UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

[   ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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

 

For the fiscal year ended December 31, 2019

 

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

 

For the transition period from ____________ to ____________

 

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

 

Date of event requiring this shell company report __________________

 

Commission file number: 000-29922

 

TOMBSTONE EXPLORATION CORPORATION

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant's name into English)

 

Canada

(Jurisdiction of incorporation or organization)

 

6529 E. Friess Drive

Scottsdale, AZ 85254

(Address of principal executive offices)

 

Alan Brown

6529 E. Friess Drive

Scottsdale, AZ 85254

(480) 588-8920

(Name, address and telephone of Company contact person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of Class

Name of exchange on which registered

Not Applicable

Not Applicable

 

Securities registered or to be registered pursuant to Section 12(g) of the Act

 

Common Shares Without Par Value

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

Not Applicable

(Title of Class)

 


1


 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

There were 7,677,904 Common Shares without par value issued and outstanding as at May 7, 2020.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [   ] YES [X] NO

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [X] YES [   ] NO

 

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. [X] YES [   ] 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). [X] YES [   ] NO (Not Applicable)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

[   ]

Accelerated filer

[   ]

Non-accelerated filer

[X]

Emerging growth company

[   ]

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. [   ]

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codi cation after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP [X] International Financial Reporting Standards as issued by the International Accounting Standards Board [   ] Other [   ]

 

 If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. [   ] Item 17 [   ] Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [   ] YES [X] NO

 


2


 

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

Forward-Looking Statements

4

 

 

PART I

 

 

 

Financial Information and Accounting Principles

5

Item 1

 

Identity of Directors, Senior Management and Advisers

5

Item 2

 

Offer Statistics and Expected Timetable

5

Item 3

 

Key Information

5

 

A.

Selected Financial Data

5

 

B.

Capitalization and Indebtedness

5

 

C.

Reasons for the Offer and Use of Proceeds

5

 

D.

Risk Factors

6

Item 4

 

Information on the Company

10

 

A.

History and Development of the Company

10

 

B.

Business Overview

20

 

C.

Organizational Structure

29

 

D.

Property, Plants and Equipment

29

Item 4A

 

Unresolved Staff Comments

33

Item 5

 

Operating and Financial Review and Prospects

33

 

A.

Operating Results

33

 

B.

Liquidity and Capital Resources

34

 

C.

Research and Development, Patents and Licenses, etc.

34

 

D.

Trend Information

35

 

E.

Off-Balance Sheet Arrangements

35

 

F.

Tabular Disclosure of Contractual Obligations

35

 

G.

Safe Harbor

35

Item 6

 

Directors, Senior Management and Employees

36

 

A.

Directors and Senior Management

36

 

B.

Compensation

37

 

C.

Board Practices

38

 

D.

Employees

38

 

E.

Share Ownership

38

Item 7

 

Major Shareholders and Related Party Transactions

39

 

A.

Major Shareholders

39

 

B.

Related Party Transactions

39

 

C.

Interests of Experts and Counsel

40

Item 8

 

Financial Information

40

 

A.

Consolidated Statements and Other Financial Information

40

 

B.

Significant Changes

40

Item 9

 

The Offer and Listing

41

Item 10

 

Additional Information

41

 

A.

Share Capital

41

 

B.

Articles of Incorporation and By-laws

41

 

C.

Material Contracts

44

 

D.

Exchange Controls

44

 

E.

Taxation

45

 

F.

Dividends and Paying Agents

48

 

G.

Statement by Experts

48

 

H.

Documents on Display

49

 

I.

Subsidiary Information

49

Item 11

 

Quantitative and Qualitative Disclosures About Market Risk

49

Item 12

 

Description of Securities Other than Equity Securities

49

 

 

PART II

50

Item 13

 

Defaults, Dividend Arrearages and Delinquencies

50

Item 14

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

50

Item 15

 

Controls and Procedures

50

Item 16

 

[Reserved]

51

Item 16A

 

Audit Committee Financial Expert

51

Item 16B

 

Code of Ethics

51

Item 16C

 

Principal Accountant Fees and Services

52

Item 16D

 

Exemptions from the Listing Standards for Audit Committees

52

Item 16E

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

52

Item 16F

 

Changes in Registrant’s Certifying Accountant

52

Item 16G

 

Corporate Governance

52

Item 16H

 

Mine Safety Disclosure

52

 

 

PART III

53

Item 17

 

Financial Statements

53

Item 18

 

Not Applicable

53

Item 19

 

Exhibits

53

 

 

SIGNATURES

55


3


 

 

GENERAL

 

We use the U.S. dollar as our reporting currency. All references in this Annual Report to “dollars” or “$” are expressed in U.S. dollars, unless otherwise indicated. See also “Item 3. Key Information” for more detailed currency and conversion information. Our consolidated financial statements which form part of this Report are presented in U.S. dollars and are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

 

FORWARD-LOOKING STATEMENTS

 

Except for the statements of historical fact contained herein, some information presented in this Report constitutes forward-looking statements. When used in this Report, the words “estimate”, “project”, “believe”, “anticipate”, “intend”, “expect”, “predict”, “may”, “should”, the negative thereof or other variations thereon or comparable terminology are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, changes in project parameters as plans continue to be refined, future prices of silver, as well as those factors discussed in the section entitled “Risk Factors”. Although our Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause actual results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, prospective investors should not place undue reliance on forward-looking statements. The forward-looking statements in this Report speak only as to the date hereof. Our Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

As used in this report, the terms “we”, “us”, “our”, “Tombstone”, “Tombstone Exploration”, and “TMBXF” means Tombstone Exploration Corporation, unless otherwise indicated.

 


4


 

 

PART I

 

FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES

 

The consolidated financial statements and summaries of financial information contained in this document are reported in U.S. dollars (“$”) unless otherwise stated. All such consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles.

 

The consolidated financial statements of the Company for the years ended December 31, 2017, 2018 and 2019 have been audited by Sadler, Gibb & Associates, LLC, 2455 East Parleys Way, Suite 320, Salt Lake City, UT 84109. The consolidated financial statements of the Company for the years ended December 31, 2015 and 2016 were audited by Anton & Chia LLP, 3501 Jamboree Rd., Newport Beach, CA 92660. 

 

Item 1. Identity of Directors, Senior Management and Advisers

 

Not Required.

 

Item 2. Offer Statistics and Expected Timetable

 

Not Required.

 

Item 3. Key Information

 

A. Selected Financial Data

 

The following tables set forth the data of our fiscal years ended December 31, 2015 to December 31, 2019. We derived all figures from our financial statements as prepared by our management, approved by our audit committee. This information should be read in conjunction with our financial statements included in this annual report.

 

Our financial statements included in this Report have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States (“US”). All amounts are expressed in United States dollars.

 

SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY'S FINANCIAL STATEMENTS

 

 

2015(1)

$

2016(1)

$

2017(1)

$

2018(1)

$

2019(1)

$

OPERATING DATA:

 

 

 

 

 

Revenue

-

-

-

-

-

Gross Profit

-

-

-

-

-

Net Income (Loss)

(716,943)

(1,169,425)

(931,290)

(558,974)

(1,702,424)

Earnings (Loss) Per Share

(0.00)

(0.00)

(0.44)

(0.18)

(0.35)

 

 

 

 

 

 

BALANCE SHEET DATA:

 

 

 

 

 

Cash

164,808

17,063

51,311

39,858

466,377

Total Assets

168,899

17,063

51,311

39,858

1,278,150

Total Liabilities

438,685

244,257

372,452

515,381

690,030

Shareholders’ Equity (Deficit)

(269,786)

(227,194)

(321,141)

(475,523)

(588,120)

 

(1)As of December 31 of the respective fiscal year. 

 

B. Capitalization and Indebtedness

 

Not required.

 

C. Reasons for the Offer and Use of Proceeds

 

Not required. 


5


 

 

D. Risk Factors

 

This Report contains forward-looking statements which relate to future events or our future performance, including our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, or “potential” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks enumerated in this section entitled “Risk Factors”, that may cause our Company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

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

 

An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this Report in evaluating our Company and our business before purchasing shares of our Company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are not the only ones facing our Company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.

 

Risks Associated with Mining

 

Our mining properties are in the exploration stage. There is no assurance that our properties contain any mineral resources in commercially exploitable quantities. If we do not discover any mineral resource in a commercially exploitable quantity, our business will fail and investors may lose all of their investment in our Company.

 

Despite our acquisition of mineral claims and rights, and continuous search to develop those claims, we have not established that any of them contain any commercially exploitable mineral reserves, nor can there be any assurance that we will ever find commercially exploitable mineral reserves. The probability of an individual prospect ever having a commercially exploitable mineral reserve is extremely remote; in all probability, our mineral resource claims do not contain any reserves and any funds that we spend on exploration will probably be lost. The search for valuable minerals as a business is extremely risky. We can provide investors with no assurance that any exploration on our properties will establish that commercially exploitable reserves of minerals exist on our mining claims. Additional potential problems that may prevent us from discovering any reserves of minerals on our properties include, but are not limited to, unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. Most of these factors are beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.

 

If we are unable to establish the presence of commercially exploitable reserves of minerals on our properties, our ability to fund future exploration activities will be impeded, we will not be able to operate profitably and investors may lose all of their investment in our Company.

 

We face intense competition in the mineral exploration and exploitation industry and we compete with our competitors for financing, for new mineral resource properties and for qualified managerial and technical employees.

 

Our competition includes large established mining companies with substantial capabilities and with greater financial and technical resources than those available to us. As a result of this competition, we may have to compete for financing and be unable to acquire financing on terms we consider acceptable. This competition could adversely affect our ability to acquire suitable prospects for exploration in the future. We may also have to compete with other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for financing or for qualified employees, our exploration programs may be slowed down or suspended. If we are unable to successfully compete for the acquisition of suitable prospects for exploration in the future, there can be no assurance that we will acquire any interest in additional mineral resource properties. The occurrence of any of these things may cause us to cease operations as a company.

 

Because of the inherent dangers involved in mineral exploration and exploitation, there is a risk that we may incur liability or damages as we conduct our business.

 

The search for valuable minerals involves numerous hazards that may subject us to liability including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position.


6


 

 

Title to our resource properties may be challenged by third parties which could result in the loss of substantial amounts of money and resources and could cause our interests in our properties to expire or be forfeit.

 

We have investigated the status of our titles to our mineral resource properties and we are satisfied that the title to these properties is properly registered in the name of our Company, but we cannot guarantee that the rights to explore our claims will not be revoked or altered to our detriment. The ownership and validity of mining claims and concessions are often uncertain and may be contested. Should such a challenge to the boundaries or registration of ownership arise, the resolution of disputes or the process of clarifying the accuracy of our mining license registration could take substantial time and money. Further, the preservation of our title to our mineral claims requires that we continue to expend money or work the claims. If we fail to expend the necessary amount of money or if we fail to work our mineral claims, then our title to our mineral claims could expire or be forfeited.

 

Mineral prices are subject to dramatic and unpredictable fluctuations.

 

The market price of precious metals and other minerals is volatile and has fluctuated widely, particularly in recent years. The prices of various metals are affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The supply of and demand for metals are affected by various factors, including political events, economic conditions and production casts in major mineral producing regions. Variations in the market prices of metals may have an impact on our ability to raise funding to continue exploration of our claims. In addition, any significant fluctuations in metal prices will impact our decision to accelerate or reduce our exploration activities. If the price of precious metals and other minerals should drop significantly, the cost of mineral extraction may be higher than is economically feasible. The marketability of minerals is also affected by numerous other factors beyond our control, including government regulations relating to royalties, allowable production and importing and exporting of minerals, the effect of which cannot be accurately predicted.

 

Mineral operations are subject to government regulations which could have the effect of reducing or preventing us from exploiting any possible mineral reserves on our claims.

 

Exploration activities are subject to national and local laws and regulations governing prospects, taxes, labor standards, occupational health, land use, environmental protection, mine safety and others which may in the future have a substantial adverse impact on our Company’s prospects. In order to comply with applicable laws, we may be required to make capital expenditures until a particular problem is remedied. Existing and possible future environmental legislation, regulation and action could cause additional expense, capital expenditure, restriction and delay in the activities of our Company, the extent of which cannot be reasonably predicted. If we violate any applicable law or regulation, we could be forced to stop work and we could be fined. If we are forced to suspend our activities or if we are required to pay a large fine for a violation of these applicable laws and regulations, our business could be adversely affected.

 

Our operations may be subject to environmental regulations which may result in the imposition of fines and penalties.

 

Our operations may be subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. Environmental legislation is evolving in a manner which means stricter standards, and enforcement; fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.

 

Risks Related to Our Company

 

The fact that we have not generated any operating revenues for the last ten years raises substantial doubt about our ability to continue as a going concern.

 

We have not generated any operating revenues for the last ten years and we will, in all likelihood, continue to incur operating expenses without revenues until our mining claims are fully developed and in commercial production. As a result, we need to generate significant revenues from our operations or obtain financing. We cannot assure that we will be able to successfully explore and develop our mining claims or assure that viable reserves exist on the claims for extraction. These circumstances raise substantial doubt about our ability to continue as a going concern. It is unlikely that we will generate any funds internally until we discover commercially viable quantities of precious metals and other minerals. If we are unable to generate revenue from our business in the next twelve months, we may be forced to delay, scale back, or eliminate our exploration activities. If any of these actions were to become necessary, we may not be able to continue to explore our properties or operate our business and if either of those events happen, then there is a substantial risk our business would fail.


7


 

 

We have a limited operating history on which to base an evaluation of our business and prospects.

 

As of the date of this Report, we have not yet located any mineral reserve. As a result, we have never had any revenues from our operations. In addition, we have no operating history related to the acquisition and exploration of our mineral properties. We have no way to evaluate the likelihood of whether our mineral claims contain any mineral reserve or, if they do that we will be able to build or operate a mine successfully. We anticipate that we will continue to incur operating costs without realizing any revenues during the period when we are exploring our claims. We expect to continue to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from mining operations and any dispositions of our claims, we will not be able to earn profits or continue operations. At this stage of our operation in this industry, we also expect to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the start up stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a material adverse effect on our financial condition. There is no history upon which to base any assumption as to the likelihood that we will prove successful and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations. 

 

We have not generated any revenue from our business and we may need to raise additional funds in the near future. If we are not able to obtain future financing when required, we might be forced to discontinue our business.

 

Because we have not generated any revenue from our business and we cannot anticipate when we will be able to generate revenue from our business, we will need to raise additional funds for the further exploration and future development of our mining claims and to respond to unanticipated requirements or expenses. During the year ended December 31, 2019, we received $1,933,000 in financing and for year ended December 31, 2018 we received $165,500 in financing. However, if our expenses exceed these funds, we will need to secure additional financing for further exploration and development of our projects or to fulfill our obligations under any applicable agreements. Although we have been successful in the past in obtaining financing, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in a delay or indefinite postponement of further exploration and development of our projects with the possible loss of such properties.

 

Canada Business Corporations Act provides for the indemnification of our officers and directors against all costs, charges and expenses incurred by them in respect of any civil, criminal, administrative, investigative or other proceeding.

 

The Canada Business Corporations Act contains provisions limiting the liability of our officers and directors for their acts and failures to act and for any loss, damage or expense incurred by our Company which shall happen in the execution of their duties of such officers or directors, unless the officers or directors did not act honestly and in good faith with a view to the best interests of our Company. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our Company, though such an action, if successful, might otherwise benefit our Company and our shareholders.

 

Risks Related to Pandemics

 

The effects of the recent COVID-19 coronavirus pandemic is not immediately known, but may adversely affect our business, results of operations, financial condition, liquidity, and cash flow.

 

Presently, the impact of COVID-19 has not shown any imminent adverse effects on our business at this time, however, because our business is not “essential,” local and statewide shut downs of ‘non-essential’ businesses will have an effect on our operations. It is still unknown and difficult to predict what adverse effects, if any, COVID-19 can have on our business, or against the various aspects of the same.

 

As of the date of this Annual Report, COVID-19 coronavirus has been declared a pandemic by the World Health Organization, has been declared a National Emergency by the United States Government and has resulted in several states being designated disaster zones. COVID-19 coronavirus caused significant volatility in global markets. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted, and additional cities are considering, quarantining and “shelter-in-place” regulations which severely limit the ability of people to move and travel, and require non-essential businesses and organizations to close.

 

It is unclear how such restrictions, which will contribute to a general slowdown in the global economy, will affect our business, results of operations, financial condition and our future strategic plans.


8


 

 

Recent shelter-in-place and essential-only travel regulations could negatively impact our business. In addition, while our projects are mainly located in the United States, we still could experience significant disruptions due to interruptions in operations by service providers and suppliers; this could adversely impact our financial condition and results of operations. The current status of COVID-19 coronavirus closures and restrictions could also negatively impact our ability to receive funding from our existing capital sources as each business and investor is and has been affected uniquely.

 

In addition, our headquarters are located in Arizona which has issued stay at home orders with exceptions only for essential businesses. While these restrictions are relatively recent as of the date of this Annual Report, it is unclear at this time how these restrictions will be amended as the pandemic evolves.

 

Risks Relating to our Securities

 

General securities market uncertainties resulting from the COVID-19 pandemic.

 

Since the outset of the pandemic the United States and worldwide national securities markets have undergone unprecedented stress due to the uncertainties of the pandemic and the resulting reactions and outcomes of government, business and the general population. These uncertainties have resulted in declines in all market sectors, increases in volumes due to flight to safety and governmental actions to support the markets. As a result, until the pandemic has stabilized, the markets may not be available to the Company for purposes of raising required capital. Should we not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible we may be unable to sustain the necessary capital to pursue our strategic plan and may have to reduce the planned future growth and/or scope of our operations.

 

Investors’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

 

We are currently without a source of revenue and will most likely be required to issue additional shares to finance our operations and, depending on the outcome of our exploration programs, may issue additional shares to finance additional exploration programs of any or all of our projects or to acquire additional properties. If we are required to issue additional shares to raise financing, your interests in our Company will be diluted and you may suffer dilution in your net book value per share depending on the price at which such securities are sold. Further, if we issue any share purchase warrants or share purchase options, and they are exercised, there will be a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the market price of our common shares.

 

Investors’ interests in our Company will be diluted and investors will suffer dilution in their net book value per share if we issue employee/director/consultant options.

 

We may in the future grant to some or all of our directors, officers, insiders, and key employees, options to purchase our common shares as non-cash incentives to those persons. Such options may be granted at exercise prices equal to market prices, or at such other price as may be permitted under the policies of any stock exchange upon which our securities are traded (currently, our common shares are listed for trading on the OTCPK), when the public market is depressed. The issuance of additional shares will cause our existing shareholders to experience dilution of their ownership interests.

 

We do not plan to pay any Dividends in the foreseeable future.

 

The Company has never paid a dividend and it is unlikely that the Company will declare or pay a dividend until warranted based on the factors outlined below. The declaration, amount and date of distribution of any dividends in the future will be decided by the Board of Directors from time-to-time, based upon, and subject to, the Company’s earnings, financial requirements and other conditions prevailing at the time.

 

In the event that key employees leave the Company, the Company would be harmed since we are heavily dependent upon them for all aspects of our activities.

 

The Company is heavily dependent on our officers and directors, key employees and contractors, the loss of whom could have, in the short-term, a negative impact on our ability to conduct our activities and could cause a decline in profitability of our properties or additional costs from a delay in development or exploration of properties. The Company has consulting agreements with key employees and contractors, and an employment agreement with our President.


9


 

 

We face exposure to fluctuations in the price of our common stock due to the very limited cash resources we have.

 

The Company has very limited resources to pay its professionals. If we are unable to pay professionals in order to perform various professional services for the Company, it may be difficult, if not impossible, for the Company to maintain its reporting status under the Exchange Act. If the Company is not able to maintain its reporting status, it would become “delisted” and this would potentially cause an investor or an existing shareholder to lose all or part of his investment.

 

The Company does not anticipate any contingency upon which it would voluntarily cease filing reports with the SEC, even though it may cease to be required to do so.

 

It is in the compelling interest of the Company to report its affairs annually and currently, as the case may be, generally to provide accessible public information to interested parties, and also specifically to maintain its qualification for the OTCPK, if and when the Company’s intended application for submission is effective.

 

The success of the Company will depend on the developments of an active trading market.

 

While the Company's common shares are included on Over the Counter Markets (OTCQB), there can be no assurance that an active trading market for the common shares will develop. In the absence of such a market, investors may be unable to readily liquidate their investment in the common shares. The market for equity securities in general has been volatile and the trading price of the common shares could be subject to wide fluctuations in response to general market trends, changes in general conditions in the economy, the financial markets and other factors that may be unrelated to the Company's performance.

 

Low-Priced Stocks are subject to greater Disclosure Requirements.

 

The Securities and Exchange Commission adopted rules (“Penny Stock Rules”) that regulate broker-dealer practices in connection with transactions in penny stocks. The common shares of the Company fall within the Commission's definition of a penny stock. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current prices and volume information with respect to transactions in such securities is provided by the exchange or system). The Penny Stock Rules require a broker-dealer, prior to effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the Penny Stock Rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that is subject to the Penny Stock Rules. At any time when the Company's common stock is subject to the Penny Stock Rules, shareholders may find it more difficult to sell their shares.

 

Item 4. Information on the Company

 

A. History and Development of the Company

 

The Company was incorporated as a federal company pursuant to the laws of Canada under the Canada Business Corporations Act (the “Act”) on October 30, 1997, under the name 3430502 Canada Ltd. In December 1997, the Company changed its name to Four Crown Foods Inc. At the time, the Company was involved in the food and beverage retail business. Then in June 2000, the Company changed its name to Universal Domains Incorporated and operated in the domain registration business upon the acquisition of the license rights to a domain registration agreement for the “.cc” internet registration domain.

 

In November 2003, the Company ceased all operations and in September 2004, the Company changed its name to Pure Capital Incorporated. From that time until November 1, 2006, the Company’s goals were to continue to reduce the liabilities of the Company in an effort to obtain additional financing and explore the possibilities of starting a new operating business, and/or merge with or become acquired by another company or entity.

 

On November 27, 2006, the Company acquired full rights and title to certain mining and exploration claims located in the State of Arizona along with other equipment and properties from Redhawk Exploration & Development, Inc., a Texas corporation.


