GTOR GGToor Inc (PK)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. Except as required by applicable law, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited interim consolidated financial statements for the six months ended September 30, 2017 are expressed in US dollars and are prepared in accordance with generally accepted accounting principles in the United States of America. They reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of our interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for our fiscal year ending March 31, 2018. Our unaudited consolidated financial statements and notes included therein have been prepared on a basis consistent with and should be read in conjunction with our audited financial statements and notes for the year ended March 31, 2017, as filed in our annual report on Form 10-K.

The following discussion should be read in conjunction with our interim financial statements and the related notes that appear elsewhere in this quarterly report.

Business Overview

Gold Torrent, Inc. (the “Company”) was incorporated in Nevada as Celldonate Inc. on August 15, 2006. Historically we were in the business of developing mobile monetization solutions and applications. On September 10, 2013, certain shareholders, including the Company’s current Chief Executive Officer and its President, acquired approximately 53% of the Company’s issued and outstanding common stock resulting in a change of control. In connection with the transaction, Daniel Kunz was appointed Executive Chairman and Ryan Hart was appointed Chief Executive Officer and President. Thereafter the Company began to focus on acquiring ownership in late-stage exploration to development stage gold mining projects and/or royalty or streaming interests in low capital intensity, late-stage mining projects in North America. On January 16, 2014, the Company changed its name to “Gold Torrent, Inc.” in order to better reflect the direction and business of the Company. On that date, the Company also amended its Articles of Incorporation to (i) effectuate a reverse split of the Company’s common stock on a 1 for 5 basis; and (ii) increase the number of the Company’s authorized capital stock to 220,000,000 of which 200,000,000 were classified as common stock and 20,000,000 were classified as “blank check” preferred stock. On November 19, 2014, the Company entered into a Spin-off Agreement (the “Agreement”) with a company controlled by a former shareholder to sell all intellectual property and assets associated with the previous business of the Company, pursuant to which the Company was released from certain liabilities amounting to $420,653. Daniel Kunz was subsequently named Chief Executive Officer and Chairman and Mr. Hart was named President.

Going forward, the Company plans to focus on acquiring ownership in late-stage exploration to development-stage gold mining projects and/or royalty or streaming interests in low capital intensity, late-stage mining projects in North America but may pursue other profitable business opportunities that are available to us. Our main focus will be on identifying solid resources, and then utilize funding to bring a distressed asset into production, while either securing equity ownership or rights of title in the form of royalties. We are targeting pre-production resource projects that are well understood and show strong financial projections and low capital intensity, where we can apply capital to take the projects into production within 12-36 months.

On November 5, 2014, the Company signed an Exploration and Option to Enter Joint Venture Agreement with Miranda U.S.A., Inc. (“Miranda”) for the Willow Creek project in Alaska (the “Exploration and Option Agreement”). The Exploration and Option Agreement provides the Company with the right to earn up to 70% interest in a joint venture with Miranda Gold Corp. by making certain expenditures over the next three years totaling US$10 million. The initial principal terms of the Exploration and Option Agreement provided that the Company would earn an initial 20% interest in the Willow Creek gold project by incurring an initial work commitment of $1,070,000 before November 5, 2015 in costs related to exploration and development of the project. On September 2, 2015 Miranda granted the Company a six-month extension to the dates related to the earn-in. Therefore, the Company would earn an initial 20% interest in the Willow Creek gold project by incurring an initial work commitment of $1,070,000 before May 5, 2016 in costs related to exploration and development of the project. While the Company shall be the manager of the initial joint venture, the management committee during the initial earn–in period shall be comprised of one nominee from the Company and one nominee from Miranda.

Upon completion of the initial work commitment, the Company could then either terminate the agreement or exercise an option to enter into a limited liability company (“JV”) with Miranda under the following terms:

The Company plans to complete initial engineering, resource, permitting, and economic studies during the initial earn-in period with a goal to bring the Lucky Shot project, beginning initially in the Coleman area gold resource area, into production as soon as possible. Expansion and exploration drilling is planned during construction and during commercial production and is expected to expand the initial known mineralization well beyond the current levels.

On January 15, 2015, and January 6, 2016 the Company paid $150,000 for a Lease Agreement between Miranda USA Inc. and a private company, and the amount was included in prepaid expenses and expensed over 12 months. In addition, the Company is committed to paying $150,000 each year on January 15. The purpose of this lease is to afford Miranda USA Inc. the opportunity to enter onto and produce minerals from certain patented and State of Alaska mining claims located in the State of Alaska. This lease is to be transferred by Miranda to the joint venture upon the Company earning its initial 20% interest.

