AN EXPLORATION STAGE COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  BUSINESS

WestMountain Gold, Inc. (“WMTN” or the “Company”) is an exploration stage mining company, determined in accordance with applicable Securities and Exchange Commission (“SEC”) guidelines, which pursues gold projects that the Company anticipates will have low operating costs and high returns on capital.

WMTN’s wholly owned subsidiary, Terra Gold Corporation (“TGC”), was a joint venture partner with Raven Gold Alaska, Inc. (“Raven”) through February 12, 2014 on a gold system project (“the TMC Project”). On February 12, 2014, the Company, through its wholly owned subsidiary, Terra Gold Corp, acquired 100% ownership interest in the TMC Project from Raven, which is a wholly owned subsidiary of Corvus Gold Inc. (TSX:KOR, OTCQX:CORVF) for $1.8 million in cash and 200,000 shares of WMTN. 

The Company is currently focused on exploration and bulk sample mineral production from mineralized material at the TMC Project in the state of Alaska. The TMC Project consists of 339 Alaska state mining claims plus an additional 5 unpatented lode mining claims held under lease (subject to a 3-4% net smelter return (“NSR”) royalty to the lessor, dependent upon the gold price) covering 223 square kilometers (22,300 hectares). The property is centered on an 8-km-long trend of gold vein occurrences.  All government permits and reclamation plans for continued exploration through 2019 were renewed and the fees to maintain the Terra claims through September 2017 were paid by the Company.  The property lies approximately 200 km west-northwest of Anchorage and is accessible via helicopter or fixed-wing aircraft.  The property has haul roads, a mill facility and adjoining camp infrastructure, a tailings pond and other infrastructure.  The remote camp is powered by diesel powered generators and water is supplied to the mill by spring fed sources and year-round water well.

The Company is considered an exploration stage company under SEC criteria because it has not demonstrated the existence of proven or probable reserves at the TMC Project.  Accordingly, as required under SEC guidelines and U.S. GAAP for companies in the exploration stage, substantially all expenditures in the mining properties to date, have been expensed as incurred and therefore do not appear as assets on our balance sheet.  The Company expects construction expenditures and underground mine exploration and capital improvements will continue during 2016 and subsequent years. The Company expects to remain as an exploration stage company for the foreseeable future. It will not exit the exploration stage until such time that it demonstrates the existence of proven or probable reserves that meet SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine exploration and construction will continue to be expensed as incurred.

These consolidated financial statements include the Company’s consolidated financial position, results of operations, and cash flows. All material intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements.

Equipment

Equipment consists of machinery, heavy equipment, furniture and fixtures and software, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives or lease period of the relevant asset, generally 2 -5 years.

Metal and Other Inventory

Inventories were $1,411,063 and $559,432 as of July 31, 2016 and October 31, 2015, respectively. Inventories may include ore stockpiles (in process inventory), doré and gold bullion. The inventory at July 31, 2016 and October 31, 2015 was represented by ore stockpiles.  All inventories, as of July 31, 2016 and October 31, 2015, are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Metal inventory costs include direct labor, materials, depreciation, as well as overhead costs directly relating to mining activities.

Mineral Properties

Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Costs to maintain the mineral rights are expensed as incurred.  When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves.  Bulk sampling operations to date have been de minimis therefore no amortization has been recorded.

Long-Lived Assets

The Company operates in Alaska. The State of Alaska Department of Natural Resources requires a pool of funds from all permittees with exploration and mining projects to cover reclamation. There is a $750 per acre disturbance reclamation bond that is required for disturbance of 5 acres or more and/or removal of more than 50,000 cubic yards of material. The Company’s asset retirement obligation (“ARO”), consisting of estimated future mine reclamation and closure costs, may increase or decrease significantly in the future as a result of changes in regulations, mine plans, estimates, or other factors. The Company’s ARO is recognized as a liability at fair value in the period incurred. An ARO, which is initially estimated based on discounted cash flow estimates, is accreted to full value over time through charges to accretion expense. Resultant ARO cost assets are depreciated on a units-of-production method over the related long-lived asset’s useful life. The Company’s ARO is adjusted annually, or more frequently at interim periods if necessary, to reflect changes in the estimated present value resulting from revisions to the timing or amount of reclamation and closure costs.

