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EX-31 - CERTIFICATION - Timberline Resources Corpex31a.htm
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EXCEL - IDEA: XBRL DOCUMENT - Timberline Resources CorpFinancial_Report.xls


UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549



FORM 10-Q


x

 

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

For the quarterly period ended December 31, 2013

OR

o

 

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

For the transition period from              to           


Commission file number: 001-34055

[trc10qfeb1014002002.gif]





TIMBERLINE RESOURCES CORPORATION

 (Exact Name of Registrant as Specified in its Charter)

DELAWARE

 

82-0291227

(State of other jurisdiction of incorporation or organization)

 

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

 

 

 

101 EAST LAKESIDE AVENUE

 

 

COEUR D’ALENE, IDAHO

 

83814

(Address of Principal Executive Offices)

 

(Zip Code)

 

(208) 664-4859

(Registrant’s Telephone Number, including Area Code)


(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, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   o

Accelerated filer   o

Non-accelerated filer  o

Smaller reporting company x


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


Number of shares of issuer’s common stock outstanding at February 11, 2014: 74,868,938






1




INDEX

  

 

 

Page


PART I — FINANCIAL INFORMATION

3

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3

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

RESULTS OF OPERATIONS.

12

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

18

ITEM 4. CONTROLS AND PROCEDURES

18


PART II — OTHER INFORMATION

19

ITEM 1. LEGAL PROCEEDINGS.

19

ITEM 1A. RISK FACTORS

19

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

19

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

19

ITEM 4.  MINE SAFETY DISCLOSURES

19

ITEM 5.  OTHER INFORMATION.

20

ITEM 6. EXHIBITS.

20

SIGNATURES

21








2



PART I — FINANCIAL INFORMATION


ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

Contents




Page


FINANCIAL STATEMENTS:


Consolidated balance sheets

4


Consolidated statements of operations and comprehensive income (loss)

5


Consolidated statements of cash flows

6


Notes to consolidated financial statements

7 - 13





















3





TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

December 31, 2013

 

September 30, 2013

 

 

(unaudited)

 

(audited)

ASSETS

 

 

 

 

  CURRENT ASSETS:

 

 

 

 

    Cash

$

227,799

$

824,919

    Prepaid expenses and other current assets

 

32,605

 

30,151

    Joint venture receivable

 

33,833

 

53,586

    Current portion of prepaid drilling services

 

220,000

 

-

      TOTAL CURRENT ASSETS

 

514,237

 

908,656

 

 

 

 

 

  PROPERTY, MINERAL RIGHTS AND EQUIPMENT

 

14,121,115

 

14,037,784

 

 

 

 

 

  OTHER ASSETS:

 

 

 

 

    Prepaid drilling services, net of current portion

 

440,000

 

660,000

    Investment in joint venture

 

642,450

 

642,450

    Restricted cash

 

639,422

 

639,422

    Deposits and other assets

 

4,500

 

4,500

      TOTAL OTHER ASSETS

 

1,726,372

 

1,946,372

 

 

 

 

 

      TOTAL ASSETS

$

16,361,724

$

16,892,812

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

  CURRENT LIABILITIES:

 

 

 

 

    Accounts payable

$

115,904

$

204,897

    Accrued expenses

 

179,587

 

213,292

    Accrued payroll, benefits and taxes

 

51,229

 

52,444

      TOTAL CURRENT LIABILITIES

 

346,720

 

470,633

 

 

 

 

 

  LONG-TERM LIABILITIES:

 

 

 

 

    Common stock payable

 

60,000

 

-

    Asset retirement obligation

 

127,339

 

125,823

      TOTAL LONG-TERM LIABILITIES

 

187,339

 

125,823

 

 

 

 

 

  STOCKHOLDERS' EQUITY:

 

 

 

 

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

      none issued and outstanding

 

-

 

-

    Common stock, $0.001 par value; 100,000,000 shares authorized,

      74,221,879 and 74,021,879 shares issued and outstanding, respectively

 

74,222

 

74,022

    Additional paid-in capital

 

58,247,422

 

58,207,622

    Accumulated deficit

 

(31,678,445)

 

(31,678,445)

    Accumulated deficit during the exploration stage

 

(10,815,534)

 

(10,306,843)

      TOTAL STOCKHOLDERS' EQUITY

 

15,827,665

 

16,296,356

 

 

 

 

 

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

16,361,724

$

16,892,812


See accompanying notes to consolidated financial statements.