On May 25, 2016, the Company received formal notice from Miranda that the Company has acquired a permanent 20% interest in the Lucky Shot project by virtue of meeting the initial earning required expenditures.

The Company engaged third party consultants to complete a Preliminary Feasibility Study on its Lucky Shot Project. The Preliminary Feasibility Study for the Lucky Shot Project was completed September 30, 2016. The study concludes, “The Project is projected to have robust economics at the base case gold and silver prices of $1,175/oz. and $15.00/oz. respectively. The Project would be economically viable based on the parameters considered in this study. The base case scenario produces approximately 79,100 salable ounces of gold and 7,700 salable ounces of silver over a 4.5-year period. The Project is most sensitive to the gold price and to operating costs, but not as sensitive to capital costs. The base case economic analysis of the Project shows an After-Tax NPV-10 of $5.28 million using a 200-tonne/day crushing/grinding/gravity separation plant. The total required initial and working capital is $16.2 million and reaches pay-back in 1.9 years at an after tax IRR of 21.8%.”

On July 8, 2016, the Company purchased for $100,507 a 30-acre parcel of private, undeveloped land in Alaska near the Lucky Shot project for the siting of a gold recovery plant.

During August 2016, the Company conducted assessment work on the project’s State of Alaska claim blocks. One 640-foot surface core drill hole was completed in an area underlain by the eastern extension of the Murphy Vein block. This drill hole was designed to test the concept that the zone encountered in the 2005 – 2009 prior owner drilling program extends across the valley floor at a depth of about 350 feet. The success of the drill hole provides a much larger resource target area for future exploration drilling. Following are interval assays:

During August and September a third party consulting and engineering firm completed geotechnical and environmental baseline assessment work on the gold plant mill site including:

Detailed design and engineering work for the gold recovery plant was continued through the reporting period. The gravity only gold recovery plant design and final engineering is near complete and ready for construction drawings and plant to be completed. Logistics analyses have been completed for shipment of required plant equipment, materials and supplies from various vendors to the project site. The mine engineering work continued for the period on portal and surface logistics and requirements.

On Feb 15, 2017 the Company entered into a convertible preferred note and investment agreement (“Agreement”) with CRH Mezzanine Pte. Ltd., a Singapore private limited company and CRH Funding II Pte. Ltd., a Singapore private limited company (collectively, “CRH”) for a $2,000,000 convertible preferred note and a $11,250,000 gold and silver prepayment arrangement for the Company’s Lucky Shot Gold Project (the “Streaming Agreement”).

Concurrent with the closing and funding of the convertible preferred note, the Company and Miranda U.S.A., Inc., a wholly-owned subsidiary of Miranda Gold Corp of Canada, executed a joint venture operating agreement and formed Alaska Gold Torrent LLC Torrent, LLC, an Alaska limited liability company under which the Company now owns a seventy percent (70%) undivided interest in the Project.

Under the terms of the Agreement, the Company borrowed $2,000,000 from the Preferred Note Investor evidenced by convertible preferred notes which will convert into 15% of the shares of common stock of the Company on a post-money basis on the earlier of: (i) a Canadian Going Public Transaction or (ii) funding of the Gold and Silver Prepayment Agreement and following an equity raise by the Company of $5,000,000 or more of which $2,000,000 will be the conversion of the preferred notes. The obligations under the preferred notes are secured by a first priority security interest in all of the assets of the Company pursuant to the terms of a security and pledge agreement.

The Company also entered into the Streaming Arrangement among the Stream Investor, the Company, Miranda and Alaska Gold Torrent LLC, under which the Stream Investor will invest up to US$11,250,000, which will be credited to the Company’s investment in Alaska Gold Torrent LLC, as follows:

The obligations of Alaska Gold Torrent LLC under the Streaming Agreement are secured by a deed of trust, and guaranteed by the Company. In consideration of the $11,250,000 investment by the Stream Investor, Alaska Gold Torrent LLC’s Project will deliver 18% of its annual production of refined gold and silver to the Stream Investor until it has received 20,000 Ounces of gold equivalent; 10% of the annual production until an additional 5,000 Ounces have been delivered; and 5% of the annual production thereafter coming from the patented mining claims of Alaska Gold Torrent LLC and 2.5% of the production coming from the unpatented mining claims. The delivery of Ounces and the repayments under the Gold and Silver Prepayment Agreement shall be borne entirely from the Company’s interest from its Alaska Gold Torrent LLC allocations and cash distributions. Miranda shall be entitled to receive it allocations and the resulting cash distributions using calculations that determine the after-tax cash flow distributions that would have occurred on an “all equity” basis showing cash distributions and allocations assuming the financing had not occurred. The Company is entitled to 90% of the Alaska Gold Torrent LLC cash flow until $10,000,000 is returned, 80% until the remainder of its investment in Alaska Gold Torrent LLC in excess of $10,000,000 is returned and 70% thereafter.

Alaska Gold Torrent LLC is subject to certain events of default under the Gold and Silver Prepayment Agreement including if, from the date of the Tranche 1 drawdown, Alaska Gold Torrent LLC fails to produce at least 5,000 Ounces and deliver to the Stream Investor at least 1,000 Ounces by the 18th month; produce at least 10,000 and deliver to the Stream Investor at least 2,000 Ounces by the 24th month; produce 20,000 and deliver to the Stream Investor at least 4,000 Ounces by the 36th month; deliver to the Stream Investor at least 10,000 Ounces by the 48th month; deliver to the Stream Investor at least 19,400 Ounces by the 60th month; and deliver to the Stream Investor at least 23,900 Ounces by the 72nd month.

In consideration for the commitments under the Agreement, the Company issued the Preferred Note Investor common stock purchase warrants to purchase two million shares of common stock of the Company at an exercise price of US$0.50 per share for a period of three years from the date of issuance. In conjunction with the transaction, the Company and the Preferred Note Investor also entered into an Investor Rights Agreement, and an Indemnity Agreement. The convertible preferred note and warrants were issued in reliance upon the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D as promulgated by the SEC under the Securities Act.

As part of the Agreement, CRH nominated Mr. Pat Okita, PhD to join the Gold Torrent board of directors and the board has unanimously approved his appointment. Mr Okita joins the board effective Feb 15, 2017

On February 14, 2017 the Company received $1,900,000 in proceeds from the note, net of CRH’s legal expenses, to be used as part of the Company’s initial investment in the Project.

On September 27, 2017, the Company and the Stream Investor agreed, after the satisfaction by the Company of a majority of the Tranche 1 closing conditions, to amend certain provisions of the Streaming Agreement and concurrently close on one-half of Tranche 1 in the amount of $3,250,000. The second half, also in the amount of $3,250,000, has been consummated on August 8, 2017 upon satisfaction of the final closing conditions.

The Company has acquired a permanent 70% interest in the Lucky Shot project by virtue of meeting the earn-in required expenditures. In addition, Miranda contributed mineral property leases valued at $4,285,714 to the Lucky Shot project.

As at September 30, 2017, mineral property interest consists of:

Cumulative Funding to Alaska Gold Torrent LLC :

As at September 30, 2017, the Company provided funding to Alaska Gold Torrent, LLC in the total amount of $9,886,925. This consists of cumulative acquisition, exploration, engineering costs and capital contributions of $2,886,925 as at March 31, 2017, and $7,000,000 in additional funding during the three months ended September 30, 2017:

On August 28, 2017, Gold Torrent, Inc. and its subsidiary Alaska Gold Torrent, LLC, entered into a Mining Services Agreement with Mining & Environmental Services, LLC for development of the Registrant’s Luck Shot Mine, and other related mining services, including the development of the land located around the mine. If fully completed, it is estimated the Registrant will pay approximately $4,500,000 for such services. The Agreement contains customary representations, warranties and covenants by the parties for like transactions.

Planning continues for project permitting, staffing, training and project initiation.

Since our inception, we have incurred operational losses. We have also accumulated net losses since our inception and incurred a net loss for the most recent audited and interim periods. To finance our operations, we have received advances from related parties, loan payables and completed several rounds of financing, raising $9,128,775 through private placements of our common stock and investors funding.

Results of Operations

For the Three Months ended September 30, 2017

During the three months ended September 30, 2017, we recognized $nil income, compared to $nil during the same period in the prior year.

During the three month period ended September 30, 2017, we recognized a loss from continuing operations of $654,330, compared to a loss of $403,245 during the same period in the prior year.