Fair Value Measurements

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value.  The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).  The hierarchy consists of three levels:

Liabilities measured at fair value on a recurring basis are summarized as follows:

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Revenue is recognized net of royalties, when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable. The passing of title to the customer is based on the terms of the sales contract and the actual sale of gold bullion. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets, for example the London Bullion Market for both gold and silver, in an identical form to the product sold.

Mineral Exploration and Development Costs

All exploration expenditures are expensed as incurred.  Significant property acquisition payments for active exploration properties are capitalized.  If no minable ore body is discovered, previously capitalized costs are expensed in the period the property is abandoned.  Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, will be capitalized and amortized on a unit of production basis over proven and probable reserves.

Should a property be abandoned, its capitalized costs are charged to operations.  The Company charges to operations the allocable portion of capitalized costs attributable to properties abandoned.  Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area.

Net Loss Per Share

Basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented.  Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. As of July 31, 2016, the Company had (i) warrants for the purchase of 1,291,750 common shares; (ii) 16,267,625 common shares related to convertible promissory notes; and (iii) 605,000 common shares related to the conversion of Series A Convertible Preferred Stock (iv) options for the purchase of 1,000,000 common shares; which were considered but were not included in the computation of loss per share at July 31, 2016 because they would have been anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The most significant estimates relate to the determination of gold contained in stockpiled ore inventory, assumptions used in the Company’s impairment assessment of long-lived assets, the estimated fair value of derivatives, the estimation of asset retirement obligations, estimates of the fair value of the Company’s common stock, assumptions used in determining the fair value of stock based compensation and depreciation of buildings and equipment. These estimates may be adjusted as more current information becomes available.

Reclassifications

Certain reclassifications have been made to the prior period Consolidated Financial Statements to conform to the current period presentation. These reclassifications had no effect on previously reported assets, liabilities, net cash flows or net loss.

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The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with FASB ASC 718.

Income Tax/Deferred Tax

 FASB ASC 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differing treatment of items for financial reporting and income tax reporting purposes. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. WestMountain Gold, Inc. has recognized deferred income tax benefits on net operating loss carry-forwards to the extent WestMountain Gold, Inc. believes it will be able to utilize them in future tax filings. The Company has applied a full valuation allowance on all deferred tax assets. The difference between the statutory income tax expense and the accounting tax expense is primarily attributable to non-deductible expenses representing permanent timing differences between book income and taxable income during the nine months ended July 31, 2016.

Recent Accounting Pronouncements

ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and tangible assets within the scope of Topic 350, Intangibles – Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

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The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

ASU No. 2014-15, Presentation of Financial Statements - Going Concern (subtopic 205-40)

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about the Company’s ability to continue as a going concern and to provide related footnote disclosures. This standard will be effective for the Company beginning the quarter ending on January 31, 2017. Early application is permitted.  The Company is evaluating the effect this ASU may have on its consolidated financial statements.

ASU 2015-17, Balance Sheet Classification of Deferred Taxes

This update requires an entity to classify deferred tax liabilities and assets as non-current within a classified statement of financial position. ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the beginning of the interim or annual reporting period. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

FASB Accounting Standards Update No. 2016-02, Leases (Topic 832)

Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

NOTE 4. AGREEMENTS

Exploration, Development and Mine Operating Agreements

Amended Claims and Lease Agreements with Ben Porterfield

On January 7, 2011, Terra Mining Corporation (“TMC”) entered into an Amended Claims Agreement with Ben Porterfield related to five mining claims known as Fish Creek 1-5 (ADL-648383 through ADL-648387), which claims have been assigned to the TMC Project. As part of this Amended Claims Agreement, Ben Porterfield consented to certain conveyances, assignments, contributions and transfers related to the above five mining claims.

The Company can terminate the Amended Lease Agreement with the payment of $875,000, less $75,000 paid during the years 2006-2011.  The payment may be paid over three annual payments.

TMC has paid in total $500,000 to Ben Porterfield and WMTN issued 500,000 shares of WMTN restricted common stock on March 23, 2011. The common stock was recorded as Contractual Rights at $250,000 or $0.50 per share. The investment in the exclusive rights to the mineral properties is accounted for at cost. As of July 31, 2016, the Company has capitalized $975,000 related to this Claims Agreement.

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The Amended Claims Agreement, which incorporates the Lease dated March 22, 2005, provides for a production royalty of 4% of the net smelter return for all minerals produced or sold.  The amounts due under this royalty will be offset by any advance royalties that have been paid by the Company.  The Company may repurchase 1% of the production royalty right for $1,000,000 and an additional 1% for $3,000,000.

