ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our stock is quoted under the symbol “LSMG” on the
OTCQB marketplace of the OTC Markets Group. OTCQB companies
must verify via an annual OTCQB Certification, signed by the
company CEO or CFO, that their company information is current,
including information about a company’s reporting status,
company profile, information on management and boards, major
shareholders,
law
firms
,
transfer agents
, and IR / PR firms.
The high and low bid quotations of our common stock for the 2017
and 2016 quarters are as follows:
|
|
|
|
|
|
|
|
March 31
|
$
0.09
|
$
0.04
|
$
0.04
|
$
0.025
|
June 30
|
$
0.083
|
$
0.02
|
$
0.05
|
$
0.03
|
September 30
|
$
0.065
|
$
0.03
|
$
0.04
|
$
0.032
|
December 31
|
$
0.05
|
$
0.032
|
$
0.052
|
$
0.031
|
These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual
transactions.
The market for our common stock has been sporadic and there have
been significant periods during which there were few, if any,
transactions in the common stock and no reported quotations.
Accordingly, reliance should not be placed on the quotes listed
above, as the trades and depth of the market may be limited, and
therefore, such quotes may not be a true indication of the current
market value of the Company’s common stock.
On December 31, 2017, we had 66 shareholders of record of our
common stock.
Capitalization
Shares
Our authorized capital is 500,000,000 shares of capital stock,
divided into 480,000,000 shares of common stock with a par value of
$0.001 per share, and 20,000,000 shares of preferred stock with a
par value of $0.001 par value per share.
At December 31, 2017 and to date, 49,127,825 shares of common stock
have been issued. No shares of preferred stock have been issued to
date.
Stock Options
On February 14, 2017, we granted 9,500,000 non-qualified stock
options to key corporate officers and outside consultants, with 25%
vesting immediately and a further 25% vesting every six months
thereafter for eighteen months. Each option is exercisable into one
share of our common stock at a price of US$0.06 per share, equal to
the closing price of the common stock on the grant date, for a term
of five years. None of the options have been exercised to
date.
Warrants
In connection with a 2015 consulting agreement, there are warrants
outstanding to November 19, 2020 to purchase 3,336,060 shares of
common stock at a price of $0.02 per share, including a cashless
exercise option.
There are no present plans, understandings or agreements, and we
are not engaged in any negotiations that will involve the issuance
of capital stock.
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(continued)
|
Securities Authorized for Issuance under Equity Compensation
Plans
We reserved 10,000,000 shares of common stock for issuance under
our 2015 Omnibus Equity Incentive Plan. The purpose of the Plan is
to maintain our ability to attract and retain highly qualified and
experienced directors, officers and consultants and to give such
directors, officers and consultants a continued proprietary
interest in our success. The Plan is available to any stockholder
on request.
Dividends
We have not declared any cash dividends, nor do we have any plans
to do so. Management anticipates that, for the foreseeable future,
all available cash will be needed to fund our
operations.
Penny Stock
Our common stock is subject to the provisions of Section 15(g) of
the Exchange Act and Rule 15g-9 thereunder, commonly referred to as
the “penny stock rule”. Section 15(g) sets
forth certain requirements for transactions in penny stock, and
Rule 15g-9(d) incorporates the definition of “penny
stock” that is found in Rule 3a51-1 of the Exchange
Act. The SEC generally defines a penny stock to be any
equity security that has a market price less than $5.00 per share,
subject to certain exceptions. We are subject to the
SEC’s penny stock rules.
Since our common stock is deemed to be penny stock, trading in the
shares of our common stock is subject to additional sales practice
requirements on broker-dealers who sell penny stock to persons
other than established customers and accredited
investors. “Accredited investors” are
generally persons with assets in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 together with their
spouse. For transactions covered by these rules,
broker-dealers must make a special suitability determination for
the purchase of securities and must have the purchaser’s
written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior
to the first transaction, of a risk disclosure document prepared by
the SEC relating to the penny stock market. A
broker-dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information for
penny stocks held in an account and information to the limited
market in penny stocks. Consequently, these rules may
restrict the ability of broker-dealer to trade and/or maintain a
market in our common stock and may affect the ability of our
stockholders to sell their shares.
Recent Sales of Unregistered Securities
During the years ended December 31, 2017 and 2016, we had no
subscriptions for shares of our common stock.