Our net loss per share for the three months ended September 30, 2017 was $0.03. Our net loss per share for the three months ended September 30, 2016 was $0.03,

During the three months ended September 30, 2017, we incurred total expenses of $654,330, compared to total expenses of $403,245 during the same period in the prior year.

Our total expenses during the three months ended September 30, 2017 consisted of $93,889 in accounting and legal fees, $Nil in development costs, $391,940 in executive compensation and payroll, $115,543 in insurance, $Nil in Advertising, $6,013 in licenses and fees, $465 in bank charges, $1,942 in amortization, $14,105 in travel costs, and $30,433 in office expenses. For the same period ended September 30, 2016, we incurred expenses of $40,253 in accounting and legal fees, $251,778 in exploration and evaluation costs, $121,250 in executive compensation, $45,139 in licenses and fees, $347 in bank charges and finance fees, $9,505 in travel costs, and $973 in office expenses. Our total expenses are significantly higher for nearly all expenses. The exception is the Development Cost which have been deferred this period. The increase in expenses is mainly due to the increased activities and progress of the Lucky Shot property start up.

For the Six Months ended September 30, 2017

During the six months ended September 30, 2017, we recognized $nil income, compared to $nil during the same period in the prior year.

During the six month period ended September 30, 2017, we recognized a loss from continuing operations of $3,005,992, compared to a loss of $748,010 during the same period in the prior year.

Our net loss per share for the six months ended September 30, 2017 was $0.15. Our net loss per share for the six months ended September 30, 2016 was $0.06,

During the six months ended September 30, 2017, we incurred total expenses of $3,005,992, compared to total expenses of $814,010 during the same period in the prior year.

Our total expenses during the six months ended September 30, 2017 consisted of $174,321 in accounting and legal fees, $Nil in development costs, $754,916 in executive compensation and payroll, $1,725,000 in share based payments, $214,148 in insurance, $12,049 in Advertising, $11,691 in licenses and fees, $793 in bank charges, $3,681 in amortization, $38,524 in travel costs, and $70,851 in office expenses. For the same period ended September 30, 2016, we incurred expenses of $75,553 in accounting and legal fees, $414,360 in exploration and evaluation costs, $242,500 in executive compensation, $50,499 in licenses and fees, $1,584 in bank charges and interest, $23,193 in travel costs, and $6,321 in office expenses. Our total expenses are significantly higher for nearly all expenses. The exception is the Development Cost which have been deferred for the six months ended September 30, 2017. The increase in expenses is mainly due to the increased activities and progress of the Lucky Shot property start up.

Liquidity and Capital Resources

We have limited operational history, and did not generate any revenues. As of September 30, 2017, we had $4,001,294 in cash, $651,110 in advances receivable, and $76,739 in prepaid expenses for a total of $4,729,143 in current assets and $1,274,033 in current liabilities and a working capital of $3,455,110.

As of September 30, 2017, we had $8,146,317 in long term assets, $8,500,000 in long term liabilities As of September 30, 2017, we had an accumulated deficit of $6,701,076. We are dependent on funds raised through equity financing, related parties, and loan payables. Our operations were funded by equity financing and stream agreement funding. We anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain.

During the six months ended September 30, 2017, we used $1,409,487 in cash on continuing operating activities, and used $3,458,878 in investing activities and received net $7,284,975 from cash provided by financing activities and gained cash of $2,416,610. During the same period in fiscal 2016 we used $669,230 in cash on continuing operating activities, and received net $866,207 from cash provided by financing activities and increased cash of $96,470.

During the six months ended September 30, 2017, we received $784,975 in proceeds from issuance of common stock, and $6,500,000 in gold pre-purchase. We received $4,285,714 in mineral property leases from Miranda USA Inc. For the period ending September 30, 2016 we made payments of approximately $93,793 on the outstanding stockholders’ loan balance and received an additional $960,000.in proceeds from issuance of common stock. For the period ending September 30, 2017 the Company has accrued interest of $125,479 and amortization of $3,681(March 31, 2016 - $936 and $nil).

During the six months ended September 30, 2017, our monthly cash requirements to fund our operating activities, including advances from former related parties, was approximately $273,083 compared to approximately $111,538 during the same period in fiscal 2016. In the absence of the continued sale of our common stock or advances from the former or new related parties, our cash of $4,001,294 as of September 30, 2017 is sufficient to cover our current monthly burn rate for the foreseeable future and enough to pay our current liabilities balance of $1,274,033.