10


 

 

Then on February 6, 2007, the Company changed its name to Tombstone Exploration Corporation to reflect its current operations in the mining and exploration industry. Since that time we have been operating in the mineral resource business and the primary focus of operations has been to generate revenue from the production of silver and gold, as well as additional base minerals such as copper, lead and zinc. The goal is to produce metals and minerals at or below standard industry costs. The historical nature of mining activities of our present holdings and the acceptance of governmental agencies will enable easier startup here than in non-mining oriented locations.

 

Following identification of suitable areas during our drilling programs, which we anticipate will continue in the future, the Company may initiate mineral extraction if sufficient funding and permitting are secured. These efforts will provide an operating financial base from which to expand. Continuing geological research, testing and drilling is planned based on the initial geological report. This will assist in the identification of key target areas, as well as establish reserve categories.

 

Discussions with precious metal processing and consulting companies to assist in the design of the overall operation of our mining claims have been initiated. Relationships have already been established with refineries, assay companies and engineering firms supporting worldwide mineral processing operations.

 

Stardust Project. The Stardust Mine, Yuma County Arizona, Eagletail Mining District

 

LOCATION: Yuma County, Arizona (Eagletail Mining District)

OWNERSHIP: 100% Tombstone

MINERALS: Gold, Silver, Copper and Molybdenum

PROPERTY SIZE: 400 acres

 

The Company holds the mineral rights to approximately 400 acres of BLM lode claims which includes the Stardust Mine in Yuma County Arizona, the Eagletail Mining District. Exploration work began on the property starting in October 1, 2015. The Stardust Mine is a disseminated Gold Property.

 

Tombstone holds US Federal unpatented lode claims over the Stardust project area. Tombstone has staked these claims by locations.

 

Stardust Project, Yuma Co AZ: 100% interest in 20 unpatented federal lode claims found within Sections 1,2, T2S,R11W, Yuma County, Arizona, USA.

 

Stardust claims acquired by staking of lode claims. Surface and mineral rights are authorized under United States locatable mining rights - The General Mining Law of 1872. An annual Maintenance fee system under which federal claims are held is established by section 314 of the FLPMA (43 USC 1744 and 43 CFR 3833).

 

The current lode claims “Star1 – Star20” held from dates:

 

Location date of Claims Star1 thru Star4 - located Star4 May 19, 2015 to Sept 1 2019. 

Location of Claims Star5 thru Star20 - located Sept 12th,2015 to Sept 1st 2019. 

Stardust claims (Star1 –Star20) are United States federal unpatented lode claims. 

Stardust project is an Exploration project. 

Project name: Stardust 

Claim names: Star1 through Star20 

List of claims at Stardust project included in below compiled listing of Stardust project claims: 

 

These claims can be found recorded in the Phoenix BLM system and accessed through the online LR2000 system found at: https://www.blm.gov/lr2000/

 


11


 

 

AMC Number

Name

Loc Date

Maintenance Paid to

Type

Surface Owner

Mineral Owner

AMC433664

Star1

5/19/2015

1-Sep-20

Lode

BLM

BLM

AMC433665

Star2

5/19/2015

1-Sep-20

Lode

BLM

BLM

AMC433666

Star3

5/19/2015

1-Sep-20

Lode

BLM

BLM

AMC433667

Star4

5/19/2015

1-Sep-20

Lode

BLM

BLM

AMC433914

Star5

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433915

Star6

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433916

Star7

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433917

Star8

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433918

Star9

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433919

Star10

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433920

Star11

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433921

Star12

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433922

Star13

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433923

Star14

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433924

Star15

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433925

Star16

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433926

Star17

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433927

Star18

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433928

Star19

9/12/2015

1-Sep-20

Lode

BLM

BLM

AMC433928

Star20

9/12/2015

1-Sep-20

Lode

BLM

BLM

 

A yearly maintenance payment is due prior to Sept 1st of each year. 

 

Tombstone Exploration Corporation responsible for paying fees.  

 

Mr. Alan Brown, President and CEO. 

 

Stardust project currently has area of approximately 413.2 acres.  

 

Stardust Project / property: A block of continuous claims (a claim block) of 20 claims called Star claims (Star1 – Star20).  

 

The Star claims are found within Sections 1 & 2, T2S,R11W, Gila and Salt Base and Meridian, Yuma County, Arizona, USA. 

 

See attached Stardust Project maps:

 

A State scale map titled “Tombstone Exploration Corporation, State Index map & location of Stardust project.” – This map shows an inset US map, as well as a larger scale Arizona map showing relative position of the Stardust project area within the State. 

 

A regional scale map titled: “Regional Access Map – Stardust Project – Tombstone Exploration Corp.” with the Stardust claims, county, Interstate, and regional urban areas displayed, as well as 100k scale USGS topographic background. 

 

A project scale map plotted at 1” = 1000’ - Map Titled “Tombstone Exploration, Stardust claims, Yuma Co.” shows the Stardust project area and lode claims held by Tombstone Exploration Corporation. Additionally, a USGS quadrangle 7.5 minute background image is present within the map showing planimetric, topographic features, and roads within and outside the project area. 

 

An Application to conduct exploration trenching and drilling on the Stardust Claim block was received by the Bureau of Land Management on March 18, 2016. This work program started mid 2017 subsequent to the Company’s Reclamation Bond’s acceptance by the US Bureau of Land Management on May 17, 2017. Prior to May 2017, the Company’s Notice Application to conduct exploration drilling plan was accepted. The Company has engaged Harris Exploration Drilling and Associates, Inc., a Nevada company, to commence drilling on the Stardust Claim.

 

This property lies along the northern flanks of the Gila Bend Mountains, which are underlain by Precambrian schist and granitic rocks of probable Cretaceous age, uncomformably overlying and intruding the older rocks are Tertiary volcanic rocks.


12


 

 

The geology of the Stardust claims is dominated by three types or phases of granitic rocks. The age of the intrusive rocks is probably Cretaceous, but they could be Precambrian or mid-Tertiary; we currently believe they are most likely to be Cretaceous. Ninety-five percent of the mapped area is encompassed by granitic rocks. The other five percent is divided evenly between Precambrian chlorite schist and mid-Tertiary andesite dikes.

 

The granitics are subdivided into three units. They may all be related to the same magma or be of different ages or a combination of the two. All three are easily identifiable in the field bases on their megascopic characteristics. The first and most abundant unit is leucocratic granite. It is white in color, fine to medium-grained, and does not contain mafic minerals. The presence of chlorite is almost ubiquitous in the leuco-granite, and occurs mainly along fracture surfaces. Chlorite is probably an alteration product associated with fracturing and/or mineralization. The second granitic unit is quartz monzonite. It forms the main portion of South Hill (see Plate 1). It is equigranular and contains hornblende and biotite. Narrow (1-3) silicified and brecciated zones are hosted by this unit; and are commonly anomalous in gold. The third unit is also quartz monzonite in composition, but contains anhedral pink feldspars which distinguish it from the other two units. Alteration and mineralization are completely lacking in this unit.

 

Chlorite schist crops out at three localities which average about 50-75 feet in width and 300 feet in length. The schist unit is a roof pendant and probably continues at depth for only a few hundred feet. The age of the chlorite schist is probably Precambrian, based on its resemblance to other Precambrian schist units in western Arizona. Mineralization does occur within the schist, generally near andesite dikes.

 

The andesite dikes crop out as narrow (5-10 feet), sinuous bodies and crosscut the leucogranite and chlorite schist. Intrusion of the dikes is tentatively dated as Oligocene to early-Miocene. In the north-central position of the mapped area, the andesite seems to “blossom” into a stock-like body with minimum dimensions of 100 feet by 400 feet; see section B-B’, Plate 3 for configuration. Strike direction of the dikes varies from east-west to N70 degrees West and dips average 70 degrees to the North. Alteration of the andesite consists of silicification, brecciation, and iron-oxides; however, some andesite is devoid of alteration, especially in the eastern portion of mapped area.

 

Due to the paucity of outcrop on the property, structures were difficult to define. In a broad sense, the entire mapped area has been intensely fractured along an east-west structure, this fracturing is at least a ½ mile in length and 300-500 feet in width. The zone could be much wider, but colluvium to the north covers any extension.

 

Gold and silver mineralization with copper occurs along an east-west trend and is spatially related to an andesite dike. The dike is variably silicified and iron-stained. Silicification consists of silica replacement and drusy quart crystals in open-space veins. Hematite staining and vein fillings are commonly associated with gold.

 

On November 25, 2015, Zonge International completed ground geophysics across the 400 Acre claim block owned by Tombstone in the Eagletail Mining District, Yuma County, Arizona. Zonge has been well respected for geophysical data acquisition in the minerals industry since 1970. They are an industry leader in methods such as IP (induced polarization) and CSEM/AMT, as well as SP, seismic, and gravity/magnetic data acquisition. 

 

Zonge has performed a ground magnetic survey across the claim block to determine the extent of the Stardust Fault. Previous reports state that the two shafts on the property were sunk along a high angled structure which trends E-NE across the area of outcrop. This structure is thought to be the ‘feeder’ for the Gold Silver mineralization in the project area. Several reports reference ‘free milling gold’ from drifts along this fault. Abundant dump material contains anomalous gold and silver values as well as visible copper oxides. Due to the extensive surface disturbance in this area, performing a ground magnetic survey will give a better understanding of the subsurface character of the fault. This method details changes in density in the subsurface and is used to define faults, fractures, and changes in rock types. As a result, this geophysical data will be used to better define the Phase I scope of work, which will involve detailed surface mapping, rock/soil sampling, and delineation of drill targets.

 

The Stardust property has two shafts on this property that are secured with wire fencing. We have not entered either of these shafts at this time. There has been minimal surface disturbance on this property and we are not aware of any trenching, mine dumps, ponds or any contaminations released by former processing or assay/testing activities. 

 

The encouraging results from the rock sampling program over the Stardust project indicate the presence of a high angle detachment related precious metals vein system. The mineralization present at the Stardust project appears to be located within detachment related veins & locally intensively chloritic and hematitic host rocks. The vein system has been sampled over a strike of approximately 3,200 feet (975 meters). These veins appear to be a feeder system of an extensive partially eroded low angle fault system over the Stardust.

 


13


 

 

The results of the latest tranche of rock samples combined with field observations, and existing data, appear to fit the USGS detachment fault model of USGS Bulletin 2004 by Long, K.R.: Preliminary Descriptive Deposit Model for Detachment-Fault-Related Mineralization. Other productive detachment fault related precious and base metal systems occur through the Basin and Range areas of Southern California, Western Arizona, and Southern Nevada. An example in Arizona includes the Copperstone Mine, previously mined by Cypress which produced one half million ounces of gold by open pit methods from 1987-1993. Copperstone is currently being evaluated for additional resources.

 

Quartz veins are present in outcrop, subcrop, float, & in historical mining dumps. In addition to these strong precious metal values found in samples, additional observations at Stardust include:

 

The presence of chalcedonic quartz veins. 

 

Crushed veins & and multi-phase cemented - banded silica veins, & silicification. 

 

Abundant drusy textures (boiling level and vapor phase) 

 

Footwall host rocks are a metasediment matrix with strong hematite & intensive chloritic alteration + copper oxides.

 

The Property is without known Reserves and the property is exploratory in nature based on prior work on this property over many years.

 

The current service on this claim block has disturbances of which has been identified in our exploration plan previously filed with the BLM. Any further surface disturbance from the result of our Exploration Work that has been filed with the Bureau of Land Management will be required to be remediated.

 

Stardust Mine Events for years ended December 31, 2017, 2018 and 2019:

 

As announced on May 30, 2017, the Company’s Reclamation Bond was accepted on May 17, 2017, by the BLM, and prior to this, the Notice Application to conduct exploration drilling plan was accepted. The Company has engaged Harris Exploration Drilling and Associates Inc. (Harris Drilling), a Nevada company to commence drilling on the Stardust property the first week of June. Harris Drilling has been in business for over fifty years and has worked for many of the top mining and exploration companies in the world. This first phase drilling program is designed to establish strike length and test grades over a large enough width within the defined chlorite hematite hosted vein system. The drilling will attempt to define structural continuity (vein continuity along strike), grade of veins and hosting chl-hem zone, and find the width of structures. The program, as designed, should also demonstrate grade at reasonably shallow depths. The lowest drilling angle -45 degrees is envisioned for this program. This phase will include approximately 3000 ft of drilling. The mineralization present at the Stardust Project appears to be located within detachment related veins hosted by intensively chloritic and hematitic host rocks. The vein system has been sampled over a strike of approximately 3200 feet (975 meters). These veins appear to be a feeder system of an extensive partially eroded low angle fault system regionally present. 

 

As announced on July 5, 2017, the first two holes Core(HQ) of drilling were completed. The first hole (SDD1) was completed at a depth of 350 ft and the second hole (SDD2) was completed at 290ft at the 100% owned Stardust claim block located in Yuma County, Arizona. This first drill program is expected to drill 6–8 holes totaling 3000 ft. The Stardust drilling campaign is targeting an epithermal precious metals (gold, silver ) system. Harris Exploration Drilling and Associates Inc. (Harris Drilling), a Nevada company, commenced drilling on June 10th. The core samples from the first two holes were delivered to Skyline Assayers and Laboratories in Tucson, Arizona on July 3rd. The samples will be crushed and pulverized with standard steel and then proceed to be fire assayed for Gold and a 24 multi-element Geochemistry for Silver and multiple other trace elements. This first phase drilling program is designed to establish strike length and test grades over a large enough width within the defined chlorite hematite hosted vein system. The drilling will attempt to define structural continuity (vein continuity along strike), grade of veins and hosting chl-hem zone, and find the width of structures. The program, as designed, should also demonstrate grade at reasonably shallow depths. The lowest drilling angle -45 degrees is envisioned for this program. 

 

As announced on August 30, 2017, the third and fourth holes Core(HQ) of drilling were completed by Harris Drilling and Associates Inc. on July 26, 2017. The third hole (SDD3) was completed at a depth of 175 ft and the fourth hole (SDD4) was completed at 293 ft at the 100% owned Stardust claim block located in Yuma County, Arizona. Phase 2 drilling is scheduled for September. The Stardust drilling campaign is targeting an epithermal precious metals (gold, silver) system. The core samples from the third and fourth holes were delivered to Skyline Assayers and Laboratories in Tucson, Arizona, on July 28th. The samples will be crushed and pulverized with standard steel and then proceed to be fire assayed for gold and a 24 multi-element Geochemistry for silver and multiple other trace elements. 


14


 

 

This first phase drilling program is designed to establish strike length and test grades over a large enough width within the defined chlorite hematite hosted vein system. The drilling will attempt to define structural continuity (vein continuity along strike), grade of veins and hosting chl-hem zone, and find the width of structures. The program, as designed, should also demonstrate grade at reasonably shallow depths. The lowest drilling angle -45 degrees is envisioned for this program.

 

Holes 3 and 4 are designed to test projection of gold mineralization in outcrop veins and silicification found just NE of one of the original shafts on the property. We look forwarding to receiving and reviewing the assay results and sharing with our shareholders, as there have been multiple locations of veins throughout the core that we have sent for assay.”

 

As announced on December 5, 2017, Nine RC drill holes totaling 5000’ were completed at the Stardust project in November. Drilling focused mostly on the western half of the property with -45 degree inclined holes. The main Stardust Mine structure, which strikes just north of due east, and secondary NE fault splays on its north side were primary targets. Drill holes across these structures consistently intercepted intervals of quartz veining, strong silicification, and associated iron oxide minerals, all prospective for gold-silver mineralization. Wall rocks to the veins included propylitically altered monzonite intrusive, meta-volcanic, and meta-sedimentary rocks. Most of the 2017 drilling occurred in an area of thin (25-90’) gravel cover created by downward offset on the N and NW sides of E-W and NE structures. Blind structural drill targets were partly resolved with the 2015 Zonge Engineering ground magnetic data, and partly discernible from detailed air photos and geologic mapping. Though the gravel contains angular fragments of gold-silver bearing, banded epithermal quartz vein material, it hindered historic development work at Stardust during the 1920’s, by obscuring in place quartz veins. 

 

The overall Stardust epithermal system appears differentially eroded from east to west. East of the historic mine shafts, exposures are good. Rock chip gold-silver results improve nearer to the historic Stardust mine shafts, which are located in a central corridor where the precious metals zone is better preserved from erosion, but incompletely covered by gravel. Drill holes SDR 5 and 6 tested this corridor. Drill holes SDR 7 through SDR 13 targeted quartz veins beneath gravel cover up to 300’ north and 1500’ west of the historic shafts. These holes encountered the strongest quartz vein intervals, up to 55’ thick. Quartz vein intervals were encountered through a depth range from just below the gravel cover to downhole depths up to 615’, suggesting good preservation of the precious metals zone at depth. About 1300’ west of the Stardust shaft, a prominent NE structure further down-drops tertiary volcanic rocks into fault contact with older intrusive and metamorphic rocks that host the known quartz veins. SDR 12 was collared in the hanging wall of this structure and encountered a thicker gravel sequence, tertiary volcanic rocks, and quartz veining at the fault contact between the tertiary volcanic rocks and pre-tertiary basement rocks, as well as additional quartz veins and silicification in the basement rocks. Strong alteration and structurally-controlled quartz veining continue to the western extent of the 2017 drilling, leaving the Stardust epithermal system open to the west and potentially still strengthening to the west. This drill program clearly shows the Stardust project contains an epithermal alteration system much larger and stronger than indicated by the restricted historic workings and surface exposures and requires further drilling to determine its size. The strength and extent of quartz veining and silicification observed during the drill program suggest excellent potential for significant gold and silver results. All 1000 samples are presently at Skyline Assayers and Laboratories in Tucson, Arizona. Results are expected in 4-6 weeks.

 

In summary, the recently completed 9-hole drill program at Stardust has successfully confirmed the presence of quartz veins outside of previously tested areas at the Stardust property. The drilling identified strong quartz vein structures along the trend for over 1500 feet west of the historic Stardust shafts. Drilling encountered quartz veins and metallic mineralization in the area outside the historic underground workings. This suggests that there could be additional precious metal resources in known structures west of the historic mines.

 

As announced on February 8, 2018, the Company announced the results from the phase two drill on the Stardust Gold Project as follows. Tombstone Exploration completed 13 holes totaling 6200’ at the Stardust project in 2017. Drilling focused mostly on the western half of the property with -45degree inclined holes. The main Stardust Mine structure, which strikes just north of due east, and secondary NE fault splays on its north side were primary targets. Drill holes across these structures consistently intercepted intervals of quartz veining, strong silicification, and associated iron oxide minerals, all prospective for gold-silver mineralization. Wall rocks to the veins included propylitically altered monzonite intrusive, meta-volcanic, and meta-sedimentary rocks. Most of the 2017 drilling occurred in an area of thin (25-90’) gravel cover created by downward offset on the N and NW sides of E-W and NE structures. 


15


 

 

The overall Stardust epithermal system appears differentially eroded from east to west. East of the historic mine shafts, exposures are good. Rock chip gold-silver results improve nearer to the historic Stardust mine shafts, which are located in a central corridor where the precious metals zone is better preserved from erosion, but incompletely covered by gravel. Drill holes SDR 5 and 6 tested this corridor. Drill holes SDR 7 through SDR 13 targeted quartz veins beneath gravel cover up to 300’ north and 1500’ west of the historic shafts. These holes encountered the strongest quartz vein intervals, up to 55’ thick. Quartz vein intervals were encountered through a depth range from just below the gravel cover to downhole depths up to 615’, suggesting good preservation of the precious metals zone at depth. About 1300’ west of the Stardust shaft, a prominent NE structure further down-drops tertiary volcanic rocks into fault contact with older intrusive and metamorphic rocks that host the known quartz veins. SDR 12 was collared in the hanging wall of this structure and encountered a thicker gravel sequence, tertiary volcanic rocks, and quartz veining at the fault contact between the tertiary volcanic rocks and pre-tertiary basement rocks, as well as additional quartz veins and silicification in the basement rocks. Strong alteration and structurally-controlled quartz veining continue to the western extent of the 2017 drilling, leaving the Stardust epithermal system open to the west and potentially still strengthening to the west. To date all drill results had lower grade gold than expected on this small area of drilling. Tombstone has drilled through incredible large quartz vein intercepts with this drill campaign and nearly every section sent for assay carried gold, leaving Tombstone highly optimistic on identifying greater quantities on the remaining 396 acres of the Stardust Property.

 

In addition to the gold assays Tombstone also had its lab prepare Analysis of 29 additional elements which included lithium. There were interesting lithium numbers in all the drill holes of which we did not expect. Although the lithium numbers are also considered low grade it will now be added to our exploration plan. Lithium is hosted in a pregmatite composition that is similar to granite with abundant quartz. The third phase drill area has a number of pregmatite outcrops of which we will be included in our next drill targets.

 

The first two phases of drilling were designed to establish strike length and test grades over a large enough width within the defined chlorite hematite hosted vein system. The drilling was to define structural continuity (vein continuity along strike), grade of veins and hosting chl-hem zone, and find the width of structures.

 

The Company has not conducted any work at the Stardust Mine in 2019, however, the Company still holds all of the claims.

 

The Tombstone Project. The State of Main Mine and others as well as Section 16 of the Tombstone Mining District Copper Exploration, Cochise County, Tombstone Arizona

 

LOCATION: Tombstone, Arizona

OWNERSHIP: 100% Tombstone

MINERALS: Gold, Silver and Copper

PROPERTY SIZE: 641 acres

 

The Property is without known Reserves and the State of Main Mine is exploratory in nature based on prior work completed on this property over many years. There are multiple areas that were worked on the State of Maine Mine from the 1930’s, they have been described in many reports that previous geologists have rendered that are historic in nature. Most of this work was completed underground and access was through mine shafts and decline entrance ways. We have not completed any work in the interior of this property. We have not encountered any previous contamination on these properties related to former processing or assay testing activities. 

 

The Company holds the mineral rights to approximately 640 acres in the historical western Tombstone silver mining district. Our property area lies within the historic Tombstone Mining District Cochise County, Arizona. The town of Tombstone, Arizona is approximately 70 miles (miles, 110 kilometers (km)) southeast of Tucson and 24 miles (40 km) northwest of Bisbee, Arizona. The San Pedro River lies about 2 miles (3 km) west of the property’s westernmost boundary.

 

The Tombstone mining district is one of 12 mining districts in Cochise County, Arizona. Copper, lead, zinc, silver, and gold were the principal metals produced from the different mines in the County. Management has structured and positioned the Company to capitalize on today's increasing demand and prices for precious metals and base metals such as copper, lead and zinc.