4




TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

 

 

 

Three months ended

 

From Inception of Exploration Stage November 9,

 

 

 

 

December 31,

 

2011 through

 

 

 

 

 

 

2013

 

2012

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

  Mineral exploration expenses

 

 

 

 

$

163,950

$

806,191

$

6,651,082

  Gain on lease of mineral rights

 

 

 

 

 

-

 

-

 

(325,000)

  Salaries and benefits

 

 

 

 

 

201,512

 

201,099

 

1,975,282

  Professional fees expense

 

 

 

 

 

57,919

 

74,454

 

485,388

  Insurance expense

 

 

 

 

 

22,313

 

25,313

 

229,305

  Gain on disposal of equipment

 

 

 

 

 

(16,565)

 

-

 

(16,565)

  Other general and administrative expenses

 

 

 

 

 

79,214

 

127,433

 

1,478,452

  TOTAL OPERATING EXPENSES

 

 

 

 

 

508,343

 

1,234,490

 

10,477,944

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

 

 

 

(508,343)

 

(1,234,490)

 

(10,477,944)

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

  Foreign exchange loss

 

 

 

 

 

(426)

 

(671)

 

(2,790)

  Interest income

 

 

 

 

 

78

 

34,172

 

194,808

  Related party interest expense

 

 

 

 

 

-

 

-

 

(29,608)

  Impairment of other assets

 

 

 

 

 

-

 

-

 

(450,000)

  Impairment of available-for-sale securities

 

 

 

 

 

-

 

-

 

(50,000)

  TOTAL OTHER INCOME (EXPENSE), NET

 

 

 

 

 

(348)

 

33,501

 

(337,590)

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

 

 

 

 

(508,691)

 

(1,200,989)

 

(10,815,534)

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

 

 

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

 

 

 

(508,691)

 

(1,200,989)

 

(10,815,534)

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

  Reclassification of net loss on available-for-sale

 

 

 

 

 

 

 

 

 

 

 

equity securities included in net loss

 

 

 

 

 

-

 

-

 

(486,400)

COMPREHENSIVE LOSS

 

 

 

 

$

(508,691)

$

(1,200,989)

$

(11,301,934)

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER SHARE AVAILABLE TO COMMON

 

 

 

 

 

 

 

 

 

 

  STOCKHOLDERS,  BASIC AND DILUTED

 

 

 

 

$

(0.01)

$

(0.02)

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING,

 

 

 

 

 

 

 

 

 

 

     BASIC AND DILUTED

 

 

 

 

 

74,167,531

 

62,584,379

 

 


See accompanying notes to consolidated financial statements.




5




TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

From Inception of Exploration Stage November 9, 2011 Through

 

 

2013

 

2012

 

December 31, 2013

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

  Net loss

$

(508,691)

$

(1,200,989)

$

(10,815,534)

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

 

 

 

 

 

 

  Depreciation and amortization

 

5,178

 

7,657

 

83,986

  Stock based compensation

 

-

 

-

 

338,000

  Gain on disposal of equipment

 

(16,565)

 

-

 

(16,565)

  Accretion of asset retirement obligation

 

1,516

 

1,444

 

13,214

  Gain on lease of mineral rights

 

-

 

-

 

(325,000)

  Stock issued for mineral exploration expenses

 

-

 

-

 

21,500

  Impairment of other assets

 

-

 

-

 

450.000

  Amortization of deferred financing cost with related party

 

-

 

-

 

 15,909

  Impairment of available-for-sale equity securities

 

-

 

-

 

50,000

Changes in assets and liabilities:

 

 

 

 

 

 

  Prepaid drilling services, prepaid expenses and other current assets,

  deposits and other assets

 

(2,454)

 

(7,109)

 

727,025

  Joint venture receivable

 

19,753

 

761,891

 

6,577

  Accounts payable

 

(28,993)

 

(309,416)

 

(225,042)

  Accrued expenses

 

(33,705)

 

54,875

 

179,587

  Accrued payroll, benefits and taxes

 

(1,215)

 

97

 

51,229

  Receivable from sale of discontinued operations

 

-

 

-

 

1,657,625

      Net cash used by operating activities

 

(565,176)

 

(691,550)

 

(7,787,489)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

  Purchase of property, mineral rights and equipment

 

(54,000)

 

(54,500)

 

(786,500)

  Proceeds from sale of mineral rights, property and equipment

 

22,056

 

-

 

22,056

  Payment received on note receivable

 

-

 

-

 

1,350,000

  Change in restricted cash

 

-

 

-

 

(201,086)

  Change in other assets

 

-

 

-

 

(50,000)

    Net cash provided (used) by investing activities

 

(31,944)

 

(54,500)

 

334,470

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

  Proceeds from issuance of stock and warrants, net of stock offering costs

 

-

 

888,415

 

1,683,837

  Payments on convertible note payable to related party

 

-

 

-

 

(5,000,000)

  Proceeds from exercise of stock options

 

-

 

-

 

11,550

    Net cash provided (used) by financing activities

 

-

 

888,415

 

(3,304,613)

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(597,120)

 

142,365

 

(10,757,632)

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

824,919

 

1,034,080

 

10,985,431

 

 

 

 

 

 

 

CASH AT END OF PERIOD

$

227,799

$

1,176,445

$

227,799

 

 

 

 

 

 

 

NON-CASH FINANCING AND INVESTING ACTIVITIES:

 

 

 

 

 

 

  Common stock issued for mineral rights

$

40,000

$

-

$

846,000

  Common stock payable for accounts payable

 

60,000

 

-

 

60,000

  Long term investment received from lease of mineral rights

 

-

 

-

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.