Other than as disclosed in previous reports filed with the SEC, we
have not issued any equity securities that were not registered
under the Securities Act within the past three years.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
audited financial statements and related notes appearing elsewhere
in this report. In addition to historical financial information,
the following discussion includes a number of forward-looking
statements that reflect our plans, estimates and our current views
with respect to future events and financial performance. See
“
Cautionary Note Regarding
Forward Looking Statements
” above for a discussion of forward-looking
statements and the significance of such statements in the context
of this Report. It is important to note, while we have encountered
several high-grade drill anomalies throughout the property we have
no proven and/or probable reserves at the present
time.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Previous Exploration Work, Mineralization and State of
Exploration
The Property is wholly owned by LSG, our largest shareholder, and
is clear titled. A 1% net smelter royalty exists in the favor of
the original property owner. The property consists of 31 patented
claims on approximately 460 acres. LSG, over the past 15 years and
continuing, has spent over $5 million on underground rehab of
approximately 1/4 mile of drift at the 300ft sub surface level. LSG
also executed 22 surface core drill holes for a total of 10,400ft
and 152 underground core drill holes for a total of
23,000ft.
It is important to note the following sample preparation and
quality controls used by LSG and by ICN, a previous operator of the
Property:
Lode-Star Gold drill hole core sampling and analytical
protocol
All drill core samples were prepared and delivered to ALS Minerals
in Reno by Tom Temkin, our COO. Individual sampled intervals varied
from one to five-foot lengths, based on geologic parameters, and
included 100% of core intervals. No core splitting was conducted.
No duplicate samples or standards were introduced other than those
inserted and utilized by ALS for their internal quality control.
Lab preparation of individual samples included crushing and
grinding to minus 200 mesh, followed by a 1-ton assay for gold. All
samples that initially assayed over 1.0 opt Au were systematically
re-assayed.
ICN drill hole core and Rotary RC sampling and analytical
protocol
All drill core samples were prepared by ICN personnel and either
delivered to the assay lab or were picked up on-site by lab
personnel. Rotary RC chip drilling samples were collected on-site
and transported to Reno by the respective labs. The labs used
included ALS Minerals and American Assay Lab. Core was sawn by ALS
Minerals and/or ICN personnel. Individual core sampled intervals
varied from one to five-foot lengths, based on geologic parameters,
and included one-half of the original core material. Rotary RC
samples were taken at five-foot intervals entirely. Quality control
for all samples included a protocol of inserting duplicate samples,
blanks, and known standards, at repeating intervals to maintain
.08% check sampling. Lab preparation of Individual samples included
crushing and grinding to minus 200 mesh, followed by a 1-ton assay
for gold. All samples that initially assayed over 1.0 opt Au were
systematically re-assayed.
Underground work has identified 2 high-grade gold-bearing zones
(see the small yellow stars in Fig. 1. and see Fig. 2.) that can
support mine development utilizing our current infrastructure. The
property is being permitted for production and should be mine ready
during 2018. It is our intention to then start mining the property.
Much of the property remains under-explored and it is our belief
that the district's high-grade, million-ounce ore zones repeat
themselves. Further surface and underground exploration work needs
to be executed. We plan to explore through production and chase our
known, high-grade vein zones.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
The
white stars
below
show the historic zones where roughly 1 million ounces per star
were produced during the period 1904-1918 (See Figure 1a. below):
Last year of production by Goldfield Consolidated, (Source: Albers
and Stewart, 1972). The
large yellow stars
indicate
areas we need to explore to possibly repeat the past high-grade
production intercepts. The
yellow lines
are known
geophysical interpreted structures. The
small yellow stars
are the
immediate production zones targeted by us for development at an
estimated cost of $2 million, including permitting.
Fig. 1. - The red vein zones contained in the aerial photo below
depict the historic mined veins
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
HISTORIC PRODUCTION
Figure 1a. - Production from Goldfield Mining District
Year
|
Ore (tons)
|
Gold (ounces)
|
Silver (ounces)
|
|
|
|
|
1903
|
|
3,419
|
287
|
1904
|
8,000
|
113,293
|
19,954
|
1905
|
11,700
|
91,088
|
8,589
|
1906
|
59,628
|
339,890
|
15648
|
1907
|
101,136
|
406,756
|
71,710
|
1908
|
88,152
|
236,082
|
30,823
|
1909
|
297,199
|
453,915
|
33,164
|
1910
|
339,219
|
538,760
|
117,598
|
1911
|
390,431
|
497,637
|
126,406
|
1912
|
362,777
|
301,848
|
125,736
|
1913
|
364,785
|
242,815
|
153,984
|
1914
|
367,166
|
227,612
|
129,830
|
1915
|
418,935
|
212,337
|
165,305
|
1916
|
383,456
|
128,250
|
129,781
|
1917
|
339,488
|
91,917
|
78,184
|
1918
*
|
264,237
|
58,685
|
90,560
|
1919
|
16,435
|
35,810
|
39,912
|
1920
|
6,571
|
7,536
|
6,081
|
1921
|
1,903
|
7,101
|
1,761
|
1922
|
5,619
|
12,773
|
5,755
|
1923
|
3,137
|
4,471
|
3,613
|
1924
|
7,352
|
4,336
|
3,982
|
1925
|
2,773
|
5,053
|
2,369
|
1925-1960
|
129,705
|
168,616
|
88,967
|
Total
|
3,958,104
|
4,190,000
|
1,450,000
|
*
Last year of production by Goldfield
Consolidated
SOURCE:
Albers and Stewart, 1972
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Geologic Structure
The geologic model that made Goldfield successful still exists
today. Fig. 1b. shows the Goldfield high-grade gold zones pool
which leads to our conclusion that more multi-million ounce
intercepts are possible.
