10-Q 1 form10q-2017.htm FORM 10-Q Ireland Inc. Form 10-Q - #2 - March 31, 2017- Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2017

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

For the transition period from ________to ________

COMMISSION FILE NUMBER 000-50033

IRELAND INC.
(Exact name of registrant as specified in its charter)

NEVADA 91-2147049
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

2360 West Horizon Ridge Parkway, Suite 100  
Henderson, Nevada 89052
(Address of principal executive offices) (Zip Code)

(702) 932-0353
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ ] Yes       [X] No

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

  Large accelerated filer [ ]   Accelerated filer [ ]
  Non-accelerated filer [ ]  (Do not check if a smaller reporting company) Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes     [X] No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of May 11, 2017, the Registrant had 272,898,347 shares of common stock outstanding.


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.

As used in this Quarterly Report, the terms “we,” “us,” “our,” “Ireland,” and the “Company” mean Ireland Inc. and its subsidiaries, unless otherwise indicated. All dollar amounts in this Quarterly Report are expressed in U.S. dollars, unless otherwise indicated.

2

 


IRELAND INC.
CONSOLIDATED BALANCE SHEETS

    (Unaudited)        
    March 31, 2017     December 31, 2016  
             
ASSETS    
             
Current assets            
   Cash $  3,364,485   $  56,359  
   Other receivables   3,646     2,279  
   Prepaid expenses   144,930     93,488  
             
       Total current assets   3,513,061     152,126  
             
Property and equipment, net   1,061,467     749,753  
Mineral properties   8,239,934     8,239,934  
Reclamation bonds   1,115,191     1,115,153  
Deposits   10,262     10,262  
             
       Total non-current assets   10,426,854     10,115,102  
             
       Total assets $  13,939,915   $  10,267,228  
             
LIABILITIES AND STOCKHOLDERS' EQUITY   
             
Current liabilities            
   Accounts payable $  192,076   $  772,720  
   Accounts payable - related party   44,036     761,442  
   Accrued payroll and related taxes   109,632     170,673  
   Convertible notes, net of discount   48,652     139,967  
   Due to related party   23,290     1,060,290  
             
       Total current liabilities   417,686     2,905,092  
             
Long-term liabilities            
   Asset retirement obligation   672,338     672,338  
             
       Total long-term liabilities   672,338     672,338  
             
       Total liabilities   1,090,024     3,577,430  
             
Commitments and contingencies - Note 8            
             
Stockholders' equity            

   Common stock, $0.001 par value; 400,000,000 shares authorized, 
        272,057,380 and 181,472,875 shares, respectively, issued and outstanding

  272,057     181,471  
   Additional paid-in capital   75,310,296     67,960,874  
   Accumulated deficit   (62,732,462 )   (61,452,547 )
             
       Total stockholders' equity   12,849,891     6,689,798  
             
       Total liabilities and stockholders' equity $  13,939,915   $  10,267,228  

See Accompanying Notes to These Consolidated Financial Statements
F-1


IRELAND INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

    For the three months ended  
    March 31, 2017     March 31, 2016  
             
Revenue $  -   $  -  
             
Operating expenses            
   Mineral exploration and evaluation expenses   258,507     262,015  
   Mineral exploration and evaluation expenses - related party   134,307     215,936  
   General and administrative   798,916     1,317,049  
   Depreciation   81,873     83,656  
             
         Total operating expenses   1,273,603     1,878,656  
             
Loss from operations   (1,273,603 )   (1,878,656 )
             
Other income (expense)            
   Interest income   2,323     1,710  
   Rental income - related party   5,409     5,202  
   Interest expense   (14,044 )   (544 )
             
         Total other income (expense)   (6,312 )   6,368  
             
Loss before income taxes   (1,279,915 )   (1,872,288 )
             
Income tax expense   -     -  
             
Net loss $  (1,279,915 ) $  (1,872,288 )
             
Loss per common share - basic and diluted $  (0.01 ) $  (0.01 )
             
Weighted average common shares outstanding - basic and diluted   202,675,305     166,912,710  

See Accompanying Notes to These Consolidated Financial Statements
F-2


IRELAND INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)

                            Total  
    Common Stock     Additional     Accumulated     Stockholders'  
    Shares     Amount     Paid-in Capital     Deficit     Equity  
                               
Balance, December 31, 2015   158,697,875   $  158,696   $  66,406,028   $  (49,116,868 ) $  17,447,856  
                               
Stock-based compensation   -     -     983,413     -     983,413  
                               
Exercise of Special Warrants, net   22,775,000     22,775     (23,150 )   -     (375 )
                               
Net loss, March 31, 2016   -     -     -     (1,872,288 )   (1,872,288 )
                               
Balance, March 31, 2016   181,472,875   $  181,471   $  67,366,291   $  (50,989,156 ) $  16,558,606  
                               
Balance, December 31, 2016   181,472,875   $  181,471   $  67,960,874   $  (61,452,547 ) $  6,689,798  
                               
Stock-based compensation   -     -     153,701     -     153,701  
                               
Investor relations expense   -     -     97,000     -     97,000  
                               
Exercise of stock options   1,100,000     1,100     56,900     -     58,000  
                               
Exercise of stock warrants   38,455,921     38,458     3,038,016     -     3,076,474  
                               
Debt and accrued interest converted into shares   1,659,461     1,659     104,546     -     106,205  
                               
Issuance of common stock in private placement,
   $0.08 per share, net of $902 issuance fees
  49,369,123     49,369     3,899,259     -     3,948,628  
                               
Net loss, March 31, 2017   -     -     -     (1,279,915 )   (1,279,915 )
                               
Balance, March 31, 2017   272,057,380   $  272,057   $  75,310,296   $  (62,732,462 ) $  12,849,891  

See Accompanying Notes to These Consolidated Financial Statements
F-3


IRELAND INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

    For the three months ended  
    March 31, 2017     March 31, 2016  
             
CASH FLOWS FROM OPERATING ACTIVITIES            
   Net loss $  (1,279,915 ) $  (1,872,288 )
   Adjustments to reconcile loss from operations to net cash 
      used in operating activities:
       
           Depreciation   81,873     83,656  
           Stock-based compensation   153,701     983,413  
           Investor relations expense   97,000     -  
           Amortization of debt discount   8,685     -  
   Changes in operating assets and liabilities:            
           Other receivables   (1,367 )   3,266  
           Prepaid expenses   (51,442 )   101,381  
           Reclamation bonds and other deposits   (38 )   6,146  
           Accounts payable and accrued liabilities   (366,656 )   456,671  
             
 Net cash used in operating activities   (1,358,159 )   (237,755 )
             
CASH FLOWS FROM INVESTING ACTIVITIES            
   Purchase of property and equipment   (393,587 )   -  
             
   Net cash used by investing activities   (393,587 )   -  
             
CASH FLOWS FROM FINANCING ACTIVITIES            
   Proceeds from private placements   2,044,000     -  
   Proceeds from exercise of stock options and warrants   3,016,774     -  
   Advances due to related party   -     145,000  
   Financing issuance costs   (902 )   (375 )
             
   Net cash provided by financing activities   5,059,872     144,625  
             
NET CHANGE IN CASH   3,308,126     (93,130 )
             
CASH AT BEGINNING OF PERIOD   56,359     103,343  
             
CASH AT END OF PERIOD $  3,364,485   $  10,213  
       
SUPPLEMENTAL INFORMATION            
             
Interest paid $  2,797   $  544  
             
Income taxes paid $  -   $  -  
             
Non-cash investing and financing activities:            
             
   Accounts payable, accrued liabilities and amounts due to related 
       party settled with issuance of common stock at $0.08 per share
$  1,998,230   $  -  
             
   Accounts payable settled with issuance of common stock at $0.05 per share $  25,000   $  -  
             

   Convertible notes and accrued interest converted into shares of
       common stock at $0.064 per share

$  106,205   $  -  

See Accompanying Notes to These Consolidated Financial Statements
F-4


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.

DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES

   

Description of business - Ireland Inc. (the “Company”) is primarily focused on the acquisition and exploration of mining properties and has been in the exploration stage since its formation. The Company has not yet realized any revenues from its planned operations. Upon identification of commercially minable reserves, the Company expects to actively prepare the site for mineral extraction and enter the development stage.

   

History - The Company was incorporated on February 20, 2001 under the laws of the State of Nevada under the name Merritt Ventures Corp. On December 19, 2005, the Company changed its name to Ireland Inc.

   

Basis of presentation - The financial statements present the consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows of the Company. These consolidated financial statements have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments and disclosures necessary for the fair presentation of these interim statements have been included. All such adjustments are, in the opinion of management, of a normal recurring nature. The results reported in these interim consolidated financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 10, 2017.

   

Going concern - The accompanying consolidated financial statements were prepared on a going concern basis in accordance with GAAP. The going concern basis of presentation assumes that the Company will continue in operation for the next twelve months and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company’s history of losses, working capital deficit, minimal liquidity and other factors raise substantial doubt about the Company’s ability to continue as a going concern. In order for the Company to continue operations beyond the next twelve months and be able to discharge its liabilities and commitments in the normal course of business, it must raise additional equity or debt and continue cost cutting measures. There can be no assurance that the Company will be able to achieve sustainable profitable operations or obtain additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to management.

   

If the Company continues to incur operating losses and does not raise sufficient additional capital, material adverse events may occur including, but not limited to, 1) a reduction in the nature and scope of the Company’s operations and 2) the Company’s inability to fully implement its current business plan. There can be no assurance that the Company will successfully improve its liquidity position. The accompanying consolidated financial statements do not reflect any adjustments that might be required resulting from the adverse outcome relating to this uncertainty.

   

As of March 31, 2017, the Company had cumulative net losses of $62,732,462 from operations and had not commenced its commercial mining and mineral processing operations; rather it is still in the exploration stage. For the quarter ended March 31, 2017, the Company incurred a net loss of $1,279,915, had negative cash flows from operating activities of $1,358,159 and will incur additional future losses due to planned continued exploration expenses.