 

The Tombstone property is composed of three non-contiguous parcels totaling approximately 640 acres. The parcels consist of 8 patented lode claims totaling 145.6 acres (58.9 ha) in Section 16, and 1 Arizona State Land Department (ASLD) exploration permits totaling 495 acres. The Company owns the mineral rights to the patented claims; the surface rights are owned by various individuals. The Arizona state trust lands exploration permits grant the Company the exclusive exploration rights for up to 5 years from the date the exploration applications were filed. Surface and mineral rights are variously owned by the U.S. federal government, the State of Arizona, and individual persons.


16


 

 

Tombstone has conducted multiple sampling and drill programs on Section 16 in prior years. A prior sampling program on Section 16 included 115 samples that had high gold and silver assays. The results include rock samples collected from outcrops, mine dumps, trenches, and underground workings. The two highest samples returned assayed values of 609.50 ounces per ton (opt) of Ag (silver), 0.396 opt Au (gold) and 81.70 opt Ag and 0.180 opt Au. The highest of these samples, sample 49373, was a selected sample collected from the Santa Ana mine (Joseph Vein) workings at the 18-meter level across a 10 cm. wide fault. An earlier selected high grade sample collected from the 10-meter level of the Santa Ana mine (Joseph Vein), sample SA 35-0, assayed 971.40 opt Ag, 0.335 opt Au across a 5 cm. width.

 

A detailed NI 43-101 was completed on this property by SRK Consulting along with a ZTEM Report by Geotech. Ltd based on Helicopter-Borne Electromagnetic Geophysical survey on the Tombstone property conducted for Tombstone Exploration Corporation. A significant Porphyry copper system has been identified that encompassed Section 16 of this district.

 

The Bonanza Project

 

LOCATION: Salome, Arizona,8 miles north of the Hovatter Road exit off of Interstate -10, and 8 miles

Latitude: 33° 40.131’N

Longitude: 113° 35.177’W

 

OWNERSHIP: 40% Tombstone, 60% Goldrock Resources, Inc.

MINERALS: Gold, Silver and Copper 

PROPERTY SIZE: 2,656 acres

 

Gold was discovered in the Harquahala area in 1862. There were a reported 120,560 ounces of gold from the mine from 1891 to 1929. Grades of gold were reported to be over an ounce per ton of gold from the Bonanza mine. .

 

The Bonanza Mine Area is 5 miles North of I-10 Exit 53 (Hovatter Rd), ~110 miles West of Phoenix Airport. 

 +180,000 oz Au (Gold) mined 1880s-early 1900s, @ 1+ oz Au/ton: high angle shear zones on thrust sheets 

Mine water table at ~200’; Gold Zone continued; mill could not process sulfides, so not mined 

Potential low-grade targets along miles long thrust plate. 

Bonanza mine/mill left 500,000+ tons dumps/tails @ 0.04-0.10 oz Au/ton containing 25-40,000+ oz Au 

Previous/current leach test-work on tailings/dumps indicate recovery of Au @ 88%+; Ag @ 25% + 

 

The Bonanza Project is Tombstone’s latest acquisition and the property includes the Harquahala and Golden Eagle mines, located approximately eight miles south of Salome, Arizona. The project totals 2,656 acres and has significant underground workings, from which some 180,000-200,000 ounces of gold were reportedly produced from high-grade ore in the late 1800's and early 1900’s. Mined rock and tailings from previous operations represent an additional potential resource. The project will be in partnership with Richard Moores, CEO and Director of Goldrock Resources, Inc., and Todd Fayram, Director of Goldrock Resources, Inc., who have a 60% majority investment in the project. Bonanza Area Claim Block with Defined 250-350k oz Au Target Areas.1-1.5+ MM oz Au Overall Potential

 

$3 MM Bonanza Heap Leach to generate US$20-35+ million within 12 months of startup. 

2-4 months final conformations/design/bids, condemnation drill/trench, initiate permitting. 

Permitting to take 9-15 months, US$125-150,000; similar to nearby heap leach (Phase 1 – Moss Mine). 

+/- US$3.0 MM capital (Vendor bids,+0.5MM Contingency), 4-6 months construction, 4-8 months operation. 

 3.5k oz Au (Gold) of 20-30k+oz Au projected, yields capital/ops break-even; US$1,200/oz Au; $16 /oz Ag 

–Additional nearby dumps & tailings could add 4-6,000+ oz Au to leach pad inventory. 

 

Facility Description:

 

Bonanza Mining Company (Bonanza) will operate the Harquahala Mine to reprocess historical (pre-1986) surface gold bearing ores and tailings. The operation will collect the historic ores and tailings to extract and recover the gold.

 

Approximately 242,000 cubic yards of historic ores and tailings will be consolidated in controlled areas prior to being sized and placed onto a newly constructed double-lined heap leach pad (approximately 314,000 square foot (sq. ft)). The gold will be extracted in the newly constructed 4,126,239 gallon double-lined pregnant solution pond, with a maximum operational storage requirement estimated to be 3,965,780 gallons. The extraction operation will consist of loading and hauling; primary and secondary crushing; agglomeration and stacking; heap leaching using cyanide solution, storage of process solutions in ponds; and precious metals recovery using granular activated carbon (GAC). The final phase of the gold extraction from the GAC will be performed off-site. The facility will also include an intermediate stockpile that will be permitted under a Type 2.02 general permit.


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Updates as to Operations:

 

In 3rd quarter 2019, the Bonanza Mining Company (Joint Venture Company) (Bonanza) identified that their permitting engineers, CDM Smith, submitted the Air Quality permit on July 2nd and received a determination of completeness letter the same day. The completeness determination effectively starts the clock for air permit engineering review with expectations of completing the air permitting in November.

 

The Arizona Department of Environmental Quality (ADEQ) received the required Aquifer Protection Permit (APP) for the Bonanza Mining Company. The Department considered the application administratively complete on August 12, 2019.

 

The Leach Pad and construction design are now in progress for the Bonanza Gold Project and continue to progress and be ready to implement upon receiving approval of all required permits. The Company is expecting completion and approval of all the required permits for this venture during November/December 2019 and then starting the construction phase on receipt of all.

 

Update to the permitting:

 

The three permits necessary to operate are: Aquifer Protection Permit (APP), BLM Mine Plan of Operations for Public Land (MPO), and a Reclamation Plan for private property are all well into the permitting process. All permits are considered administratively complete as of December 31, 2019. 

 

In January 2020, Arizona State Mining Inspector concluded the Company met all criteria required to commence operations on the Bonanza Mining Project. Tombstone has completed all steps of the permitting process and is awaiting the approval of the final necessary permit to begin construction. Extensive exploration of the property has revealed significant gold and silver reserves, as previously described in the April 15, 2020 press release.

 

This letter states, "The Reclamation Plan submittal for the Bonanza Mining Company - Harquahala Mine Project operation has been found to meet the applicable requirements of the Mined Land Reclamation Act and the Rules and plan approval criteria as established under A.R.S. Title 27, Chapter 5, 27-971. The site is located approximately 8 miles south of Salome, La Paz County, Arizona, within Sections 15, 16, 21-23, 27 and 28, Township 4 North, Range 13 West, of the Gila and Salt River Baseline and Meridian. The site is accessed via Harquahala Mine Road and Hovatter Road from Interstate 10."

 

In February 2020, The Company announced the Arizona Department of Environmental Quality (ADEQ) proposes to issue an Aquifer Protection Permit (APP) for the subject facility that covers the life of the facility, including operational, closure, and post-closure periods unless suspended or revoked pursuant to Arizona Administrative Code (A.A.C.) R18-9-A213. The requirements contained in this Permit will allow the permittee to comply with the two key requirements of the Aquifer Protection Program: 1) meet Aquifer Water Quality Standards (AWQS) at the Point of Compliance (POC); and 2) demonstrate Best Available Demonstrated Control Technology (BADCT). BADCT's purpose is to employ engineering controls, processes, operating methods or other alternatives, including site-specific characteristics (i.e., the local subsurface geology), to reduce discharge of pollutants to the greatest degree achievable before they reach the aquifer or to prevent pollutants from reaching the aquifer.

 

Best Available Demonstrated Control Technology (BADCT):

 

Facilities regulated by this permit shall be designed, constructed, operated, and maintained to meet requirements specified by A.R.S. §49-243(B) and A.A.C. R18-9-A202(A)(5).


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Heap Leach Pad:

 

This facility will cover an area of approximately 314,000 square feet, and contain approximately 242,000 cubic yards of existing gold bearing ores and tailings. The ore and tailings will be consolidated into controlled areas prior to being sized and placed on the lined leach pad. The liner system for the leach pad shall be placed on 6 inches of prepared subgrade. The bottom liner shall consist of 30-mil scrim laminated low-density polyethylene (LDPE) with LDPE film geomembrane that is equivalent to 60 mil HDPE geomembrane. The upper liner shall consist of an ultra violet (UV) resistant 45-mil double scrim high-density polyethylene (HDPE) with LDPE coating geomembrane. A uniaxial geonet shall be placed between the two liners. The liners shall be secured around the perimeter of the leach pad in an anchor trench that is 2 feet wide and 2 feet deep. A minimum of 18 inches of ¾-inch minus drain rock shall be placed on upper liner. To promote pregnant solution transfer, 3-inch and 6-inch perforated collection pipes will terminate adjacent to the 12-inch pipe, and solution will pass through the drain rock and into the 12-inch collection pipe. Two 12-inch HDPE perforated pipes shall be located in a solution collection channel near the center of the leach pad to convey solutions to the Pregnant Solution Pond. A containment berm shall be constructed 12 feet from and 2 feet higher than the adjacent toe of the leach pad. The containment berm shall be capable of containing run off a 100-year, 24-hour storm and solution drain down and routing the fluids to the Pregnant Solution Pond. Liquid collected in the containment berm will flow by gravity over the double-lined liner system before cascading over this double liner system into the pregnant solution pond. Surface water run-on shall be collected in channels capable of handling stormwater from a 100 year, 24-hour storm event and diverted around the facility. The finish grade (maximum elevation) of the heap leach pile shall not exceed 1,760 feet above mean sea level (AMSL).

 

Pregnant Solution Pond:

 

This facility shall be located adjacent to the west side of the Heap Leach Pad. Pregnant solution shall be collected in a double-lined pond having a capacity of 4,126,239 gallons including 2 feet of freeboard. The liner system for the lead pond shall be placed on 6 inches of prepared subgrade overlaid by 6 inches of geosynthetic clay liner. The bottom liner shall consist of 30-mil scrim laminated LDPE with LDPE film geomembrane that is equivalent to 60 mil HDPE geomembrane. The upper liner shall consist of an UV resistant 45-mil double scrim HDPE with LDPE coating geomembrane. A uniaxial geonet shall be placed between the two liners. The liners shall be secured around the perimeter of the pond in an anchor trench that is 2 feet wide and 2 feet deep. An LCRS sump shall be constructed between the two liners near the southeastern portion of the pond. The LCRS shall be equipped with a dedicated, automatic, fluid-level activated pump capable of pumping 15,500 gallons per day. Surface water run-on shall be collected in channels capable handling stormwater from a 100 year, 24-hour storm event and diverted around the facility.

 

Compliance with Aquifer Water Quality Standards (AWQS):

 

To ensure that site operations do not result in violation of Aquifer Water Quality Standards, the point of compliance well located 200 feet west of the Leach pad shall be sampled and analyzed for the parameters listed in Section 4.2, Table 4.2.4 in the permit. Facility inspection and operational monitoring shall be performed on a routine basis in Section 4.2, Table 4.2.1, in the permit for the Pregnant Solution Pond and the Heap Leach Pad.

 

Recent Developments:

 

February 27, 2020, the Company announced the ADEQ received the mandatory cash deposit for financial assurance for the approved cost estimate in the amount of Two hundred and Eight Thousand, Five Hundred and Fourteen dollars ($208,514) for the Aquifer Protection Permit for the Harquahala Mine Permit.

 

On April 15, 2020, the Company announced that it had received the final permit necessary to launch construction, and shortly after, active gold production at the Harquahala Mine. The ADEQ specifically authorized Bonanza Mining Company to “operate the Harquahala Mine, a gold mine located in an unincorporated area 8 miles south of the Town of Salome, La Paz County, Arizona” based on the issuance of AQUIFER PROTECTION PERMIT NO. P-512944, which will remain effective for the life of the facility.

 

The issuance of this permit allows for the construction of a 242,000 cubic yard heap leach pad and a 4,126,239 gallon double-lined pregnant solution pond, where consolidated historic ores and tailings at Harquahala will be subject to gold extraction through conventional cyanide leaching.

 

The initial portion of the Phase One leach pad is expected to accommodate 500,000 tons of already mined material that have been tested to show upwards or more of 26,000 - 50,000oz of gold.


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Further, on April 21, 2020, the Company provided an update as to the status as construction begins.

 

Location of On-site Water Well. The Company is excited to report that the Partners have discovered an on-site water well capable of fully supplying the construction and production process at Harquahala, including the leaching extraction process following the construction of the heap leach pad. Management notes that this discovery will significantly reduce the cost of production on a per-unit basis and shorten total time to market extracted gold. 

 

Full Permissions in Place. Further to the Company’s release dated April 15, the Arizona Department of Environmental Quality (“ADEQ”) has now confirmed that all permissions are in place to allow for full development and Construction at the Harquahala Mine site. 

 

Construction Timeline. Construction of the 242,000 cubic yard heap leach pad and 4,126,239 gallon double-lined pregnant solution pond are slated to begin in May. Management now expects the construction phase to last 60-90 days, after which time the Company will begin to extract tangible gold from the site and bring it to market. 

 

The Bahamas Lime Rock Project

 

LOCATION: Freeport, Grand Bahama Island

OWNERSHIP: 100% Ownership by Bahamas Aggregates, TMBXF receives a monetary portion of every ton produced on the property.​​​​​​​

MINERALS: Limestone and Aggregates

PROPERTY SIZE: undefined

 

In 2019, Tombstone Exploration Corporation partnered with Bahamas Aggregates, a California corporation with operations in Freeport, Grand Bahama Island for the Bahamas Lime Rock Project. Their operation currently produces 100-120k tons of materials per month for customers in the Bahamas and United States.

 

Tombstone Exploration purchased a 50 cent royalty from Bahamas Aggregates High Rock operation which has reserves of four to six million tons of raw materials, creating a potential net profit of $1.5-2.5 million dollars to Tombstone. Tombstone is in discussions with Bahamas Aggregates to share in its two additional projects that have 25 million tons of aggregate reserves. 

 

In September 2019, Dorian, a category 5 hurricane, reached Grand Bahama Island and stalled for over a day causing devasting and serious damage to the Island with three quarters of the homes destroyed or underwater after the storm. While the damage is being repaired there is no estimate as to when the island will be able to resume normal function including operations for production of this project. Further, with the 2020 Corona virus pandemic resuming work at the project has been delayed. It is anticipated that rock sales may resume in third quarter 2020. Additionally, the loans against the Company for this project are non-recourse, while we believe the project may become profitable in the future, if it fails the loans will not be collectible.

 

In addition to continuing to explore our current mineral rights, we will seek out and attempt to acquire new properties.

 

B. Business Overview

 

This business generally consists of three stages: exploration, development and production. We are a mineral resource company in the exploration stage because we have not yet found mineral resources in commercially exploitable quantities, and are engaged in exploring land in an effort to discover them. Mineral resource companies that have located a mineral resource in commercially exploitable quantities and are preparing to extract that resource are in the development stage, while those engaged in the extraction of a known mineral resource are in the production stage.

 

Mineral resource exploration can consist of several stages. The earliest stage usually consists of the identification of a potential prospect through either the discovery of a mineralized showing on that property or as the result of a property being in proximity to another property on which exploitable resources have been identified, whether or not they are or have in the past been extracted.


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After the identification of a property as a potential prospect, the next stage would usually be the acquisition of a right to explore the area for mineral resources. This can consist of the outright acquisition of the land or the acquisition of specific, but limited, rights to the land (e.g., a license, lease or concession). After acquisition, exploration would probably begin with a surface examination by a prospector or professional geologist with the aim of identifying areas of potential mineralization, followed by detailed geological sampling and mapping of this showing with possible geophysical and geochemical grid surveys to establish whether a known trend of mineralization continues underground, possibly trenching in these covered areas to allow sampling of the underlying rock. Exploration also commonly includes systematic regularly spaced drilling in order to determine the extent and grade of the mineralized system at depth and over a given area, as well as gaining underground access by ramping or shafting in order to obtain bulk samples that would allow one to determine the ability to recover various commodities from the rock. If minerals are found, exploration might culminate in a feasibility study to ascertain if the mining of the minerals would be economic. A feasibility study is a study that reaches a conclusion with respect to the economics of bringing a mineral resource to the production stage.

 

Operations

 

The Company has conducted several drilling programs on the Tombstone property, as described in greater detail below. 

 

2009/2010 Drill Program - Phase II

 

In February 2009, the Company extracted six additional samples from the Tombstone property which were sent to Copper State Analytical for assay for gold, silver, manganese, copper, lead and zinc. Three of the samples were taken from the State of Maine Mine and three from Randolph Mine, both located on the Tombstone property. The Company suspended the 2009 Drill Program due to general economic factors leading to difficulty in obtaining the requisite financing to fund the program.

 

In April 2010, the Company resumed the 2009 Drill Program, with the two targets drilled and both having intersected mineralized zones. The Company utilized a portable x-ray diffraction (XRF) machine to get on-site reading of metal levels in the drill cuttings. The results helped the exploration team manage the drilling program. Tombstone's property is underlain by Uncle Sam porphyry and units of the Bisbee Group. Mineralized fissures strike consistently northeast, and many of the fissures exhibit consistent orientation for hundreds of feet along strike. Many fissures have parallel orientations, forming fissure sets. The main mines in this area occur along these northeast-striking fissures. The State of Maine mine occurs in fissures that cut both Bisbee sediments and Uncle Sam porphyry. These structural mineralized fissures are the primary focus of the current exploration program.

 

As of June 30, 2010, 4,080 feet of drilling had been completed. Also, during this period, additional geologist investigation was undertaken to further assess the potential for porphyry copper exploration targets on the Tombstone property. The Company has been in contact with geophysical contractors to develop a plan, budget and timeline for this phase of the project. Planning is on-going and work may include geochemical surveys as well.

 

The Company has not conducted further drilling on the Tombstone Property since June 2010. The State of Main mine is without known Reserves and the property is exploratory in nature based on prior work on this property over many years.

 

2010 Report on a Helicopter-Borne Z-Axis Tipper Electromagnetic (ZTEM) and Aero Magnetic Geophysical Survey

 

From June 29, 2010 to July 4, 2010, Geotech Ltd. carried out a helicopter-borne geophysical survey for the Company over the Tombstone project area. Principal geophysical sensors included a Z-Axis Tipper electromagnetic (ZTEM) system, and a caesium magnetometer. Ancillary equipment included a GPS navigation system and a radar altimeter. ZTEM was selected for its ability to achieve unparalleled resolution and depth of investigation. The system is well suited to imaging buried porphyry deposits and is capable of gathering data over 6,000 feet (1.25 miles) below ground surface.

 

The airborne ZTEM survey covered over 200 line miles and most of the Tombstone Mining District. A total of 373.5 line kilometers of geophysical data were acquired during the survey. In a ZTEM survey, a single vertical-dipole air-core receiver coil is flown over the survey area in a grid pattern, similar to regional airborne EM surveys. Two orthogonal, air-core horizontal axis coils are placed close to the survey site to measure the horizontal EM reference fields. Data from the three coils are used to obtain the Z/X and Z/Y Tipper (Vozoff, 1972) components at six frequencies in the 30 to 720 Hz band. The ZTEM was used to map geology using resistivity contrasts and magnetometer data were also collected to help map geology using magnetic susceptibility contrasts.

 


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The crew was based in Tombstone, Arizona for the acquisition phase of the survey. Survey flying started on June 29, 2010 and was completed on July 4, 2010. Data quality control and quality assurance, and preliminary data processing were carried out on a daily basis during the acquisition phase of the project. Final reporting, data presentation and archiving were completed from the Aurora office of Geotech Ltd. in October, 2010. A quality control step consisted of re-examining all data in order to validate the preliminary data processing and to allow for final adjustments to the data. Attitude corrections were re-evaluated, and re-applied, on component by component, flight by flight, and frequency by frequency bases. Any remaining line to line system noise was removed by applying a mild additional levelling correction.

 

As a result of the survey, Geotech identified a number of conductive structures across the property that resemble known porphyry deposits and reported that the magnetic results also contained worthwhile information in support of exploration targets of interest. Based on the geophysical results obtained, Geotech recommended a more detailed interpretation of the available geophysical data, including Versatile Time-Domain Electromagnetic survey (VTEM), in conjunction with the geology, prior to ground follow up and drill testing.

 

In November 2010, upon review of the ZTEM data, at least four to five porphyry targets were identified on the Company's Tombstone property, and there is still a very large land position to review. Of the targets that have been identified so far, two have precious metal (gold and silver) occurrences as "halos" around the properties, which are significant characteristics of porphyry systems. One identified structure has been compared by Geotech to the Mount Milligan deposits that were sold and have total measured and indicated resources of 417.1 million tons grading 0.21% copper, 0.41 g/t gold for 1,934 million pounds copper and 5.5 million ounces gold. Three of the identified targets have coincident magnetic and resistivity high which are very promising geophysical signatures. One target is adjacent to a porphyry system that was drilled by a major international mining company. As of the date of this Report, the Company is continuing to work with the geophysical data acquired from the ZTEM survey of the Tombstone Project. 

 

2012 Technical Report

 

In January 2012, SRK completed a Technical Report on the Tombstone property.

 

SRK made the following conclusions in the Report:

 

The Tombstone property represents a beginning exploration project with a limited amount of historical and current data. The data are insufficient to take the property to resource classification by current industry standards at this time.

 

The historic silver deposits in the central mining district are well documented through various reports in the literature and several master- and doctoral-level theses. Although west of the largest historical ore deposits, the Tombstone West Area property nonetheless represents an opportunity to target a resource by current methodologies of mapping, drilling, and geophysical surveys that may be successfully extracted with present-day mining techniques. In light of silver commodity price increases in recent years, the recent emphasis on potential porphyry copper and gold targets in the Tombstone area, and recent gold and copper commodity prices, the Tombstone Project warrants a current evaluation.