The failure to operate in accordance with the Amended Claims or Lease Agreements could result in the Lease being terminated. 

NOTE 5. EQUIPMENT, NET

Equipment, net consists of the following: 

Depreciation expense for the nine months ended July 31, 2016 and 2015 was $163,785 and $135,567, respectively. Depreciation expense for the three months ended July 31, 2016 and 2015 was $63,739 and $47,501, respectively.

NOTE 6. CERTAIN RELATIONS AND RELATED PARTY TRANSACTIONS

Related Party Transactions

The Company has four full-time and part-time employees. The Company shares offices with Minex Exploration LLP (“Minex”), an Idaho partnership affiliated with the Company’s Chief Executive Officer. Also, the Company utilizes Minex contractors for exploration and development of the Alaska property. The Company has recorded accounts payable and accrued payable for related party of $-0- and $11,300 as of July31, 2016 and October 31, 2015, respectively.  Cash payments of $11,354 were made to Minex mainly for services during the nine months ended July 31, 2016.

On May 26, 2015, as part of the Company’s Loan and Note Modification Agreement dated as of May 15, 2015, Minex converted the full $665,201 of payables to 5,543,350 shares of the Company’s common stock. (see Note 7 to the accompanying financial statements, Promissory Notes)

On June 17, 2016, the Company entered into and closed an equity investment in the Company pursuant to certain Common Stock and Warrant Purchase Agreements (the “Purchase Agreements”) with certain accredited investors discussed in further detail in Note 8 (collectively, the “Investors”).  Pursuant to the Purchase Agreements, the Company sold twelve million (12,000,000) shares of its common stock, par value $0.001 (each a “Share” and, collectively, the “Shares”).  The Shares were sold at a purchase price of three cents ($0.03) per Share, for an aggregate purchase price of three hundred sixty thousand dollars ($360,000).

Each Share purchased also includes 3.25 warrants, each for the purchase of an additional Share at a purchase price of seven cents ($0.07) per Share (each a “Warrant” and, collectively, the “Warrants”), exercisable on or before the date that is seven (7) years from the date of issuance thereof pursuant to those certain Warrant for the Purchase of Common Stock of  WestMountain Gold, Inc. forms (the “Warrant Forms”).  A total of thirty-nine million (39,000,000) Warrants were sold by the Company as a result of this transaction.

The Company engaged a valuation firm to assist in the valuation of the June 17, 2016 equity investment transaction. The valuation considered the income, market, and cost approaches in determining the fair value of the shares. As a result of this valuation, the Company recorded an impairment to the mining claim asset.

One of the accredited investors involved in this investment was Joseph C. Zimlich who is the President of the Managing Member of BOCO.  As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company.

Secured Promissory and Promissory Notes with BOCO

From time to time, the Company entered into promissory notes and other agreements with BOCO, our majority shareholder, related to loans from BOCO to the Company.  As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock.  The current status of BOCO loans to the Company and their terms are described in Note 7, Promissory Notes, and Note 10, Subsequent Events.

On May 26, 2015, the Company received from BOCO the fully executed Loan and Note Modification Agreement dated as of May 15, 2015 (the “2015 Loan Modification Agreement”) between the Company, its directors, BOCO, and two other creditors of the Company. The 2015 Loan Modification Agreement modified all outstanding Loan Agreements, Security Agreements and related Promissory Notes between the Company and BOCO  (collectively, the “Loan Documents”) that were previously in default and extended the repayment and maturity dates of the debt as follows:

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As part of the 2015 Loan Modification Agreement, BOCO agreed to convert $2,221,159 in unpaid interest, plus principal of $300,000 into shares of the Company’s common stock at a price per share of $0.12. Such conversion was effected on May 26, 2015 and the Company issued 21,009,658 shares of its common stock as a result of such conversion.

As consideration for the loan modification, the Company agreed to the issuance of warrants to purchase two million shares of the Company’s common stock for $0.01 per share, and to the extension and re-pricing of additional warrants to purchase 4,886,615 shares at $0.05 per share. BOCO agreed to exercise 6,886,615 warrants as a provision of the 2015 Loan Modification Agreement; the warrants were exercised on May 27, 2015 and proceeds of $264,331 paid to the Company. The warrants granted and the modification of warrants were valued at $562,063 and booked as a discount to the corresponding notes and is being amortized over the life of the notes.