6



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013



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.


In 2006, we acquired Kettle Drilling, Inc. and its Mexican subsidiary, World Wide Exploration S.A. de C.V. (“World Wide”). In 2008, Kettle Drilling, Inc. changed its name to Timberline Drilling Incorporated (“Timberline Drilling”).  In November 2011, we sold Timberline Drilling and World Wide and became an exploration stage enterprise.


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 month period ended December 31, 2013 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2014.  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 year ended September 30, 2013.


The consolidated financial statements for the three months ended December 31, 2013 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 Butte Highlands Gold Project 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.


b.

Exploration Stage Enterprise – Following the sale of Timberline Drilling, we are in the exploration stage of operation.  Therefore, as of November 9, 2011, our financial statements have been prepared in accordance with the provisions of ASC 915 Development Stage Enterprises, as we devote substantially all of our efforts to acquiring and exploring mining interests that management believes could eventually provide sufficient net profits to sustain our existence.  Until such interests are engaged in commercial production, we will continue to prepare our consolidated financial statements and related disclosures in accordance with this standard.


c.

Reclassifications – Certain amounts in the prior period financial statements have been reclassified for comparative purposes to conform to current period presentation with no effect on previously reported net income (loss) and accumulated deficit.


d.

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 convertible and outstanding securities, in periods of future income as of December 31, 2013 and 2012, would be as follows:


 

 2013

 

2012

Stock options

3,991,500

 

6,304,357

Warrants

300,000

 

150,000

    Total possible dilution

4,291,500

 

6,454,357




7



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013



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


At December 31, 2013 and 2012, the effect of the Company’s outstanding options and common stock equivalents would have been anti-dilutive.  


e.

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.


f.

New accounting pronouncements – In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This standard requires companies to present information about reclassification adjustments from accumulated other comprehensive income to the income statement, including the income statement line items affected by the reclassification. The information must be presented in the financial statements in a single note or on the face of the financial statements. The new accounting guidance also requires the disclosure to be cross referenced to other financial statement disclosures for reclassification items that are not reclassified directly to net income in their entirety in the same reporting period. The new requirements are effective for public entities in fiscal years (including interim periods) beginning after December 15, 2012. Adoption of this guidance did not have a material effect on our consolidated financial statements.


In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This standard provides guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The new requirements are effective for public entities in fiscal years (including interim periods) beginning after December 15, 2013. Adoption of this guidance is not expected to have a material effect on our consolidated financial statements.


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.

 

 


December 31,   2013

 


September 30, 2013

 

Input
Hierarchy
Level

 

Assets:

 

 

 

 

 

 

 

 

 

Cash

$

227,799

 

$

824,919

 

 

Level 1

 

Restricted cash

 

639,422

 

 

639,422

 

 

Level 1

 


NOTE 4 – INVESTMENT IN JOINT VENTURE:


In July 2009, we entered into a joint venture operating agreement (the “Agreement”) with Highland Mining, LLC (“Highland”).  The joint venture entity, Butte Highlands JV, LLC (“BHJV”) was created for the purpose of developing and mining the Butte Highlands Gold Project.  As a result of our contribution of our 100% interest in the Butte Highlands Gold Project, carried on our balance sheet at cost ($642,450), we hold a 50% interest in BHJV.  Under terms of the Agreement, our interest in BHJV will be carried to production by Highland, which will fund all future project exploration and mine development costs.  




8



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013



NOTE 4 – INVESTMENT IN JOINT VENTURE, (continued):


Under the Agreement, Highland contributed property and agreed to fund all future mine development costs at Butte Highlands.  Both the Company’s and Highland’s share of development costs will be paid from proceeds of future mine production.  The Operating Agreement stipulates that Highland shall appoint a manager of BHJV and that Highland will manage BHJV until such time as all mine development costs, less $2 million (the deemed value of our contribution of property to BHJV), are distributed to Highland out of the proceeds from future mine production.


At December 31, 2013 and September 30, 2013, we have a receivable from BHJV for expenses incurred on behalf of BHJV in the amount of $33,833 and $53,586, respectively.  


