Annual Report
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
following Management's Discussion and Analysis of Financial Condition and
Results of Operation ("MD&A") is intended to help the reader
understand our financial condition. MD&A is provided as a supplement to,
and should be read in conjunction with, our financial statements and the
accompanying integral notes ("Notes") thereto. The following
statements may be forward-looking in nature and actual results may differ
materially.
Plan of
Operation:
FORWARD
LOOKING STATEMENTS: The following discussion may contain forward-looking
statements that involve a number of risks and uncertainties. Factors that
could cause actual results to differ materially include the following:
inability to locate property with mineralization, lack of financing for
exploration efforts, competition to acquire mining properties; risks inherent
in the mining industry, and risk factors that are listed in the Company's
reports and registration statements filed with the Securities and Exchange
Commission.
The
Company maintains a corporate office in Boise, Idaho. This is the primary
work area for the South Mountain Project and is utilized primarily by Pete
Parsley and Eric Jones. Jim Collord has been
working from a temporary residence in Boise Idaho at no additional charge to
the Company. He will continue to work from his home office in Elko, Nevada as
well as in the Boise office as the exploration program at South Mountain
continues.
The
financial condition of the Company was positive during 2010 and the metals
commodity markets were favorable during most of the year. The Company
underwent a reduced budget program during the first part of the year due
while applying for a dual listing on the Toronto Stock Exchange - Venture
Exchange ("TSX-V").
The
Company received their listing on the TSX-V in September, and was successful
in raising sufficient capital to conduct their Phase 1 drilling program on
the South Mountain Project. Operational focus was on defining the extent and
quality of the gold-bearing intrusive breccia zone
through additional rock chip and soil sampling, and mapping. The work on
South Mountain was enhanced through the field work conducted previously by
Kinross Gold Corp., and through valuable field work conducted by Newmont
Mining. The results of this work further defined the gold mineralogy, which
will aid in the exploration drilling planned in 2011.
In the wake of this field work, additional State land leases were applied for
by the Company in 2010.
The
Company's plan of operation for the next twelve months, subject to funding,
and the availability of contractors, is as follows:
�
Continue
the advanced exploration and pre-development program for the South Mountain
Project. This work may include the following:
�
Initiate
up to 10,000 feet of core drilling from the surface to better define the
mineralization and to intercept the down-dip extensions of the Texas, DMEA-2,
and Laxey ore zones.
�
Complete
geophysical work on the Intrusive Breccia target.
This will consist of an extensive helicopter draped aeromagnetic survey plus
resistivity and IP work and will help define specific targets within and
peripheral to the mineralized intrusive complex.
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�
Conduct
reverse circulation and core drilling on the Intrusive Breccia
target once the geophysics have been completed and the targets have been
defined.
�
Consider
further rehabilitation of the Sonneman workings
near the Texas ore zone will be initiated so that underground sampling and
mapping can be completed.
�
Continue
the baseline environmental work.
�
Continue
to work with potential joint venture or capital partners to advance the
project into the next phase of exploration and pre-production goals.
Work on
the other five properties controlled by the Company will continue in 2011,
although South Mountain will still remain the focus of our efforts. At the
Trout Creek Project, the following is planned:
�
Complete
negotiations with additional mineral rights holders in the target area.
�
Continue
geophysical interpretation of the valley area, and conduct additional ground
gravity surveys to supplement currently available data.
�
Define
potential drill targets and develop a program for late 2011 or the 2012 field
season.
The CAS
Prospect will be evaluated when field conditions allow and a decision to drop
or move ahead with the project will be made by the end of July, 2011.
Reconnaissance
of favorable areas and review of submittals will continue.
Potential
joint venture partners will be solicited on some of the properties in Nevada
and Arizona.
Results of
Operations:
The
Company had no revenues and no production for 2010 or 2009. Total expenses
for 2010 more than doubled from the prior year to $1.3 million, up 110% from
2009 total expenses of $617,000. The increase in total expenses is primarily
the result of exploration activities under taken during the year. Exploration
expense for the year end 2010 was $516,000 an increase of $417,000 over 2009
exploration expense of $99,000 as a result of the drilling program completed
during the year at the Company's South Mountain Property. Legal and
accounting fees for 2010 increased $90,000 to $194,000, a 90% increase over
2009 legal and accounting expenses of $104,000, which was driven by the
Company's listing application on the TSX-V in Canada. 2010 management and
administrative increased $171,000, or 46%, to $545,000 compared to 2009
expense of $374,000. The increase was a combination of expenses incurred
related to the Company's capital raising efforts and the reinstatement of
salaries for executive officers.
Liquidity
and Capital Resources:
The audit
opinion and Notes that accompany our consolidated financial statements for
the year ended December 31, 2010, disclose a 'going concern' qualification to
our ability to continue in business. The consolidated financial statements
for the period then ended have been prepared under the assumption that we
will continue as a going concern. Such assumption contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. As shown in the consolidated financial statements for the
year ended December 31, 2009, we incurred losses and negative cash flows from
operating activities for the year then ended, and at December 31, 2010, did
not have sufficient cash reserves to cover normal operating expenditures for
the following 12 months. These factors raise substantial doubt about our
ability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might be necessary should we be unable to
continue as a going concern.
