the closing of the private placement offering of Units, one participating investor has been appointed to the Company’s Board of Directors.  He purchased 625,000 Units for proceeds of $50,000.  Each Unit was priced at $0.08 and consisted of one share of common stock of the Company and one common share purchase warrant (each a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.14 per share until April 30, 2021.  The participation of the executive officers of the Company and a person who has subsequently been appointed to the Company’s Board of Directors, was done at the same terms as the other investors in the private placement offering.  The Audit Committee of the Board of Directors approved the insiders’ participation in the private placement.        

NOTE 7 – ACCRUED EXPENSES:

As of June 30, 2018 and September 30, 2017, we had accrued $7,939 and $9,923 in expenses, respectively.  

The components of the accrued expenses are:   

NOTE 8 – 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 prime rate, as such rate may change from time to time, plus 3% per annum.  We agreed to pay the Creditor 5% of the gross proceeds of any funds raised, whether though equity sales, Payment Obligation, 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.

During the three months and nine months ended June 30, 2018, we paid $20,000 and $63,213, respectively, to the Creditor.  During the three months and nine months ended June 30, 2018, $13,468 and $51,194, respectively, was applied to principal of the Payment Obligation and $6,532 and $12,019, respectively, was applied to interest.  Interest on the Payment Obligation, in the amount of $1,332, was included in accrued expenses at June 30, 2018.  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.

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NOTE 9 – COMMON STOCK, WARRANTS AND PREFERRED STOCK:

Private Placement

On May 8, 2018, we closed a private placement offering of 7,500,000 Units of the Company at a price of $0.08 per Unit for gross proceeds of $600,000 (the "May 2018 Offering").  Each Unit in the May 2018 Offering consisted of one share of common stock of the Company and one common share purchase warrant (each a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.14 per share until the warrant expiration date of April 30, 2021.

On December 21, 2017, we closed a private placement offering of 2,880,867 Units of the Company at a price of $0.30 per Unit for gross proceeds of $864,260 (the "December 2017 Offering").  Each Unit in the December 2017 Offering consisted of one share of common stock of the Company and one common share purchase warrant (each a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.45 per share until the warrant expiration date of October 31, 2022.

During the three months ended June 30, 2018, we sold of 7,500,000 Units at a price of $0.08 per unit for gross and net proceeds of $600,000 as no finder’s fees were paid.

During the nine months ended June 30, 2018, we closed the sale of two private placement offerings.  In the aggregate, we sold a total of 10,380,867 Units at prices of $0.30 per unit (as to 2,880,867 units) and $0.08 per unit (as to 7,500,000 units) for gross proceeds of $1,464,260 and net proceeds, net of offering costs, of $1,421,767.     

Warrants

During the nine months ended June 30, 2018, 10,380,867 warrants were issued pursuant to two separate private placement offerings.  No warrants expired during the three or nine months ended June 30, 2018.  At June 30, 2018, there were 9,960,006 warrants outstanding with an exercise price of $0.25 per share that expire on May 31, 2019; 8,000,000 warrants outstanding with an exercise price of $0.40 per share that expire on January 31, 2020; 2,880,867 warrants outstanding with an exercise price of $0.45 that expire on October 31, 2022; and 7,500,000 warrants outstanding with an exercise price of $0.14 that expire on April 30, 2021.  In aggregate, as of June 30, 2018, there were 28,340,873 warrants outstanding at a weighted average exercise price of $0.284.

Preferred Stock

We are authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value. Our board of directors is authorized to issue the preferred stock from time to time in series, and is further authorized to establish such series, to fix and determine the variations in the relative rights and preferences as between series, to fix voting rights, if any, for each series, and to allow for the conversion of preferred stock into common stock.  There is no preferred stock issued as of June 30, 2018.

NOTE 10 – STOCK-BASED AWARDS:

During the three months ended June 30, 2018, 200,000 stock options with an exercise price of $0.10 and a five-year term where granted to new directors.  All of the awarded stock options vested immediately.  The fair value of all of the options that were granted and vested during the three months ended June 30, 2018 was $16,000 ($0.08 per option).  

During the three months ended June 30, 2017, no stock options were granted; however 62,500 options that were granted on March 15, 2017 vested per the quarterly vesting schedule.  The fair value of the options that vested during the three months ended June 30, 2017 was $15,000.

During the nine months ended June 30, 2018, 1,800,000 stock options with an average weighted exercise price of $0.16 and a five-year term where granted to employees and directors.  All of the awarded stock options vested immediately.  The fair value of all of the options that vested during the nine months ended June 30, 2018 was $223,000, including the fair value ($15,000) of 62,500 options that were granted on March 15, 2017 and vested on December 15, 2017.  