NOTE 5 – PREPAID DRILLING SERVICES:


During the year ended September 30, 2012, we obtained $1,100,000 in prepaid drilling services as a portion of the consideration received from the sale of Timberline Drilling.  The prepayment amount represents discounts on future drilling services, or cash if we do not use the prepaid drilling services, to be provided by Timberline Drilling to us between November 2011 and November 2016.  


The following table summarizes activity in the Company’s prepaid drilling services:


 

Three months ended
December 31, 2013

   Year ended

September 30, 2013

 

 

 

 

 

Beginning balance

$

660,000

$

887,116

Cash received in lieu of drilling services

 

-

 

(227,116)

Less current portion

 

(220,000)

 

-

Ending balance

$

440,000

$

660,000

    


NOTE 6 – RELATED PARTY TRANSACTIONS:


Butte Highlands Joint Venture Agreement


In 2009, we entered into an Operating Agreement with Highland, an entity controlled by Ron Guill, a former director of the Company, to form a 50/50 joint venture for development and mining of the Company’s Butte Highlands Gold Project (see Note 4). During the year ended September 30, 2012, Highland was sold to Montana State Gold Corporation (“MSGC”), a private corporation not affiliated with the Company or Ron Guill.  As a result, Highland is no longer a related party to the Company and Ron Guill is no longer the manager of BHJV.  


Daycon Minerals


We owned approximately 18% and 15% of the issued and outstanding stock of Daycon Minerals (“Daycon”) as of December 31, 2013 and September 30, 2013, respectively.  In addition, our President and CEO, Paul Dircksen, is a member of the board of directors of Daycon as of December 31, 2013.




9



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013



NOTE 7 – COMMON STOCK, WARRANTS AND PREFERRED STOCK:


Common Stock


During the quarter ended December 31, 2013, pursuant to an amended mineral property lease and option agreement, we issued 200,000 restricted common shares with a value of $40,000 based upon the closing price of our shares of common stock as quoted on the NYSE MKT.

In December 2013, we announced that we had entered into a confidentiality agreement with RockStar Resources, Inc. (“RockStar”), including a No-Shop/Exclusivity clause valid through February 28, 2014.  Pursuant to the agreement, RockStar agreed to purchase $750,000 in shares of our common stock at a price of $0.20 per share in three, equal, installments of $250,000 on or before December 31, 2013, January 31, 2014 and February 28, 2014.  As of December 31, 2013, RockStar has not purchased any shares of our common stock.

In December 2013, we entered into a Vendor Agreement to exchange $60,000 of our accounts payable for common stock.  As of December 31, 2013, the common stock had not been issued and is classified as common stock payable.


Warrants


The following is a summary of the Company’s warrants outstanding:


 



Warrants

 

Exercise Price

Outstanding at September 30, 2013

300,000

$

0.25

     Issued

-

 

-

     Exercised

-

 

-

     Expired

-

 

-

Outstanding at December 31, 2013

300,000

$

0.25


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.




10



TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013



NOTE 8 – STOCK OPTIONS:


We have established the Amended 2005 Equity Incentive Plan (as amended by our shareholders on May 28, 2010) to authorize the granting of up to 10,000,000 stock options to employees, directors and consultants. Upon exercise of options, shares are issued from the available authorized shares of the Company.  Option awards are granted with an exercise price equal to the fair market value of our stock at the date of grant.  


No option awards were granted during the three months ended December 31, 2013 and 2012 and no option awards vested under the plan.  Therefore, no stock option expense is included in the consolidated statements of operations for the three months ending December 31, 2013 and 2012.


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


 

Options

 

 Weighted  Average

 Exercise Price

 

 

 

 

 

 

Outstanding at September 30, 2013

 

5,271,500

 

$

0.63

 

Granted

 

-

 

 

-

 

Exercised

 

-

 

 

-

 

Expired

 

(1,280,000)

 

 

0.33

Outstanding at December 31, 2013

 

3,991,500

 

$

0.72

Exercisable at December 31, 2013

 

3,991,500

 

$

0.72

 

 

 

 

 

 

 

 

Unrecognized compensation expense related to options at December 31, 2013

 

$

-

 

 

 

 

 

 

 

Average remaining contractual term of options outstanding and exercisable

at December 31, 2013 (years)

2.10


The aggregate of options both outstanding and exercisable as of December 31, 2013 had no intrinsic value based on the closing price of $0.18 per share of our common stock on December 31, 2013.







11





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

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes which appear elsewhere in this Quarterly Report on Form 10-Q.  