Our
continuation as a going concern is dependent upon our ability to generate
sufficient cash flow to meet our obligations on a timely basis, to obtain
additional financing as may be required, or ultimately to attain
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profitability.
Potential sources of cash, or relief of demand for cash, include additional
external debt, the sale of shares of our stock or alternative methods such as
mergers or sale of our assets. No assurances can be given, however, that we
will be able to obtain any of these potential sources of cash. We currently
require additional cash funding from outside sources to sustain existing
operations and to meet current obligations and ongoing capital requirements.
Our plans
for the long term 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. Our plans may
also, at some future point, include the formation of mining joint ventures
with senior mining company partners on specific mineral properties whereby
the joint venture partner would provide the necessary financing in return for
equity in the property.
While the
Company does not currently have cash sufficient to support the currently
planned aggressive exploration work at South Mountain, we believe that the
survivability of Thunder Mountain Gold can be assured by the following:
�
At
December 31, 2010, we had $298,232 cash in our bank accounts.
�
Management
and the Board have not undertaken plans or commitments that exceed the cash
available to the Company. We do not include in this consideration any
additional investment funds mentioned below. Management is committed to
manage expenses of all types so as to not exceed the on-hand cash resources
of the Company at any point in time, now or in the future.
We firmly
believe we can outlast the current disruptions in the investment markets and
continue to attract investment dollars in coming months and years.
The Company will also consider other sources of funding, including potential
mergers or farm-out of some of its exploration properties.
For the
year ended December 31, 2010, net cash used for operating activities was
$1,127,142, consisting of our 2010 net operating loss reduced by non-cash
expenses and net cash provided by changes in current assets and current
liabilities. Cash used in investing activities for 2010 totaled $10,900 used
to purchase and maintain mining claims, compared to cash of $29,530 used in
2009 to purchase and maintain mining claims and equipment.
Our future
liquidity and capital requirements will depend on many factors, including
timing, cost and progress of our exploration efforts, our evaluation of, and
decisions with respect to, our strategic alternatives, and costs associated
with the regulatory approvals. If it turns out that we do not have enough
money to complete our exploration programs, we will try to raise additional
funds from a second public offering, a private placement, mergers, farm-outs
or loans.
We know
that additional financing will be required in the future to fund our planned
operations. We do not know whether additional financing will be available
when needed or on acceptable terms, if at all. If we are unable to raise
additional financing when necessary, we may have to delay our exploration
efforts or any property acquisitions or be forced to cease operations.
Collaborative arrangements may require us to relinquish our rights to certain
of our mining claims.
Private
Placement
On
September 24, 2010 (the "Closing Date") the Company completed a
private placement offering for the sale of 6,130,271 Units with proceeds of
$995,737, net of $188,349 in deferred financing costs. The subscription
agreements were denominated in Canadian dollars (Cdn$)
at a price of Cdn $0.20 per Unit. Each Unit was
comprised of one share of the Company's common stock (a "Common
Share") and one share purchase warrant (a "Warrant"). Each
Warrant entitles the holder to purchase one additional share of the Company's
common stock for a three year period at staggered prices as follows: CDN$0.20
per share at any time until one year from the Closing Date; Cdn$0.25 per
share from one year until two years from the Closing Date; and Cdn$0.30 per
share from two years until three years from the Closing Date. If the Company's
common stock trades at a closing price greater than Cdn$0.50 per share for 20
consecutive trading days after six months from the Closing
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Date, the
Company can accelerate the expiration of the Warrants by giving notice to the
holders and in such case the Warrants will expire on the 30th day after the
Company provides notice to the holders of the Warrants
On May 10,
2010, the Company issued 1.25 million Units at $0.20 per Unit in a private
placement for net proceeds of $250,000. Each Unit consisted of one share of
common stock and one Series A common stock purchase warrant. Each Series A
warrant is exercisable at $0.20 for one-half Series B common stock purchase
warrant. Each whole Series B warrant would be exercisable into one share of
common stock at an exercise price of $0.75 per share. The warrants are
callable by the Company in the event that the Company's stock trades above
$0.25 in the case of the Series A warrants, and above $0.94 for the Series B
warrants.
On August
7, 2009, the Company closed a private offering of securities solely to
accredited investors. The offering consisted of 380,000 Units priced at $0.20
each. Each Unit consisted of a share of common stock, $0.001 par value, and a
warrant to purchase common stock for $0.30 per share. As a result of
completion of the offering, a total of 380,000 shares of common stock, $0.001
par value, and warrants to acquire 380,000 shares of common stock were
issued. Included in the 380,000 units issued, were 5,000 units issued for
services valued at $1,000.