As part of the 2015 Loan Modification Agreement, the Company and a related party vendor, Minex Exploration, agreed to convert payables of $665,202 into shares of the Company’s common stock at a price per share of $0.12. A related party creditor, Silver Verde May Mining Company, also agreed to convert its debt of $37,950 into shares of the Company’s common stock at the same price per share. Such conversions were effected on May 26, 2015 and the Company issued 5,543,350 shares of its common stock to Minex and 316,250 to Silver Verde.

The 2015 Loan Modification Agreement also noted that the due date for a loan in the principal amount of $1,000,000 to Giuseppe Dessi that was previously in default had been extended to December 14, 2016.

The 2015 Loan Modification Agreement also provides for: (i) the waiver by Greg Schifrin, CEO of the Company, of all rights and benefits under his employment agreement with the Company; (ii) a seat on the board of the Company for an appointee of BOCO as well as board observation rights; (iii) lock-up agreements on the stock held by board members and BOCO; (iv) loan covenants and oversight rights; and (v) a new credit facility by BOCO of $150,000 to provide for 2015 mining camp expenses.

The Company had previously entered into loan modification agreements with BOCO in April and June of 2014 but did not meet the conditions set forth in those agreements and the loans with BOCO were therefore in default from October 2013 to May 26, 2015, the date of that the 2015 Loan Modification Agreement was executed.

The Company had a total of $909,346 of principal payments to BOCO due on November 15, 2015, pursuant to the 2015 Loan Modification Agreement, which BOCO extended to December 15, 2015.  The Company was unable to make these payments and again defaulted on all notes to BOCO.  After receiving from BOCO a notice of default and demand for payment in full of the notes, the Company and BOCO negotiated the following resolution to the default.

At that time, the following promissory notes made by the Company in favor of BOCO (collectively, the “Notes”) were in default:

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On June 22, 2016 (the “Effective Date”), the Company and BOCO entered into and closed a Loan and Note Modification Agreement (the “Modification Agreement”) to resolve the default and restructure the debt due under the Notes.  The total amount due under the Notes immediately prior to entering into the Modification Agreement was approximately, $5,879,797.

Pursuant to the Modification Agreement, BOCO waived all current defaults and default interest due on the Notes.  Additionally, BOCO converted all outstanding principal and interest due under the May 2014 Note and June 2014 Note, totaling $217,956, into 1,816,296 shares of the Company’s common stock, par value $0.001, at a conversion rate of $0.12 per share.  As a result of the conversion, the May 2014 Note and June 2014 Note were canceled.

Furthermore, pursuant to the Modification Agreement, the base interest rate was decreased from 8% to 5% as of the Effective Date on the following Notes: the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note.  The base interest rate of the September 2012 Note (collectively with the May 2013 Note, the June 2013 Note, the February 2014 Note, the May 2015 Note, the June 2015 Note, the March 2016 Note, and the April 2016 Note, the “Remaining Notes”) remains at 8% per annum.  With respect to the Remaining Notes, in the event of a default under the Modification Agreement, any of the Remaining Notes or agreements related thereto, the default interest rate was adjusted to the maximum interest rate allowable under Colorado law.  As of the Effective Date, the Remaining Notes will accrue interest at their respective base interest rates.

Additionally, the Modification Agreement extended the maturity date of the following Notes to December 15, 2018: the May 2013 Note, the June 2013 Note, the May 2015 Note, the June 2015 Note, and the March 2016 Note.  The maturity date for the other Remaining Notes remains unchanged, as follows: the September 2012 Note due on November 15, 2017, the February 2014 Note due on November 15, 2016, and the April 2016 Note due on October 31, 2018.

The Remaining Notes continue to be secured by the assets of the Company pursuant to the Security Agreement entered into by the Company and BOCO dated June 27, 2013, and the Security and Inter-Creditor Agreement entered into by the Company and BOCO dated May 15, 2015 (collectively, the “Security Agreements”).  Furthermore, BOCO retains certain protective and oversight rights over Company operations and requires the Company to maintain covenants that are substantially similar to the protective and oversight rights and covenants contained in the prior 2015 Loan and Note Modification Agreement.

As part of the Modification Agreement, the Company appointed Richard Bloom and Brian Klemsz as directors of the Company to serve until the next election of directors.