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  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 outcome of such exploration activities;

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

· expected future financing and its anticipated outcome;

· plans and anticipated timing regarding production dates;

· anticipated gold prices;

· expected future financing and its anticipated outcome;

· 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 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 regulation;

· 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 to develop our reserves, if any;

· risks related to land reclamation requirements and costs;

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

· 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 equipment and supplies adversely affecting our ability to operate;

· risks related to mineral estimates;

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

· 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 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 and other acquired growth projects;



12





· risks related to our business model;

· risks related to our Canadian regulatory requirements; and

· risks related to our shares of common stock.


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, 2013, filed with the Securities and Exchange Commission (the “SEC”) on December 18, 2013.  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 Background and History


We commenced our exploration stage in January 2004 with the change in the management of the Company.  From January 2004 until March 2006, we were strictly a mineral exploration company.  With our acquisition of a drilling services company and the acquisition of the Butte Highlands Gold Project, we diversified our business plan to include drilling services and an exploration property with the potential to develop an underground mine with possible future gold production.  Prior to the purchase of Timberline Drilling (formerly known as Kettle Drilling), we had no reported revenues and only had accumulated losses. 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 South Eureka Property, which included their flagship gold exploration project, the Lookout Mountain Project (“Lookout Mountain”), and 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 September 2011, we announced that we had entered into a non-binding letter of intent to sell Timberline Drilling to a private company formed by a group of investors, including certain members of the senior management team of Timberline Drilling.  The sale of Timberline Drilling was completed in November 2011 for a total value of approximately $15 million and enabled the Company to focus exclusively on its core business of gold exploration and development.


Corporate Overview


Our business is mineral exploration, with a focus on district-scale gold projects, such as our South Eureka Property in Nevada as well as our 50% carried-to-production interest in the Butte Highlands joint venture, which is currently progressing under the terms of our 50/50 joint venture agreement with Highland and targeted to begin gold production in 2014.


Recent Events

In December 2013, we announced that we had entered into a confidentiality agreement with RockStar Resources, Inc. (“RockStar”), including a No-Shop/Exclusivity clause valid through February 28, 2014.  Pursuant to the agreement, RockStar agreed to purchase $750,000 in shares of our common stock at a price of $0.20 per share in three, equal, installments of $250,000 on or before December 31, 2013, January 31, 2014 and February 28, 2014.  As of the date hereof, RockStar has not purchased any shares of our common stock and management does not anticipate that such purchases will be made in the near future, if at all.

On October 25, 2013, we amended our Lease and Option Agreement for Purchase and Sale of Mining Properties (the “Amended Agreement”), effective October 1, 2013 (the “Effective Date”), with David Cooper Knight, as trustee of the David C. and Debra J. Knight Living Trust (“Knight”).  Pursuant to the Amended Agreement, we will evaluate, explore and develop an additional package of 104 mineral claims in Nevada (the “Mining Properties”).  In consideration of the Amended Agreement, we have agreed to issue to Knight 200,000 restricted common shares of the Company and have agreed to perform necessary property maintenance as set forth in the Amended Agreement.  As of the date of this filing, we hold a total of 590 mineral claims in Nevada pursuant to the Amended Agreement comprised of seven separate properties.



13





Mineral Exploration


South Eureka Property, Nevada


The South Eureka Property, including the Lookout Mountain Project, comprises an area of approximately 15,000 acres, or more than 23 square miles.  The South Eureka Property is located within the southern portion of Nevada’s Battle Mountain-Eureka gold trend and includes a 4-mile strike length of structurally and stratigraphically controlled gold mineralization, all zones of which are open and will require additional in-fill and step-out drilling. The property 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 Nevada gold mineralization, most of which may be amenable to low cost, heap leach processing.


In 2010-2011 we completed an exploration program that culminated in the release of a Canadian National Instrument 43-101 (“NI 43-101”) compliant technical report, entitled, Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA, dated May 2, 2011 (the “Technical Report”).  The Technical Report was prepared by Mine Development Associates (“MDA”) of Reno, Nevada under the supervision of Michael M. Gustin, Senior Geologist, who is a qualified person under NI 43-101.  The Technical Report details mineralization at the Lookout Mountain Project.


Cautionary Note to U.S. Investors: The 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 NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 (“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 Technical Report in this Quarterly Report on Form 10-Q for informational purposes only and the 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 NI 43-101 compliant Technical Report was modeled and estimated by MDA by evaluating available drill data statistically, 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, rectifying the mineral-domain interpretations on level plans spaced at 10-foot intervals, analyzing the modeled mineralization geostatistically to aid in the establishment of estimation parameters, and interpolating grades into a three-dimensional block model.


In 2012, we released updated mineralization details on the Lookout Mountain Project and filed an updated NI 43-101 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 existing mineral deposit, 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 the Lookout Mountain Project.  In early 2013, we completed our 2012 exploration program at Lookout Mountain, including 26,140 feet total of infill-drilling.  This program focused on advancement of mineralization, metallurgical, geotechnical, and permitting studies in preparation for an anticipated Preliminary Economic Assessment (“PEA”) of the project.