F-5


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.

DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

   

During the quarter ended March 31, 2017, the Company raised $5,060,774 in cash and settled $2,023,230 in current obligations through completion of a private placement and through warrant and stock option exercises. Management believes that these funds will allow the Company to continue its operations for the next twelve months. Additionally, the Company may reduce expenses and defer payment of certain obligations where available. The Company is focused on continuing to reduce costs and obtaining additional funding. There is no assurance that such funding will be available on terms acceptable to the Company, or at all. If the Company raises additional funds by selling additional shares of capital stock, securities convertible into shares of common stock or the issuance of convertible debt, the ownership interest of the Company’s existing common stock holders will be diluted.

   

Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Columbus Minerals Inc. (“CMI”) (including its wholly- owned single-member LLC subsidiary, Columbus Salt Marsh LLC (“CSM”)). Intercompany accounts and transactions have been eliminated.

   

Use of estimates - The preparation of financial statements in conformity with GAAP 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 revenue and expenses during the reporting period. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions include the valuation of stock-based compensation, impairment analysis of long-lived assets, asset retirement obligations and the realizability of deferred tax assets. Actual results could differ from those estimates.

   

Mineral properties - Costs of acquiring mineral properties are capitalized upon acquisition. Exploration costs and costs to maintain mineral properties are expensed as incurred while the project is in the exploration stage. Development costs and costs to maintain mineral properties are capitalized as incurred while the property is in the development stage. When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production basis over the proven and probable reserves.

   

Mineral exploration and development costs - Exploration expenditures incurred prior to entering the development stage are expensed and included in mineral exploration and evaluation expenses.

   

Property and equipment - Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which range from 3 to 20 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statement of operations.

   

Impairment of long-lived assets - The Company reviews and evaluates its long-lived assets for impairment at each balance sheet date due to its planned exploration stage losses and documents such impairment testing. Mineral properties in the exploration stage are monitored for impairment based on factors such as the Company’s continued right to explore the property, exploration reports, drill results, technical reports and continued plans to fund exploration programs on the property.

F-6


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.

DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

   

The tests for long-lived assets in the exploration, development or producing stage that have a value beyond proven and probable reserves will be monitored for impairment based on factors such as current market value of the mineral property and results of exploration, future asset utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset, including evaluating its reserves beyond proven and probable amounts.

   

The Company's policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable either by impairment or by abandonment of the property. The impairment loss is calculated as the amount by which the carrying amount of the assets exceeds its fair value. While the Company incurred losses from operations, these losses have not been in excess of planned expenditures on the specific mineral properties in order to ultimately realize their value.

   

Asset retirement obligation – Future obligations to retire an asset, including site closure, are recorded as a liability at fair value in the period incurred. The fair value determination is based on estimated future cash flows, the current credit-adjusted risk-free interest rate and an estimated inflation factor. The value of the liability is evaluated at least annually or as new information becomes available. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability will be reduced.

   

Future reclamation expenditures are difficult to estimate in many circumstances due to the early stage nature of the exploration project, the uncertainties associated with defining the nature and extent of environmental disturbance, the application of laws and regulations by regulatory authorities and changes in reclamation technology.

   

Per share amounts - Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities, such as stock options and warrants. Potentially dilutive shares are excluded from the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise price of the instrument exceeds its fair market value. 48,808,333 and 101,942,357 stock options and warrants were outstanding at March 31, 2017 and 2016, respectively, but were not considered in the computation of diluted earnings per share as their inclusion would be anti-dilutive.

   

Stock-based compensation - Stock-based compensation awards are recognized in the consolidated financial statements based on the grant date fair value of the award which is estimated using the Binomial Lattice option pricing model. The Company believes that this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for the actual exercise behavior of option holders. The compensation cost is recognized over the requisite service period which is generally equal to the vesting period. Upon exercise, shares issued will be newly issued shares from authorized common stock.

   

The fair value of performance-based stock option grants is determined on their grant date through use of the Binomial Lattice option pricing model. The total value of the award is recognized over the requisite service period only if management has determined that achievement of the performance condition is probable. The requisite service period is based on management’s estimate of when the performance condition will be met. Changes in the requisite service period or the estimated probability of achievement can materially affect the amount of stock-based compensation recognized in the consolidated financial statements.

F-7


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.

DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

   

The fair value of market-based stock option grants is determined on their grant date through use of an option pricing model which uses a combination of Monte Carlo simulation and a Trinomial Lattice function. The requisite service period for market-based awards is derived from the model. Achievement of the market condition earlier than estimated can materially affect the amount of stock- based compensation recognized in the consolidated financial statements.

   

Short-term inducements are treated as a modification of an existing award in the period the holder accepts the offer.

   

Income taxes - For interim reporting periods, the Company uses the annualized effective tax rate (“AETR”) method to calculate its income tax provision. Under this method, the AETR is applied to the interim year-to-date pre-tax losses to determine the income tax benefit or expense for the year-to- date period. The income tax benefit or expense for a quarter represents the difference between the year-to-date income tax benefit or expense for the current year-to-date period less such amount for the immediately preceding year-to-date period. Management considers the impact of all known events in its estimation of the Company’s annual operating results and AETR.

   

The Company follows the liability method of accounting for income taxes. This method recognizes certain temporary differences between the financial reporting basis of liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset as measured by the statutory tax rates in effect. The effect of a change in tax rates is recognized in operations in the period that includes the enactment date. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some or all of the deferred income tax asset will not be realized.

   

For acquired properties that do not constitute a business, a deferred income tax liability is recorded on GAAP basis over income tax basis using statutory federal and state rates. The resulting estimated future income tax liability associated with the temporary difference between the acquisition consideration and the tax basis is reflected as an increase in the total purchase price which is then applied to the underlying acquired assets in the absence of there being a goodwill component associated with the acquisition transactions.

F-8


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.

DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

   

Recent accounting standards - From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. The Company has evaluated all of the recent accounting pronouncements and unless otherwise discussed, believes they will not have a material effect on the financial statements.

   

In August 2016, the FASB issued ASU No. 2016-15, which clarifies diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update to the standard is effective for the Company beginning January 1, 2018, with early application permitted. The Company is evaluating the effect the guidance will have on its consolidated financial statements.

   

In March 2016, ASU No. 2016-09 was issued related to stock based compensation. The guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective beginning June 1, 2017, with early application permitted. Adoption of the new guidance is being evaluated.

   

In February 2016, ASU No. 2016-02 was issued related to leases. The new guidance modifies the classification criteria and requires lessees to recognize the assets and liabilities arising from most leases on the balance sheet. This update is effective in fiscal years beginning after December 15, 2018, and early adoption is permitted. Adoption of the new guidance is being evaluated.

   
2.

PROPERTY AND EQUIPMENT

   

Property and equipment consisted of the following:


      March 31, 2017     December 31, 2016  
            Accumulated     Net book           Accumulated     Net book  
      Cost     depreciation     value     Cost     depreciation     value  
                                       
  Furniture and fixtures $ 61,405   $ (55,525 ) $ 5,880   $ 61,405   $ (53,072 ) $ 8,333  
  Computers and equipment   55,626     (43,561 )   12,065     57,785     (46,548 )   11,237  
  Land   30,000     -     30,000     30,000     -     30,000  
  Site improvements   2,925,731     (2,788,356 )   137,375     2,925,731     (2,783,133 )   142,598  
  Site equipment   2,570,135     (1,848,155 )   721,980     2,179,803     (1,788,885 )   390,918  
  Vehicles   23,595     (23,595 )   -     23,595     (23,595 )   -  
  Building   500,000     (345,833 )   154,167     500,000     (333,333 )   166,667  
                                       
    $ 6,166,492   $ (5,105,025 ) $ 1,061,467   $ 5,778,319   $ (5,028,566 ) $ 749,753  

Depreciation expense was $81,873 and $83,656 for the quarters ended March 31, 2017 and 2016, respectively.

F-9


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

3.

MINERAL PROPERTIES

   

Mineral Properties – On February 20, 2008, the Company acquired a 100% interest in the Columbus Project by way of merger with Columbus Brine Inc. (“CBI”). Prior to the merger, the Company held a 15% interest in the Columbus Project by satisfying its option agreement requirements. Pursuant to the option assignment agreement, the Company granted and continues to have a 5% net smelter return royalty to NMC, one of the principal stockholders of the Company. At March 31, 2017 and December 31, 2016, mineral properties amounted to $8,239,934, respectively.

   

Reclamation Bonds - The Company maintains required reclamation bonding with the BLM. As of March 31, 2017 and December 31, 2016, reclamation bonding amounted to $1,115,191 and $1,115,153, respectively.

   

Asset Retirement Obligation – The asset retirement obligation relates to the Columbus Project and amounted to $672,338 as of March 31, 2017 and December 31, 2016. The estimated costs were discounted using credit adjusted risk-free interest rates of 4.25% and an inflation rates of 3.78%.

   
4.

CONVERTIBLE NOTES

   

During the year ended December 31, 2016, the Company entered into convertible note agreements in the amount $150,000. The notes accrue interest at 10% and mature $100,000 in June 2017 and $50,000 in July 2017. The notes may be converted into units at a conversion price of $0.20 with each unit consisting of one share of common stock and one warrant exercisable at $0.30 per share for a period of 5 years. Alternatively, if the Company completes a subsequent equity financing, the lender may convert the notes into common stock or common stock equivalents that the lender would have been entitled to had the lender participated in the subsequent equity financing at an aggregate subscription price equal to 125% of the full amount of the outstanding principal and any accrued but unpaid interest thereon at the date the conversion right is exercised (Alternative Conversion Option).