The 2016 modification was accounted for as a troubled debt restructuring which resulted in a $939,532 decrease in outstanding debt.  The modified debt was recorded at fair value which was determined using a discounted cash flow model.  Because BOCO is a related party with a controlling interest in the Company, the decrease in the debt obligation was recorded directly to additional paid-in capital.

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The preceding descriptions of the Modification Agreement, the Notes and the Security Agreements are incomplete and qualified in their entirety by reference to the complete text of the Modification Agreement, the Notes and the Security Agreements, respectively, which were attached as Exhibits to previously filed reporting documents of the Company.

As of July 31, 2016 and October 31, 2015, the Company has the following promissory notes outstanding:

Except as disclosed, including default conditions on outstanding debt, there are no pending legal proceedings or unasserted claims against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations.  However, due to the Company’s various obligations and recent events adversely affecting the Company’s ability to generate revenue or raise capital, there is substantial doubt about the Company’s ability to continue as a going concern (see Note 2, Going Concern, for further discussion).

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EMPLOYMENT AGREEMENTS

On September 15, 2014, the Company signed an Employment Agreement with James W. Creamer III and appointed him as Chief Financial Officer.  Under the terms of the agreement, Mr. Creamer’s salary will be $96,000 per year and is eligible for annual bonuses and incentive plans determined by the Company’s Compensation Committee.  Mr. Creamer was also granted 1,000,000 options to purchase the Company’s common stock for $0.50 per share for a period of seven years.  250,000 of the options vested immediately and 250,000 options shall vest on each of the first, second and third anniversaries of employment.  On July 6, 2015, the Company cancelled the existing options and issued 1,000,000 options to an employee to purchase shares of our common stock at $0.12 per share for a period of approximately 6.25 years.  500,000 of the options vested immediately and 250,000 options vest on each of September 8, 2015 and September 8, 2016.  The transaction was treated as a modification of the terms to the initial grant (See Note 8).  Mr. Creamer resigned from his positions with the Company on October 28, 2016.  As a result of Mr. Creamer’s resignation, the Employment Agreement was terminated.

LEASES

The Company is obligated under various non-cancelable operating leases for their various facilities.

The aggregate unaudited future minimum lease payments, to the extent the leases have early cancellation options and excluding escalation charges, are as follows:

NOTE 10. SUBSEQUENT EVENTS

Promissory Notes

On August 11, 2016, the Company and BOCO entered into a Second Amendment To Secured Promissory Note (the “BOCO Amendment”) amending the Secured Promissory Note in the amount of up to six hundred forty thousand dollars ($640,000) entered into by the Company and BOCO on April 12, 2016, as amended by the Modification Agreement (collectively, the “Note”).

The BOCO Amendment increases the maximum amount of the line of credit from six hundred forty thousand dollars ($640,000) to one million dollars ($1,000,000).  All other terms of the Note remain unchanged, including interest continuing to accrue at 5% per annum and the maturity date remaining October 31, 2018.  Since August 11, 2016, the Company has received additional advances in the aggregate amount of two hundred twenty-five thousand dollars ($225,000) from BOCO out of the increased credit line under to the terms of the BOCO Amendment and Note.

Brian Klemsz, Richard Bloom (either directly or through an affiliate), and James W Creamer III, the directors of the Company (Mr. Creamer resigned from the Company on October 28, 2016), had collectively committed to provide bridge loans to the Company in the aggregate amount of up to one hundred sixty thousand dollars ($160,000).  This commitment was provided, in part, as consideration for the BOCO Amendment.  The directors advanced a total of eighty thousand dollars ($80,000) to the Company pursuant to promissory notes dated August 3, 2016 (collectively, the “Director Notes”), accruing 5% interest and a maturity date of August 31, 2016.  The directors advanced funds in the following amounts (individually, unless otherwise specified): Brian Klemsz $30,000; Bloom Family Investments Limited Partnership (Richard Bloom is a manager of Bloom Family Management LLC, its general partner) $25,000; and James W Creamer III $25,000.  The proceeds from the Director Notes and the BOCO Amendment have been used to finance the Company’s immediate operational expenses.  These borrowings were necessitated by unexpected delays in revenue generation caused by operational problems at the Company’s Terra camp.  The Company repaid the Director Notes in full, plus interest on September 1, 2016, in the amounts of $30,115.07 to Mr. Klemsz, $25,095.89 to Bloom Family Investments Limited Partnership, and $25,095.89 to Mr. Creamer.