Fig. 1b. Geologic Structural Model
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Fig. 2. - Church and Red Hills Vein Zones are the two high-grade
gold-bearing
zones that we expect to yield high-grade gold
concentrations.
Red Hills Vein System - Priority 1.
Two major vein zones exist in the Red Hills area, including the
Stope veins and the Decline vein (see Fig. 4 on the following
page). The respective names refer to the nature of brief mining
conducted previously in these areas. As further defined through
LSG's drilling to date, the area referred to as the Stope Veins is
comprised of two intersecting vein-filled faults, including the
West vein zone and the East vein zone (Fig. 3 below). The average
width of each of these vein zones is approximately three feet.
Drilling to date suggests the West vein zone to be essentially
vertical and near parallel to the East vein zone. The Decline vein
zone is also shown on Fig. 3, as a north-northwest trending zone.
Drilling on the Decline vein zone indicates a generally westerly
dipping feature with an average width of several feet. To date,
drilling has yielded very encouraging gold values within each of
the vein zones described above. As shown on Figures 4 and 5 on the
following page, several high-grade intercepts have been encountered
with values up to 75.0 oz/ton gold (East vein zone). Drilling
indicates each of these vein zones to be open along strike and at
depth.
A 3-D depiction, (Fig. 3 below), of the three identified vein zones
within the Red Hills shows the complex nature of their intersecting
relationship. This complex intersection of the three vein
components provides several locations where high-grade gold
concentrations are identified. Two readily obvious targets where
high-grade gold in excess of 1.0 ounce of gold per ton has been
intersected is shown on Figure 3 with dashed outlines. The drill
holes and actual values have been omitted for sake of clarity.
Additionally, each of these vein zones appear to be open to the
north, to the south, and to depth.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Fig. 3. - 3D Section of the Red Hills Vein Zones
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Fig. 4. - Red Hills Vein Zones Cross Section
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Fig. 5 - Red Hills Vein Zones Plan View
Red Hills Stope Zone Summary
The drilling of this resource area was performed by LSG from 2000 -
2006 and assaying was performed by ALS Chemex. All activity was
performed prior to the company's need to have the drilling be
resource NI 43-101 compliant. We assume the zone could produce
10,000 ounces of AU. Historic underground mining was executed by
chasing veins that yielded pockets of high grade gold production.
It is LSM's intention to follow the same method and chase its known
high-grade gold-bearing veins. LSM'S initial mining stage in the
Red Hills area will extract mineralized material from the currently
exposed Stope Vein Zone, and the Decline Vein Zone on the 300-ft
mine level. Mining dimensions in the Stope Zone are expected to be
an average of 4 to 10 feet wide, approximately 80 feet upwards and
100 feet along strike. The mining in the Decline will achieve
mineralized material extraction while developing access to lower
levels. Eventually the gold mineralization below the 300 foot level
in both the Stope and Decline Vein Zones will be removed through
the development of a downward spiral ramping approach, ultimately
accessing mining depths to approximately the 450-ft mine
level.
Church Vein Zone - Priority 2.
Based on the success and encouragement realized through drilling
conducted by Trafalgar in 1982 and Westley in 1985, and further
success through follow-up drilling by LSG and ICN to date, a vein
zone measuring up to 40 feet in width and trending at least 600
feet north-northeasterly, exists immediately west of the Church
shaft (fig. 6 below).