 

SRK made the following recommendations in the Report:

 

[   ]

Compile and analyze all available district-wide data and use that analysis to define and prioritize future targets.

[   ]

Convert historical and current drill logs to digital format logs, re-logging holes that have incomplete logs.

[   ]

Digitize all geochemical data.

[   ]

Use industry-standard software for mapping and record-keeping.

[   ]

Conduct surface geophysical surveys over targets identified by the ZTEM airborne survey.

[   ]

Compile all data in a GIS database, and analyze coincident anomalies to define drill targets.

[   ]

Define a drill program and budget.

 

2017 drill program

 

The Company completed 13 holes totaling 6200’ at the Stardust project in 2017. Drilling focused mostly on the western half of the property with -45 degree inclined holes. The main Stardust Mine structure, which strikes just north of due east, and secondary NE fault splays on its north side were primary targets. Drill holes across these structures consistently intercepted intervals of quartz veining, strong silicification, and associated iron oxide minerals, all prospective for gold-silver mineralization. Wall rocks to the veins included propylitically altered monzonite intrusive, meta-volcanic, and meta-sedimentary rocks. Most of the 2017 drilling occurred in an area of thin (25-90’) gravel cover created by downward offset on the N and NW sides of E-W and NE structures.


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The overall Stardust epithermal system appears differentially eroded from east to west. East of the historic mine shafts, exposures are good. Rock chip gold-silver results improve nearer to the historic Stardust mine shafts, which are located in a central corridor where the precious metals zone is better preserved from erosion, but incompletely covered by gravel. Drill holes SDR 5 and 6 tested this corridor. Drill holes SDR 7 through SDR 13 targeted quartz veins beneath gravel cover up to 300’ north and 1500’ west of the historic shafts. These holes encountered the strongest quartz vein intervals, up to 55’ thick. Quartz vein intervals were encountered through a depth range from just below the gravel cover to downhole depths up to 615’, suggesting good preservation of the precious metals zone at depth. About 1300’ west of the Stardust shaft, a prominent NE structure further down-drops tertiary volcanic rocks into fault contact with older intrusive and metamorphic rocks that host the known quartz veins. SDR 12 was collared in the hanging wall of this structure and encountered a thicker gravel sequence, tertiary volcanic rocks, and quartz veining at the fault contact between the tertiary volcanic rocks and pre-tertiary basement rocks, as well as additional quartz veins and silicification in the basement rocks. Strong alteration and structurally-controlled quartz veining continue to the western extent of the 2017 drilling, leaving the Stardust epithermal system open to the west and potentially still strengthening to the west. To date all drill results had lower grade gold than expected on this small area of drilling. Tombstone has drilled through incredible large quartz vein intercepts with this drill campaign and nearly every section sent for assay carried gold, leaving Tombstone highly optimistic on identifying greater quantities on the remaining 396 acres of the Stardust Property.

 

In additition to the gold assays Tombstone also had its lab prepare Analysis of 29 additional elements which included lithium. There were interesting lithium numbers in all the drill holes of which we did not expect. Although the lithium numbers are also considered low grade it will now be added to our exploration plan. Lithium is hosted in a pregmatite composition that is similar to granite with abundant quartz. The third phase drill area has a number of pregmatite outcrops of which we will be included in our next drill targets.

The first two phases of drilling were designed to establish strike length and test grades over a large enough width within the defined chlorite hematite hosted vein system. The drilling was to define structural continuity (vein continuity along strike), grade of veins and hosting chl-hem zone, and find the width of structures. 

 

Summary of Exploration Activities


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SUMMARY OF EXPLORATION HISTORY AND FUTURE EXPLORATION PLANS

Year

Expenditures / Budget

Source of Funding

Exploration Activities

Persons Conducting Exploration and Qualifications

2007

 

$1.4 million

Private Placement Agreement with Eurogas, Inc. and other private investors

Geological prospecting

 

R/C Drilling Program

 

Completed 5000 feet of R/C drilling

Dennis Dalton

 

Chief Geologist

 

Mr. Dalton received a B.S. in Geology from the University of California Long Beach and a M.S. in Mining Engineering from McKay School of Mines at the University of Nevada. Dating back to 1976, Mr. Dalton has widespread experience in mining geology. Mr. Dalton was an environmental engineer prior.

2008

$1.2 million

Private Placement with Haywood Securities, Cannacord Capital and other private investors

Geological prospecting

 

Assaying and evaluation of information

 

Core Drill Program

 

Completed 5000 feet of core drilling

Francisco P. Montecinos

 

Former VP of Exploration

 

Francisco has worked as an exploration geologist for over 40 years in some 20 countries. Of these, the last 25 years has been spent throughout North and Central America as project manager and regional exploration manager for a number of multi-national mining companies. He has degrees from and has also completed studies at numerous universities including Harvard, University of Chile, California-Berkeley and Colorado School of Mines.

2009

$500,000

Private Placements with private investors

Mapping of historical zones

 

Reviewing core samples from prior years

 

Reviewing historical data and drillings from prior years

Lane A. Griffin

 

Mr. Griffin has more than 30 years experience as a geological consultant exploring for precious metals and uranium. He spent 4 years in the Army as an officer in the Corps of Engineers. He is currently the President of Diversified Development Company, the operator of the Lone Jack Gold Mine in Bellingham, Washington. He received a B.S. in Geology from Washington State University as well as a B.A. in Zoology and D.D.S. from the University of Washington.

2010

$500,000

Private Placement Agreement with Eurogas, Inc. and other private investors

Mapping of historical zones

 

Reviewing core samples from prior years

 

Reviewing historical data and drillings from prior years

 

ZTem Geophysical Program conducted and completed by Geotech Inc.

Steve Radvak, P.E.

 

Mr. Radvak, P.E., P.Eng., has a B.A.Sc. in Mining and Mineral Processing Engineering from the University of British Columbia. He is a Director and the Vice President of Exploration of the Company. He has been the President, Chief Executive Officer, and Director of Compliance Management Inc., an environmental service company, since its inception in 1998. Mr. Radvak is also a managing member of RM Fencing, LLC (“RM Fencing”), a company that offers professional installation of fences, gates and other products throughout Arizona. Mr. Radvak has extensive experience in managing mineral exploration projects in the United States, Canada, Africa and Europe and will be a valuable asset to the Company.


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2011

$700,000

Private Placement Agreements with private investors.

Began exploration activities in April 2011 and continued such activities until December 2011 including:

 

Geophysical and gravity survey

 

Review of core samples from prior years

 

Review of historical data and drillings from prior years

 

Review and follow-up of ZTEM Geophysical Program conducted and completed by Geotech Inc.

 

Execute core drilling program

 

Update SRK Technical Report

Various Professional Engineers and Geologists from the State of Arizona

2012/13

$2,000,000

Private Placement Agreements with private investors.

Continue review of geophysical data and ZTEM Report.

 

Compile and analyze all available district-wide data and use that analysis to define and prioritize future targets.

 

Convert historical and current drill logs to digital format logs, re-logging holes that have incomplete logs.

 

Digitize all geochemical data.

 

Use industry-standard software for mapping and record-keeping.

 

Conduct surface geophysical surveys over targets identified by the ZTEM airborne survey.

 

Compile all data in a GIS database, and analyze coincident anomalies to define drill

 

Define a drill program and budget.

Steve Radvak, P.E. (see qualifications above)

 

Various Professional Engineers and Geologists from the State of Arizona

2014/15

$2,000,000

Private Placement Agreement with Eurogas AG, Asher Enterprises, and other private investors

Continue review of geophysical data and ZTEM Report.

 

Compile and analyze all available district-wide data and use that analysis to define and prioritize future targets.

 

Convert historical and current drill logs to digital format logs, re-logging holes that have incomplete logs.

 

Digitize all geochemical data.

 

Use industry-standard software for mapping and record-keeping.

 

Zonge International conducted surface geophysical surveys over targets.

 

Compile all data in a GIS database, and analyze coincident anomalies to define drill

 

Define a drill program and budget.

Steve Radvak, P.E. (see qualifications above)

 

Various Professional Engineers and Geologists from the State of Arizona

2016-17

$1,425,000

Private Placement/

Private Investors

Staking of Mining Claims at Stardust Mine

 

Geophysical Mapping & Sampling

 

Additional Sampling and Trenching of

properties

 

Drilling

 

Assays

Professional Geologists sampling of Stardust

 

Various Professional Engineers and Geologists from the State of Arizona


25


 

 

2017-18

$1,425,000

Private Placement/

Private Investors

Staking of Mining Claims at Stardust Mine; drilling and bond reclamation

 

Geophysical Mapping & Sampling

 

Additional Sampling and Trenching of

properties

 

Drilling

 

Assays

 

Professional Geologists sampling of Stardust

 

Various Professional Engineers and Geologists from the State of Arizona

Harris Exploration Drilling and Associates, Inc. (Drilling on Stardust Property May 2017)

2018-19

$2,000,000

Private Placement/

Private Investors

Staking of Mining Claims at Stardust Mine; drilling and bond reclamation

 

Geophysical Mapping & Sampling

 

Additional Sampling and Trenching of

properties

 

Drilling

 

Assays

 

Strategic joint ventures

 

Professional Geologists sampling of Stardust

 

Various Professional Engineers and Geologists from the State of Arizona

 

2020-21

$4,320,000 (1)(2)

Private Placement/

Private Investors

Build out of Heap Leap Pad for Bonanza

 

Staking of Mining Claims at Stardust Mine; drilling and bond reclamation

 

Geophysical Mapping & Sampling

 

Additional Sampling and Trenching of

properties

 

Drilling

 

Assays

 

Strategic joint ventures

Professional Geologists sampling of Stardust

 

Various Professional Engineers and Geologists from the State of Arizona

 

 

(1)Our budget for 2020-2021 consists of the following expenses for a total of $4,320,000: 

 

Buildout of Heap Leap Pad at Bonanza Mine $3,000,000 (expected August 2020); 

 

Additional Exploration work on Stardust Property; $1,000,000 

 

Management, Office and Employee Expenses: $180,000;  

 

Professional Service Expenses: Legal, Accounting, Audits: $60,000; 

 

BLM Claims and Permit Expenses: $80,000 

 

(2)We raised $1,933,000 during the year ended December 31, 2019 to cover the operating expenses of the Company and require an additional ~$3M for our proposed 2020 activities. Funds raised in 2019 for our operations included $1,571,000 for purchase of common stock and $362,000 in non-recourse promissory notes which are secured against the future revenues of the Company, bears interest at 15% per annum, and is due in quarterly payments commencing April 30, 2019 through to January 31, 2021.  

 

Revenues

 

To date we have not generated any revenues.

 

Principal Market

 

We do not currently have any market, as we have not yet identified any mineral resource on the Tombstone Property that is of a commercially exploitable quantity. If we succeed in identifying a mineral resource in commercially exploitable quantities, our principal markets should consist of metal refineries and base metal traders and dealers.


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Seasonality of our Business

 

Our mineral exploration activities are not subject to extreme seasonal variation since the Tombstone Property is located in Arizona. Field work, however, is best carried out in temperatures averaging 10 to 15 degrees Celsius. Our other operations, such as metallurgical review and analysis of geochemical survey results, can be carried out all year round.

 

Local Resources

 

Tombstone, Arizona is the nearest town to the Tombstone Project. Services at Tombstone are marginally adequate to support the requirements of a mining exploration and development project, but other nearby towns (Wilcox, Benson, Bisbee, and Sierra Vista) have services such as drilling contractors, equipment rental and services, engineering services, and a labor force that are more able to support our drilling program. Sierra Vista is about 18 miles from the project area. The nearest large city, Tucson—located 70 miles northwest of Tombstone along Interstate 10—has a population of more than 526,116 (2013 U.S. Census Bureau estimate) and has company, service, and contractor resources that may not be available locally. Other cities at a greater distance (Phoenix, Arizona; Las Cruces and Albuquerque, New Mexico) also are able to provide services to support exploration and mining in the area.

 

Surface water is scarce and groundwater supplies are somewhat limited. Walnut Gulch to the north is an ephemeral stream, as is the San Pedro River to the west. In 1882 a pipeline was constructed to bring drinking water to Tombstone from the Huachuca Mountains, 27 miles to the west. The town has municipal wells that supply the needs of the town population. Ranchers in outlying areas obtain domestic and stock water from private wells. Water supplies for development and mining would come from groundwater sources in the area. Arizona Department of Water Resources (ADWR) well records for the area indicate the water table is generally shallow, 200 to 400 feet below ground surface.

 

Telephone and electric power are available to the area, providing service to local ranchers and small service companies located outside of the town. Telephone service is provided by Qwest. Internet and television services also are available locally. Electric power is supplied through Sulphur Springs Valley Electric Cooperative, with 440V, three-phase lines nearby. One-ten and 220 power lines cross the property. Postal services are available by post office boxes and ground delivery. UPS, DHL, and Federal Express also are available locally.

 

Gas and diesel stations are 2 miles from the property, and major fuel supply stations are 15 miles away in Sierra Vista. El Paso Gas has a gas line that crosses the northeast corner of Sec. 7, T20S-R22E. Section 7 is held by Arizona State Exploration Permit 08-111864. The Southern Pacific railroad line parallels the San Pedro River.

 

Patents and Licenses; Industrial, Commercial and Financial Contracts; and New Manufacturing Processes

 

In conducting our business operations, we are not dependent on any patented or licensed processes, technology, industrial, commercial or financial contract or new manufacturing processes.

 

Competitive Conditions

 

We compete with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition of mineral interests, as well as for the recruitment and retention of qualified employees.

 

The mineral property exploration business, in general, is intensely competitive and there is not any assurance that even if commercial quantities of ore are discovered, a ready market will exist for sale of the same. Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations; the proximity and capacity of natural resource markets and processing equipment; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of mineral and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may make it difficult for us to receive an adequate return on investment.

 

We compete with many companies possessing greater financial resources and technical facilities for the acquisition of mineral concessions, claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees. Low metal prices and an instable market, even among competition, leads us to assume that we will not face any difficulties retaining geologists or other consultants compared to our competition.

 

Competition in the usual context, and as experienced by manufacturers of automobiles, durable goods, clothing, electronics, and the providers of most services simply is not a factor in the minerals market. The demand for minerals always exceeds supply, and historically prices have consistently risen. The only major factor for competition is the cost of production.

 


27


 

 

Although competition over cost of production exists, there is little competition in the marketplace for the Company’s products. The market absorbs all precious metals and most base metals produced at prevailing prices. Larger producers can hedge future production to enable easier management of expected revenue in times of price fluctuation, whereas junior companies usually sell at market prices. In today’s market larger producers have pulled back from hedging.

 

The primary competition in the precious metals market is for talent in the workforce. As prices have risen many new companies have started operations or are in the midst of exploration and proving of reserves. It is in this area that competition exists for experienced geologists, project managers, and mining executives. In many areas there also is a shortage of mining labor.

 

The Company believes it can overcome this competition due to its location in a historical mining area, year-round working conditions and nearness to major population centers of Tucson and Phoenix, Arizona. Additionally, experienced mining professionals have assisted in developing the corporation and have many contacts in the industry.

 

Environmental Regulations

 

Mineral property exploration in Arizona is governed by the State of Arizona Office of Mine Inspector as well as Title 30 of the Code of Federal Regulations, both seek to regulate and promote the development of safe and environmentally conscious mining operations. To date, our compliance with these regulations has had no material effect on our operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. We are unable to assess or predict at this time what effect additional regulations or legislation could have on our activities.

 

Governmental Regulations

 

Mining operations are subject to a wide range of government regulations such as restrictions on production, price controls, tax increases, expropriation of property, environmental protection, protection of agricultural territory or changes in conditions under which minerals may be marketed. Mining operations may also be affected by claims of native peoples, any of which could have the effect of reducing or preventing us from exploiting any of our properties. We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the State of Arizona and in the United States generally. Our mineral claims entitle our Company to continue exploration activities on our properties, subject to our compliance with various United States federal and state laws governing land use, the protection of the environment and related matters.

 

To maintain state mineral exploration permits in good standing, the permit holder must renew each permit annually (up to four times, for 5 years total) for a fee of $500.00 per application for renewal. A maximum of 640 acres or one whole section is allowed per application. Additionally, an initial rental fee of $2.00 per acre is due within thirty days upon notification of the intent to issue the permit. The $2.00 rental fee is for the first and second year of the permit. However, although the rent is prepaid for the second year, the permit must still be renewed for that year. Rental fees for years three thru five are $10.00 per acre per year and due annually when the permit is renewed. A bond (typically in the amount of $3,000 for a single permit or a blanket bond of $15,000 for five or more permits held by an individual or company) is also due within thirty days upon notification of the intent to issue the permit. Bond amounts may be increased during the life of the permit as determined by the Arizona State Land Department (“ASLD”) upon review of the proposed exploration activities as detailed in the Exploration Plan of Operation that must be submitted and approved by the ASLD prior to the startup of any exploration activities.

 

The state lands are covered by Arizona State Mineral Exploration Permits, which are administered by the ASLD. Permits to conduct drilling in Arizona are administered by the Arizona Department of Water Resources (ADWR). Permits to conduct exploration drilling on BLM lands require either a Notice of Intent or a Plan of Operations, depending upon the amount of new surface disturbance that is planned. A Notice of Intent is for planned surface activities that anticipate less than 5.0 acres of surface disturbance, and usually can be obtained within a 30 to 60 day time period. A Plan of Operations will be required if there is greater than 5.0 acres of new surface disturbance involved with the planned exploration work. A Plan of Operations can take several months to be approved, depending on the nature of the intended work, the level of reclamation bonding required, the need for archeological surveys, and other factors as may be determined by the BLM. No other permits are required for exploration drilling.

 

The Company has a Notice of Intent – Mineral Exploration Drilling AZA33591 to conduct drilling on BLM claims in Secs. 9 and 10, T20S-R22E. The permitted drilling was partially completed in 2007 with the drilling of holes TEM 1, TEM 2, and TEM 3. The Company also has received conditional approval, upon completion of archaeological and cultural resource surveys, to drill in Sec. 16, T20SR22E under Arizona State Exploration Permit 08-111868.


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Quality Control Procedures (QA/QC)

 

Bagged and sealed sample splits from the RC drill holes are transported to a secure storage shed at the office site by Company employees. The dry samples are further reduced by crushing them to 3/4 inch-minus with a “chipmunk” jaw crusher and splitting the crushed sample with a riffle splitter. The crusher and the splitter are then both cleaned with a brush and compressed air after preparation of each sample. The sample splits for the laboratory are reduced to approximately 10 lbs or less prior to submission to the laboratory. The prepared samples are bagged, labeled, and sealed and taken to the analytical laboratory, Mountains States R&D International, Inc. (MSRDI), an Arizona certified assay laboratory, in Vail, Arizona for analyses by fire assay (gold and silver) and by atomic absorption (AA) (all other analyses). The splits that are not shipped for assay are reduced to approximately 1 lb to be retained for reference at the project site and they are stored in a secure steel shipping storage container.

 

Laboratory rejects are discarded during the process of reducing sample splits to approximately 1 lb samples for retention. The retained sample splits are derived from the original samples and kept in storage while another split is sent for analysis. The pulps are retained and stored in a locked onsite office building.

 

Samples collected from other locations in the project area (surface outcrops, mine dumps, trenches, and underground workings) are collected, bagged, labeled, sealed, logged, and transported. The samples are prepared for storage or for shipment to the analytical laboratory in the following manner: Dry samples are reduced by first crushing them to 3/4 inch-minus with a “chipmunk” jaw crusher and then splitting the crushed sample using a riffle splitter. The crusher and splitter are then both cleaned with a brush and compressed air after preparation of each sample. Wet samples are dried and then processed in the same manner. The prepared samples are bagged, labeled, and sealed and taken to MSRDI for analysis. The splits that are not shipped for assay are retained for reference at the project site in a secure storage container.

 

All sampling and sample preparation of coarse crushed (3/4 inch-minus) are conducted by the Company’s employees. Sample pulp preparation is conducted at MSRDI. All samples are shipped to MSRDI. All gold and silver analyses are obtained by fire assay. All other analyses (Cu, Pb, and Zn) are obtained by atomic absorption (AA) with standard digestion.

 

Samples collected from surface sites, trenches, underground workings, and the 2007 drilling program (prior to November 2007) did not include blanks, duplicates, reference standards, or other industry standard QA/QC procedures.

 

Quality control procedures began at the Tombstone Project approximately November 2007. Ten samples collected underground from the Santa Ana mine (NE¼ NE¼ Sec. 16, T20S-R22E) on October 30, 2007 were submitted to the laboratory (MSRDI) with blanks and reference standards. The reference samples were obtained from Minerals Exploration and Environmental Chemistry, Reno, Nevada. Blanks were prepared by crushing and bagging cinder blocks. Results received for these samples are used to assess the accuracy of the MSRDI analyses. Check samples on the order of 5 to 10 percent of the number of samples were sent to ALS Chemex, Reno, Nevada and from there were forwarded to their laboratory in Canada for analysis. The pulps that were returned from the primary laboratory were used as the check-sample materials.

 

Samples are stored at the Company office site in a secure storage container or in the Company laboratory, which is locked during nonworking hours.

 

As of the date of our Technical Report, April 18, 2008, SRK concluded that the sampling procedures were acceptable and within industry standards with the exception of initial sample preparation by the Company. Coarse crushed sample preparation onsite by the property owner is not common industry standard practice unless logistics and distance from the labs are a major factor. It may be acceptable going forward, if the newly implemented QA/QC procedures incorporate sufficient checks to demonstrate that the initial sample preparation imparts no contamination or bias. 

 

C. Organizational Structure

 

We have one wholly owned subsidiary, Tombstone Exploration and Mining Corporation, a Nevada corporation (“TEMC”) that is qualified to do business in the State of Arizona. All of our operations are conducted through TEMC.

 

D. Property, Plants and Equipment

 

Our principal executive office is located at 6529 E. Friess Drive, Scottsdale, AZ 85254. Additionally, we share this space with our wholly owned subsidiary, TEMC. Pursuant to our lease executed January 1, 2016, we rent both office and storage space for $1,000 per month for a 5 year term. We believe that this existing space is adequate for our current needs. Should we require additional space, we believe that such space can be secured on commercially reasonable terms.