During the nine months ended June 30, 2017, 250,000 stock options with an exercise price of $0.33 and a three-year term where granted to a consultant.  The awarded stock options vested quarterly with 25% of the options vesting each quarter beginning on March 15, 2017.  The fair value of the options that vested during the nine months ended June 30, 2017 was $30,000.

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NOTE 10 – STOCK-BASED AWARDS (continued):

The cost of options granted to employees is recorded as salaries and benefits, and the cost of options granted to directors and consultants is recorded as other general and administrative expenses.  The total compensation cost of options vested under the plan, charged against operations, is included in the consolidated statements of operations as follows:

The value of the options granted during the three months and nine months ended June 30, 2018 was estimated on the date of grant with a Black-Scholes option-pricing model using the assumptions noted in the following table:

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

The aggregate of options exercisable as of June 30, 2018 had an intrinsic value of $4,000, based on the closing price of $0.12 per share of our common stock on June 30, 2018.

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NOTE 11 – COMMITMENTS AND CONTINGENCIES:

Mineral Exploration

In addition to the commitment we have relating to our purchase of joint venture interests from AGEI (see Note 5) we have the following commitments and contingencies:

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

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

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

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

Real Estate Lease Commitments

As of June 30, 2018, the Company has no real estate lease commitments. The Company’s office in Coeur d’Alene, Idaho and its facilities in Eureka, Nevada are rented on a month-to-month basis.

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

Employment Agreements

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

NOTE 12 – SUBSEQUENT EVENTS:

On July 30, 2018, we entered into a binding commitment letter (the “Loan Agreement”) and promissory note (the “Note”) with William Matlack (“Lender”).  Under the Loan Agreement, the Lender purchased from Timberline the principal amount of US$300,000 (the “Principal Sum”) of senior unsecured notes (the “Notes”), with the Principal Sum bearing interest at an annual rate of 18%, compounded monthly. The loan is unsecured and the Principal Amount and accrued interest will become due for repayment on January 20, 2020, but may be repaid early without penalty. The Lender is an arm’s length party to the Company.  Amounts drawn under the Loan Agreement will be used for exploration expenditures, annual property holding costs, and working capital requirements of the Company.

Pursuant to the terms of the Loan Agreement, the Company issued to the Lender 3,265,500 non-transferrable common share purchase warrants of the Company (the “Warrants”), which is equal to 100% warrant coverage of the Principal Sum, determined by dividing the Principal Sum by the Company’s last closing share price on the TSX Venture Exchange (CND$0.12), converted to U.S. dollars, prior to the effective date of the Loan Agreement.  The exercise price of the Warrants is US$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.

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

The following discussion and analysis should be read in conjunction with our unaudited condensed interim consolidated financial statements as at and for the three and nine months ended June 30, 2018 and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). This discussion and analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors, including, but not limited to, those set forth elsewhere in this Quarterly Report on Form 10-Q. See section heading “Note Regarding Forward-Looking Statements” below.

Note Regarding Forward-Looking Statements

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

· the establishment and estimates of mineralization and reserves;

· the grade of mineralization and reserves;

· anticipated expenditures and costs in our operations;

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

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

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

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

· plans and anticipated timing regarding production dates;

· anticipated gold and silver prices;

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

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

· factors expected to impact our results of operations

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

· risks related to our limited operating history;

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

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

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

· risks related to our bringing our projects into production;

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

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

· risks related to future legislation regarding climate change

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

· risks related to land reclamation requirements and costs;

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

· risks related to our insurance coverage for operating risks;

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

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

· risks related to mineral resource and economic estimates;

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

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· risks related to the competitive industry of mineral exploration;

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

· risks related to integration issues with acquisitions;

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

· risks related to joint ventures and partnerships;

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

· risks related to our dependence on key management;

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

· risks related to our potential acquisition of joint venture interests in the Paiute and Elder Creek projects;

· risks related to our business model;

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

· risks related to our Canadian regulatory requirements; and

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

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

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

Corporate Overview

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

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

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

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

In May 2018, we entered into a definitive agreement to acquire ownership interests in two joint venture agreements in Nevada from Americas Gold Exploration, Inc (“AGEI”).  The acquisition includes a 73.7% interest in the Paiute property joint venture with LAC Minerals (USA) LLC, a wholly owned subsidiary of Barrick Gold Corporation, and the opportunity to earn up to 65% ownership in the Elder Creek joint venture with McEwen Mining, Inc.  This transaction has not closed as of the date of this filing.

Recent Events

As of the date of this filing, we anticipate that we will close soon on the acquisition of two joint venture ownership interests, at Elder Creek with McEwen Mining and at Paiute with Barrick Gold, from AGEI for consideration of ten

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million shares of our common stock and five million warrants to purchase shares of our common stock.  An additional five million warrants with the same terms is expected to be issued to AGEI, subject to certain achievements.  Upon closing, we anticipate being the operator at both of these joint venture projects.