   

The Alternative Conversion Option is an embedded conversion feature which is required to be bifurcated and accounted for under derivative accounting; however, the amount was determined to be immaterial.

F-10


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

4.

CONVERTIBLE NOTES (continued)

   

As additional consideration, the Company issued 600,000 detachable warrants. The warrants are exercisable at $0.20 per share expiring 400,000 in June 2021 and 200,000 in July 2021. The note proceeds were allocated between the two elements based on their relative fair values. The fair value of the warrants, in the amount of $20,000 was recorded as a debt discount and is being amortized to interest expense over the terms of the notes. The Company used the following assumptions to estimate the fair of the warrants:


Dividend yield -
Expected volatility 126.58%
Risk-free interest rate 1.01 – 1.10%
Expected life (years) -

The expected volatility is based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied yield available on US Treasury zero-coupon issues over equivalent lives of the warrants. The expected life is impacted by all of the underlying assumptions and calibration of the Company’s model. Significant increases or decreases in inputs would result in a significantly lower or higher fair value measurement.

During the quarter ended March 31, 2017, $100,000 of convertible notes and $6,205 of accrued interest were converted into shares of common stock at $0.064 per share through use of the Alternative Conversion Option.

The carrying value of the convertible notes, net of discount was comprised of the following at March 31, 2017:

Convertible notes at face value $  50,000  
Unamortized discount   (1,348 )
       
Convertible notes, net of discount $  48,652  

Interest expense related to the convertible notes included the following for the quarter ended March 31, 2017:

Interest rate at 10% $  2,562  
Amortization of debt discount   8,685  
       
Total interest expense on convertible notes $  11,247  

Subsequent to quarter end, the remaining convertible note and accrued interest was converted into shares of common stock at a price of $0.064 per share.

   
5.

STOCKHOLDERS’ EQUITY

   

During the quarter ended March 31, 2017, stockholders’ equity activity consisted of the following:

   

Warrant modifications and inducements – The Company had 43,566,827 warrants outstanding expiring on December 31, 2016. Such warrants were issued in private placement transactions completed between 2007 and 2012 and had a weighted average exercise price of $0.80. Effective December 27, 2016, the Company reduced the exercise price of each warrant to $0.08 per share and extended the expiration date to January 31, 2017. On January 17, 2017, the warrants were further extended to February 17, 2017. No additional expense was recognized as the incremental fair market value of the modification was determined to be zero.

F-11


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

5.

STOCKHOLDERS’ EQUITY (continued)

   

Additionally, the Company had 35,133,333 warrants outstanding expiring on various dates through July 2021. Such warrants were issued in private placement transactions completed between 2014 and 2016 and had a weighted average exercise price of $0.53 per share. Effective December 27, 2016, the Company temporarily reduced the exercise price of each warrant to $0.08 per share for a period expiring January 31, 2017 after which, the warrants are exercisable at their original terms. On January 17, 2017, the temporary reduction period was extended to February 17, 2017. The Company issued 9,700,000 shares of common stock from the exercise of warrants during the inducement period resulting in investor relations expense of $97,000.

   

Proceeds received from warrant exercises included $2,983,774 in cash and settlement of $92,700 of accounts payable.

   

The Company used the following assumptions to estimate the fair values of the warrant extensions:


Dividend yield -
Expected volatility 117.37%
Risk-free interest rate 0.50 – 0.52%
Expected life (years) -

Private placement – On March 29, 2017, the Company completed a private placement offering of 49,369,123 shares of common stock at a price of $0.08 per share. Gross proceeds received from the private placement included $2,044,000 of cash and settlement of $1,905,530 of accounts payable, accrued liabilities and amounts due to a related party. Fees related to the issuance were $902.

Stock option exercises – During the quarter ended March 31, 2017, the Company issued 1,100,000 shares of common stock from the exercise of stock options. Proceeds received from stock option exercises included $33,000 in cash and settlement of $25,000 of accounts payable.

During the quarter ended March 31, 2016, stockholders’ equity activity consisted of the following:

Special Warrants – During January and February 2016, a total of 1,750,000 Special Warrants were exercised into units. Additionally, on February 28, 2016, a total of 21,025,000 Special Warrants were automatically converted into units. Each unit consisted of one share of the Company’s common stock and one warrant entitling the holder to purchase one additional share of common stock at a price of $0.40 per share, expiring on February 28, 2020. The Special Warrants were converted into units on a 1:1 basis without the payment of any additional consideration in accordance with the terms of the agreements. As of February 28, 2016, all Special Warrants had been converted into units.

At March 31, 2017, the Company’s outstanding warrants issued in financing transactions consisted of the following:

Shares Underlying    
Outstanding Warrants Exercise Price Expiration Date
     
5,050,000 0.40 March 2019
1,333,333 0.45 March 2019
18,650,000 0.40 February 2020
200,000 0.20 June 2021
200,000 0.20 July 2021
     
25,433,333    

F-12


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6.

STOCK-BASED COMPENSATION

   

Stock-based compensation includes grants of stock options and purchase warrants to eligible directors, employees and consultants as determined by the Board of Directors.

   

Stock option plans - On March 27, 2007, the Board of Directors adopted the 2007 Stock Incentive Plan (the “Plan”). Under the terms of the Plan, options to purchase up to 6,000,000 shares of the Company’s common stock, subject to an increase each quarter equal to 15% of the increase in the total number of outstanding shares during the previous quarter, may be granted to officers, directors, employees and eligible consultants. As of March 31, 2017, the Company had granted 25,486,916 options under the Plan with a weighted average exercise price of $0.37 per option. 18,125,000 options were outstanding as of March 31, 2017.

   

Stock warrants - Upon approval from the Board of Directors, the Company grants stock warrants to consultants for services performed.

   

Valuation of awards – At March 31, 2017, the Company had options outstanding that vest on three different types of vesting schedules:


  1.

Service-based;

     
  2.

Performance-based; and

     
  3.

Market-based.

The Company used the following assumptions to estimate the fair values of the options granted for the quarters ended:

  March 31, 2017 March 31, 2016
Dividend yield - -
Expected volatility 117.37 – 148.20% 132.45% - 164.23%
Risk-free interest rate 0.52 – 1.48% 0.30 - 1.08%
Expected life (years) 0.10 – 2.10 0.00 - 3.20

Inputs used in these models are determined as follows:

  1.

The expected life represents the weighted-average period the awards are expected to remain outstanding and is a derived output of the option pricing models. The expected life is impacted by all of the underlying assumptions and calibration of the Company’s models.

     
  2.

The requisite service period for market-based stock option awards is a derived output of the hybrid Monte Carlo-Trinomial Lattice model.

     
  3.

Volatility is based on the average historical volatility levels of a representative peer group or the Company’s common stock depending on the life of the options.

     
  4.

The risk-free interest rate is based on the implied yield available on U.S. Treasury zero- coupon issues over the equivalent contractual lives of the options.

F-13


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6.

STOCK-BASED COMPENSATION (continued)

   

During the quarter ended March 31, 2017, stock based compensation activity was as follows:


  a)

On December 27, 2016, the Company’s Board of Directors unilaterally determined to amend 1,367,197 stock options by extending their expiration dates and reducing their exercise price to $0.08 per share. The options were granted on various dates between 2009 and 2011 and had a weighted average exercise price of $0.61 per share. The expiration dates of all of the options were extended to January 31, 2017. On January 17, 2017, the Board of Directors unilaterally determined to further extend the expiration dates and reduced exercise price period to February 17, 2017. The modification resulted in incremental compensation cost of $2,587. No options were exercised during the inducement period.

     
 

Additionally, the Company’s Board of Directors unilaterally determined to amend 7,600,000 stock options by temporarily reducing their exercise price to $0.08 per share for a period ending January 31, 2017. The options were granted on various dates between 2010 and 2015 and had a weighted average exercise price of $0.56 per share. On January 17, 2017, the Board of Directors unilaterally determined to further extend the reduced exercise price period to February 17, 2017. After the inducement period the options are exercisable under their previous terms. During the inducement period, 100,000 stock options were exercised for gross proceeds of $8,000. Compensation cost related to the exercise was $2,028.

     
 

The Company’s Board of Directors also unilaterally determined to amend 4,800,000 warrants by extending their expiration dates and reducing their exercise price to $0.08 per share. The warrants were granted to consultants on various dates between 2009 and 2011 and had a weighted average exercise price of $0.74 per share. The expiration dates of all of the warrants were extended to January 31, 2017. On January 17, 2017, the Board of Directors unilaterally determined to further extend the expiration dates and reduced exercise price period to February 17, 2017. The modification resulted in no incremental compensation cost. No warrants were exercised during the inducement period.

     
 

Additionally, the Company’s Board of Directors unilaterally determined to amend 4,950,000 warrants by temporarily reducing their exercise price to $0.08 per share for a period ending January 31, 2017. The warrants were granted to consultants on February 26, 2016 and had a weighted average exercise price of $0.40 per share. On January 17, 2017, the Board of Directors unilaterally determined to further extend the reduced exercise price period to February 17, 2017. After the inducement period the warrants are exercisable under their previous terms. No warrants were exercised during the inducement period.

     
  b)

On February 17, 2017, the Company granted 300,000 warrants to a consultant exercisable at a price of $0.14 per share for a period expiring on February 17, 2020. The warrants were issued in consideration for services provided.

During the quarter ended March 31, 2016, stock based compensation activity was as follows:

  a)

On March 25, 2016, the Company’s Board of Directors unilaterally determined to amend 3,067,197 stock options by extending their expiration dates. The options were granted at various dates between 2009 and 2015 and have a weighted average exercise price of $0.49 per share. The expiration dates of all of the options were extended to December 31, 2016. In all other respects, the terms and conditions of the options remain the same.

F-14


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6.