 


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The Company has the mineral rights to approximately 640 acres of historical mining land in areas around Tombstone, Arizona. The Tombstone Project is located on patented mining claims, unpatented mining claims and state lands administered by the ASLD.

 

Our Properties

 

SUMMARY OF THE COMPANY’S MINING CLAIMS

Number / Type of Claims

Ownership / Interest in Property

Duration of Interest

Location

Acreage

Agreements / Royalties

Annual Fees / Maintenance / Permits

8 Patented Lode Claims

Undivided 100 percent mineral interest in the claims as both the record mineral owner and the assessed mineral owner

 

No surface rights

Claims are valid as long as the Company continues to hold title.

Private Land

145.58 acres

--

None

1 State of Arizona Mineral Exploration Permits

Exclusive right to explore for and develop minerals on the lands.

State of Arizona is the record surface and mineral owner of land.

 

Company is the record permittee of the state lands.

These permits are valid and each must be renewed every year.

Arizona state lands

450

acres

State mineral exploration permits, if converted to mining leases, will have royalties assigned to them by the State of Arizona.

Must be renewed each year, for up to 5 years, for a fee of $500.00 / permit. Additionally, an initial rental fee of $2.00 / acre is due within 30 days upon notification of the intent to issue the permit, for the 1st and 2nd year. Rental fees for the 3rd thru 5th years are $10.00/acre/year and due annually when the permit is renewed. A bond (typically $3,000 for a single permit or a blanket bond of $15,000 for 5 or more permits) is due within 30 days upon notification of the intent to issue the permit.

20 Unpatented Lode Claims

Fully controlled by the Company.

 

Company has the right to enter for exploration purposes.

 

No surface rights.

These claims are valid and each must be renewed each year.

 

U.S. federal lands administered by U.S. Bureau of Land Management (BLM).

400 acres

No royalty agreements on federal mining claims.

Annual maintenance fees for the claims, as follows: $155 for claim annual maintenance renewal fee to the BLM, in lieu of annual assessment work.

 


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THE COMPANY’S PATENTED MINING CLAIMS

CLAIM NAME

MINERAL

SURVEY NO.

CLAIM

ACREAGE

Maine

M.S. # 579

18.33

Merrimac

M.S. # 175

20.61

Clipper

M.S. # 273

13.41

Triple X

M.S. # 577

15.27

Brother Jonathan

M.S. # 578

17.28

Lowell

M.S. # 797

20.59

May

M.S. # 317

19.43

Red Top

M.S. # 190

20.66

TOTAL ACREAGE OF PATENTED MINING CLAIMS:

145.58

 

Industry of Interest

 

The precious metals and base metals industry produces over $100B in metal production per year. The industry is essentially two sectors: the major producers and the junior exploration and mining companies.

 

The major producers such as Freeport McMoran, Rio Tinto, and BHP Billiton produce the majority of precious and base metals from large scale, geologically scattered operations. Property expansion by the majors typically comes from joint venture, consolidation or acquisition with junior exploration and mining companies. This occurs usually because a junior finds it difficult to initiate full scale operations due to the significant front end development costs. The majors can absorb and develop the newly discovered fields with little impact to overhead operations and can fund direct operations through forward sale of metals.

 

Juniors typically spend the majority of their money locating new potential areas, proving up a portion of reserves through geological studies, analyses and drilling, and then initialing small scale operations. During that period most successful juniors draw the attention of and team up in some way with a major producer.

 

Cost of operations/production is the driver in the industry. All product produced, particularly in the precious metals industry, is absorbed by the market. Demand exceeds supply. The most profitable companies have the lowest per ounce/pound cost of production. The highest return to investors, however, comes from junior companies, when successful, where per share prices are lower until a viable project is proven. Risk, though, is often higher with junior companies, unless and until they locate and acquire viable projects and adequate funding.

 

The prime customers for the precious metals sector of the industry are the refiners such as Englehart, Johnson Maffey, etc. These companies serve as the distributor of product between the producers and the consumers. The majority of precious metals produced are utilized by the industrial and electronics industry, the automotive industry, the jewelry industry and the investment community.

 

As metal prices have risen, so too has the interest in new areas for exploration and eventual production. The past two decades have seen a significant expansion of interest into Central and South America, as well as developing third world countries. Today’s price levels combined with the political uncertainties of many foreign projects, and the inability for year-round operations in portions of Alaska and northern Canada, have produced a resurgence of junior companies in the mainland United States. However, many juniors target only one or two categories of metals. This model of operation limits their chance of success for production or buyout.

 

The keys to success for today’s junior exploration and mining companies are four: 1. Property holdings and potential; 2. location; 3. metal diversity; and 4. cost of development and operation.

 

The Tombstone Property

 

Most of the historic mines in the Tombstone Mining District were polymetallic, with the principal ores produced being silver from bonanza grade deposits. However, anomalous copper, lead, zinc, manganese, and gold have been identified, and some of these metals have been produced from different mines in Cochise County (i.e., copper from Bisbee, lead from the Charleston Mining District, and silver and manganese from the Tombstone Mining District).

 


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The principal exploration concept pursued by the Company since 2010 is for low-grade, large tonnage porphyry copper mineralization, largely buried beneath basin fill. The concept is based upon the regional geology that includes the Tombstone caldera complex with related intrusives and complex fault systems; porphyry copper mineralization intersected at depths greater than 3,000 ft by Asarco and other major mining companies that drilled the area in the 1970s, 1980s, and 1990s; and geochemically anomalous values and zoning patterns of Cu, Ag, Pb, and Zn ratios in rock chip samples from mine dumps in the western part of the district that broadly coincide with the Lowell and Guilbert (1970) porphyry copper model.

 

Silver mineralization also is an exploration target, in particular in the western area of the Company’s landholdings. The silver exploration concept is seeking to tie together the northeast-striking mineralized fissures into silver deposits that are projected to connect historic deposits and prospects along strike and to extend the depths of mineralization to perhaps hundreds of feet beneath the water table; the exploration potential below the water table was minimally explored and/or mined in the past. The horizontal and vertical extensions of the fissure veins are expected to be more definable by current exploration methods and would be amenable to underground or open pit mining methods.

 

Gold exploration is a concept based upon historic geochemical and geophysical exploration, shallow drilling, and reported gold grades in the Stardust area from the 1900s intermittently through the 1990s.

 

Stratigraphy

 

Rocks in the Tombstone area range from Precambrian to Quaternary in age. The oldest rock is fine- grained, grayish Precambrian Pinal schist, intruded by Precambrian granitic and porphyritic rocks, and unconformably overlain by a thick sequence of Paleozoic sedimentary rocks that change from mainly limestone to mainly sandstone and shale. The uppermost unit, the Naco limestone is an erosion surface unconformably overlain by the Mesozoic Bisbee group, a series of conglomerate, sandstone, quartzite, shale, and limestone with two or three lenses of soft, bluish-gray limestone.

 

The deposition of the Mesozoic sedimentary rocks was followed by a period of deformation and igneous activity. Late Cretaceous time was marked by eruptive and intrusive activity associated with the Tombstone volcanic center that probably formed within a continental-margin arc. The Tombstone volcanic center erupted the Uncle Sam Tuff at 73.5 +/- 2.8 Ma, and an irregularly shaped caldera formed as a consequence of collapse into the evacuated magma chamber. These events were accompanied by emplacement of the Schieffelin granodiorite, diorite stocks and plugs, and andesite dikes. Silver mineralization is directly associated with the folding, faulting, igneous intrusions, and fissuring of this period: north-south (dike) fissures, faults, anticlines and rolls, and—in the western area in particular—with the north-south trending dikes and cross-cutting northeast-trending fissures. Most of the silver deposits are associated with at least two structural features, often at their intersection. Rocks of the Tombstone volcanic center postdate Laramide thrust faulting and are little deformed.

 

The Basin and Range province was formed during the Cenozoic Era when east-west crustal extension resulted in vertical movement on generally north-south trending faults. Extension gave rise to the emplacement of extensive granitic stocks and batholiths with associated volcanic activity. Locally steep tilting and minor normal faulting occurred during Basin and Range block faulting.

 

Bromeyerite is the main supergene silver mineral; the main hypogene silver-bearing minerals are hessite, tetrahedrite, and galena. Base metal mineralization, often oxidized, occurs in fault and fracture zones in Laramide volcanics and the Uncle Sam tuff. The most common base minerals are sphalerite, galena, and chalcopyrite. Chalcopyrite is widespread, most commonly as exsolution blebs in sphalerite. Manganese mineralization is widespread throughout the Tombstone district and has occurred in various amounts with most of the oxidized silver-lead mineralization. The manganiferous mineralization exists as replacements in limestone.

 

Development Strategy & Plan of Operations for the Next Twelve Months

 

The Company’s development strategy is to focus on the fundamental keys to success for a junior exploration and mining concern. These keys were identified in the Industry discussion.

 

Property holdings and potential.

 

Plan: Continue geological analyses including mapping, and identification of drill targets. Focus on these targets for drilling, sampling and identifying potential reserves. Expand target areas as drilling progresses and studies expand knowledge of properties.


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1.Location 

 

Plan: The Company’s Tombstone property is located in a known metal and mineral area with easy access, historical production, mining friendly community and ease of permitting puts the Company in a position for success. The Company will continue to identify areas on the properties for mill site operation, improve off-road access and work closely with the community at large to offer employment opportunities. The Company will also interface with the state level in Arizona to establish itself as a significant contributor to the state economy.

 

2.Metal diversity 

 

Plan: A significant number of metals and minerals have already been identified on the Tombstone property including silver and gold. The Company, with the help of consulting organizations, will further explore the range of metals and minerals, and the ability to extract/produce product for market. In the non-precious metals areas, the Company will likely seek joint venture partners who will add to the success and financial returns for our shareholders.

 

3.Cost of development and operation 

 

Plan: The Company may establish a small production operation, subject to permitting, financing and sufficient resources, to begin silver and gold production with material from existing known sites. As drill targets identify key areas for drilling, the operation will be expanded to two large scale mill sites. The Company firmly believes from the sampling and historical production in the area, that a low cost / high profit operation will be developed.

 

Item 4A Unresolved Staff Comments

 

Not required.

 

Item 5. Operating and Financial Review and Prospects

 

The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2019, 2018, and 2017 should be read in conjunction with our financial statements and related notes included in this Report. Our financial statements included in this Report were prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

 

A. Operating Results

 

Our results of operations have been, and may continue to be, affected by many factors of a global nature, including economic and market conditions, the availability of capital, the level and volatility of prices and interest rates, currency values, commodities prices and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments. Factors of a local nature, which include the political, social, financial and economic stability, the availability of capital, technology, workers, engineers and management, geological factors and weather conditions, also affect our results of operations. See “Key Information – Risk Factors”. As a result of the economic and competitive factors discussed above, our results of operations may vary significantly from period to period.

 

Year Ended December 31, 2019 compared to Year Ended December 31, 2018 and 2017

 

For the years ended December 31, 2019, 2018, and 2017, we did not receive any revenue from various mining claims and properties.

 

Year ended

December 31,

Net Loss

Loss per Share

2019

$1,702,424

$0.35

2018

$558,974

$0.18

2017

$931,290

$0.44

 

The net loss for the year ended December 31, 2019 was attributed to directors and management fees of $825,177 which was primarily related to the issuance of common shares of the Company, $355,991 of mineral property costs including the impairment of the Bahamas Aggregate investment of $350,000, consulting services of $111,392, professional fees of $71,264 for audit, accounting, and legal fees incurred by the Company in its operations, a loss on settlement of debt of $243,065 which included $228,750 loss on the settlement of a loan payable with the issuance of common shares, and interest expense of $65,870 which included accrued interest on promissory notes payable of $397,500 which included $362,000 of new notes payable issued during the year that bear interest at 15% per annum.


33


 

 

The net loss for the year ended December 31, 2018 was attributed to $24,918 of general and administrative expenses, $240,000 of management and directors’ fees, $95,114 of professional fees, $137,074 of consulting service fees, $23,085 of mineral property exploration costs, offset by a gain on settlement of debt of $23,577.

 

The net loss for the year ended December 31, 2017 was attributed to $18,214 of general and administrative expenses, $380,411 of management and directors’ fees, $111,647 of professional fees, $27,032 of consulting service fees, $290,125 of mineral property exploration costs, offset by a gain on settlement of debt of $24,125. The Company’s net loss in 2018 decreased compared to 2017 as the Company incurred less management and director fees, professional fees, and mineral property exploration costs, as well as decrease in accretion expense and loss on fair value of derivative liabilities.

 

B. Liquidity and Capital Resources

 

Since our incorporation, we have financed our operations almost exclusively through the sale of our common shares to investors and issuance of convertible notes payable. As we are now focusing on mining exploration with no producing resource properties, we do not generate operating income or cash flow from our business operations. Until a significant body of ore is found, our working capital requirements are not significant, and we expect to continue to finance operations through the sale of equity in future years. There is no guarantee that we will be successful in arranging financing on acceptable terms.

 

To a significant extent, our ability to raise capital is affected by trends and uncertainties beyond our control. These include the market prices for base and precious metals and results from our exploration programs. Our ability to attain our business objectives may be significantly impaired if prices for metals such as gold and uranium fall or if results from our intended exploration programs on our properties are unsuccessful.

 

December 31, 2019

 

At December 31, 2019, we had cash on hand of $466,377 as compared to $39,858 as at December 31, 2018. The increase in cash was due to cash funding received during the year from the issuance of common shares and for proceeds received from new notes payable.

 

We had current liabilities of $340,030 at December 31, 2019 compared to current liabilities of $515,381 at December 31, 2018. The decrease in current liabilities is due to settlement of outstanding amounts due to the President of the Company for management fees as well as the settlement of outstanding notes payable. In addition, we also had $350,000 of non-current notes payable, including $200,000 from related parties, which were issued as part of the investment into the Bahamas Aggregate project which was impaired for the year ended December 31, 2019 due to uncertainty of future benefits stemming from our initial investment.

 

We had a working capital of $126,347 at December 31, 2019 compared to a working capital deficit of $475,523 at December 31, 2018. The decrease in the working capital deficit was due to proceeds received from the issuance of common shares and notes payable as well as the settlement of outstanding liabilities with the issuance of common shares.

 

December 31, 2018

 

At December 31, 2018, we had cash on hand of $39,858 as compared to $51,311 as of December 31, 2017. Total liabilities consisted of accounts payable, accrued liabilities, and amounts due to related parties, convertible debentures, and derivative liabilities totaling $515,381 in 2018 (2017- $372,452). The overall increase in liabilities is due to an increase in notes payable and amounts due to related parties during the year.

 

Application of Critical Accounting Policies

 

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

 

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Our significant accounting policies are disclosed in the Notes to our financial statements included in this Report.

 

C. Research and Development, Patents and Licenses, etc.

 

We do not currently, and did not previously, have research and development policies in place. Over the past five fiscal years, we have not expended any material amounts on research or development.


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D. Trend Information

 

Our business is the exploration for and development of mineral deposits. The market price of precious metals and other minerals is volatile and has fluctuated widely, particularly in recent years. The prices of various metals are affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The commodity price of precious metals has a direct impact on our revenue prospects and our ability to raise capital. Although there is no assurance that this trend will continue, management is optimistic that the current price level will continue for the foreseeable future.

 

E. Off-Balance Sheet Arrangements

 

We do not have any 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 resource that is material to investors.

 

F. Tabular Disclosure of Contractual Obligations

 

The following table sets forth our contractual obligations by specified categories as of December 31, 2019.

 

Contractual

Obligations

Total

Less than 1 year

1-3 years

3-5+ years

Notes payable

$397,500

$47,500

$350,000

-

Total

$397,500

$47,500

$350,000

-

 

Other than the contractual obligations set forth above, we do not have any contractual obligations that are long-term debt obligations, capital (finance) lease obligations, purchase obligations or other long-term liabilities reflected on our balance sheet.

 

G. Safe Harbor

 

Forward Looking Statements

 

This annual report contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements can be identified by words or phrases such as “shall,” “may,” “will,” “expect,” “should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to” or other similar expressions. These forward-looking statements include, among other things, statements relating to our goals and strategies, our competitive strengths, our expectations and targets for our results of operations, our business prospects and our expansion strategy. Those statements appear in a number of places and include statements regarding our intent, belief or current expectations with respect to:

 

our direction and future operation; 

 

the implementation of our principal operating strategies, including our potential participation in acquisition, divestiture or joint venture transactions or other investment opportunities; 

 

the implementation of our financing strategy and capital expenditure plans; 

 

the exploration of mineral reserves and development of mining facilities; 

 

trends in commodity prices and demand for commodities; 

 

the future impact of competition and regulation; 

 

the payment of dividends or interest on shareholders' equity; 

 

industry trends, including the direction of prices and expected levels of supply and demand; and 

 

other factors or trends affecting our financial condition or results of operations. 

 


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We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that we have a reasonable basis for each forward-looking statement contained in this annual report, we caution shareholders that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results to differ materially from those in the forward-looking statements.

 

The forward-looking statements included in the annual report are subject to risks, uncertainties and assumptions about our company. Our actual results of operations may differ materially from the forward-looking statements as a result of risk factors described under “Risk Factors” and elsewhere in this annual report. These risks are not exhaustive. It is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statement. An investor in our Company should not rely upon forward looking statements as predictions of future events. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or otherwise.

 

Item 6 Directors, Senior Management and Employees

 

A. Directors and Senior Management

 

The following table sets forth the names, business experience and function/areas of expertise of each of our directors and officers as of the date of this report:

 

Name, Office Held, Age

Area of Experience and Functions in Our Company

Alan M. Brown

CEO, CFO,

Director & President

Age 50

As President, Chief Executive Officer, Chief Financial Officer, and a Director, Mr. Brown is responsible for the development of our strategic direction and the management and supervision of our overall business.

Daniel A. Cistone(1)

Director

Age 69

Independent director of the Company

Donald Rauch(2)

Director

Age 72

Independent director of the Company

Mark Mehok(3)

Director

Age 51

Independent director of the Company

 

(1)Mr. Cistone was appointed as a member of the Board of Directors on January 7, 2016. 

(2)Mr. Rauch was appointed as a member of the Board of Directors on October 12, 2017 

(3)Mr. Mehok was appointed as a member of the Board of Directors on July 1, 2018  

 

Alan M. Brown, President & CEO – Mr. Brown is the company’s President and Chief Executive Officer. He has an extensive background in accounting and mining exploration, along with experience in corporate mergers and acquisitions, real estate acquisitionand development. Prior to founding TMBXF, Mr. Brown spent several years working for a Chartered Accounting firm on Vancouver Island. He was also the chief controller for a Canadian real estate development company involved in multi-million dollar projects. Mr. Browns has been involved in the Public Markets since 2001 as senior board member of all companies that he has worked with.

 

Daniel A. Cistone, Chairman of the Board - Mr. Cistone brings his broad technical background and proven boardroom leadership experience to the role of Chairman. He has strong experience and expertise in finance, which includes acquisitions and startups both domestically and abroad, as well as management of those companies, and will be a huge asset to the Company. Mr. Cistone is the President of Daniel A. Cistone’s Consulting LLC. and serves as a Director on several corporate and local boards in his community. Previously, he spent 40 years with M&C Specialties Co., a global fabrication company as CFO/CEO. He received his BSBA in Accounting from Villanova University, Villanova, PA.


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Donald Rauch, Director - Mr. Rauch graduated in 1969 from Michigan State University cum laude in Business Administration. Mr. Rauch was President and CEO from 1995-2007 of M & C Specialties Co, a leading global fabricator/converter of pressure sensitive materials. He grew the business from a one plant operation in Philadelphia to an international business with plants in Ireland, Mexico, China and California. M & C Specialties was sold to ITW in June of 2007. His Board experience is extensive being M&C Specialties 1973 through 2007, Creative Financial Group Advisory Council, Warminster Hospital, Gasket Fabricators Assoc., Delaware Valley Industrial Resource Center, Laminators Inc., and Airline Hydraulics Inc.

 

Mr. Mark Mehok – Mr. Mehok graduated in 1991 from the University of Pittsburgh with a BS in Sports Medicine. He then went on to obtain his Master of Science from Widener University in 1996 and then his MBA from Penn State University in 2001. He was a practicing Physical Therapist prior to establishing 2M Sales and Development which is an independent Sales and Distribution company in the Healthcare and Medical device space. He still acts as the President of 2M Sales and Development. He is an Investor in numerous start up companies, many of which he acts as an advisor to. 

 

Additional Information

 

There are no familial relationships between our officers and directors.

 

The above listed officers and directors were not selected as directors or members of senior management pursuant to any arrangement or understanding with major shareholders, customers, suppliers or others.

 

B. Compensation

 

During the fiscal year ended December 31, 2019, 2018, and 2017 the aggregate remuneration paid to directors in their capacity as directors of our Company was $156,000, $80,000 and $75,000, respectively. Management fees totaling $825,177, $360,000, and $360,000 was paid to directors and officers for each of the years ended December 31, 2019, 2018 and 2017, respectively.

 

Executive Compensation

 

The following table provides a summary of compensation paid by us during the fiscal years ended December 31, 2019, 2018 and 2017 to our executive officers who received a salary:

 

SUMMARY COMPENSATION TABLE

Name and Principal Position

Year

Annual Compensation

Long Term Compensation

 

Salary

Bonus

Other

Annual

Compensation

Securities

Under

Options/

SARs

Granted

Shares or units

subject to resale

restrictions(1)

All other

Compensation

Alan M. Brown (2)

President, CEO, CFO and Director

2019

$150,000

NIL

NIL

NIL

141,667

NIL

2018

$180,000

NIL

20,000

NIL

25,000

NIL

 

2017

$180,000

NIL

30,000

NIL

50,000

NIL

Daniel A. Cistone(3)

Director

2019

NIL

NIL

NIL

NIL

241,667

NIL

2018

NIL

NIL

20,000

NIL

25,000

NIL

 

2017

NIL

NIL

30,000

NIL

50,000

NIL

Donald Rauch(4)

Director

2019

NIL

NIL

NIL

NIL

108,333

NIL

2018

NIL

NIL

20,000

NIL

25,000

NIL

 

2017

NIL

NIL

15,000

NIL

25,000

NIL

Mark Mehok(5)

Director

2019

NIL

NIL

NIL

NIL

108,333

NIL

2018

NIL

NIL

20,000

NIL

25,000

NIL

 

2017

NIL

NIL

NIL

NIL

NIL

NIL

Robert M. Hughes(6)

Director

2019

NIL

NIL

NIL

NIL

NIL

NIL

2018

NIL

NIL

NIL

NIL

NIL

NIL

 

2017

NIL

NIL

NIL

NIL

NIL

NIL


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(1)The shares have been adjusted to reflect the 200-for-1 reverse stock split effective July 24, 2019 

 

(2)On November 15, 2013, the Company entered into an Employment Agreement (the “Agreement”) with Alan Brown, which amends and supersedes the January 1, 2009 Employment Agreement between the Company and Mr. Brown. Pursuant to the Agreement, Mr. Brown shall continue to be employed as President, Chief Executive Officer and Chief Financial Officer of the Company and to continue to perform any and all duties relevant to such positions. The initial term of the Agreement is for five (5) years (the “Term”) which shall continue thereafter until terminated. In exchange for his services, Mr. Brown shall receive a base salary of $10,000 per month during the first two (2) years of the Term and $15,000 per month for the remaining three (3) years of the Term and each additional year after the Term until the Agreement is terminated. Under the Agreement, Mr. Brown may also receive additional compensation of twenty five thousand (25,000) shares(1) of the Company’s common stock per year during the Term and thereafter until the Agreement is terminated. A true and correct copy of the Agreement was filed as Exhibit 4.04 to the Company’s Form 20-F for Fiscal year ended December 31, 2013 as filed with the commission on May 16, 2014, and is incorporated herein by reference. 