Assay results from drilling were incorporated into an updated NI 43-101 Technical Report which was completed in early 2013 in preparation for the anticipated PEA.  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 investigations were advanced through completion of quarterly monitoring, and installation of three monitoring wells. Initial site facilities (heap leach pads, mine rock storage, access roads) have also been prepared in advance of the anticipated PEA.  


During the first half of 2013, we continued geochemical waste rock environmental characterization, completed independent metallurgical leach testing, continued water quality monitoring and defined hydrologic work plans.  In addition, we consolidated our Elko field office into our Eureka facility.  We also announced that we had entered into a letter agreement to form a joint venture with a private equity group to fund up to $20-million toward the development, permitting and construction of Lookout Mountain in exchange for up to 50-percent of a newly formed joint venture company.  As of December 31, 2013, we have not completed a definitive agreement regarding the proposed joint venture.




14





During the quarter ended December 31, 2013, we continued the baseline environmental data collection and analysis at Lookout Mountain, we began preliminary work toward the completion of an economic analysis, and we commissioned further metallurgical testing.  


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


Butte Highlands Project, Montana


In conjunction with our joint venture partner, Highland, we continue to advance the Butte Highlands Project toward an expected commencement of mineral extraction in 2014.  With the receipt of final assays from the 50,000-foot underground exploration drill program that was completed in the year ended September 30, 2011, Highland completed an initial mine plan and obtained necessary data for the submission of the Hard Rock Operating Permit (“HRO Permit”) application.  The mine plan anticipates mineral extraction of approximately 400 tons per day during the first four years of operation, with mineralized material to be direct shipped to a nearby mill.  

We submitted the application for our HRO Permit to the Montana Department of Environmental Quality (“MDEQ”) in May 2010. As a result of hydrological studies performed since that time, it has become evident that there will be a need to pump and discharge more water from the mineralized area than was initially expected.  As a result, the project requires an additional water discharge permit (“MPDES Permit”) to be issued by the State of Montana and the construction of additional water treatment facilities.  An application for the MPDES Permit was submitted to the MDEQ on March 30, 2012, with amendments submitted in June 2012.  In July, 2012 we received a notice of completeness for the MPDES Permit application from the MDEQ, and during the quarter ended June 30, 2013 we received the MPDES Permit, to take effect on August 1, 2013.

During the quarter ended June 30, 2013, we released a Canadian National Instrument 43-101 (“NI 43-101”) compliant technical report, entitled, Technical Report on the Butte Highlands Gold Project, Silver Bow County, Montana, USA, dated May 10, 2013 (the “Butte Technical Report”).  The Butte Technical Report was prepared by MDA, of Reno, Nevada under the supervision of Michael M. Gustin, Senior Geologist, who is a qualified person under NI 43-101.

Cautionary Note to U.S. Investors: The Butte Technical Report uses the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource”, “inferred mineral resource” and “historic mineral resource”. We advise investors that these terms are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC 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 Butte Technical Report in this Quarterly Report on Form 10-Q for informational purposes only and the Butte 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.  

During the nine months ended June 30, 2013, a significant project milestone was achieved with the receipt of a notice of completeness and draft HRO Permit from the MDEQ on December 7, 2012.   In January, 2013, with environmental baseline studies substantially complete, the MDEQ initiated completion of an Environmental Impact Statement for the project upon which the final HRO Permit was scheduled to be issued in the late Q3 of 2013.  A draft EIS was issued on October 11, 2013 and, after receipt of public comments thereupon, the MDEQ is preparing the final EIS document.  The final EIS and a Record of Decision, and the issuance of the final HRO Permit are expected in the first quarter of 2014.  Soon after the issuance of the final HRO Permit, final construction activities will commence.  In advance of the final HRO Permit, the BHJV has remobilized mining equipment and staff to the site to support additional mining pre-development and exploration work, including construction of the water treatment plant.  In addition, supplemental hydrology and water treatment studies have been completed to support optimization of dewatering and water treatment plans.

The United States Forest Service (“USFS”) has completed specialist studies in support of a proposed Plan of Operations to allow the usage of USFS roads for haulage of mineralized material from the mine site.  The USFS initiated preparation of an Environmental Assessment (EA) in the second quarter of 2013.  The preparation of the draft EA is still in process.



15





Timberline's joint venture operating agreement at the Butte Highlands Project calls for Timberline to retain a 50-percent project interest while being carried to production by Highland.  Once in production, as defined in the joint venture agreement, Timberline is to receive 20-percent of project cash flow until Highland recovers its initial capital expenditures, at which time Timberline will receive 50-percent of cash flow.  