STOCK-BASED COMPENSATION (continued)


  b)

On February 26, 2016, the Company granted 4,950,000 warrants to consultants exercisable at a price of $0.40 per share for a period expiring on February 28, 2020. The warrants were issued in consideration for services provided. 4,500,000 of the warrants were granted to NMC who is a related party as discussed in Note 10.

The total expense related to the granting, vesting and modification of all stock-based compensation awards was $153,701 and $983,413 for the quarters ended March 31, 2017 and 2016, respectively. Such expenses are included in general and administrative expense and mineral exploration and evaluation expense on the consolidated statements of operations.

For the quarter ended March 31, 2017, the Company received $58,000 from the exercise of stock options; the related tax benefit amounted to $26,600 and the intrinsic value was $76,000. For the quarter ended March 31, 2016, no stock options were exercised.

The following table summarizes the Company’s stock-based compensation activity for the quarter ended March 31, 2017:

                        Weighted        
            Weighted           Average        
            Average           Remaining        
            Grant     Weighted     Contractual     Aggregate  
      Number of     Date Fair     Average     Life     Intrinsic  
      Shares     Value     Exercise Price     (Years)     Value  
                                 
  Outstanding, December 31, 2016   31,562,197   $  0.20   $  0.41     2.92        
  Options/warrants granted   300,000     0.08     0.14     2.88        
  Options/warrants expired   (7,387,197 )   0.39     0.60     -        
  Options/warrants exercised   (1,100,000 )   0.41     0.05     -        
                                 
  Outstanding, March 31, 2017   23,375,000   $  0.13   $  0.35     3.69   $  403,500  
                                 
  Exercisable, March 31, 2017   12,025,000   $  0.19   $  0.45     2.22   $  -  

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the quarter ended in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable.

The following table summarizes the changes of the Company’s stock-based compensation awards subject to vesting during the quarter ended March 31, 2017:

            Weighted Average  
      Number of     Grant Date  
      Shares     Fair Value  
               
  Unvested, December 31, 2016   11,350,000   $  0.12  
  Granted   -     -  
  Expired   -     -  
  Vested   -     -  
               
  Unvested, March 31, 2017   11,350,000   $  0.12  

As of March 31, 2017, there was $373,231 of total unrecognized compensation cost related to unvested stock-based compensation awards. The weighted average period over which this cost will be recognized was 0.59 years as of March 31, 2017.

F-15


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

7.

INCOME TAXES

   

No income tax expense or benefit was recognized for the quarters ended March 31, 2017 or 2016. The effective tax rates of 0% differed from the U.S. statutory rate of 35% primarily due to valuation allowances on the Company’s net deferred tax assets due to the uncertainty of realizing those assets.

   

The overall effective income tax rate for the year could be different from the effective tax rate for the quarter ended March 31, 2017. A summary of the Company’s deferred tax assets and liabilities and federal net operating loss carryforward are included in Note 8 “Income Taxes” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

   

The Company and its subsidiary file income tax returns in the United States. These tax returns are subject to examination by taxation authorities provided the years remain open under the relevant statutes of limitations, which may result in the payment of income taxes and/or decreases in its net operating losses available for carryforward. The Company has losses from inception to date, and thus all years remain open for examination. While the Company believes that its tax filings do not include uncertain tax positions, the results of potential examinations or the effect of changes in tax law cannot be ascertained at this time. The Company does not have any tax returns currently under examination by the Internal Revenue Service.

   
8.

COMMITMENTS AND CONTINGENCIES

   

Lease obligations – The Company rents office space under an operating lease agreement. The lease expires in August 2017 and provides an option to renew the lease for an additional four years. In the normal course of business, it is expected that this lease will be renewed or replaced by a lease of a similar property. The lease requires increases in future annual rental payments of 4% per year. Under the lease agreement, the Company is also required to pay monthly operating expenses of approximately $748.

   

Rental expense for office space was $15,635 and $15,170 for the quarters ended March 31, 2017 and 2016, respectively.

   

Columbus Project – Pursuant to the option assignment agreement dated March 30, 2007, as amended August 8, 2007, the Company granted a 5% net smelter return royalty to NMC, one of the principal stockholders of the Company. The Columbus Project is further discussed in Note 3.

   

Stand-by letter of credit – A financial institution has issued a stand-by letter of credit to the BLM for up to $100,000 on behalf of the Company. The stand-by letter of credit was issued to guarantee the Company’s compliance with reclamation bonding requirements. The letter of credit expires on June 24, 2017 and will be automatically renewed for one year periods unless either party elects not to renew. The Company is required to maintain a $100,000 certificate of deposit with the financial institution. The Company is also required to pay an annual fee of 2% of the total value of the letter of credit. As of March 31, 2017, no draws have been made on the letter of credit.

   

Consultant bonus – In April 2012, the Company entered into an Agreement for Services (the “Agreement”) with a consulting firm. The Company agreed to pay the firm at their standard rates in exchange for services provided. In addition, the Company agreed to pay bonuses to the firm upon completion of milestones as defined in the Agreement. The bonuses consist of cash payments up to $400,000 and issuance of up to 3,000,000 warrants at a price of $0.90 per share and expiring June 30, 2017. The Agreement does not contain any performance commitments; therefore, the fair value of the warrants will be measured and recognized on the dates that the milestones are reached. As of March 31, 2017, no milestones have been reached for which a bonus was due or paid.

F-16


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

9.

CONCENTRATIONS

   

Concentration of credit risk - The Company maintains its cash accounts in financial institutions. Cash accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250,000 per financial institution. The Company has never experienced a material loss or lack of access to its cash accounts; however, no assurance can be provided that access to the Company’s cash accounts will not be impacted by adverse conditions in the financial markets. At March 31, 2017, the Company had $2,879,530 in excess of FDIC insured limits.

   

Concentration of activity - The Company currently utilizes a metallurgical consulting firm to perform significant portions of its exploration work programs. A change in the lead metallurgical consulting firm could cause a delay in the progress of the Company’s exploration programs and would cause the Company to incur significant transition expense and may affect operating results adversely.

   
10.

RELATED PARTY TRANSACTIONS

   

DOSA - DOSA is a consulting firm owned by the Company’s CEO. Services provided by NMC are coordinated for the Company by DOSA. No management fees are billed to the Company for these services. Details of these transactions are provided below. The CEO’s salary and reimbursable expenses are also paid to DOSA. During the quarter ended March 31, 2017, $63,900 of amounts due to DOSA were settled with the issuance of 798,750 shares of common stock at $0.08 per share.

   

NMC - NMC is the Company’s largest shareholder. NMC and its affiliates own approximately 23.8% of the Company’s outstanding common stock and is the Company’s lead consultant on technical exploration matters.

   

The following table provides details of transactions between the Company and NMC for the quarters ended:


    March 31,     March 31,  
    2017     2016  
             
Reimbursement of expenses $ 29,307   $ 110,936  
Consulting services provided   105,000     105,000  
             
Mineral and exploration expense – related party $ 134,307   $ 215,936  

At March 31, 2017 and December 31, 2016, the Company owed DOSA $44,036 and $761,442, respectively, for NMC fees and reimbursements. During the quarter ended March 31, 2017, accounts payable of $731,800 were settled with the issuance of 9,147,500 shares of common stock at $0.08 per share and $25,000 of accounts payable were settled with issuance of 500,000 shares of common stock at $0.05 per share.

During the year ended December 31, 2016, NMC advanced the Company $1,037,000 for working capital purposes. During the quarter ended March 31, 2017, the amount was settled with issuance of 12,962,500 shares of common stock at $0.08 per share.

Pursuant to an option assignment agreement related to the Columbus Project, the Company granted a 5% net smelter return royalty to NMC as further discussed in Note 3.

F-17


IRELAND INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

10.

RELATED PARTY TRANSACTIONS

   

Searchlight Minerals Corp. (“SMC”) – The Company leases corporate office space on month-to- month terms to SMC. NMC is a shareholder in both the Company and SMC. Additionally, one of the Company’s consultants is an officer and director of SMC. Total rent income earned was $5,409 and $5,202 for the quarters ended March 31, 2017 and 2016, respectively. No amounts were due from SMC as of March 31, 2017 or December 31, 2016.

   

Accrued director fees settlement – During the quarter ended March 31, 2017, the Company settled $40,000 of accrued director fees with the issuance of 500,000 shares of the common stock at a price of $0.08 per share.

   

Former officers - Included in due to related parties are amounts due to former officers of the Company. At March 31, 2017 and December 31, 2016, the remaining amount due was $23,290.

   
11.

SUBSEQUENT EVENTS

   

Convertible notes – Subsequent to year end, $50,000 of convertible notes and accrued interest were converted into shares at a price of $0.064 per share.

F-18



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

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q constitute "forward-looking statements.” These statements, identified by words such as “plan,” "anticipate,” "believe,” "estimate,” "should,” "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under the caption "Part II, Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”), particularly our periodic reports filed with the SEC pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”).

OVERVIEW

We were incorporated on February 20, 2001 under the laws of the State of Nevada. We are an exploration stage mineral exploration company focused on the discovery and extraction of precious metals from mineral deposits in the Southwestern United States.

Our lead project, the “Columbus Project,” is a prospective gold, silver and calcium carbonate property located in Esmeralda County, Nevada. The Columbus Project consists of 138 mineral claims covering approximately 6,778 acres, plus an additional 80 acres of private land, for a total of 6,858 acres including a 380 acre Permitted Mine Area (60-acre mill site and mill facility, 266-acre mine site with 54 acres defined as “undisturbed area”). Our current permits allow us to mine up to 792,000 tons per year to 40 feet in depth for the purpose of extracting precious metals and calcium carbonate from the Permitted Mine Area. In addition, we own 80 acres of land in the southeast quadrant of the project. Our current exploration efforts are focused on the North and South Sand Zones of the Columbus Project.

The discussion provided in this Quarterly Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the United States Securities and Exchange Commission (the “SEC”) on April 11, 2017.