Future Financings

The Company entered into the Streaming Arrangement among the Stream Investor, the Company, Miranda and Alaska Gold Torrent LLC, under which the Stream Investor will invest up to US$11,250,000, which will be credited to the Company’s investment in Alaska Gold Torrent LLC, as follows:

Alaska Gold Torrent LLC is subject to certain events of default under the Gold and Silver Prepayment Agreement including if, from the date of the Tranche 1 drawdown, Alaska Gold Torrent LLC fails to produce at least 5,000 and deliver to the Stream Investor at least 1,000 Ounces by the 18th month; produce at least 10,000 and deliver to the Stream Investor at least 2,000 Ounces by the 24th month; produce 20,000 and deliver to the Stream Investor at least 4,000 Ounces by the 36th month; deliver to the Stream Investor at least 10,000 Ounces by the 48th month; deliver to the Stream Investor at least 19,400 Ounces by the 60th month; and deliver to the Stream Investor at least 23,900 Ounces by the 72nd month.

The development plan is to initiate gold production based on the PFS and not based on a full feasibility study of the mineral reserves demonstrating that level of economic and technical viability. Readers are cautioned that there is increased uncertainty and higher risk of economic and technical failure associated with such production decisions.

On September 27, 2017, the Registrant, Alaska Gold and the Stream Investor agreed, after the satisfaction by the Registrant of a majority of the Tranche 1 closing conditions, to amend certain provisions of the Streaming Agreement and concurrently close on one-half of Tranche 1 in the amount of $3,250,000. It is anticipated that the second half of the first tranche, also in the amount of US $3,250,000, will be consummated on or about thirty (30) days, upon satisfaction of the final closing conditions.

On August 8, 2017 the closing conditions were met and the second amount of $3,250,000 was received.

We have not generated any revenues, have achieved losses since our inception, and rely upon the sale of our securities, loans and advances from related parties to fund our operations. We anticipate that we will incur substantial losses for the foreseeable future, and we are dependent upon outside financing to carry out our operations. Our unaudited consolidated interim financial statements for the period ended September 30, 2017 have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Critical Accounting Policies

Our unaudited interim financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our unaudited interim financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by our management.

Foreign Currency Translation

Our unaudited financial statements are presented in United States dollars. Transactions in currencies other than the U.S. dollar are translated into U.S. dollars at the exchange rate in effect at the balance sheet date for monetary assets and liabilities, and at historical exchange rates for non-monetary assets and liabilities. Expenses are translated at the average rates for the period, excluding amortization, which is translated on the same basis as the related assets. Resulting translation gains or losses are reflected in net loss.

Share-Based Payments

The Company records all share-based payments at fair value. Where equity instruments are granted to employees, they are recorded at the fair value of the equity instrument granted at the grant date. The grant date fair value is recognized through profit or loss over the vesting period, described as the period during which all the vesting conditions are to be satisfied.

Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received. When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the fair value is measured by use of a valuation model.

At each balance sheet date, the amount recognized as an expense is adjusted to reflect the actual number of stock options expected to vest. On the exercise of stock options, common stock is recorded for the consideration received and for the fair value amounts previously recorded to contributed surplus. The Company uses the Black-Scholes option pricing model to estimate the fair value of share-based payments.

Recent Accounting Guidance Adopted

The Company has adopted Accounting Standards Update (“ASU”) 2014-10, Development Stage Entities, which eliminates certain financial reporting requirements. As such, these interim financial statements no longer present inception-to-date information on the statements of operations, cash flows, and stockholders’ deficiency. In addition, these interim financial statements are no longer labeled as a, “development stage entity”.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-15, Presentation of Financial Statements-Going Concern . This ASU is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. It is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect it to have a material effect on the Company’s financial condition, results of operations, and cash flows.

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . This ASU amends ASC 360, Property, Plant and Equipment and expands the disclosures for discontinued operations, and requires new disclosures for disposals of individually significant components that do not meet the new definition of a discontinued operation and are classified as assets held for sale. These provisions are effective for annual and interim periods beginning after December 15, 2014. The Company does not expect it to have a material effect on the Company’s financial condition, results of operations, and cash flows.

Inflation

The amounts presented in the unaudited interim financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.