There were no registration rights granted in connection with the offering. No
Placement Agent was used, and no commissions were paid.
On August
10, 2009 the Board unanimously approved a resolution authorizing the
re-pricing of warrants, including those issued in the August 7, 2009 private
placement, originally exercisable at $0.30 or $0.40 per share, to an exercise
price of $0.13 per share which was subsequently raised to $0.15 per share,
with such re-pricing valid until November 23, 2009. As a result of completion
of the offering, a total of 3,020,000 warrants were exercised for a like
number of shares of common stock, $0.001 par value. Commissions of $23,250
were paid to a placement agent, resulting in net cash proceeds of $429,750 to
the Company. Additionally, 100,000 shares were issued for warrants with an
exercise price of $0.05 per share, for net cash proceeds of $5,000. The net
cash proceeds from the exercise of warrants were $434,750. Finally, 30,000
shares were issued to an officer of the Company for warrants exercised at
$0.15 in exchange for a reduction of $4,500 in a loan that the officer had
previously extended to the Company. There were no registration rights granted
in connection with any of these shares. No other commissions were paid, and a
total of $450 in Blue Sky fees were paid to the
states of Idaho, California and Washington.
The
offering and the shares issued for services and option exercises are believed
exempt from registration pursuant to the exemption for transactions by an
issuer not involving any public offering under Section 4(2) the Securities
Act of 1933, as amended. The securities offered, and to be sold and issued in
connection with the private placement have not been registered under the
Securities Act of 1933, as amended, or any state securities laws and may not
be offered or sold in the United States absent registration with the
Securities and Exchange Commission or an applicable exemption from
registration requirements.
Subsequent
Events
None.
Off
Balance-Sheet Arrangements:
During the
12 months ended December 31, 2010 and 2009, the Company had no off-balance
sheet arrangements that have or are reasonably likely to have a current or
future effect on the Company's financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
Contractual
Obligations
During
2008, two lease arrangements were made with land owners that own land parcels
adjacent to the Company's South Mountain patented and unpatented mining
claims. The leases both were for a seven-year period, with options to renew,
with annual payments (based on $20 per acre) listed in the following table. The leases have no work requirements.
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Payments due by period
Contractual obligations
More
Less than
than 5
Total*
1 year 2-3 years
3-5 years years
Acree
Lease (yearly,
$9,040
$2,260
$4,520
$2,260
-
June)(1)
Lowry Lease (yearly,
$30,160
$7,540
$15,080
$7,540
-
October)(1)(2)
Herman Lease (yearly,
$ 5,600 $1,120 $2,240 $2,240
-
April)
Total
$44,800
$10,920
$21,840
$12,040
-
|
*
Amounts
shown are for the lease periods years 3 through 7, a
total of 4 years that remain after 2010, the second year of the lease period.
**
The Lowry
lease has an early buy-out provision for 50% of the remaining amounts owed in
the event the Company desires to drop the lease prior to the end of the first
seven-year period.
Critical
Accounting Policies
We have
identified our critical accounting policies, the application of which may
materially affect the financial statements, either because of the
significance of the financials statement item to which they relate, or
because they require management's judgment in making estimates and assumptions
in measuring, at a specific point in time, events which will be settled in
the future. The critical accounting policies, judgments and estimates which
management believes have the most significant effect on the financial
statements are set forth below:
a)
Estimates.
Our management routinely makes judgments and estimates about the effect of
matters that are inherently uncertain. As the number of variables and
assumptions affecting the future resolution of the uncertainties increase,
these judgments become even more subjective and complex. Although we believe
that our estimates and assumptions are reasonable, actual results may differ
significantly from these estimates. Changes in estimates and assumptions
based upon actual results may have a material impact on our results of
operation and/or financial condition.
b)
Stock-based
Compensation. The Company records stock-based compensation in accordance with
ASC 718, "Compensation - Stock Compensation" using the fair value
method. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on
the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable.
c)
Income
Taxes. We have current income tax assets recorded in our financial statements
that are based on our estimates relating to federal and state income tax
benefits. Our judgments regarding federal and state income tax rates, items
that may or may not be deductible for income tax purposes and income tax
regulations themselves are critical to the Company's financial statement
income tax items.
Adopted
Accounting Pronouncements
In January
2010, the ASC guidance for fair value measurements was updated to require
additional disclosures related to movements of assets among Levels 1 and 2 of
the three-tier fair value hierarchy. Also, a reconciliation of purchases,
sales, issuance, and settlements of anything valued with a Level 3 method is
required. Disclosure regarding fair value measurements for each class of
assets and liabilities will be required. The updated guidance was adopted by
the Company in its quarter ended March 31, 2010, except for disclosures about
the activity in Level 3 fair value measurements which are effective for
fiscal years beginning after December 15, 2010, and for interim periods
within those fiscal years. Adoption of this updated guidance did not have a
material impact on the Company's consolidated financial statements.