RECENT CORPORATE DEVELOPMENTS

The following significant corporate developments occurred since the completion of our fiscal year ended December 31, 2016:

Reduced Warrant Exercise Price Offer

Effective December 27, 2016, our Board of Directors approved amendments to our 88,450,162 outstanding share purchase warrants (the “Outstanding Warrants”) to temporarily reduce the exercise price of the Outstanding Warrants to $0.08 per share (the “Temporary Warrant Price Reduction”) until 5:00 pm (Pacific Time) on January 31, 2017 (subsequently extended to February 17, 2017, as extended, the “Reduced Price Deadline”).

In conjunction with amending the exercise price for the Outstanding Warrants, we extended the term of 48,366,829 Outstanding Warrants issued by the Company between 2007 and 2012 that were previously scheduled to expire on December 31, 2016 (collectively, the “Expiring Warrants”). The Expiring Warrants were extended to the Reduced Price Deadline. Any Expiring Warrants that were not exercised by the Reduced Price Deadline have expired and are no longer exercisable.

The Temporary Warrant Price Reduction was also approved for our remaining 40,083,333 Outstanding Warrants that were not scheduled to expire prior to the Reduced Price Deadline (the “Non-Expiring Warrants”). Any Non-Expiring Warrants that were not exercised by the Reduced Price Deadline, are still exercisable in accordance with their original terms, including the exercise price set forth under the terms of the Non-Expiring Warrants.

3


A total of 38,455,921 shares were issued between January 20, 2017 and February 27, 2017 upon the exercise of Outstanding Warrants, for total gross proceeds of $3,076,474.

Amendments to Outstanding Stock Options

In conjunction with the Temporary Warrant Price Reduction, our Board also approved amendments to certain options granted under our 2007 Stock Incentive Plan (the “Plan”). We reduced the exercise price of 1,367,197 options granted under the Plan to directors and executive officers of the Company to $0.08 per share (the “Temporary Option Price Reduction”) that were scheduled to expire on December 31, 2016 (the “Expiring D&O Plan Options”) and extended the term of the Expiring D&O Plan Options to the Reduced Price Deadline. Expiring D&O Plan Options that were not exercised by the Reduced Price Deadline, expired and have ceased to be exercisable. No Expiring D&O Plan Options were exercised by the Reduced Price Deadline, and all Expiring D&O Plan Options have expired.

Our Board also approved the Temporary Option Price Reduction for 7,600,000 options granted under the Plan to directors, executive officers and certain consultants that qualify as “accredited investors” as defined in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) that were not expiring (the “Amended Non-Expiring Plan Options”). Amended Non-Expiring Plan Options not exercised by the Reduced Price Deadline, may still be exercised in accordance with their original terms, including satisfaction of any vesting requirements and payment of the exercise price set forth under the terms of their option grant. A total of 100,000 Amended Non-Expiring Plan Options were exercised by outside consultants of the Company before the Reduced Price Deadline.

Our Board also approved an extension to 2,375,000 options granted under the Plan to former directors and officers (the “Former D&O Options”) to May 31, 2017. The exercise price of the Former D&O Options was not reduced, and are exercisable at the exercise price set forth under the terms of their option grant. As of the date of filing of this Quarterly Report on Form 10-Q, a total of 500,000 Former D&O Options have been exercised at a price of $0.05 per share.

Private Placement Offering at $0.08 per Share

On March 29, 2017, we completed a private placement offering of 49,369,123 shares of common stock at a price of $0.08 per share, for total gross proceeds of $3,949,530. The offering was completed pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) provided by Rule 506(b) of Regulation D on the basis that each of the subscribers is an “accredited investor” as defined in Regulation D, and we did not engage in any general solicitation or general advertisement in connection with the offering.

Directors, officers and other affiliates participated in the private placement as follows:

Name   Relationship     No. of Shares     Purchase Price  
Douglas D.G. Birnie   Director / Officer     500,000   $ 40,000  
Mark Brennan   Director     250,000   $ 20,000  
Nanominerals Corp.   Significant Shareholder     21,250,000   $ 1,700,000  

4


PLAN OF OPERATIONS

During the next twelve months, we intend to proceed with our exploration program for the Columbus Project.

The Columbus Project

The technical program for the Columbus Project has two primary objectives: (a) to identify the mineral resources and (b) to determine the feasibility of mining and extracting precious metals from the project.

(a)

Mineralization: Exploration work to date has identified three different host materials (sand, clay, brine) each of which could potentially contain commercial quantities of gold and silver mineralization within the project area. The sand zones outcrop on the western side of the Columbus basin and dip gently eastward. The clay zones also outcrop and overlay the sand zones. The brine zone occurs as an aquifer at some 400 feet depth underlying the sand/clay zones.

   

Our recent exploration efforts have focused on the sand material, specifically in an approximate 2,000 acre area of interest on the west side of our project site. Through three drill programs, we have identified the North Sand Zone and the South Sand Zone. The North Sand Zone has been the site of the source material for our recent extraction tests.

   

To date, 34 holes have been drilled in the 0.67 square mile (429 acres) North Sand Zone, and 3 holes in the 0.48 square mile (307 acres) South Sand Zone. Drilling has been completed to depths ranging from 165 feet to 400 feet in both sand zones. We have yet to drill through the sand zone with any of our drilling to date.

   

During 2015, we intended to re-assay drill samples from the North and South Sand Zones in order to update the mineralization grade for these areas using the TPAC process. This reassaying program was put on hold until the pilot plant scale extraction tests are completed so that the extraction methodology effectiveness can be determined.

   

We have been granted the permit for our Phase Four drill program, which will consist of 31 drill holes to a depth of at least 200 feet. The drill program will cover an additional 0.48 square miles adjacent to the southern boundary of the North Sand Zone. The goal of this program is to expand the boundaries and improve the definition of the North Sand Zone. Following completion of the Phase Four drill program, we will re-evaluate the boundaries of the sand zones, the quantity of the tonnage contained therein and the quality of the mineralization estimates within these areas. It is anticipated that additional drill programs will follow. Our Phase Four drill program is currently on hold while we focus our resources on re-assaying drill samples and optimizing the TPAC process under laboratory conditions.

   
(b)

Mining and Recovery Methodology: We currently have a Water Pollution Control permit for the Columbus Project that allows for the extraction of precious metals and the production of calcium carbonate on the 380-acre site (266-acre mine site, 60-acre mill site, and 54 acres defined as “undisturbed area”) at a mine rate of up to 792,000 tons per year. As previously reported, we are currently focused on the extraction of precious metals from the sand zone areas of the Columbus Project – specifically, the North and South Sand Zones.

   

Tests completed during 2012-2014 led to the development of the TPAC extraction process. Early testing has resulted in significant increases in gold extraction on splits taken from a single drill hole location in the North Sand Zone. The TPAC method was expected to significantly increase the cost of gold extraction from the Columbus Project. However, as a result of tests completed over the past nine months, we have developed a modified TPAC process that is expected to lower the TPAC operating costs. Offsite laboratory scale testing of this modified TPAC process has averaged >0.25 opt Au from 100(3.5oz) to 2500g(88.1oz) samples and similar results in on-site laboratory scale samples taken from the pregnant leach solution (PLS) of the initial pilot plant scale tests. (See cautionary language below regarding reliance on laboratory test results.) Additional onsite pilot plant scale testing is now underway on the Columbus sands with the goal of processing all of the PLS. As a result, we have not yet determined our targeted precious metals extraction rates for this extraction method. Testing and optimization of the TPAC process on the Columbus Project sands, in the onsite pilot plant is ongoing. We will release the results from all of these internally generated tests when we complete the extraction from all of the PLS on a meaningful number of pilot plant test runs.

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Since November 2016, work at the onsite laboratory and the pilot plant has created a potential new source of additional value to the Columbus Project. Testing of the gold smelting process on materials thermally treated at the pilot plant has given rise to the development of a separate smelting step that has resulted in palladium extraction rates significantly higher than previously identified. The discovery of Palladium (Pd) in both the sand and the concentrates is potentially very significant to the project. Current work is now focused on optimizing the smelting process for Au/Pd extraction on both the head ore and the pilot plant concentrates, to include the purchase and installation of additional lab equipment and smelting furnaces to accomplish these tasks.

Readers are cautioned that third party chain of custody protocols were not observed during testing of the TPAC process (original TPAC process and modified TPAC process) and are not being observed during current onsite pilot plant scale testing as Company personnel are assisting in sample collection and preparation. We believe that, because the project site is comprised of alluvial soil, mineralization deposits are wide spread throughout the Columbus Project. However, the results of small scale laboratory testing of the TPAC process may not be representative of extraction rates for the rest of the North Sand Zone or the Columbus Project as a whole. In addition, in the past, we have encountered difficulties when attempting to translate extraction results achieved in laboratory conditions at the on-site pilot plant.

Readers are further cautioned that we have not yet established any proven or probable reserves. There is no assurance that we will be able to establish that any commercially extractable ore reserves exist on the Columbus Project or that we will enter into commercial production.

We anticipate spending approximately $4,493,000 on our exploration program and capital expenditures for the Columbus Project during the twelve months ending March 31, 2018.

CRITICAL ACCOUNTING POLICIES

We have identified certain accounting policies, described below, that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are also disclosed in the notes to our interim consolidated financial statements for the period ended March 31, 2017 included in this Quarterly Report on Form 10-Q.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires us 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 revenue and expenses during the reporting period. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring estimates and assumptions include the valuation of stock-based compensation, impairment analysis of long-lived assets, accrued reclamation and remediation costs and realizability of deferred tax assets. Actual results could differ from those estimates.

Mineral Properties - Costs of acquiring mineral properties are capitalized upon acquisition. Exploration costs and costs to maintain mineral properties are expensed as incurred while the project is in the exploration stage. Development costs and costs to maintain mineral properties are capitalized as incurred while the property is in the development stage. When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production basis over the proven and probable reserves.