In May 2018, we closed a private placement offering of 7,500,000 Units of the Company at a price of $0.08 per Unit for gross proceeds of $600,000 (the “May 2018 Offering”).   Each Unit in the May 2018 Offering consisted of one share of common stock of the Company and one common share purchase 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 the warrant expiration date of April 30, 2021.

In December 2017, we closed a private placement offering of 2,880,867 Units of the Company at a price of $0.30 per Unit for gross proceeds of $864,260 (the “December 2017 Offering”).   Each Unit in the December 2017 Offering consisted of one share of common stock of the Company and one common share purchase warrant, with each warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.45 per share until the warrant expiration date of October 31, 2022.

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

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

Mineral Exploration

Talapoosa, Nevada

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

Eureka Project, Nevada

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

Lookout Mountain

In 2010-2011, we completed an exploration program that culminated in the release of an NI 43-101 compliant technical report, entitled, Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA, dated May 2, 2011 (the “Lookout Mountain Technical Report”).  The Lookout Mountain Technical Report was prepared by Mine Development

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Associates (“MDA”) of Reno, Nevada under the supervision of Michael M. Gustin, Senior Geologist, who is a qualified person under NI 43-101.  The Lookout Mountain Technical Report details mineralization at Lookout Mountain.

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

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

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

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

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

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

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

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Recently, we completed a detailed geologic review and reinterpretation of the Lookout Mountain gold mineralization. Work focused on internal geologic modeling of 17 intercepts of high-grade (>0.136 opt & up to 2.250 opt) gold mineralization that is associated with extensive zones of structurally controlled fault- and gouge-breccias, as well as carbonaceous collapse-breccia. The gold mineralization is associated with orpiment and realgar (arsenic sulfides), which are commonly found in many major Carlin-type gold deposits.

Windfall

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

Recently, at the Windfall project area, on-going fieldwork, combined with compilation of drilling data and geologic modeling, has traced a continuous zone of gold mineralization along a length of approximately 1.7 miles (2.7 km). This includes mineralization that is exposed in and between the historic Rustler, Windfall, and South Paroni pits, which were mined in the 1970’s and 1980’s. These pits produced over 100,000 oz of gold from oxidized, near-surface ore and were among the first heap-leach mining operations in Nevada.  Gold mineralization at Windfall occurs primarily in the upper-most Hamburg Dolomite beneath the Dunderberg Shale (Figure 3). Historic drilling was commonly shallow, averaging 250 feet in depth, and much of the upper Hamburg–lower Dunderberg mineralized zone remains un-tested, including the extent of mineralization exposed in the high-walls and bottom of the mining pits.  Our Windfall database includes approximately 1,300 historic drill holes with gold assay data. Within the mineralized zone at Windfall, over a distance of approximately 1 mile (1.6 km), there have been an additional 11 holes drilled since 2008. These eleven holes intersected gold consistent with that in many of the adjacent historic holes.

Oswego

Recent results of surface rock chip sampling and geologic mapping have defined new, high-grade, gold exploration targets along the Oswego trend at Eureka. The Oswego trend, which extends 3.1 miles north-south, includes high-grade gold at the Road-Cut target, high-grade silver and gold at the Geddes- Bertrand target, and numerous additional untested targets.

The Company recently generated and announced assay results for 54 rock samples at Oswego. Most notably, 9 grab samples collected at approximately 20 feet spacing over a 180-foot section of road cut along a moderately east-dipping, strongly mineralized fault zone (the Road-Cut target) averaged 0.4 ounces per ton (opt) gold.

The Oswego trend is the central of three parallel, north-south, gold-mineralized structural trends on the Eureka property. With the recent work at Oswego, exploration targets for future drilling are now defined at Oswego and on all three of the trends at Eureka.  Throughout the Oswego trend, the occurrence of wide-spread gold and silver mineralization in outcrop, indicate the existence of a robust gold system. Several rock formations on the trend are well-known as favorable hosts for large Carlin-type deposits in the region.

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

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

Summary

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

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

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

Results of Operations for the three months ended June 30, 2018 and 2017

Consolidated Results

Our consolidated net loss for the three months ended June 30, 2018 was $329,318 compared to a consolidated net loss of $300,656 for the three months ended June 30, 2017.  The year-over-year difference is primarily related to no sales of available-for-sale securities in the 2018 period.  In addition, in 2018, the exploration, professional fees expense, insurance costs, and salaries and benefits expenses were all lower than the comparable period in 2017.  Other general and administrative expenditures and stock option expenses were substantially similar in the two periods.  We anticipate that the net loss will increase as our exploration activity increases, subject to changes in non-cash option expenses and general and administrative expenditures which vary according to transaction activity.  Exploration expenditures during the three months ended June 30, 2018 decreased compared to the same period in 2017 due to the relinquishment of the Talapoosa property to the underlying owner at the end of March 2018.  We anticipate that exploration expenditures will increase year-over-year in the next quarter, subject to available capital, as we seek to advance projects on our Eureka property and on joint ventured properties where we are the operator, once they are acquired.  