A feasibility study has not been completed on the Butte Highlands project, there are no proven and probable reserves at the property under Guide 7, our activities there remain exploratory in nature and there is no certainty the proposed operations will be economically viable.

Other Properties


During the year ended September 30, 2012 we entered into an Exploration and Option to Purchase Agreement with Daycon Minerals Corporation (“Daycon”), a private Canadian corporation, for our Montana Copper-Silver Properties.  During the quarter ended June 30, 2013, Daycon terminated the agreement, thereby returning the properties to Timberline. During the quarter ended December 31, 2013, we transferred our interests in our Snowstorm property and our Montana Copper-Silver Properties to Daycon in exchange for 500,000 shares of Daycon common stock, thereby ending our involvement in these properties.    


Summary


We believe the global economic environment and monetary climate favor a solid and relatively steady gold price for the foreseeable future, despite recent volatility in prices.  Volatility is to be expected, however our expectation is that we can continue to advance our business model in spite of the current gold price and market volatility.  


As a company, we are focused on advancing the Butte Highlands Project toward expected gold extraction in 2014, subject to receipt of the necessary permits, as discussed above, and advancing exploration programs at Lookout Mountain and other potential projects on our South Eureka Property and other properties acquired in Nevada.  In addition, we continue to evaluate new mineral exploration opportunities that fit with our business model. We have evaluated a number of projects and opportunities during the past year and will continue to do so.  We believe that management and our board of directors have the knowledge to appropriately evaluate opportunities – either organically or through mergers and acquisitions – and we will continue to do so.       



Results of Operations for the Three Month Period ended December 31, 2013 and 2012


Consolidated Results



($US)

 

Three Months Ended December 31,

 

 

 

2013

2012

Exploration expenses :

 

 

 

 

 

South Eureka/Lookout Mountain

 

 

 

 

$

113,713

$

758,194

 

Butte Highlands

 

 

-

-

 

Other exploration properties

 

 

50,237

47,997

Total exploration expenditures

 

 

163,950

806,191

Non-cash expenses:

 

 

 

 

 

Stock option and stock issuance expense

 

 

-

-

 

Depreciation, amortization and accretion

 

 

6,694

9,101

Total non-cash expenses

 

 

6,694

9,101

Professional fees expense

 

 

57,919

74,454

Salaries and benefits

 

 

201,512

201,099

Interest and other income

 

 

(16,217)

(33,501)

Other general and administrative expenses

 

 

94,833

143,645

Net loss

 

 

 

 

$

(508,691)

$

(1,200,989)


Our consolidated net loss for the three months ended December 31, 2013 was $508,691 compared to a consolidated net loss of $1,200,989 for the three months ended December 31, 2012.  The year over year difference is primarily attributable to a significant reduction in our exploration activity during the quarter ended December 31, 2013.  We expect that decreased exploration activity will continue until we can secure financing to fund expanded operations.




16





Our exploration expenses at South Eureka were lower in the three months ended December 31, 2013 compared to the same period in 2012 primarily due to significant exploration work being delayed in the current period to preserve our financial resources.


Financial Condition and Liquidity

At December 31, 2013, we had assets of $16,361,724 consisting of cash in the amount of $227,799; property, mineral rights and equipment, net of depreciation of $14,121,115, and other assets in the amount of $2,012,810.  

These consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of our assets and the settlement of our liabilities in the normal course of our operations. Disruptions in the credit and financial markets over the past several years have had a material adverse impact on a number of financial institutions and have limited access to capital and credit for many companies.  These disruptions, among other things, make it more difficult for us to obtain, or increase our cost of obtaining, capital and financing for our operations.  Our access to additional capital may not be available on terms acceptable to us or at all.  If we are unable to obtain financing through equity investments, we will seek multiple solutions including, but not limited to, asset sales, credit facilities or debenture issuances in order to continue as a going concern.


At December 31, 2013, we had a working capital surplus of $167,517.  As of the date of filing of this Quarterly Report on Form 10-Q, we have no outstanding debt and a cash balance of approximately $211,000.  


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 for the next 12 months without receiving significant additional financing.  Currently, we anticipate that our existing working capital is only sufficient to last us for the next several weeks.  We estimate that we will need to raise $2 million to $3 million to continue as a going concern for the next twelve months.  We can provide no assurance that we will be able to obtain financing on acceptable terms, if at all.  See “Part II- Item 1A. Risk Factors” below.


Management is working to increase the amount of working capital and minimize expenditures by forgoing all employee salaries, minimizing discretionary exploration expenditures, minimizing professional and consulting expenses, and potentially obtaining financing through asset sales, equity investments, joint ventures, or other types of agreements or strategic arrangements.  Unless we receive financing, we do not plan to continue exploration programs on our material exploration properties, to fund some exploratory activities and drilling on early-stage properties, or to seek additional acquisition opportunities.  