Mineral Exploration and Development Costs - Exploration expenditures incurred prior to entering the development stage are expensed and included in “Mineral exploration and evaluation expenses”.

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Property and Equipment - Property and equipment is stated at cost less accumulated depreciation. Depreciation is principally provided on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 20 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statement of operations.

Impairment of long-lived assets - We review and evaluate our long-lived assets for impairment at each balance sheet date due to our planned exploration stage losses and document such impairment testing. Mineral properties in the exploration stage are monitored for impairment based on factors such as our continued right to explore the property, exploration reports, drill results, technical reports and continued plans to fund exploration programs on the property.

The tests for long-lived assets in the exploration, development or producing stage that have a value beyond proven and probable reserves will be monitored for impairment based on factors such as current market value of the mineral property and results of exploration, future asset utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset, including evaluating its reserves beyond proven and probable amounts.

Our policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable either by impairment or by abandonment of the property. The impairment loss is calculated as the amount by which the carrying amount of the assets exceeds its fair value.

Asset Retirement Obligation - Future obligations to retire an asset, including site closure, are recorded as a liability at fair value in the period incurred. The fair value determination is based on estimated future cash flows, the current credit-adjusted risk-free interest rate and an estimated inflation factor. The value of the liability is evaluated at least annually or as new information becomes available. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability will be reduced.

Future reclamation expenditures are difficult to estimate in many circumstances due to the early stage nature of the exploration project, the uncertainties associated with defining the nature and extent of environmental disturbance, the application of laws and regulations by regulatory authorities and changes in reclamation technology. Changes in estimates are reflected in the consolidated statement of operations in the period an estimate is revised.

LIQUIDITY AND CAPITAL RESOURCES

Our financial position was as follows at March 31, 2017 and December 31, 2016:

    March 31, 2017     December 31, 2016  
             
Cash $  3,364,485   $  56,359  
             
Current liabilities $  417,686   $  2,905,092  
Accrued reclamation costs $  672,338   $  672,338  
Stockholders' equity $  12,849,891   $  6,689,798  

During the three months ended March 31, 2017, our liquidity position was affected by the following:

•  

Continued exploration stage losses of $1,279,915 for the three months ended March 31, 2017. Significant non-cash expenses through this period included depreciation of $81,873, stock-based compensation of $153,701, and an investor relations expense of $97,000.

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•  

During the three months ended March 31, 2017 we raised gross proceeds of $3,076,474 through the exercise of outstanding warrants at a reduced exercise price of $0.08, $58,000 through the exercise of outstanding options under our 2007 stock option plan and $3,949,530 through private placement sales of shares of our common stock at $0.08 per share.

 

•  

The completion of equity transactions allowed us to purchase equipment totaling $393,587, and pay down or aid in settlement of accounts payable, accrued liabilities and amounts due to related party by $2,389,886.

Our long term assets at March 31, 2017 include mineral properties of $8,239,934 (December 31, 2016 $8,239,934). Amounts capitalized on our balance sheet for mineral properties reflect the acquisition cost of those properties. These amounts may not be reflective of fair market value, and may not be representative of the amount the Company could realize on a sale of its mineral properties or upon liquidation.

Looking Forward

We have budgeted for the following cash expenditures for the twelve months ending March 31, 2018:

  Columbus Project        
  Property Payments   $  56,000  
Drilling Program and Mineralization Estimates 992,000
  Pilot Plant / Project Feasibility     1,483,000  
    Total for Columbus Project   $  2,531,000  
  General and Administration        
    Total for General and Administration   $  1,392,000  
  Total Expected Expenses   $  3,923,000  
  Total Expected Capital Expenditures   $  570,000  
  Total Expected Cash Expenditures   $  4,493,000  

During the next twelve months, we will continue to focus our efforts on developing the Columbus Project, resulting in the following expectations:

•  

Our management anticipates that the minimum cash requirements for funding our proposed exploration programs and our continued operations through March 31, 2018 will be approximately $4,493,000. As of March 31, 2017, we had cash reserves in the amount of approximately $3,364,000. During the three months ended March 31, 2017, we raised gross proceeds of $3,076,474 through the exercise of outstanding warrants at a reduced exercise price of $0.08, $58,000 through the exercise of outstanding options under our 2007 Stock Option Plan and $3,949,530 through private placement sales of shares of our common stock at $0.08 per share. We will require additional financing to complete our exploration plans and to continue our operations. If we are unable to obtain additional financing, we will adjust our operating plan depending upon our existing financial resources.

 
•  

Our management exercised cost cutting and cash preservation measures during 2016 for the purpose of extending the length of time that our cash position would allow us to continue operations. As part of these changes, compensation to our Chief Executive Officer, Douglas D.G. Birnie, Nanominerals Corp., and our independent board members had been deferred until such time as the Company had sufficient funds. These past due amounts were settled by end of Q1 2017 with a combination of cash payments and exchange of debt for common stock as part of the above described equity transactions.

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•   Our twelve month budget includes capital expenditures of $570,000; however, we do not have any purchase commitments for capital assets.

Certain key factors will affect our future financial and operating results. These include, but are not limited to the following:

•  

We have not yet earned any operational revenues since our inception. We may not generate sufficient revenues from our proposed business plan in the future to achieve profitable operations. If we are not able to achieve profitable operations at some point in the future, we eventually may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion plans. Our current financial resources may not be sufficient to allow us to meet our anticipated cash expenditures during for the next 12 months. We require substantial additional financing in the near term. We do not have any additional financing arrangements in place, and there is no assurance that we will be able to raise financing sufficient to meet our needs or on terms that are acceptable to us.

 

•  

Obtaining additional financing is subject to a number of factors, including the market prices for base and precious metals, investor interest in our mineral projects, and the performance of equity markets in general. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund our business plan could be significantly limited and we may be required to suspend our business operations.

For these reasons, our consolidated financial statements filed herewith include a statement that these factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will be dependent on our raising of additional capital and the success of our business plan.

RESULTS OF OPERATIONS

Revenue We have not earned any operational revenues since our inception and we do not anticipate earning revenues until our mineral properties enter into commercial production, of which there are no assurances. Our pilot production plant at the Columbus Project is currently being operated for pre-feasibility testing purposes only. We are currently in the exploration stage of our business and we can provide no assurances that we will be able to establish the existence of probable or proved mineral reserves on our properties, or if such reserves are established, that we will be able to enter into commercial production.

Three Month period ended March 31, 2017 and 2016.

Operating Expenses

Mineral exploration and evaluation expenses decreased by 1% to $258,507 during the three month period ended March 31, 2017 from $262,015 during the three month period March 31, 2016.

Mineral exploration and evaluation expenses – related party decreased by 38% to $134,307 for the three month period ended March 31, 2017 from $215,936 for the three month period ended March 31, 2016. The decrease is due to reduced reimbursable metallurgy and travel expenses paid to Nanominerals.

General and administrative expenses decreased by 39% to $798,916 for the three month period ended March 31, 2017 from $1,317,049 for the three month period ended March 31, 2016. The decrease is primarily the result of a reduction in stock based compensation and expenses. In Q1 2017, option and warrant modifications and inducements had little value due to already reduced exercise prices and short period to expiration or end of inducement period. Additionally, Q1 2017 grants were limited to 300,000 warrants to a consultant, as compared to 4,950,000 warrants issued to consultants in Q1 2016. These reductions were partially offset by bonuses granted to officers, a director, and office administration in Q1 2017.

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Other Income (Expenses) decreased by 199% to $(6,312) during the three month period ended March 31, 2017 from $6,368 during the three month period ended March 31, 2016. The decrease is primarily due to issuance of $150,000 of convertible notes during Q2 and Q3 2016 at 10% interest. Additionally, the notes were issued with detachable warrants, the value of which is being amortized to interest expense.

Net Income (Loss). The aforementioned factors resulted in a net loss of $1,279,915 or $0.01 per common share, for the three month period ended March 31, 2017, as compared with a net loss of $1,872,288, or $0.01 per common share, for the three month period ended March 31, 2016.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) that are adopted by us, as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on our consolidated financial statements upon adoption.

In August 2016, the FASB issued ASU No. 2016-15, which clarifies diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update to the standard is effective beginning January 1, 2018, with early application permitted. We are evaluating the effect the guidance will have on our consolidated financial statements.

In March 2016, ASU No. 2016-09 was issued related to stock based compensation. The guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective beginning June 1, 2017, with early application permitted. Adoption of the new guidance is being evaluated.

In February 2016, ASU No. 2016-02 was issued related to leases. The new guidance modifies the classification criteria and requires lessees to recognize the assets and liabilities arising from most leases on the balance sheet. This update is effective in fiscal years beginning after December 15, 2018, and early adoption is permitted. Adoption of the new guidance is being evaluated.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

As of March 31, 2017, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures. These controls and procedures are based on the definition of disclosure controls and procedures in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934.

Based on that evaluation as of March 31, 2017, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

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Management, including our CEO and CFO, have concluded that our disclosure controls and procedures provide reasonable assurance that the controls and procedures will meet their desired control objectives. In designing and evaluating our control system, management recognized that any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, that may affect our operations have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

During the fiscal quarter ended March 31, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

The following are some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in our forward-looking statements. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.

We will require additional financing to complete our exploration programs for our mineral project.

Our management anticipates that the minimum cash requirements for funding our proposed exploration programs and our continued operations through March 31, 2018 will be approximately $4,493,000. This amount is substantially greater than our existing financial resources. As of March 31, 2017, the date of our most recently available consolidated financial statements, we had cash reserves in the amount of approximately $3,364,000. Subsequent to our fiscal year end, we raised approximately $7,084,004 from the exercise of outstanding share purchase warrants, outstanding options granted under our 2007 Stock Option Plan, and the sale of shares in a private placement offering through a combination of cash payments and settlements of outstanding debts. We do not currently have sufficient financial resources to pay for our anticipated expenditures for the next twelve months. We will require substantial financing to maintain our operations and mineral properties and to complete our proposed exploration programs. In addition, actual costs of completing our exploration plans could be greater than anticipated and we may need additional financing sooner than anticipated.