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On November 18, 2016, the Company and BOCO entered into a Secured Promissory Note in the principal amount of $172,520 (the “November 2016 Note”).  The November 2016 Note accrues interest at 8% per annum and is due in full on November 17, 2017.  The funds were used to pay fees to maintain the Company’s claims at the TMC project.

As of the date of this Quarterly Report, BOCO is, or has rights to become, the beneficial owner of approximately 55.5% of the issued and outstanding shares of the Company’s common stock and is the primary creditor of the Company, and each of Richard Bloom (either directly or through an affiliate such as, Bloom Family Investments Limited Partnership (Richard Bloom is a manager of Bloom Family Management LLC, its general partner)), and Brian Klemsz is, or has rights to become, the beneficial owner of greater than 10% of the issued and outstanding shares of the Company’s common stock.  At the time of the execution of the Director Notes, James W. Creamer III was also the Chief Financial Officer of the Company (until his resignation on October 28, 2016).

The preceding descriptions of the BOCO Amendment, the Note, the Modification Agreement, the Director Notes, and the November 2016 Note are incomplete and qualified in their entirety by reference to the complete text of the BOCO Amendment, the Note, the Modification Agreement, and the Director Notes, respectively, all of which were attached as Exhibits to previously filed reporting documents of the Company and, the November 2016 Note, which is attached as an Exhibit to this Quarterly Report.

Default on Promissory Notes

The Company is currently in default under the promissory notes held by BOCO under the terms of each such promissory note and of the Modification Agreement (as described above in Note 7, Promissory Notes) for failure to make payments when due (as of November 15, 2016).  BOCO has not made a demand for payment or otherwise indicated an intent to initiate foreclosure activities as of the date of this Quarterly Report.  The Company currently has insufficient funds to pay any amount on the BOCO promissory notes and will need to raise capital through the issuance of equity and/or debt as the principal source of liquidity to make such payments.  The Company is considering all avenues with regard to satisfying its obligations under the promissory notes.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016), no assurance can be given that the Company will in fact be able to raise the required capital in a timely manner or that the proposed terms of any such financing will be favorable or acceptable to the Company.  If we are unsuccessful in obtaining or agreeing to financing, the Company may be forced to discontinue all operations and will fail, which will likely result in the Company’s shareholders losing their entire investment.  Accordingly, there is a substantial doubt about the Company’s ability to continue as a going concern.

Slough Event

WestMountain Gold, Inc. (the “Company”) recently experienced a significant slough event at its mining property located in Alaska (referred to in our prior periodic filings as the “TMC Project” or “Terra”).  The slough event occurred sometime between the evening hours of September 1, 2016, and the early afternoon hours of September 2, 2016, in the area of the TMC Project where the Company was conducting bulk surface sampling operations.  No injuries were reported and no equipment was lost or damaged as a result of the significant slough event due to the Company taking safety precautions to evacuate that area after earlier minor slough events.  However, the slough event caused approximately 25,000 tons of rock material to completely cover the main vein in the bulk surface sampling area.

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Due to the extensive coverage and ongoing safety concerns in this area caused by the slough event, the Company ceased all surface bulk sampling operations at the TMC Project and believes it is likely that the surface bulk sampling operations at the TMC Project will remain closed permanently.  The Company’s strategy had been to use cash flow generated from its surface bulk sampling operations to help fund the expansion of resources and the pursuit of underground mining development at the TMC Project.  If surface bulk sampling operations remain closed permanently or for any extended period of time, the Company will be forced to change its business plan, which may include implementing underground mining development sooner than expected and relying solely on that underground mining development to exploit the TMC Project and generate revenues.  Additionally, in the absence of expected revenues from surface bulk sampling operations, the Company believes it will be necessary to raise more equity or debt financing than originally planned to commence underground mining development.  We expect the build out of such operations would cost a minimum of $3,000,000 to $5,000,000 and that commencement of underground development could occur no earlier than June 2017.  Accordingly, the Company will likely remain in the exploration stage of its mining operations longer than originally anticipated.