We will not be able to execute our operating plans with our current cash balances.  Therefore, we anticipate the need to engage in a financing transaction which may include equity financing, sales of assets, credit facilities or debenture issuances, or other strategic arrangements.  Additional financing will be required to allow us to move forward with our exploration program on our Lookout Mountain project, based on our current plans for that project.  Butte Highlands continues to be carried to production (as defined in the joint venture agreement). Unexpected regulatory delays in permitting have, however, resulted in deferred receipts of cash flow.  If and when extraction of mineralized material begins as anticipated in 2014, we should realize some income from our 20% share of project cash flows, with potential increased income after initial capital expenditures are repaid and our share of project cash flows increases to 50%.  While this prospective income will serve to fund some of our ongoing exploration expenditures, we do not anticipate that it will initially be sufficient to fund such activities and that additional financing will still be necessary to fund our other exploration activities.  Given current market conditions, we cannot provide assurance that necessary financing will be available to us on acceptable terms or at all.  


In December 2013, we announced that we had entered into a confidentiality agreement with RockStar Resources, Inc. (“RockStar”), including a No-Shop/Exclusivity clause valid through February 28, 2014.  Pursuant to the agreement, RockStar agreed to purchase $750,000 in shares of our common stock at a price of $0.20 per share in three, equal, installments of $250,000 on or before December 31, 2013, January 31, 2014 and February 28, 2014.  As of date hereof, RockStar has not purchased any shares of our common stock, and while we continue to work with RockStar to explore options for a potential transaction, we do not know whether any such purchases of our common stock will be made by RockStar.


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.



17






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 decline in 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 our use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment 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.


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 report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer, Paul Dircksen (“CEO”) and Chief Financial Officer, Randal Hardy, (“CFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were 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 CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.  


Changes in Internal Control over Financial Reporting


There were  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.  As announced in the Company’s Current Report on Form 8-K filed on December 8, 2013, the Company’s Chief Accounting Officer resigned effective December 31, 2013 and his duties were assumed by the



18





Company’s Chief Financial Officer.  Other than the additional responsibilities for the Company’s Chief Financial Officer, there were no changes to the Company’s internal control procedures or policies and management of the Company does not anticipate that this will effect the effectiveness of internal control over financial reporting. [

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.


We are not aware of any material pending or threatened 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 pending litigation.

ITEM 1A. RISK FACTORS


Except as detailed below, 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, 2013 which was filed with the SEC on December 18, 2013.

Our ability to operate as a going concern is in doubt.

The audit opinion and notes that accompany our consolidated financial statements for the year ended September 30, 2013, disclose a ‘going concern’ qualification to our ability to continue in business. The accompanying consolidated financial statements have been prepared under the assumption that we will continue as a going concern. We are an exploration stage company, and we have incurred losses since our inception. Management has determined that as of the date of this Quarterly Report on Form 10-Q, we do not have sufficient cash to fund normal operations and meet obligations for the next 12 months without deferring payment on certain obligations and raising additional funds. We believe that the going concern condition cannot be removed until we receive additional financing and have entered into a business climate where funding of operations through continuing operations is more assured.

We currently have no historical recurring source of revenue and our ability to continue as a going concern is dependent on our ability to raise capital to fund our future exploration and working capital requirements or our ability to profitably execute our plan of operations. Our plans for the long-term return to, and continuation as, a going concern include financing our future operations through sales of our common stock and/or debt and the eventual profitable exploitation of our mining properties. Additionally, the current capital markets and general economic conditions in the United States are significant obstacles to raising the required funds. These factors raise substantial doubt about our ability to continue as a going concern.

The consolidated financial statements in our annual financial statements in our Form 10-K and in this Quarterly Report on Form 10-Q do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. If the going concern basis was not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.

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


All unregistered sales of equity securities have previously been disclosed 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



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(“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). During the quarter ended December 31, 2013, 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.


10.1

Amendment to Lease Option Agreement (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on October 29, 2013)

10.2

Addendum to Confidentiality Agreement (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on December 6, 2013)

 

 

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

32.1

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

32.2

Certification of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document


(1)

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.





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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.

 

 

TIMBERLINE RESOURCES CORPORATION

 


By:  /s/ Paul Dircksen

       ___________________________________

       Paul Dircksen

       President, Chief Executive Officer and Chairman

       (Principal Executive Officer)


Date:  February 11, 2014



By:  /s/ Randal Hardy

       ___________________________________

       Randal Hardy

       Chief Financial Officer

       (Principal Financial and Accounting Officer)


Date:  February 11, 2014






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