 

(3)Mr. Cistone was appointed as a member of the Board of Directors on January 7, 2016. 

 

(4)Mr. Rauch was appointed as a member of the Board of Directors on October 12, 2017. 

 

(5)Mr. Mehok was appointed as a member of the Board of Directors on July 1, 2018. 

 

(6)Mr. Hughes was appointed as a member of the Board of Directors on February 1, 2016 and resigned on March 2, 2017 

 

C. Board Practices

 

All of the directors of the Company are elected annually by the shareholders and hold office until the next annual meeting of shareholders or until their successors are duly elected and qualified, unless they sooner resign or cease to be directors in accordance with our Certificate of Incorporation and Bylaws. Our incumbent directors continue their service, in their current capacity, until they either resign or are removed and until their successors are elected. The Company's last annual regular general meeting was held on September 6, 2001, at which time Alan Brown was elected as a Director. Mr. Brown has continued in his office as Director since his election in 2001. Director vacancies may be filled by a majority of the remaining directors or by a sole remaining director. On January 28, 2010, Steven Radvak was elected to serve as a member of the Board of Directors by the sole remaining director, Alan Brown. Mr. Radvak resigned from all positions on August 13, 2015. On May 18, 2011, Laird Cagan was elected as a Director to the Company. On December 31, 2012, Laird Cagan resigned as a Director of the Company. On August 22, 2014, Mr. Barry Klein was appointed to serve as a member of the Board of Director and served until June 1, 2015 when he resigned. On August 1, 2015 Mr. Schnur was appointed as a member of the Board of Directors. On January 7, 2016, Mr. Cistone was appointed as a member of the Board of Directors February 1, 2016 on January 7, 2016, Mr. Hughes was appointed as a member of the Board of Directors. On August 1, 2016, the Company elected not to renew Mr. Schnur’s agreement to provide services and he was terminated as a director of the company. On March 2, 2017 Mr. Hughes resigned as a member of the board of directors. On October 12, 2017, Mr. Rauch was appointed as a member of the Board of Directors. On July 1, 2018 Mr. Mehok was appointed as a member of the Board of Directors.

 

Members of the Board of Directors are elected by the holders of the Company's shares to represent the interests of all shareholders. The Board of Directors meets periodically to review significant developments affecting the Company and to act on matters requiring Board approval. Although the Board of Directors delegates many matters to others, it reserves certain powers and functions to itself. The only standing committee of the Board of Directors of the Company is the Audit Committee. The Audit Committee of the Company's Board of Directors currently consists of Alan Brown. This committee is directed to review the scope, cost and results of the independent audit of the Company's books and records, the results of the annual audit with management and the adequacy of the Company's accounting, financial and operating controls; to recommend annually to the Board of Directors the selection of the independent auditors; to consider proposals made by the Company's independent auditors for consulting work; and to report to the Board of Directors, when so requested, on any accounting or financial matters. The Company does not have an Executive Committee.

 

The Company's executive officers are appointed by and serve at the pleasure of the Board of Directors.

 

D. Employees

 

As of December 31, 2019, 2018 and 2017, we had 1 employee, Alan Brown. The Company engages various consultants as independent contractors to assist the Company with its drilling programs. The Company has no relationship with any labor/trade unions.

 

E. Share Ownership

 

There were 7,677,904 common shares issued and outstanding as of April 30, 2020 and 6,928,047 as of December 31, 2019. Of the shares issued and outstanding, our directors and officers owned the following common shares:


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Name and Position

Number of Common Shares

Beneficially Owned as of

April 30, 2020(1)

Percentage

Alan M. Brown

President, CEO, CFO and Director

579,068(2)

7.54%

Daniel A. Cistone

Director

616,668(3)

8.03%

Donald Rauch

Director

403,335(4)

5.25%

Mark Mehok

Director

602,085(5)

7.84%

Aggregate owned by Officers and Directors

2,201,156

28.67%

 

(1)The voting rights attached to the common shares owned by our officers and directors do not differ from those voting rights attached to shares owned by people who are not officers or directors of our Company. 

 

(2)The beneficial ownership of Alan Brown includes shares directly held by Mr. Brown and 125,111 common shares owned by his wife. 

 

(3)The beneficial ownership of Daniel Cistone includes shares indirectly held in trust for benefit of Mr. Cistone and by his wife. 

 

(4)The beneficial ownership of Donald Rauch includes shares directly held by Mr. Rauch and 50,000 shares held by Cama Sdira LLC fbo Bonnie Rauch IRA.  

 

(5)The beneficial ownership of Mark Mehok includes shares directly held by Mr. Mehok, and 58,333 shares held by Cama Sdira LLC fbo Mark Mehok IRA and 18,750 common shares owned by his three children, for which he has dispositive voting control. 

 

Item 7 Major Shareholders and Related Party Transactions

 

A. Major Shareholders

 

There were 7,677,904 common shares issued and outstanding as of April 30, 2020 and 6,928,047 as of December 31, 2019. As of April 30, 2020, the following table shows beneficial owners of more than five (5%) of our common shares. The shareholders listed below have the same voting rights as all other shareholders.

 

Name

Number of Common Shares

Beneficially Owned as of

April 30, 2020

Percentage

See Item 6, for Officers and directors

2,201,156

28.67%

Perry Abbonizio

Investor

475,001

6.18%

 

B. Related Party Transactions

 

As at December 31, 2019, the Company owed $207,853 (2018 - $357,074) to the President of the Company for management fees and financing of day-to-day operations. The amounts owing are unsecured, non-interest bearing, and due on demand. During the year ended December 31, 2019, the Company incurred $156,000 (2018- $180,000; 2017 - $180,000) to the President of the Company for management fees.

 

During the year ended December 31, 2019, the Company incurred $669,176 (2018 - $60,000; 2017 - $200,411) to directors of the Company for services.


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As at December 31, 2019, the Company owed $150,000 (2018 - $nil) of notes payable to a director and shareholder which is secured by proceeds received from royalty rights noted in Note 4, bears interest at 15% per annum, and is due on January 31, 2021. In addition, on January 31, 2019, 2020, and 2021, if the note is still outstanding, the Company will issue restricted common stock equal to 5% of the principal amount of the note. As at December 31, 2019, the Company has accrued $7,500 of common stock issuable in relation to this note and $20,589 of accrued interest.

 

As at December 31, 2019, the Company owed $50,000 (2018 - $nil) of notes payable to a director and shareholder which is secured by proceeds received from royalty rights noted in Note 4, bears interest at 15% per annum, and is due on January 31, 2021. In addition, on January 31, 2019, 2020, and 2021, if the note is still outstanding, the Company will issue restricted common stock equal to 5% of the principal amount of the note. As at December 31, 2019, the Company has accrued $2,500 of common stock issuable in relation to this note and $7,192 of accrued interest.

 

C. Interests of Experts and Counsel

 

None.

 

Item 8 Financial Information

 

A. Financial Statements and Other Financial Information

 

The Company’s financial statements can be found on page F-1 of this Report, are incorporated into this Report by reference.

 

Legal Proceedings

 

On August 21, 2014, the Company filed a lawsuit in the United States District Court for the District of Utah against EuroGas Utah, EuroGas, A.G., a Swiss stock corporation (“EuroGas Swiss”), ZB Capital, A,G., a Swiss corporation and Riata Minerals, Inc., et al. (collectively, the “Defendants”) for breaches of various agreements, including the Stock-for-Stock Exchange Agreement dated December 10, 2013 and Defendants financing commitment to the Company. The Company engaged in settlement negotiations to resolve the matter. In November 2014, the lawsuit against EuroGas Swiss was dismissed as a result of the parties’ agreement to certain terms for EuroGas, Inc. to continue with its financing commitment. Subsequently, in March 2015, the Company refiled the lawsuit as a result of non-performance by the defendants. The litigation against Eurogas was settled in 2018. On November 20, 2018, the judge entered an order in favor of Tombstone for $190,248 in attorney’s fees and costs. To date Eurogas has not attempted to pay the judgment voluntarily and the Company has not taken any formal action to enforce the judgment but intends to pursue collection and other legal remedies. There is no certainty the Company will be successful in collecting on the judgment.

 

Other than the foregoing, we know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

Dividends

 

The Company has not and does not currently intend to pay any dividends on any of its shares. The Company intends to follow a policy of retained earnings to finance the growth of the business. Any future determination to pay dividends will be at the discretion of the Board of Directors of the basis of earnings, financial requirements and other relevant factors.

 

B. Significant Changes

 

Except as otherwise disclosed in this annual report or in the reports filed on Form 6-K filed to date, no significant changes have occurred since December 31, 2019.

 


40


 

 

Item 9 The Offer and Listing

 

The following table lists the high and low closing sale prices for the Company’s common stock for the periods indicated as reported by the Over the Counter Markets:

 

YEAR/PERIOD

HIGH(1)

LOW(1)

Q1 2018

1.12

.62

Q2 2018

1.36

.60

Q3 2018

1.38

.60

Q4 2018

.80

.42

Q1 2019

1.38

.60

Q2 2019

1.70

.52

Q3 2019

3.04

1.02

Q4 2019

1.99

1.49

 

(1)All prior periods reflect the 1-for-200 reverse stock split made effective July 24, 2019. 

 

Markets

 

The shares of the Company commenced trading on the Over the Counter Bulletin Board on July 14, 1999. The Company’s common shares began trading on the OTCQB on August 27, 2019.

 

Item 10. Additional Information

 

A. Share Capital

 

Not Applicable.

 

B. Articles of Incorporation & By-Laws

 

Directors

 

A director who is, in any way, directly or indirectly interested in a proposed contract or transaction, shall disclose the nature and extent of his interest at a meeting of the directors in accordance with the provisions of the Canada Business Corporations Act (“CBCA”). A director shall not vote in respect of any contract or transaction with our Company in which he is interested, and any such proposed contract or transaction shall be referred to the Board of Directors or shareholders for approval even if such contract or transaction is one that the ordinary course of the Company’s business would not require approval by the Board of Directors or shareholders.

 

(1) Subject to the provisions of any unanimous shareholder agreement, the remuneration of the directors may from time to time be determined by the directors themselves, and such remuneration may be in addition to any reimbursement for travel and other expenses. 

 

(2) The directors may, at their discretion and subject to the provisions of any unanimous shareholder agreement or By-Laws or the CBCA, authorize the Company to borrow any sum of money or incur indebtedness for the purpose of the Company and may raise or secure the repayment of such sum of money in such manner and upon such terms and conditions as the directors think fit. 

 

(3) There are no provisions with respect to the retirement of a director or the non-retirement of a director under an age requirement. 

 

(4) A director is not required to hold a share in the capital of our Company as qualification for his office. 

 

With respect to the above noted matters, there are generally no significant differences between Canadian and U.S. law.

 

Objects and Purposes of the Company

 

Our Certificate of Incorporation places no restrictions upon our objects and purposes.


41


 

 

Rights, Preference and Restrictions

 

Common Shares

 

All of the authorized common shares of the Company, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common shares are entitled to one vote for each common share held of record on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the board of directors, in its discretion, out of funds legally available therefore. The Company’s By-Laws do not provide for cumulative voting.

 

Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata our assets, if any, remaining after payments of all debts and liabilities. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds. There are no restrictions on the repurchase or redemption of common shares by our Company while there is any arrearage in the payment of dividends or sinking fund installments.

 

With respect to the rights, preferences and restrictions attaching to the Company’s common shares, there are generally no significant differences between Canadian and United States law as the board of directors, or the applicable corporate statute, will determine the rights, preferences and restrictions attaching to each class of a Company’s shares.

 

Changes to Common Shares

 

Provisions as to the modification, amendment or variation of the rights attaching to the common shares are contained in the CBCA. The CBCA requires approval by a special resolution (i.e. approved by at least two-thirds of the votes cast at a meeting of the shareholders of our Company or consented to in writing by each of our shareholders) of our Company’s shareholders in order to effect any of the following changes:

 

(1) change any maximum number of shares that the Company is authorized to issue; 

 

(2) create new classes of shares; 

 

(3) reduce or increase its stated capital, if its stated capital is set out in the articles; 

 

(4) change the designation of all or any of its shares and add, change or remove any rights, privileges, restrictions and conditions, including rights to accrued dividends, in respect of all or any of its shares, whether issued or unissued; 

(5) change the shares of any class or series, whether issued or unissued, into a different number of shares of the same class or series or into the same or a different number of shares of other classes or series; 

 

(6) divide a class of shares, whether issued or unissued, into series and fix the number of shares in each series and the rights, privileges, restrictions and conditions thereof; 

 

(7) authorize the directors to divide any class of unissued shares into series and fix the number of shares in each series and the rights, privileges, restrictions and conditions thereof; 

 

(8) authorize the directors to change the rights, privileges, restrictions and conditions attached to unissued shares of any series; 

 

(9) revoke, diminish or enlarge any authority conferred under paragraphs (7) and (8); and, 

 

(10) add, change or remove restrictions on the issue, transfer or ownership of shares. 

 

Generally, there are no significant differences between Canadian and United States law with respect to changing the rights of shareholders as most state corporation statutes require shareholder approval (usually a majority) for any such changes that affect the rights of shareholders.

 

Annual General Meetings and Extraordinary General Meetings

 

Annual General Meetings (an “AGM”) must be held once every fiscal year, within 15 months of the previous AGM. If the Company fails to hold an AGM, the Supreme Court of British Columbia may, on the application of a director or shareholder of the Company, call or direct an AGM. Under the CBCA, we must give our shareholders written notice of an AGM not less than 21 days before the AGM is to be held.


42


 

 

Our directors may, whenever they think fit, convene an Extraordinary General Meeting (an “EGM”).

 

An AGM or EGM may also be requisitioned by one or more shareholders of our Company so long as such shareholders own not less than 5% of the issued and outstanding shares at the date such shareholders requisition an EGM. After receiving such requisition, our directors must within 21 days call the meeting.

 

All shareholders entitled to attend and vote at an AGM or an EGM will be admitted to the meeting.

 

Most state corporation statutes require a public company to hold an annual meeting for the election of directors and for the consideration of other appropriate matters. The state statutes also include general provisions relating to shareholder voting and meetings. Apart from the timing of when an AGM must be held and the percentage of shareholders required to call a AGM or EGM, there are generally no material differences between Canadian and United States law respecting AGMs and EGMs.

 

Rights to Own Securities

 

There are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights.

 

Except as provided in the Investment Canada Act, there are no limitations under the applicable laws of Canada or by the Company’s charter or other constituent documents of the Company on the right of foreigners to hold or vote common shares or other securities of the Company.

 

The Investment Canada Act will prohibit implementation, or if necessary, require divestiture of an investment deemed “reviewable” under the Investment Canada Act by an investor that is not a “Canadian” as defined in the Investment Canada Act (a “non-Canadian”), unless after review the Minister responsible for the Investment Canada Act (“the Minister”) is satisfied that the “reviewable” investment is likely to be of net benefit to Canada. An investment in our common shares by a non-Canadian would be reviewable under the Investment Canada Act if it was an investment to acquire control of our Company and the value of our assets was $5 million or more. A non-Canadian would be deemed to acquire control of our Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of our outstanding common shares (or less than a majority but controlled our Company in fact through the ownership of one-third or more of our outstanding common shares) unless it could be established that, on the acquisition, our Company was not controlled in fact by the acquirer through the ownership of such common shares. Certain transactions in relation to our common shares would be exempt from review under the Investment Canada Act, including, among others, the following:

 

(1)acquisition of common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities; 

 

(2)acquisition of control of our Company in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and 

 

(3)acquisition of control of our Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control of our Company, through the ownership of voting interests, remains unchanged. 

 

The Investment Canada Act was amended with the World Trade Organization Agreement to provide for special review thresholds for “WTO Investors” of countries belonging to the World Trade Organization, among others, nationals and permanent residents (including “WTO Investor controlled entities” as defined in the Investment Canada Act). Under the Investment Canada Act, as amended, an investment in our common shares by WTO Investors would be reviewable only if it was an investment to acquire control of our Company and the value of our assets was equal to or greater than a specified amount (the “Review Threshold”), which published by the Minister after its determination for any particular year. The Review Threshold for Private sector WTO investments as of 2015 is $600 million in enterprise value. Beginning April 24, 2017, the review threshold will be $800 million in enterprise value.

 

Change in Control

 

There are no provisions in the Company’s By-Laws that would have the effect of delaying, deferring or preventing a change in control of our Company, and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company.

 

The CBCA does not contain any provisions that would have the effect of delaying, deferring or preventing a change of control of the Company. Generally, there are no significant differences between Canadian and United States law in this regard, as many state corporation statutes also do not contain such provisions and only empower a company’s board of directors to adopt such provisions. 


43


 

 

Ownership Threshold

 

There are no provisions in our Certificate of Incorporation or Bylaws or in the CBCA governing the threshold above which shareholder ownership must be disclosed. The Securities Act (British Columbia) requires that the Company disclose, in its annual general meeting proxy statement, holders who beneficially own more than 10% of the Company’s issued and outstanding shares. Most state corporation statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed. United States federal securities laws require a company to disclose, in its Annual Report on Form 20-F, holders who own more than 5% of a company’s issued and outstanding shares.

 

Changes in the Capital of our Company

 

There are no conditions imposed by our By-Laws which are more stringent than those required by the CBCA.

 

C. Material Contracts

 

With the exception of the contracts listed below, or those described elsewhere in this Form 20-F or in the Company’s Form 6-K filings, we have not entered into any material contracts during the last twenty-four months other than those in the ordinary course of business.

 

D. Exchange Controls

 

Except as discussed in Item E below, the Company is not aware of any Canadian federal or provincial laws, decrees, or regulations that restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-Canadian holders of common shares. The Company is not aware of any limitations on the right of non-Canadian owners to hold or vote common shares imposed by Canadian federal or provincial law or by the Company.

 

The Investment Canada Act (the “Act”) governs acquisitions of Canadian business by a non-Canadian person or entity. The Act provides, among other things, for a review of an investment in the event of acquisition of control in certain Canadian businesses in the following circumstances:

 

(1)if the investor is a non-Canadian and is not a resident of a World Trade Organization (“WTO”) country, any direct acquisition having an asset value exceeding $5,000,000 and any indirect acquisition having an asset value exceeding $50,000,000; 

 

(2)if the investor is a non-Canadian and is a resident of a WTO member, any direct acquisition having an asset value exceeding $344,000,000, unless the business is involved in uranium production, financial services, transportation services or a cultural business. 

 

An indirect acquisition of control by an investor who is a resident of a WTO country is not reviewable unless the value of the assets of the business located in Canada represents more than 50% of the asset value of the transaction, or the business is involved in uranium production, financial services, transportation services or a cultural business. The United States has been a member of the WTO since January 1, 1995.

 

The Act provides that a non-Canadian investor can hold up to 1/3 of the issued and outstanding capital of a Canadian corporation without being deemed a “control person”, and that a non-Canadian investor holding greater than 1/3 but less than 2 of the issued and outstanding capital of a Canadian corporation is deemed to be a control person subject to a reputable presumption to the contrary (i.e. providing evidence of another control person or control group holding a greater number of shares).

 

The Act requires notification where a non-Canadian acquires control, directly or indirectly, of a Canadian business with assets under the thresholds for reviewable transaction. The notification process consists of filing a notification within 30 days following the implementation of an investment.

 


44


 

 

E. Taxation

 

Canadian Federal Income Taxation

 

We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arm’s length with our Company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our Company in connection with carrying on a business in Canada (a “non-resident holder”). It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes of the Income Tax Act (Canada) (the “ITA”) and regulations thereunder. Investors should be aware that the Canadian federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed on a prescribed stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we cease to be listed on a prescribed stock exchange.

 

This summary is based upon the current provisions of the ITA, the regulations thereunder, the Canada-United States Tax Convention as amended by the Protocols thereto (the “Treaty”) as at the date of this Report and the currently publicly announced administrative and assessing policies of the Canada Customs and Revenue Agency (the “CCRA”). This summary does not take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations thereunder, publicly announced by the Government of Canada to the date hereof.

 

This summary does not address potential tax effects relevant to our Company or those tax considerations that depend upon circumstances specific to each investor. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences to them of purchasing, owning and disposing of common shares in our Company.

 

Dividends

 

The ITA provides that dividends and other distributions deemed to be dividends paid or deemed to be paid by a Canadian resident corporation (such as our Company) to a non-resident of Canada shall be subject to a non-resident withholding tax equal to 25% of the gross amount of the dividend of deemed dividend. Provisions in the ITA relating to dividend and deemed dividend payments to and gains realized by non-residents of Canada, who are residents of the United States, are subject to the Treaty. The Treaty may reduce the withholding tax rate on dividends as discussed below.

 

Article X of the Treaty as amended by the US-Canada Protocol ratified on November 9, 1995 provides a 5% withholding tax on gross dividends or deemed dividends paid to a United States corporation which beneficially owns at least 10% of the voting stock of the company paying the dividend. In cases where dividends or deemed dividends are paid to a United States resident (other than a corporation) or a United States corporation which beneficially owns less than 10% of the voting stock of a company, a withholding tax of 15% is imposed on the gross amount of the dividend or deemed dividend paid. We would be required to withhold any such tax from the dividend and remit the tax directly to CCRA for the account of the investor.