The Company’s 2016 Operations Plan (the “2016 Operations Plan”; included as an Exhibit to the Company’s Current Report on Form 8-K dated January 29, 2016) relied on revenue expected to be generated almost exclusively from our surface bulk sampling operations at the TMC Project to fund our operational costs for the 2016 season and other upcoming obligations.  Prior to the slough event, we excavated approximately 1,357 tons of vein material from our surface bulk sampling operations (compared to 2,250 to 2,500 tons that we expected to mine from the surface sampling operations for the entire 2016 season).  To date, we have processed approximately 890 tons of vein material (including vein material remaining from the 2015 season) and have an estimated additional 1,470 tons of vein material that has yet to be processed.  Even if we are able to process the estimated remaining 1,470 tons of vein material, our total processed tonnage will fall well short of the 3,600 tons projected in the 2016 Operations Plan.  Due to the decrease in actual excavated vein material compared to expected excavated vein material caused by the slough event, actual revenues for the 2016 season will fall well short of the Company’s projections set forth in the 2016 Operations Plan.

As a result of the expected reduced revenue caused by the slough event, the Company will most likely be unable to fund future operational costs, including planning and commencement of any potential underground mining development.  Additionally, we will likely be unable to meet certain loan obligations that come due in 2016 and are secured by the assets of the Company (a full description of the Company’s outstanding loans may be found in Note 7, Promissory Notes).  Failure to pay the loan obligations when they come due may result in the lenders accelerating all amounts due and foreclosing on the assets of the Company to satisfy the balances.  If foreclosure occurs, it will likely result in the Company’s shareholders losing their entire investment.

With the complete cessation of surface bulk sampling operations at the TMC Project, and no immediate prospects for alternative surface bulk sample operations, the Company’s potential revenue stream is limited to the remaining vein material that has already been excavated and is either currently in process or waiting to be processed.  Because the Company expects this revenue will be insufficient to fund our current and future operational expenses and obligations, the Company is currently assessing its options.  It is likely that the Company will need to raise additional new capital through the issuance of equity and/or debt in the near term to fund our loan obligations and continue operations, in addition to the capital that would need to be raised for the commencement of underground mining development at the TMC Project.  Since our ability to raise additional capital will be affected by many factors, most of which are not within our control (including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016), no assurance can be given that the Company will in fact be able to raise the required capital in a timely manner or that the proposed terms of any such financing will be favorable or acceptable to the Company.  If we are unsuccessful in obtaining or agreeing to financing, the Company may be forced to discontinue all operations and will fail, which will likely result in the Company’s shareholders losing their entire investment.

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In the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as filed with the SEC on February 16, 2016, our independent registered accounting firm expressed substantial doubt about our ability to continue as a going concern as a result of the Company’s history of net loss. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully execute the plans to pursue the TMC project as described in this Form 10-Q. The outcome of these matters cannot be predicted at this time. The Company’s consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue our business.

Our primary activity will be to proceed with the TMC Project and other mining opportunities that may present themselves from time to time. We cannot guarantee that the TMC Project will be successful or that any project that we embark upon will be successful. Our goal is to build our Company into a successful mineral exploration and development company. 

In light of the recent slough event at the TMC Project, as well as other significant events that adversely affect the Company’s capabilities to raise capital and commence operations (see Notes 1, Business, and 10, Subsequent Events, to the accompanying financial statements for a more detailed discussion of these factors and events, many of the existing plans and expectations of the Company’s management (as described above) are unlikely to be realized. The Company is currently evaluating its options for alternative revenue generating operations and addressing our significant liabilities.  These evaluations may result in a change of the Company’s current business plan from what is described in this Item 2 (and the descriptions of our business in reports previously filed by the Company), including the possible acceleration of implementing underground mining development and capital raising to fund those activities (as further discussed in Note 10 to the accompanying financial statements, Subsequent Events), or pursuing other strategic restructuring negotiations or strategies.

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NET CASH USED IN OPERATING ACTIVITIES

Net cash used in operating activities for the nine months ended July 31, 2016, was $1,321,167. This amount was primarily related to accrued interest of $884,987, accounts payable and accrued liabilities of $415,345 and non-cash expenses of $2,052,703; offset by the net loss of $3,650,843, decreases in accounts payable and accrued liabilities-related parties of $11,300, an increase in prepaid expenses of $35,428, an increase in prepaid royalties of $125,000, and an increase in inventory of $851,631. Non-cash expenses of $2,052,703 comprised of $2,446,458 expenses related to impairment of the Company’s mining claims, $93,294 in expenses related to stock option expense, $181,029 related to depreciation and amortization of fixed assets, $175,926 related to the amortization of debt discount, $16,337 related to accretion expense, $867,557 gain on our derivative liability, and $7,217 other expense. Net cash used in operating activities for the nine months ended July 31, 2015, was $268,088.