If we are unable to obtain additional financing when needed, we may not be able to complete our exploration plans and our business could fail. We will scale back our exploration and business plans depending upon our existing financial resources.

Our ability to obtain future financing will be subject to a number of factors, including the variability of market prices for gold and silver, investor interest in our mineral projects, and the performance of equity markets in general. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. If we are not able to obtain financing when needed or in an amount sufficient to enable us to complete our programs, we may be required to scale back our exploration programs.

Amounts capitalized on our balance sheet may not be reflective of fair market value.

Our long term assets at March 31, 2017 include mineral properties of $8,239,934 (December 31, 2016 -$8,239,934). Amounts capitalized on our balance sheet for mineral properties reflect the acquisition costs of those properties. These amounts may not be reflective of fair market value, and may not be representative of the amount the Company could realize on a sale of its mineral properties or upon liquidation.

If we complete additional financings through the sale of our common stock, our existing stockholders will experience dilution.

The most likely source of future financing presently available to us is through the sale of shares of our common stock. The only other anticipated alternative for the financing of further exploration would be the offering by us of an interest in our mineral properties to be earned by another party or parties carrying out further exploration thereof, which is not presently contemplated. Issuing shares of our common stock, for financing purposes or otherwise, will dilute the interests of our existing stockholders.

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In order to maintain the rights to our mineral properties, we will be required to make annual filings with federal and state regulatory agencies and/or be required to complete assessment work or pay fees in respect of those properties.

In order to maintain the rights to our mineral projects, we will be required to make annual filings and pay fees with federal and state regulatory authorities. Bureau of Land Management (“BLM”) claim maintenance fees for placer mineral claims are currently $155 for every 20 acres, making the claim fee $1,240 per year for a 160 acre association placer claim.

In addition to claim maintenance fees, we may be required by federal and/or state legislation or regulations to complete minimum annual amounts of mineral exploration work on our mineral properties. A failure by us to meet the annual maintenance requirements under federal and state laws could cause our mineral rights to lapse.

Because we are a mineral exploration company, we face a high risk of business failure.

To date, our primary business activities have involved the acquisition of mineral claims and the exploration of these claims. We have not earned any revenues as of the date of this report. Potential investors should be aware of the difficulties normally encountered by exploration stage companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.

Because we anticipate that our operating expenses will increase prior to earning revenues, we may never achieve profitability.

Prior to commencing mineral production, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from the exploration of our mineral claims and the production of minerals thereon, if any, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we may not be able to ever generate any operating revenues or achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.

Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages if and when conducting mineral exploration activities.

The search for valuable minerals involves numerous hazards. As a result, when conducting exploration activities we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. The payment of such liabilities may have a material adverse effect on our financial position.

Because of the speculative nature of exploration of mining properties, there is substantial risk that no commercially exploitable minerals will be found.

We have not yet established proved or probable reserves on the Columbus Project or on our other mineral properties. The search for valuable minerals as a business is extremely risky. Although we have been encouraged by the results of the exploration work conducted by us to date, further exploration work is required before proven or probable reserves can be established, and there are no assurances that we will be able to establish any proven or probable reserves. Exploration for minerals is a speculative venture, necessarily involving substantial risk. The expenditures to be made by us may not result in the discovery of commercial quantities of ore. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. We intend to report the results of our exploration activities promptly after those results have been received and analysed. However, there is no assurance that the test results reported by us will be indicative of extraction rates throughout our mineral properties.

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As a result of the public’s lack of familiarity with the assaying methods used by us to analyze samples taken from the sand and clay zones of the Columbus Project, we may occasionally encounter resistance to the reliability of our grade estimates for the Columbus Project. Although we use proven assaying methods, only report extracted and weighed gold and silver and have instituted rigorous testing to ensure the reliability of our exploration results, we may face resistance in the future, which could negatively impact our business, our ability to obtain future financing, and our stock price.

Contrary to popular belief, pyrometallurgical and hydrometallurgical tests on a rock sample do not determine the amount of gold or silver present in a sample. Instead, these tests report the amount of gold or silver that is extracted from the sample by the analytical method used. We have engaged in extensive research and testing to determine the best pyrometallurgical and hydrometallurgical methods for extracting gold and silver from the sands and clays present at the Columbus Project. Our research has indicated that caustic fusion (head ore, concentrates) and thiosulphate or cyanide leaching (concentrates) are effective pyrometallurgical and hydrometallurgical methods for extracting gold and silver from the Columbus Project. The pyrometallurgical and hydrometallurgical methods that were chosen by us result in the actual physical extraction of gold and silver from the tested samples.

Caustic fusion is a standard pyrometallurgical method that uses fluxes melted at low temperature to dissolve the sample rock and liberate the contained minerals or metals for subsequent extraction and analysis. Caustic fusion was developed in South Africa over 100 years ago and was first used to liberate diamonds from their refractory kimberlites. It has since been used to quantify other minerals/metals in rocks by analyzing the fused product. Caustic fusion has proven to be a very effective method for extracting gold and silver from the refractory minerals (organics, silicates) in the sand and clay at Columbus, and has been confirmed by extracting comparable precious metal values from bulk leach tests (+/- 1 ton samples).

Fire assaying is the most common pyrometallurgical method used for extracting gold and silver from rock. Fire assaying relies on the use of standardized chemical fluxes to reduce the melting point of the minerals entombing the gold and silver so that they can be liberated and then collected in a lead “button” and examined. Although this process works well for extracting gold entombed in sulfides (e.g. pyrite) and silica, such as that found in Carlin-type gold deposits, the chemical fluxes used in fire assaying methods are ineffective at liberating the gold and silver from refractory minerals (organics and silicates (Fe-Mg-Al-Si-Ox)) as are found at the Columbus Project. As a result, in our tests, fire assaying has shown to be ineffective at extracting commercial values of gold and silver from the sand and clay from the Columbus Project. Similarly, aqua regia digestion has also proven to be ineffective at extracting gold and silver from the sands and clays at Columbus.

To ensure the reliability of our results, we have instituted rigorous QA/QC protocols, including blind random sampling, and the inclusion of blanks, standards and duplicates. To further ensure reliability, we measure only the actual amount of gold and silver physically extracted from our test samples when reporting assay results. We also have extracted gold and silver from large samples (+/- 200-3,000 lbs.) by thiosulphate leaching, with the extraction results being comparable to caustic fusion assay results on the same samples, thereby confirming the reliability of the caustic fusion process. However, because caustic fusion is not commonly used and understood for gold and silver assaying, and because gold and silver in the sands and clays at Columbus cannot be confirmed by metal-in-hand extraction using fire assay or aqua regia digestion, we may encounter some resistance to our analytical methods and assay results, which could negatively impact our business, our ability to obtain additional financing, and our stock price.

Even if we establish proven or probable reserves on our mineral claims, we may not be able to successfully reach commercial production.

We anticipate using a low cost, high volume surface dredge operation to mine the Columbus Project. Our pre-feasibility program for the Columbus Project is designed to test and optimize our planned mining process for the Columbus Project. There is no assurance that this pre-feasibility program will result in a decision to enter into commercial production.

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In addition, expanding our production facilities to accommodate commercial operations is expected to require substantially more financial resources than what we currently have available to us. There is a risk that we will not be able to obtain such financing if and when needed.

Although we have installed the leach circuit of the onsite pilot production module for the Columbus Project, there is no assurance that this project is commercially feasible.

We have begun testing and optimizing the onsite pilot production module at the Columbus Project. This pilot production module is part of our pre-feasibility study for the Columbus Project and is designed to evaluate the commercial viability of the Columbus Project. There is no assurance that the results of our pre-feasibility program will result in a decision to enter into commercial production.

Even if we can successfully reach commercial production, any change to mining laws or regulations or levy of additional taxes in the future may make our planned production process nonviable economically.

Several bills have been introduced by the US federal government that would levy resource taxes on mineral exploration companies. Any levy of additional taxes would have an adverse effect on our business. In addition, laws and regulations governing the exploration of mineral properties and the mining process are subject to change. Changes to mining laws and regulations that would have the effect of increasing the cost of mineral exploration and mining activities would adversely impact our business.

We are subject to compliance with government regulations. The costs of complying with these regulations may change without notice, and may increase the anticipated cost of our exploration programs.

There are several government regulations that materially restrict the exploration of minerals. We will be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with these laws. While our planned exploration program budgets for regulatory compliance, there is a risk that new regulations could increase our costs of doing business and prevent us from carrying out our exploration program.

In addition, if our applications for permits from the relevant regulatory bodies are denied, we may not be able to proceed with our exploration programs.

If we decide to pursue commercial production, we may be subject to an environmental review process that may delay or prohibit commercial production.

Our planned method for mining the Columbus Project is not expected to generate any significant long term environmental impact. However, we have not yet had a comprehensive environmental review conducted on our planned mining operations for the Columbus Project.

Compliance with an environmental review process may be costly and may delay commercial production. Furthermore, there is the possibility that we would not be able to proceed with commercial production upon completion of the environmental review process if government authorities do not approve our mine or if the costs of compliance with government regulation adversely affected the commercial viability of the proposed mine.

The market for our common stock is limited and investors may have difficulty selling their stock.

Our shares are currently traded on the over the counter market, with quotations entered for our common stock on the OTC Pink marketplace tier under the symbol “IRLD.” However, the volume of trading in our common stock is currently limited. As a result, holders of our common stock may have difficulty selling their shares.

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Because our common stock is a penny stock, stockholders may be further limited in their ability to sell their shares.