Our consolidated net loss for the nine months ended June 30, 2018 was $4,354,275, including a charge of $3,231,700 related to the relinquishment of the Talapoosa option.  Excluding the abandonment of mineral rights expense, the net loss for the nine months ended June 30, 2018 was $1,122,575 compared to a consolidated net loss of $1,158,810 for the nine months ended June 30, 2017.  

The year-over-year difference, excluding the abandonment of mineral rights expense related to the relinquishment of the Talapoosa option, is primarily related to greater professional fees, other general and administrative expenses, and expenses related to exploration at Talapoosa in 2017, offset by increased non-cash stock option expense due to options granted in 2018.  Other general and administrative expenditures were higher in 2017 primarily related to marketing and consulting costs aimed at increasing our market exposure and supporting our marketing efforts during the nine months ended June 30, 2017.  We anticipate that the net loss, excluding abandonment of mineral rights expenses, will increase, subject to available capital, as we increase our exploration activity, subject to changes in non-cash option expenses and general and administrative expenditures which are subject to transaction activity.  Exploration expenditures during the nine months ended June 30, 2018 decreased compared to the same period in 2017 due to the relinquishment of the Talapoosa property to the underlying owner at the end of March 2018.  We anticipate that exploration expenditures will increase in future

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periods, subject to available capital, as we seek to advance projects on our Eureka property and on joint ventured properties where we are the operator, once they are acquired.  

Subject to adequate funding for the remainder of 2018, we expect to continue to incur exploration expenses for advancing exploration initiatives at the Lookout Mountain and Windfall projects on our Eureka property and at the Elder Creek and Paiute joint venture properties.

Financial Condition and Liquidity

At June 30, 2018, we had assets of $14,639,227, consisting of cash in the amount of $303,424; property, mineral rights and equipment, net of depreciation of $13,777,895, restricted cash held for exploration bonds of $285,128, and other assets in the amount of $272,780.  

During the three months ended June 30, 2018, we closed the sale of an equity financing in which we sold a total of 7,500,000 Units at a price of $0.08 per unit for gross and net proceeds of $600,000.  

During the nine months ended June 30, 2018, we closed the sale of two equity financings.  In the aggregate, we sold a total of 10,380,867 Units at an average price of $0.14 per unit for gross proceeds of $1,464,260 and net proceeds after the costs of the financing of $1,421,767.  

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

At June 30, 2018, we had working capital of $283,049.  As of the date of this report, we have approximately $260,000 outstanding in current liabilities and a cash balance of approximately $500,000.  As of the date of this Quarterly Report on Form 10-Q, we do not anticipate that we will be able to continue as a going concern, meet our property expenditure obligations and execute our business plan for the next 12 months without receiving significant additional capital.  We estimate that in order to meet our minimum obligations and continue as a going concern for the next twelve months, we need to raise at least $1 million during the next year, and to conduct our anticipated exploration program at Eureka for the next twelve months would require an estimated additional $1 million.  Therefore, we expect to engage in financial transactions to increase our cash balance and/or decrease our cash obligations in the near term, which may include equity financings, joint venture agreements, sales of non-core assets, credit facilities, debenture issuances, or other strategic transactions.  

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

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

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

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

Financing Activities

On May 8, 2018, we closed a private placement offering of 7,500,000 Units of the Company at a price of $0.08 per Unit for gross proceeds of $600,000 (the “May 2018 Offering”).  Each Unit in the May 2018 Offering consisted of one share of common stock of the Company and one common share purchase warrant (each a “May 2018 Warrant”), with each May 2018 Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.14 per share until the warrant expiration date of April 30, 2021.  The private placement offering was completed under Rule 506(b) of Regulation D promulgated by the SEC under the Securities Act of 1933, as amended, solely to persons who qualified as accredited investors.  Subscribers who were resident in Canada were required to qualify as accredited investors under Canadian National Instrument 45-106 Prospectus Exemptions.

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

Our critical accounting policies and estimates are as follows:

Asset Impairments

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

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

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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. While the Company does adhere to a system of internal controls and processes that were designed and implemented by a respected, national accounting firm, it is difficult with a very limited staff to maintain appropriate segregation of duties in the initiating and recording of transactions, thereby creating a segregation of duties weakness.  Subject to available capital, we anticipate improving the effectiveness of our disclosure controls and procedures on a long-term basis by increasing staffing levels and segregating certain duties.

Changes in Internal Control over Financial Reporting

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

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS

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

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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 June 30, 2018, our U.S. exploration properties were not subject to regulation by the MSHA under the Mine Act.  

ITEM 5.  OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.   

* - Filed herewith

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SIGNATURES

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

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