 

The reduction in withholding tax from 25%, pursuant to the Treaty, will not be available:

 

(a) if the shares in respect of which the dividends are paid formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or 

 

(b) the holder is a U.S. LLC which is not subject to tax in the U.S. 

 

The Treaty generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization exclusively administering a pension, retirement or employee benefit fund or plan, if the organization is resident in the U.S. and is exempt from income tax under the laws of the U.S.

 


45


 

 

Capital Gains

 

A non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of one of our shares unless the share represents “taxable Canadian property” to the holder thereof. Our common shares will be considered taxable Canadian property to a non-resident holder only if:

 

(a) the non-resident holder; 

 

(b) persons with whom the non-resident holder did not deal at arm’s length; or 

 

(c) the non-resident holder and persons with whom he did not deal at arm’s length, 

 

owned not less than 25% of the issued shares of any class or series of our Company at any time during the five year period preceding the disposition. In the case of a non-resident holder to whom shares of our Company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless:

 

(a) the value of such shares is derived principally from real property (including resource property) situated in Canada, 

 

(b) the holder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be a resident of Canada, 

 

(c) they formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or bad in Canada within the 12 months preceding the disposition, or 

 

(d) the holder is a U.S. LLC which is not subject to tax in the U.S. 

 

If subject to Canadian tax on such a disposition, the taxpayer’s capital gain (or capital loss) from a disposition is the amount by which the taxpayer’s proceeds of disposition exceed (or are exceeded by) the aggregate of the taxpayer’s adjusted cost base of the shares and reasonable expenses of disposition. For Canadian income tax purposes, the “taxable capital gain” is equal to one-half of the capital gain.

 

United States Federal Income Taxation

 

The following is a discussion of the material United States Federal income tax consequences, under current law, applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local, or foreign tax consequences. (See “Canadian Federal Income Tax Consequences” above.)

 

The following discussion is based on the Internal Revenue Code (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.

 

The discussion below does not address potential tax effects relevant to our Company or those tax considerations that depend upon circumstances specific to each investor. In addition, this discussion does not address the tax consequences that may be relevant to particular investors subject to special treatment under certain U.S. Federal income tax laws, such as, dealers in securities, tax-exempt entities, banks, insurance companies and non-U.S. Holders. Purchasers of the common stock should therefore satisfy themselves as to the overall tax consequences of their ownership of the common stock, including the State, local and foreign tax consequences thereof (which are not reviewed herein), and should consult their own tax advisors with respect to their particular circumstances.

 


46


 

 

U.S. Holders

 

As used herein, a “U.S. Holder” includes a beneficial holder of common shares of our Company who is a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, any trust if a US court is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, any entity created or organized in the United States which is taxable as a corporation for U.S. tax purposes and any other person or entity whose ownership of common shares of our Company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.

 

Dividend Distribution on Shares of our Company

 

U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the common shares of our Company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that we have current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be deducted or may be credited against actual tax payable, subject to certain limitations and other complex rules, against the U.S. Holder’s United States Federal taxable income. See “Foreign Tax Credit” below. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital to the extent of the shareholder’s basis in the common shares of our Company and thereafter as gain from the sale or exchange of the common shares of our Company. Preferential tax rates for net long term capital gains may be applicable to a U.S. Holder which is an individual, estate or trust.

 

In general, dividends paid on our common shares will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.

 

Foreign Tax Credit

 

A U.S. Holder who pays (or who has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the election of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its world-wide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income” and certain other classifications of income. A U.S. Holder who is treated as a domestic U.S. corporation owning 10% or more of our voting stock is also entitled to a deemed paid foreign tax credit in certain circumstances for the underlying foreign tax of our Company related to dividends received or Subpart F income received from us. (See the discussion below of Controlled Foreign Corporations). The availability of the foreign tax credit and the application of the limitations on the foreign tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.

 

Disposition of Common Shares

 

If a “U.S. Holder” is holding shares as a capital asset, a gain or loss realized on a sale of our common shares will generally be a capital gain or loss, and will be long-term if the shareholder has a holding period of more than one year. However, gains realized upon sale of our common shares may, under certain circumstances, be treated as ordinary income, if we were determined to be a “collapsible corporation” within the meaning of Code Section 341 based on the facts in existence on the date of the sale (See below for definition of “collapsible corporation”). The amount of gain or loss recognized by a selling U.S. Holder will be measured by the difference between (i) the amount realized on the sale and (ii) his tax basis in our common shares. Capital losses are deductible only to the extent of capital gains. However, in the case of taxpayers other than corporations (U.S.) $3,000 ($1,500 for married individuals filing separately) of capital losses are deductible against ordinary income annually. Losses in excess of this limit can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year.

 


47


 

 

A “collapsible corporation” is a corporation that is formed or availed principally to manufacture, construct, produce, or purchase prescribed types of property that the corporation holds for less than three years and that generally would produce ordinary income on its disposition, with a view to the stockholders selling or exchanging their stock and thus realizing gain before the corporation realizes two thirds of the taxable income to be derived from prescribed property. Prescribed property includes: stock in trade and inventory; property held primarily for sale to customers in the ordinary course of business; unrealized receivables or fees, consisting of rights to payment for noncapital assets delivered or to be delivered, or services rendered or to be rendered to the extent not previously included in income, but excluding receivables from selling property that is not prescribed; and property gain on the sale of which is subject to the capital gain/ordinary loss rule. Generally, a shareholder who owns directly or indirectly 5 percent or less of the outstanding stock of the corporation may treat gain on the sale of his shares as capital gain.

 

Other Considerations for U.S. Holders

 

In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Company. Our management is of the opinion that there is little, if not, any likelihood that we will be deemed a “Foreign Personal Holding Company”, a “Foreign Investment Company” or a “Controlled Foreign Corporation” (each as defined below) under current and anticipated conditions.

 

Foreign Personal Holding Company

 

If at any time during a taxable year more than 50% of the total combined voting power or the total value of our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% or more of our gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), we would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares in our capital would be required to include in income for such year their allocable portion of our passive income which would have been treated as a dividend had that passive income actually been distributed.

 

Foreign Investment Company

 

If 50% or more of the combined voting power or total value of our outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and we are found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that we might be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging our common shares to be treated as ordinary income rather than capital gains.

 

Controlled Foreign Corporation Status

 

If more than 50% of the voting power of all classes of stock or the total value of the stock of our Company is owned, directly or indirectly, by U.S. Holders, each of whom own after applying rules of attribution 10% or more of the total combined voting power of all classes of stock of our Company, we would be treated as a “controlled foreign corporation” or “CFC” under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of our Company and our earnings invested in “U.S. property” (as defined by Section 956 of the Code). In addition, under Section 1248 of the Code if we are considered a CFC at any time during the five year period ending with the sale or exchange of its stock, gain from the sale or exchange of common shares of our Company by such a 10% U.S. Holder of our common stock at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and profits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because we may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.

 

ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES OF OUR COMPANY.

 

F. Dividends and Paying Agents

 

Not required.

 

G. Statement by Experts

 

The financial statements of our Company as of December 31, 2019, 2018 and 2017 included in this report has been audited by Sadler, Gibb & Associates, LLC, as stated in the report appearing in this filing and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.


48


 

 

H. Documents on Display

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, as such, we file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC located at 100 F Street, N.E., Washington, DC 20549. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

We will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us in writing at our address.

 

I. Subsidiary Information

 

We conduct all operations through our wholly owned subsidiary, Tombstone Exploration and Mining Corporation, a Nevada corporation.

 

Item 11. Quantitative and Qualitative Disclosures About Market Risk

 

Our Tombstone property is located within the United States, currently at the exploration stage and our operations are limited to exploring this property. Therefore, our market risks are minimal. We may, however, have future property exploration requirements due in currencies other than United States dollars. As a Canadian company, our cash balances are kept in Canadian funds, and then converted to United States funds for accounting purposes. Therefore, we may become exposed to some interest rate risks. We consider the amount of risk to be manageable and do not currently, nor will we likely in the foreseeable future, conduct hedging to reduce our market risks.

 

Furthermore, changes in the regulatory environment in the U.S. may affect the costs of operating, mineral exploration and other factors having a material impact upon the business. The Company works diligently and in good faith to meet or exceed all applicable permitting requirements, reclamation obligations, and other regulations, but is subject to the authoritative changes.

 

Item 12. Description of Securities Other Than Equity Securities

 

Not Applicable. 


49


 

 

PART II

 

Item 13 Defaults, Dividend Arrearages and Delinquencies.

 

None.

 

Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds.

 

Not Applicable.

 

Item 15 Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures.

 

Based on an evaluation as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

During the year ended December 31, 2019, management identified the following weaknesses, which were deemed to be material weaknesses in internal controls:

 

1.Certain entity level controls establishing a “tone at the top” were considered material weaknesses. Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in a lack of segregation of duties. Additionally, the Company does not have an audit committee financial expert serving on its audit committee. A whistleblower policy is not necessary given the small size of the organization. 

 

2.Due to the significant number and magnitude of adjustments identified during the year-end closing process, management has concluded that the controls over the period-end financial reporting process were not operating effectively. Specifically, controls were not effective to ensure that significant non-routine transactions, accounting estimates, and other adjustments were appropriately reviewed, analyzed, and monitored on a timely basis. 

 

Management’s Annual Report on Internal Control over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control-Integrated Framework. Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2019.

 


50


 

 

Pursuant to Regulation S-K Item 308(b), this Annual Report on Form 20-F does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost.

 

Changes in Internal Control and Financial Reporting.

 

There have been no changes in our internal control over financial reporting in the fiscal year ended December 31, 2019, which were identified in connection with our management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report 

 

Continuing Remediation Efforts to address deficiencies in Company's Internal Control over Financial Reporting

 

Once the Company has sufficient personnel available, then our Board of Directors, in particular and in connection with the aforementioned deficiencies, will establish the following remediation measures:

 

1.We will appoint additional personnel to assist with the preparation of the Company's monthly financial reporting. 

 

2.We plan to establish an Audit Committee and adopt an Audit Committee Charter as a part of our continuing remediation efforts to address deficiencies in the Company’s internal control over financial reporting. 

 

Item 16. [Reserved]

 

Item 16A. Audit Committee Financial Expert

 

The Company does not have an audit committee financial expert serving on its audit committee due to its inability to attract such a person.

 

Item 16B. Code of Ethics

 

The Company has a Code of Business Conduct and Ethics that was approved by the Company’s Board of Directors on June 1, 2007. A written copy of the Code is available on written request to the Company and was filed with the SEC on August 10, 2007 as part of the Company’s Amended Annual Report on Form 20-F/A and is incorporated herein by reference.

 


51


 

 

Item 16C. Principal Accountant Fees and Services

 

The aggregate fees billed by the Company’s external auditors in each of the last two fiscal years for audit fees are as follows:

 

Financial Year

Ending

 

Audit

Fees(1)

 

Audit

Related Fees(2)

 

Tax Fees(3)

 

All Other Fees(4)

2017

$

10,000

$

0

$

0

$

0

2018

$

10,000

$

0

$

0

$

0

2019

$

13,000

$

0

$

0

$

0

 

(1)The aggregate audit fees billed. 

 

(2)The aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements which are not included under the heading ‘‘Audit Fees’’. 

 

(3)The aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. 

 

(4)The aggregate fees billed for products and services other than as set out under the headings ‘‘Audit Fees’’, ‘‘Audit Related Fees’’ and ‘‘Tax Fees’’. 

 

The Board of Directors must approve in advance any non-audit related services provided by the auditor to the Company, and the fees for such services, with a view to ensure independence of the Auditor, and in accordance with applicable regulatory standards, including applicable stock exchange requirements with respect to approval of non-audit related services performed by the auditors; and as necessary, taking or recommending appropriate action to oversee the independence of the auditors.

 

Item 16D. Exemptions from the Listing Standards for Audit Committees.

 

Not Applicable.

 

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

 

Not Applicable.

 

Item 16F. Change in Registrant’s Certifying Accountant.

 

Not applicable

 

Item 16G. Corporate Governance.

 

Currently, our common shares are listed for trading on the OTCQB. We were uplisted from the OTCPK to the OTCQB on August 27, 2019. As a “foreign private issuer,” as defined by the SEC, we are permitted to follow home country corporate governance practices, instead of certain corporate governance practices required by the SEC for U.S. domestic issuers. In the opinion of management, the Company’s corporate governance practices do not differ in any significant way from those followed by U.S. domestic companies listed on the OTCQB.

 

Item 16H. Mine Safety Disclosures.

 

Not Applicable.


52


 

 

PART III

 

Item 17. Financial Statements

 

Balance sheets of the Company as at December 31, 2019, 2018, and 2017, the Statements of Operations and Stockholders’ Deficit and Cash Flows for each of the years ended December 31, 2019, 2018, and 2017, begin on page F-1 of this Form 20-F.

 

Item 18. Financial Statements

 

Not Applicable.

 

Item 19. Exhibits

 

Exhibits Required by Form 20-F.

 

Exhibit

 

 

Number

Description of Exhibit

Filing

1.01

Certificate of Incorporation under the Canada Business Corporations Act dated October 30, 1997.

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 19, 2002.

1.02

Bylaws

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 19, 2002.

1.03

Certificate of Name Change dated June 5, 2000.

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 19, 2002.

1.04

Certificate of Name Change dated September 20, 2004.

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 15, 2005.

1.05

Certificate of Name Change dated February 6, 2007.

Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on February 8, 2007.

2.01

Form of U.S. Private Placement Subscription Agreement and Common Stock Purchase Warrant

Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on July 19, 2011.

2.02

Form of Non-U.S. Private Placement Subscription Agreement and Common Stock Purchase Warrant

Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on July 15, 2011.

4.01

Employment Agreement by and between the Company and Alan Brown dated January 1, 2009.

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on July 10, 2009.

4.02

Director Service Agreement between the Company and Laird Cagan dated May 18, 2011.

Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on May 25, 2011.

4.03

Settlement Agreement by and among the Company, RedStone Communications, LLC and Marlin Molinaro dated August 16, 2011

Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on August 29, 2011.

4.04

Employment Agreement by and between the Company and Alan Brown dated November 15, 2013.

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on May 16, 2014

4.05

Stock-for-Stock Exchange Agreement by and among the Company, EuroGas, Inc. and EuroGas AG dated December 10, 2013

Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on December 16, 2013.

4.06

First Amendment to the Stock-for-Stock Exchange Agreement by and among the Company, EuroGas, Inc. and EuroGas AG dated January 13, 2014

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on May 16, 2014

4.07

Second Amendment to the Stock-for-Stock Exchange Agreement by and among the Company, EuroGas, Inc, and Eurogras AG, dated May 13, 2014

Incorporated herein by reference to our current report on on Form 6-K filed with the SEC on May 30, 2014

8.01

Subsidiaries of the Company

Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on July 19, 2011.

11.01

Code of Ethics

Incorporated herein by reference to our Amended Annual Report on Form 20-F/A filed with the SEC on August 10, 2007.

12.01

Certification of Chief Executive Officer of the Company required by rule 13A-14(A) or rule 15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.


53


 

12.02

Certification of Chief Financial Officer of the Company required by rule 13A-14(A) or rule 15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

13.01

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith.

101.INS*

XBRL Instance Document

Filed herewith.

101.SCH*

XBRL Taxonomy Extension Schema Document

Filed herewith.

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith.

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

Filed herewith.

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

 

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 


54


 

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 

 

TOMBSTONE EXPLORATION CORPORATION

 

 

Date: May 15, 2020

/s/ Alan Brown

 

Alan Brown

 

President, Principal Financial and Accounting Officer, Principal Executive Officer, and Director

 

 

 

 

Date: May 15, 2020

/s/ Daniel A. Cistone

 

Daniel A. Cistone

 

Director

 

 

Date: May 15, 2020

/s/ Donald Rauch

 

Donald Rauch

 

Director

 

 

Date: May 15, 2020

/s/ Mark Mehok

 

Mark Mehok

 

Director

 


55


 

 

Tombstone Exploration Corporation

 

December 31, 2019

 

 

 

Index

Report of Independent Registered Public Accounting Firm

 

F-1

Report of Independent Registered Public Accounting Firm

 

F-2

Balance Sheets

 

F-3

Statements of Operations

 

F-4

Statements of Stockholders’ Deficit

 

F-5

Statement of Cash Flows

 

F-6

Notes to the Financial Statements

 

F-7


56


 

TOMBSTONE LETTER HEADER.JPG  

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of Tombstone Exploration Corporation:

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Tombstone Exploration Corporation (“the Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2019 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph Regarding Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ Sadler, Gibb & Associates, LLC

 

We have served as the Company’s auditor since 2019.

 

Salt Lake City, UT

May 15, 2020


F-1


 

 

Tombstone Exploration Corporation

Consolidated Balance Sheets

(Expressed in U.S. dollars)

 

 

December 31,

December 31,

 

2019

2018

 

$

$

ASSETS

 

 

Current assets

 

 

Cash

466,377

39,858

 

 

 

Total current assets

466,377

39,858

 

 

 

Advance on investments

810,000

-

Property and equipment

1,773

-

 

 

 

Total assets

1,278,150

39,858

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued liabilities (Note 5)

84,677

47,807

Due to related parties

207,853

357,074

Notes payable, current

47,500

110,500

 

 

 

Total current liabilities

340,030

515,381

 

 

 

Notes payable, long term (Note 5)

150,000

-

Notes payable – related party, long term (Note 5)

200,000

-

 

 

 

Total liabilities

690,030

515,381

 

 

 

Nature of Operations and Continuance of Business (Note 1)

 

 

Subsequent Events (Note 10)

 

 

 

 

 

Stockholders’ Equity (Deficit)

 

 

 

 

 

Common stock

25,026,940

22,117,962

Authorized: unlimited common shares, with no par value

 

 

Issued and outstanding: 6,928,047 and 3,333,256 common shares, respectively

 

 

 

 

 

Common stock issuable

27,500

-

 

 

 

Additional paid-in capital

4,795,431

4,965,842

 

 

 

Accumulated deficit

(29,261,751)

(27,559,327)

 

 

 

Total stockholders’ equity (deficit)

588,120

(475,523)

 

 

 

Total liabilities and stockholders’ equity (deficit)

1,278,150

39,858

 

 

 

 

(The accompanying notes are an integral part of these consolidated financial statements)


F-2


 

 

Tombstone Exploration Corporation

Consolidated Statements of Operations

(Expressed in U.S. dollars)

 

 

Year Ended December 31,

2019

Year Ended December 31,

2018

Year Ended December 31,

2017

 

$

$

$

Operating expenses

 

 

 

 

 

 

 

Consulting services

111,392

137,074

27,032

General and administrative

29,665

24,918

18,214

Impairment of mineral property

350,000

-

-

Management and directors’ fees

825,177

240,000

380,411

Mineral property costs

5,991

23,085

290,125

Professional fees

71,264

95,114

111,647

 

 

 

 

Total operating expenses

1,393,489

520,191

827,429

 

 

 

 

Loss before other income (expense)

(1,393,489)

(520,191)

(827,429)

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

Accretion and interest expense

(65,870)

(33,192)

(89,485)

Gain (loss) on settlement of debt

(243,065)

23,577

24,125

Loss on change in fair value of derivative liabilities

-

(29,168)

(88,501)

Gain on legal settlement

-

-

50,000

 

 

 

 

Total other income (expense)

(308,935)

(38,783)

(103,861)

 

 

 

 

Net loss

(1,702,424)

(558,974)

(931,290)

 

 

 

 

Net loss per share – basic and diluted

Net Loss Per Share – Basic and Diluted

(0.35)

(0.18)

(0.44)

 

 

 

 

Weighted average shares outstanding

4,849,806

3,095,546

2,095,268

 

 

 

 

(The accompanying notes are an integral part of these consolidated financial statements)


F-3


 

 

Tombstone Exploration Corporation

Consolidated Statement of Stockholders’ Equity (Deficit)

From January 1, 2017 to December 31, 2019

(Expressed in U.S. dollars)

 

 

Common Stock

 

 

 

 

 

Shares

 

Value

Additional

Paid-In

Capital

Common

Stock Issuable

Accumulated

Deficit

Total

 

#

 

$

$

$

$

$

 

 

 

 

 

 

 

 

Balance as at December 31, 2016

1,830,264

 

20,826,027

4,965,842

50,000

(26,069,063)

(227,194)

 

 

 

 

 

 

 

 

Issuance of common shares for cash

441,666

 

265,000

-

-

-

265,000

 

 

 

 

 

 

 

 

Issuance of common shares for conversion of debt

155,270

 

247,068

-

-

-

247,068

 

 

 

 

 

 

 

 

Issuance of common shares for services

212,500

 

255,275

-

-

-

255,275

 

 

 

 

 

 

 

 

Share subscriptions received, net of shares issued

-

 

-

-

70,000

-

70,000

 

 

 

 

 

 

 

 

Net loss for the year

-

 

-

-

-

(931,290)

(931,290)

 

 

 

 

 

 

 

 

Balance, December 31, 2017

2,639,700

 

21,593,370

4,965,842

120,000

(27,000,353)

(321,141)

 

 

 

 

 

 

 

 

Issuance of common shares for cash

291,667

 

175,000

(120,000)

-

55,000

 

 

 

 

 

 

 

 

Issuance of common shares for conversion of debt

94,389

 

95,182

-

-

-

95,182

 

 

 

 

 

 

 

 

Issuance of common shares for services

307,500

 

254,410

-

-

-

254,410

 

 

 

 

 

 

 

 

Net loss for the year

-

 

-

-

-

(558,974)

(558,974)

 

 

 

 

 

 

 

 

Balance, December 31, 2018

3,333,256

 

22,117,962

4,965,842

-

(27,559,327)

(475,523)

 

 

 

 

 

 

 

 

Issuance of common shares for cash

2,601,898

 

1,561,000

-

10,000

-

1,571,000

 

 

 

 

 

 

 

 

Issuance of common shares for services and settlement of related party debt and accounts payable

867,893

 

1,044,228

(170,411)

-

-

873,817

 

 

 

 

 

 

 

 

Issuance of common shares for shareholder loan

125,000

 

303,750

-

-

-

303,750

 

 

 

 

 

 

 

 

Shares issuable for interest

-

 