NET CASH USED IN INVESTING ACTIVITIES

Net cash used in investing activities for the nine months ended July 31, 2016 was $179,702. The Company purchased some heavy equipment in the amount of $179,702. Net cash used in investing activities for the nine months ended July 31, 2015 was $48,246.

NET CASH PROVIDED BY/ FINANCING ACTIVITIES

Net cash provided by financing activities for the nine months ended July 31, 2016 was $1,125,000. This amount consisted of two debt transactions with BOCO Investments, a promissory note in the amount of $125,000 and a line of credit facility of $640,000. In a subsequent event, the Company received additional funding from other investors in the amount of $360,000 (See Note 10 to the accompanying financial statements, Subsequent Events for a discussion of this transaction). Net cash provided by financing activities during the nine months ended July 31, 2015 was $372,711. This amount consisted of three debit transactions with BOCO Investments, a promissory note in the amount of $100,000, funding from a line of credit in the amount of $58,380, and the exercise of warrants in the amount of $264,331. The remaining $50,000 was related to a payment on the forward contract.

Our unaudited contractual cash obligations as of July 31, 2016, are summarized in the table below:

The Company operates in Alaska. The State of Alaska Department of Natural Resources requires a pool of funds from all permittees with exploration and mining projects to cover reclamation. There is a $750 per acre disturbance reclamation bond that is required for disturbance of 5 acres or more and/or removal of more than 50,000 cubic yards of material. The Company’s asset retirement obligation (“ARO”), consisting of estimated future mine reclamation and closure costs, may increase or decrease significantly in the future as a result of changes in regulations, mine plans, estimates, or other factors. The Company’s ARO is recognized as a liability at fair value in the period incurred. An ARO, which is initially estimated based on discounted cash flow estimates, is accreted to full value over time through charges to accretion expense. Resultant ARO cost assets are depreciated on a units-of-production method over the related long-lived asset’s useful life. The Company’s ARO is adjusted annually, or more frequently at interim periods if necessary, to reflect changes in the estimated present value resulting from revisions to the timing or amount of reclamation and closure costs. 

Fair Value Measurements

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value.  The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).  The hierarchy consists of three levels:

Revenue Recognition: 

Revenue is recognized, net of royalties, when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable. The passing of title to the customer is based on the terms of the sales contract. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets, for example the London Bullion Market for both gold and silver, in an identical form to the product sold.

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Inventories may include unprocessed ore, doré and unsold gold and silver. All inventories, as of July 31, 2016 and October 31, 2015, are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Metal inventory costs include direct labor, materials, depreciation, as well as administrative overhead costs relating to mining activities.

Stock-Based Compensation

FASB ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, but primarily focuses on transactions whereby an entity obtains employee services for share-based payments. FASB ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with FASB ASC 718.

As we are a smaller reporting company, we are not required to provide the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive and principal financial officers concluded as of July 31, 2016 that our disclosure controls and procedures were not effective at the reasonable assurance level due to limited accounting and reporting personnel and a lack of segregation of duties due to limited financial resources and the size of our Company.  We will need to adopt additional disclosure controls and procedures prior to commencement of material operations. Consistent therewith, on an on-going basis we will evaluate the adequacy of our controls and procedures.

A material weakness is a significant deficiency, or combination of significant deficiencies, that result in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. During the assessment for the nine months ended July 31, 2016, management identified the following material weaknesses:

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Lack of Segregation of Duties.  We have an inadequate number of personnel to properly implement control procedures.

Lack of Disclosure Controls.  There is a lack of disclosure controls to ensure adequate disclosures are made in our periodic filings.

Lack of Continuity in Key Personnel.  We have not maintained continuity in key personnel or have adequate staffing to ensure adequately efficient preparation of financial and operational statements.

Lack of Inventory Management Control. The Company lacks sufficient personnel and financial resources to implement adequate handling, tracking, accounting, and safeguarding of ore and finished goods inventory assets.

b) Changes In Internal Control Over Financial Reporting

During the nine months ended July 31, 2016, there were no changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.  

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

There are no pending legal proceedings against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations. 

ITEM 1A. RISK FACTORS

As we are a smaller reporting company, we are not required to provide the information required by this item.