Our shares constitute a penny stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are expected to remain classified as a penny stock for the foreseeable future. Classification as a penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his or her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares will be subject to Rules 15g-2 through 15g-9 of the Exchange Act. Rather than having to comply with these rules, some broker-dealers will refuse to attempt to sell a penny stock.

No assurance that forward-looking assessments will be realized.

Our ability to accomplish our objectives and whether or not we are financially successful is dependent upon numerous factors, each of which could have a material effect on the results obtained. Some of these factors are in the discretion and control of management and others are beyond management’s control. The assumptions and hypotheses used in preparing any forward-looking assessments contained herein are considered reasonable by management. There can be no assurance, however, that any projections or assessments contained herein or otherwise made by management will be realized or achieved at any level.

If we are, or were, a U.S. real property holding corporation, non-U.S. holders of our common stock or other security convertible into our common stock could be subject to U.S. federal income tax on the gain from the sale, exchange or other disposition of such security.

If we are or ever have been a U.S. real property holding corporation (a “USRPHC”) under the Foreign Investment Real Property Tax Act of 1980, as amended (“FIRPTA”) and applicable United States Treasury regulations (collectively, the “FIRPTA Rules”), unless an exception applies, certain non-U.S. investors in our common stock (or options or warrants for our common stock) would be subject to U.S. federal income tax on the gain from the sale, exchange or other disposition of shares of our common stock (or such options or warrants), and such non-U.S. investor would be required to file a United States federal income tax return. In addition, the purchaser of such common stock, option or warrant would be required to withhold from the purchase price an amount equal to 10% of the purchase price and remit such amount to the U.S. Internal Revenue Service.

We have not conducted a formal analysis of whether we are or have ever been a USRPHC. However, we believe that we may be a USRPHC. In general, under the FIRPTA Rules, a company is a USRPHC if its interests in U.S. real property comprise at least 50% of the fair market value of its assets. If we are or were a USRPHC, so long as our common stock is “regularly traded on an established securities market” (as defined under the FIRPTA Rules), a non-U.S. holder who, actually or constructively, holds or held no more than 5% of our common stock is not subject to U.S. federal income tax on the gain from the sale, exchange or other disposition of our common stock under FIRPTA. In addition, other interests in equity of a USRPHC may qualify for this exception if, on the date such interest was acquired, such interests had a fair market value no greater than the fair market value on that date of 5% of our common stock. Any of our common stockholders (or owners of options or warrants for our common stock) that are non-U.S. persons should consult their tax advisors to determine the consequences of investing in our common stock (or options or warrants).

We have not held an annual meeting for the election of directors since our incorporation.

Pursuant to the provisions of the Nevada Revised Statutes (the “NRS”), directors are to be elected at the annual meeting of the stockholders. Pursuant to the NRS and our bylaws, our board of directors is granted the authority to fix the date, time and place for annual stockholder meetings. However, no date, time or place has yet been fixed by our board for the holding of an annual stockholder meeting. Pursuant to the NRS and our bylaws, each of our directors holds office after the expiration of his term until a successor is elected and qualified, or until the director resigns or is removed. Under the provisions of the NRS, if an election of our directors has not been made by our stockholders within 18 months of the last such election, then an application may be made to the Nevada district court by stockholders holding a minimum of 15% of our outstanding stockholder voting power for an order for the election of directors in the manner provided in the NRS.

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FOR ALL OF THE AFORESAID REASONS AND OTHERS SET-FORTH AND NOT SET-FORTH HEREIN, AN INVESTMENT IN OUR SECURITIES INVOLVES A CERTAIN DEGREE OF RISK. ANY PERSON CONSIDERING TO INVEST IN OUR SECURITIES SHOULD BE AWARE OF THESE AND OTHER FACTORS SET-FORTH IN THIS REPORT AND IN THE OTHER REPORTS AND DOCUMENTS THAT WE FILE FROM TIME TO TIME WITH THE SEC AND SHOULD CONSULT WITH HIS/HER LEGAL, TAX AND FINANCIAL ADVISORS PRIOR TO MAKING AN INVESTMENT IN OUR SECURITIES. AN INVESTMENT IN OUR SECURITIES SHOULD ONLY BE ACQUIRED BY PERSONS WHO CAN AFFORD TO LOSE THEIR TOTAL INVESTMENT.

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

Between January 20, 2017 and February 27, 2017, we issued a total of 38,455,921 shares of common stock for gross proceeds of $3,076,474 upon the exercise of outstanding share purchase warrants at a reduced exercise price of $0.08 per share. The shares were issued in reliance on the exemption from registration provided by Rule 506(b) of Regulation D of the Securities Act on the basis of representations by the warrant holders that they were accredited investors as defined in Rule 501(a) of Regulation D.

In February 2017, we issued a total of 600,000 shares upon the exercise of options granted under our 2007 Stock Option Plan. In March 2017, we issued an additional 500,000 shares upon the exercise of options granted under our 2007 Stock Option Plan. The shares were issued pursuant to the exemptions from registration provided by Rule 506(b) of Regulation D and Section 4(a)(2) of the Securities Act of 1933, as amended.

On March 29, 2017, we issued a total of 49,369,123 shares of common stock at a price of $0.08 per share for gross proceeds of $3,949,530. The shares were issued in reliance on the exemption from registration provided by Rule 506(b) of Regulation D of the Securities Act on the basis that each of the subscribers were accredited investors as defined in Rule 501(a) of Regulation D, and we did not engage in any general solicitation or general advertising in connection with the offering.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95-1 to this Report on Form 10-Q.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The following exhibits are either provided with this Quarterly Report or are incorporated herein by reference:

17



Exhibit    
Number   Description of Exhibit
3.1   Articles of Incorporation.(1)
3.2   Certificate of Amendment to Articles - Name Change from Merritt Ventures Corp. to Ireland Inc.(2)
3.3   Certificate of Change – 4-for-1 Stock Split.(3)
3.4   Bylaws.(1)
10.1   2007 Stock Incentive Plan.(4)
10.2   Non-Qualified Stock Option Agreement for Douglas D.G. Birnie.(5)
10.3   Non-Qualified Stock Option Agreement for Robert D. McDougal.(5)
10.4   Non-Qualified Stock Option Agreement for David Z. Strickler, Jr.(5)
10.5   Non-Qualified Stock Option Agreement effective February 15, 2013 for Douglas D.G. Birnie.(6)
10.6   Non-Qualified Stock Option Agreement effective February 15, 2013 for Robert D. McDougal.(6)
10.7   Non-Qualified Stock Option Agreement effective February 15, 2013 for David Z. Strickler, Jr.(6)
10.8   Non-Qualified Stock Option Agreement effective February 15, 2013 for Mark H. Brennan.(6)
10.9   Non-Qualified Stock Option Agreement effective April 16, 2013 for Steven A. Klein.(7)
10.10   Non-Qualified Stock Option Agreement effective January 17, 2014 for Douglas D.G. Birnie.(8)
10.11   Non-Qualified Stock Option Agreement effective January 17, 2014 for Robert D. McDougal.(8)
10.12   Non-Qualified Stock Option Agreement effective January 17, 2014 for David Z. Strickler, Jr.(8)
10.13   Non-Qualified Stock Option Agreement effective January 17, 2014 for Mark H. Brennan.(8)
10.14   Non-Qualified Stock Option Agreement effective January 17, 2014 for Steven A. Klein. (8)
10.15   Non-Qualified Stock Option Agreement effective April 1, 2015 for Douglas D.G. Birnie.(9)
10.16   Non-Qualified Stock Option Agreement effective April 1, 2015 for Robert D. McDougal. (9)
10.17   Non-Qualified Stock Option Agreement effective April 1, 2015 for David Z. Strickler, Jr. (9)
10.18   Non-Qualified Stock Option Agreement effective April 1, 2015 for Mark H. Brennan. (9)
10.19   Non-Qualified Stock Option Agreement effective April 1, 2015 for Steven A. Klein. (9)
10.20   Non-Qualified Stock Option Agreement effective Dec. 27, 2016 for Douglas D.G. Birnie. (10)
10.21   Non-Qualified Stock Option Agreement effective Dec. 27, 2016 for David Z. Strickler, Jr. (10)
10.22   Non-Qualified Stock Option Agreement effective Dec. 27, 2016 for Mark H. Brennan. (10)
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95.1   Mine Safety Disclosures.
99.1   Columbus Project Claims Summary. (10)
101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase.
101.DEF   XBRL Taxonomy Extension Definition Linkbase.
101.LAB   XBRL Taxonomy Extension Label Linkbase.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase.

Notes:

(1)

Filed as an exhibit to our Registration Statement on Form SB-2 originally filed April 18, 2002, as amended.

(2)

Filed as an exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2005 filed April 12, 2006.

(3)

Filed as an exhibit to our Current Report on Form 8-K filed April 30, 2007.

(4)

Filed as an exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2006 filed April 5, 2007.

(5)

Filed as an exhibit to our Current Report on Form 8-K filed August 26, 2011.

(6)

Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2012, filed April 15, 2013.

(7)

Filed as an exhibit to our Post-Effective Amendment No. 1 on Form S-1/A filed April 19, 2013.

(8)

Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2013, filed March 31, 2014.

(9)

Filed as an exhibit to our Quarterly Report on Form 10-Q, for the period ended March 31, 2015 filed May 15, 2015.

(10)

Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2016, filed April 11, 2017.

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SIGNATURES

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

IRELAND INC.

Date: May 12, 2017 By: /s/ Douglas D.G. Birnie
    DOUGLAS D.G. BIRNIE
    Chief Executive Officer, President and Secretary
    (Principal Executive Officer)

Date: May 12, 2017 By: /s/ David Z. Strickler, Jr.
    DAVID Z. STRICKLER, JR.
    Chief Operating Officer, Interim Chief Financial Officer
    and Interim Treasurer
    (Principal Financial Officer and Principal Accounting
    Officer)