-

-

17,500

-

17,500

 

 

 

 

 

 

 

 

Net loss for the year

-

 

-

-

-

(1,702,424)

(1,702,424)

 

 

 

 

 

 

 

 

Balance, December 31, 2019

6,928,047

 

25,026,940

4,795,431

27,500

(29,261,751)

588,120

 

 

 

 

 

 

 

 

(The accompanying notes are an integral part of these consolidated financial statements)


F-4


 

 

Tombstone Exploration Corporation

Consolidated Statements of Cash Flows

(Expressed in U.S. dollars)

 

 

For Years Ended

 

December 31,

2019

December 31,

2018

December 31,

2017

 

$

$

$

Operating Activities

 

 

 

 

 

 

 

Net loss

(1,702,424)

(558,974)

(931,290)

 

 

 

 

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

 

 

 

 

 

 

 

Accretion and interest expense

-

32,250

67,884

Common stock issued for services

698,766

254,410

255,275

Depreciation expense

61

-

-

Impairment of mineral property

350,000

-

-

Loss (gain) on settlement of debt

243,065

(23,577)

(24,125)

Loss on change in fair value of derivative liabilities

-

29,168

88,501

Penalty on default of convertible debt

-

-

18,000

Gain on legal settlement

-

-

(50,000)

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

65,106

(32,454)

49,621

Due to related parties

779

122,224

145,382

 

 

 

 

Net cash used in operating activities

(344,647)

(176,953)

(380,752)

 

 

 

 

Investing Activities

 

 

 

Advance on investments

(810,000)

-

-

Acquisition of mineral property rights

(350,000)

-

-

Purchase of property and equipment

(1,834)

-

-

 

 

-

-

Net cash used in investing activities

(1,161,834)

-

-

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Proceeds from issuance of common shares and share subscriptions

1,571,000

55,000

385,000

Proceeds from issuance of convertible debt

-

-

30,000

Proceeds from issuance of notes payable

162,000

110,500

-

Proceeds from issuance of notes payable – related party

200,000

-

-

 

 

 

 

Net cash provided by financing activities

1,933,000

165,500

415,000

 

 

 

 

Change in cash

426,519

(11,453)

34,248

 

 

 

 

Cash, beginning of year

39,858

51,311

17,063

 

 

 

 

Cash, end of year

466,377

39,858

51,311

 

 

 

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Common stock issued to settle debt and accrued interest

-

95,182

247,068

Common stock issued to settle accounts payable

25,051

-

-

Common stock issued to settle CEO loan

150,000

-

-

Common stock issued to settle shareholder loan

303,750

-

-

Common stock issuable for interest expense

17,500

-

-

Settlement of common stock issuable

-

120,000

50,000

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

Interest paid

-

-

-

Income tax paid

-

-

-

 

(The accompanying notes are an integral part of these consolidated financial statements)


F-5


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

1. Nature of Operations and Continuance of Business 

 

Tombstone Exploration Corporation (the “Company”) was incorporated under the Canada Business Corporations Act on October 30, 1997 as 3430502 Canada Ltd. On December 4, 1997, the Company changed its name to Four Crown Foods Inc. On June 5, 2000, the Company changed its name to Universal Domains Incorporated. In 2001, the Company withdrew from the domain registration business and acquired 100% of the issued and outstanding common shares of VCL Communications Corp. (“VCL”), a teleconferencing services company that targeted clients throughout North America. In November 2003, given the Company’s liabilities and the lack of profitability, the Company ceased all operations.

 

On September 20, 2004, the Company changed its name to Pure Capital Inc., and focused its operations on the exploration and production of crude oil and natural gas properties. On November 1, 2006, the Company acquired 100% of the mineral claims located in Tombstone, Arizona in exchange for $100,000 and the issuance of 8,000,000 common shares of the Company. Effectively, on February 6, 2007, the Company changed its name to Tombstone Exploration Corporation.

 

These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated no revenues to date and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. As at December 31, 2019, the Company did not record any revenues, and an accumulated deficit of $29,261,751. During the year ended December 31, 2019, the Company incurred a net loss of $1,702,424. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's future business. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company’s plan of action over the next twelve months is to raise capital financing to conduct exploration and drilling on its mineral property claims held in Tombstone, Arizona as well as exploring for new mineral property claims in the United States.

 

2. Summary of Significant Accounting Policies 

 

(a)Basis of Presentation and Principles of Consolidation 

 

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The consolidated financial statements include the accounts of the Company and its subsidiary, Tombstone Exploration and Mining Corporation. All inter-company accounts and transactions have been eliminated. The Company’s fiscal year-end is December 31.

 

(b)Use of Estimates 

 

The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of property and equipment, impairment of intangible assets, fair value of stock-based compensation, valuation of convertible debentures and derivative liabilities, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.


F-6


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

2. Summary of Significant Accounting Policies (continued) 

 

(c)Cash and Cash Equivalents 

 

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As at December 31, 2019 and 2018, the Company had no cash equivalents.

 

(d)Property and Equipment 

 

Property and equipment are recorded at the lower of cost or net book value, and are amortized based on the following rates:

 

Equipment

 

5 years straight-line

 

(e)Impairment of Long-Lived Assets 

 

In accordance with ASC 360, Property Plant and Equipment, management tests long-lived assets to be held and used for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

 

(f)Mineral Properties 

 

Mineral property acquisition and exploration costs are expensed as incurred. When a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

 

(g)Stock-Based Compensation 

 

The Company records stock-based compensation in accordance with ASC 718, Share-Based Payments, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

 

(i)Income Taxes 

 

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Accounting for Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

 

(j)Comprehensive Loss 

 

ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at December 31, 2019 and 2018, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.

 

(k)Derivative Liability 

 

From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is recorded at its fair value calculated by using an option pricing model such as a multi-nominal lattice model or Black-Scholes model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the consolidated statement of operations.


F-7


 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

2. Summary of Significant Accounting Policies (continued) 

 

(l)Beneficial Conversion Features 

 

From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

 

(m)Basic and Diluted Net Income (Loss) Per Share 

 

The Company computes net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At December 31, 2019 and 2018, the Company had no potentially dilutive shares

 

(n)Fair Value Measurements and Financial Instruments  

 

Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2

 

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820 and 825, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.


F-8


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

2. Summary of Significant Accounting Policies (continued) 

 

(o)Financial Instruments  

 

The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk. As at December 31, 2019 and 2018, the Company had no outstanding derivative liabilities. During the year ended December 31, 2018, the Company recorded a loss on the change in fair value of $29,168.

 

(p)Foreign Currency Translation 

 

The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with ASC 830 Foreign Currency Translation Matters, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

 

(q)Recent Accounting Pronouncements 

 

In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, “Leases”. This new guidance was initiated as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial information for users. This new guidance would eliminate the concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting in the recognition of a defined “right-of-use” asset and a lease liability on the balance sheet. However, recognition in the income statement will differ depending on the lease classification, with finance leases recognizing the amortization of the right-of-use asset separate from the interest on the lease liability and operating leases recognizing a single total lease expense. Lessor accounting under ASU No. 2016-02 would be substantially unchanged from the previous lease requirements under GAAP. ASU No. 2016-02 will take effect for public companies in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. The Company implemented this standard on January 1, 2019 and there was no material impact to the Company’s consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will become effective for the Company on January 1, 2020. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.


F-9


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

3. Advance on Investment 

 

On April 1, 2019, the Company entered into an option agreement (the “Agreement”) with Goldrock Resources Inc. (“Goldrock”), a non-related party incorporated in the state of Nevada, for a 40% interest in the Bonanza Project. Under the terms of the Agreement, the Company would earn its 40% interest by: (i) pay Goldrock $310,000 for funding of the project on the closing date of the agreement (paid); (ii) pay $500,000 for additional funding within 3 months of the closing date of the agreement (paid); and (iii) pay $2,750,000 of additional funding within 6 months of the closing date of the agreement. As at December 31, 2019, the Company has not made the final payment of $2,750,000 and the Company has not fully earned its 40% interest in the Bonanza Project. As the Company has made initial payments of $810,000 within the time frames of the Agreement, the Company can receive their initial investment back from Goldrock, without interest, from 20% of any net proceeds received from the Bonanza Project and the Agreement is still in good standing. Refer to Note 10.

 

4. Mineral Property 

 

In January 2019, the Company acquired royalty rights from Bahamas Aggregates Inc. (“BAI”), a non-related party, where the Company would earn a royalty fee of $0.50 per tonne of aggregate minerals owned by BAI in exchange for $500,000. During the year ended December 31, 2019, the Company made total payments of $350,000 and the royalty fee was amended from $0.50 per tonne to $0.35 per tonne.

 

During the year ended December 31, 2019, the Company received $nil from BAI as production on the property was halted due to a natural disaster. BAI is currently seeking legal advice to recover the lost value of aggregate minerals that were damaged due to the effects of the natural disaster. As a result, the Company recorded an impairment loss of $350,000 for the year ended December 31, 2019 which is recorded in the statement of operations.

 

5. Notes Payable 

 

(a)As at December 31, 2019, the Company owed $47,500 (2018 - $110,500) of notes payable to a significant shareholder of the Company which is unsecured, non-interest bearing, and due on demand. During the year ended December 31, 2019, the Company received advances of $12,000 and settled $75,000 of notes payable with the issuance of 125,000 common shares. Refer to Note 7(m). 

 

(b)As at December 31, 2019, the Company owed $150,000 (2018 - $nil) of notes payable to a significant shareholder of the Company which is secured by proceeds received from royalty rights noted in Note 4, bears interest at 15% per annum, and is due on January 31, 2021. In addition, on January 31, 2019, 2020, and 2021, if the note is still outstanding, the Company will issue restricted common stock equal to 5% of the principal amount of the note. As at December 31, 2019, the Company has accrued $7,500 of common stock issuable in relation to this note and $20,589 of accrued interest.  

 

(c)As at December 31, 2019, the Company owed $150,000 (2018 - $nil) of notes payable to a director and shareholder which is secured by proceeds received from royalty rights noted in Note 4, bears interest at 15% per annum, and is due on January 31, 2021. In addition, on January 31, 2019, 2020, and 2021, if the note is still outstanding, the Company will issue restricted common stock equal to 5% of the principal amount of the note. As at December 31, 2019, the Company has accrued $7,500 of common stock issuable in relation to this note and $20,589 of accrued interest. 

 

(d)As at December 31, 2019, the Company owed $50,000 (2018 - $nil) of notes payable to a director and shareholder which is secured by proceeds received from royalty rights noted in Note 4, bears interest at 15% per annum, and is due on January 31, 2021. In addition, on January 31, 2019, 2020, and 2021, if the note is still outstanding, the Company will issue restricted common stock equal to 5% of the principal amount of the note. As at December 31, 2019, the Company has accrued $2,500 of common stock issuable in relation to this note and $7,192 of accrued interest. 


F-10


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

6. Derivative Liability 

 

The Company records the fair value of the reset provision of its exercise price of share purchase warrants in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. During the year ended December 31, 2019, the Company recorded a loss on the change in fair value of the derivative liability of $nil (2018 – $29,168; 2017 - $88,501).

 

A summary of the activity of the derivative liability is shown below:

 

 

$

Balance, December 31, 2017

52,491

Adjustment for conversion

(81,659)

Mark to market adjustment

29,168

 

 

Balance, December 31, 2018 and 2019

-

 

7. Common Shares 

 

The Company has authorized an unlimited number of common shares with no par value, and a 200-to-1 reverse split was authorized on July 24, 2019 and has been applied retroactively. All share amounts noted are reflective of the reverse stock split.

 

Year Ended December 31, 2019

 

(a)On May 31, 2019, the Company issued 725,000 common shares at $0.60 per share for proceeds of $435,000, of which 333,333 common shares for proceeds of $200,000 were issued to directors of the Company.  

 

(b)On May 31, 2019, the Company issued 17,893 common shares with a fair value of $25,051 to settle debt of $10,736, resulting in a loss on settlement of debt of $14,315. The fair value of common shares was based on the end of day trading price of the Company’s common stock on the date of issuance.  

 

(c)On May 31, 2019, the Company issued 250,000 common shares to settle debt owed to the President and Director of the Company of $150,000. The Company used a fair value of $350,000, being the end of day trading price of the Company’s common shares on the date of issuance, to value the shares issued which resulted in the excess charge of $200,000 recorded against additional paid-in capital.  

 

(d)On June 18, 2019, the Company issued 416,667 common shares at $0.60 per share for proceeds of $250,000, of which 83,333 common shares for proceeds of $50,000 were issued to a director of the Company. 

 

(e)On June 18, 2018, the Company issued 600,000 common shares with a fair value of $669,176 to directors and officers of the Company for services. The fair value of common shares was based on the end of day trading price of the Company’s common stock on the date of issuance.  

 

(f)On August 5, 2019, the Company issued 133,333 common shares at $0.60 per share for proceeds of $80,000, of which 100,000 common shares for proceeds of $60,000 were issued to a director of the Company. 

 

(g)On August 30, 2019, the Company issued 311,668 common shares at $0.60 per share for proceeds of 187,000, of which 70,000 common shares for proceeds of $42,000 were issued to a director of the Company. 

 

(h)On September 27, 2019, the Company issued 358,335 common shares at $0.60 per share for proceeds of $215,000, of which 108,333 common shares for proceeds of $65,000 were issued to a director or family member of a director of the Company. 

 

(i)On November 7, 2019, the Company issued 50,000 common shares at $0.60 per share for proceeds of $30,000. 


F-11


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

7. Common Shares (continued) 

 

 

(j)On November 20, 2019, the Company issued 83,334 common shares at $0.60 per share for proceeds of $50,000. 

 

(k)On December 5, 2019, the Company issued 420,000 common shares at $0.60 per share for proceeds of $252,000. 

 

(l)On December 20, 2019, the Company issued 103,334 common shares at $0.60 per share for proceeds of $62,000, of which 50,000 common shares for proceeds of $30,000 were issued to a director of the Company. 

(m)On December 20, 2019, the Company issued 125,000 common shares with a fair value of $303,750 to a shareholder of the Company to settle shareholder loan with a fair value of $75,000, resulting in a loss on settlement of debt of $228,750. The fair value of common shares was based on the end of day trading price of the Company’s common stock on the date of issuance.  

 

Year Ended December 31, 2018

 

(n)On January 12, 2018, the Company issued 241,667 common shares for proceeds of $145,000, of which $120,000 was received as at December 31, 2017.  

 

(o)On January 12, 2018, the Company issued 7,500 common shares for consulting services with a fair value of $9,000.  

 

(p)On February 6, 2018, the Company issued 32,020 common shares with a fair value of $38,424 upon the conversion of $13,000 of convertible debentures and derivative liability of $39,041 resulting in a gain on settlement of $13,617. 

 

(q)On February 14, 2018, the Company issued 34,314 common shares with a fair value of $34,314 upon the conversion of $14,000 of convertible debentures and derivative liability of $26,289 resulting in a gain on settlement of $5,975.  

 

(r)On March 6, 2018, the Company issued 28,055 common shares with a fair value of $22,444 upon the conversion of $8,000 of convertible debentures, $2,100 of accrued interest, and $16,329 of derivative liability resulting in a gain on settlement of $3,985.  

 

(s)Between April and July 2018, the Company issued 50,000 common shares for proceeds of $30,000. 

 

(t)On August 20, 2018, the Company issued 175,000 common shares for consulting services with a fair value of $145,411. 

 

(u)On August 27, 2018, the Company issued 75,000 common shares to directors and officers of the Company for services with a fair value of $60,000.  

 

(v)On August 27, 2018, the Company issued 50,000 common shares for services with a fair value of $40,000, which included 25,000 common shares with a fair value of $20,000 to a director of the Company.  

 

Year Ended December 31, 2017

 

(w)On February 1, 2017, the Company issued 29,101 common shares with a fair value of $46,562 for the conversion of $9,497 of convertible debenture, $3,499 of accrued interest, and $41,864 of derivative liability resulting in a gain on settlement of $8,298.  

 

(x)On May 11, 2017, the Company issued 166,667 common shares for proceeds of $100,000. 

 

(y)On August 8, 2017, the Company 12,000 common shares with a fair value of $21,600 for the conversion of $12,000 of financing fees and $12,976 of derivative liability resulting in a gain on settlement of $3,376. 

 

(z)On August 10, 2017, the Company issued 13,636 common shares with a fair value of $21,818 for the conversion of $12,000 of convertible debenture and $13,043 of derivative liability resulting in a gain on settlement of $3,225.  

 

(aa)On August 11, 2017, the Company issued 100,000 common shares for proceeds of $60,000. 


F-12


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

7. Common Shares (continued) 

 

(bb)On August 22, 2017, the Company issued 18,072 common shares with a fair value of $25,301 for the conversion of $10,500 of convertible debenture, $4,500 of financing fees, and $13,962 of derivative liability resulting in a gain on settlement of $3,661. 

 

(cc)On August 28, 2018, the Company issued 13,000 common shares with a fair value of $20,800 for the conversion of $7,612 of convertible debenture, $500 of financing fees, and $13,382 of derivative liability resulting in a gain on settlement of $694. 

 

(dd)On September 5, 2017, the Company issued 16,417 common shares with a fair value of $19,700 for the conversion of $10,500 of convertible debenture, $1,320 of accrued interest, and $8,692 of derivative liability resulting in a gain on settlement of $812.  

 

(ee)On September 14, 2017, the Company issued 18,500 common shares with a fair value of $22,200 for the conversion of $7,492 of convertible debenture, $500 of financing fees, and $14,547 of derivative liability resulting in a gain on settlement of $339. 

 

(ff)On September 28, 2017, the Company issued 34,544 common shares with a fair value of $69,087 for the conversion of $14,896 of convertible debentures, $2,405 of accrued interest, $500 of financing fees, and $52,264 of derivative liability resulting in a gain on settlement of $3,721.  

 

(gg)On November 12, 2017, the Company issued 133,333 common shares for proceeds of $80,000. 

 

(hh)On November 12, 2017, the Company issued 87,500 common shares to officers and directors of the Company for services with a fair value of $125,411. 

 

(ii)On November 12, 2017, the Company issued 125,000 common shares for services with a fair value of $129,863. 

 

8. Related Party Transactions 

 

(a)As at December 31, 2019, the Company owed $207,853 (2018 - $357,074) to the President of the Company for management fees and financing of day-to-day operations. The amounts owing are unsecured, non-interest bearing, and due on demand. During the year ended December 31, 2019, the Company incurred $156,000 (2018 - $180,000; 2017 - $180,000) to the President of the Company for management fees, and issued 250,000 common shares to settle outstanding debt of $150,000. Refer to Note 7(c). 

 

(b)During the year ended December 31, 2019, the Company incurred $669,176 (2018 - $60,000; 2017 - $200,411) to directors of the Company for services. 

 

(c)As at December 31, 2019, the Company owed $150,000 (2018 - $nil) of notes payable to a director and shareholder which is secured by proceeds received from royalty rights noted in Note 4, bears interest at 15% per annum, and is due on January 31, 2021. In addition, on January 31, 2019, 2020, and 2021, if the note is still outstanding, the Company will issue restricted common stock equal to 5% of the principal amount of the note. As at December 31, 2019, the Company has accrued $7,500 of common stock issuable in relation to this note and $20,589 of accrued interest. 

 

(d)As at December 31, 2019, the Company owed $50,000 (2018 - $nil) of notes payable to a director and shareholder which is secured by proceeds received from royalty rights noted in Note 4, bears interest at 15% per annum, and is due on January 31, 2021. In addition, on January 31, 2019, 2020, and 2021, if the note is still outstanding, the Company will issue restricted common stock equal to 5% of the principal amount of the note. As at December 31, 2019, the Company has accrued $2,500 of common stock issuable in relation to this note and $7,192 of accrued interest. 


F-13


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

9. Income Taxes 

 

The Company has $13,554,400 of net operating losses to carry forward to offset taxable income in future years which expire through fiscal 2036.

 

The components of the net deferred tax asset at December 31, 2019 and 2018, the statutory tax rate, the effective tax rate and the amount of the valuation allowance for the years ended December 31, 2019, 2018, and 2017 are indicated below:

 

 

2019

$

2018

$

2017

$

 

 

 

 

Loss Before Taxes

(1,702,424)

(558,974)

(931,290)

Statutory rate

21%

21%

34%

 

 

 

 

Computed expected tax recovery

(357,509)

(117,384)

(316,639)

Non-deductible expenses

51,044

7,946

44,968

Change in tax rates

-

1,511,910

-

Change in valuation allowance

306,465

(1,402,472)

271,671

 

 

 

 

Income tax expense

-

-

-

 

 

2019

$

2018

$

 

 

 

Deferred tax asset

 

 

Cumulative net operating losses

2,858,219

2,551,755

Less valuation allowance

(2,858,219)

(2,551,755)

 

 

 

Net deferred tax asset

-

-

 

The following table lists the fiscal year in which the loss was incurred and the expiration date of the operating:

 

 

Net Loss

Expiry Date of

Period Incurred

$

Operating Losses

 

 

 

December 31, 2006

159,600

2026

December 31, 2007

2,310,000

2027

December 31, 2008

2,638,800

2028

December 31, 2009

1,665,000

2029

December 31, 2010

944,400

2030

December 31, 2011

631,600

2031

December 31, 2012

391,900

2032

December 31, 2013

252,000

2033

December 31, 2014

444,900

2034

December 31, 2015

365,600

2035

December 31, 2016

971,100

2036

December 31, 2017

799,000

2037

December 31, 2018

521,100

2038

December 31, 2019

1,459,400

2039

 

 

 

 

13,554,400

 

 

 

 


F-14


 

 

Tombstone Exploration Corporation

Notes to the Consolidated Financial Statements

December 31, 2019, 2018 and 2017

(expressed in U.S. dollars)

 

10.Subsequent Events 

 

(a)On January 13, 2020, the Company issued 358,334 common shares for proceeds of $215,000, of which $10,000 was received as at December 31, 2019.  

 

(b)On February 27, 2020, the Company issued 41,667 common shares for proceeds of $25,000.  

 

(c)On March 25, 2020, the Company issued 333,335 common shares for proceeds of $200,000. 

 

(d)On March 25, 2020, the Company issued 16,521 common shares to settle outstanding accounts payable of $9,912. 

 

(e)On April 10, 2020, the Company made an additional payment of $500,000 relating to the Bonanza Project, as disclosed in Note 3.  


F-15

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