As shown on fig. 6, our interpretation of drilling to date
indicates this vein zone, which is comprised of numerous individual
veins up to several inches in width each, to be a steeply
westerly-dipping feature, with several intercepts of high-grade
gold exceeding 1.0 ounce of gold per ton. Areas highlighted in red
on figures 6 and 7 display interpreted orientation of repeated vein
sets based on drill intercepts. Figure 6 also shows the high
priority drill targets that we expect to yield additional
high-grade gold concentrations in the Church Vein zone. The nearly
200-foot vertical interval between the 100-level gold
mineralization and the 300-level gold mineralization is a high
priority target, as are the extensions to the north and south, and
down-dip from the 300-level workings.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Fig. 6 - Church Vein Zones and Decline Vein Zone
Figure 7 - Cross Section of Church Vein Zone at Section
3555
During 2011, ICN (a previous operator of the property) drilled 26
core holes for a total of 1,767 metres and 63 RC holes for a total
of 8,375 meters. (See ICN press release dated August, 2011). The
core holes were drilled in the Church Zone. Per ICN's press
release, highlights of the better holes included:
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
ICN's 2011 Church Zone Core Hole Drilling Highlights:
●
Hole ICN-003 intersects
45.6 metres of 96.3 g/t
Au
,
including
2.90
metres of 1,454.3 g/t AU.
●
Hole ICN-013 intersects
14.9 metres of 164.5 g/t
Au
,
including
5.5 M @ 445.2 g/t
Au
.
●
Hole ICN-014 intersects
12.0 metres of 222.6 g/t
Au
,
including
2.9 m @ 918.0 g/t
Au
.
Hole ID
|
Azimuth
|
Angle
|
TD
|
From (m)
|
To (m)
|
Interval (m)
|
Au (g/t)
|
Au (oz/t)
|
ICN-001
|
vertical
|
-
|
197.9
|
51.5
|
74.7
|
23.2
|
10.50
|
|
|
including
|
|
|
59.8
|
61.6
|
1.83
|
119.3
|
|
|
|
|
|
80.5
|
123.2
|
42.7
|
1.40
|
|
ICN-002
|
vertical
|
-
|
107.9
|
36.3
|
45.4
|
9.1
|
4.08
|
|
ICN-003
|
vertical
|
-
|
121.6
|
16.9
|
62.5
|
45.6
|
96.3
|
3.09
|
|
including
|
|
|
16.9
|
19.8
|
2.90
|
1
,
454.3
|
46.75
|
|
and
|
|
|
19.8
|
62.5
|
42.7
|
4.18
|
|
ICN-004
|
270
|
-60
|
79.0
|
22.1
|
63.0
|
40.9
|
1.43
|
|
ICN-008
|
90
|
-65
|
137.2
|
93.1
|
98.5
|
5.3
|
27.5
|
|
|
including
|
|
|
94.5
|
95.3
|
0.8
|
183.6
|
|
ICN-010
|
----
|
-90
|
46.6
|
9.3
|
18.9
|
9.6
|
2.89
|
|
ICN-013
|
280
|
-45
|
40.2
|
24.1
|
39.0
|
14.9
|
164.5
|
5.29
|
|
including
|
|
|
26.8
|
32.3
|
5.5
|
445.2
|
14.31
|
ICN-014
|
90
|
-45
|
38.4
|
25.2
|
37.20
|
12.0
|
222.6
|
7.15
|
|
including
|
|
|
25.2
|
28.0
|
2.9
|
918.0
|
29.52
|
|
and
|
|
|
28.0
|
37.2
|
9.1
|
2.32
|
|
ICN-015
|
105
|
-70
|
119.8
|
52.7
|
115.7
|
63.0
|
1.75
|
|
ICN-018
|
97
|
-70
|
137.2
|
46.6
|
72.0
|
25.3
|
4.10
|
|
|
including
|
|
|
56.4
|
59.5
|
3.0
|
17.1
|
|
ICN-023
|
----
|
-90
|
91.9
|
46.8
|
78.2
|
31.4
|
2.73
|
|
|
including
|
|
|
63.7
|
65.5
|
1.8
|
37.7
|
|
ICN-024
|
90
|
-73
|
69.5
|
17.5
|
36.0
|
18.4
|
4.47
|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Plan of Operations
We anticipate that we will require approximately $2 million to
pursue our plan of operations over the next 12 months, as detailed
below:
Permitting
Unique to our permitting is the proposed underground area of work
named the Red Hills Stope Zone. It is 150 feet above the 450 foot
deep water table, making the mine essentially a dry
mine.
The mine’s 300 foot level workings has pockets of unused
volume where our potentially acid generating waste rock can be
stored. This means no waste rock will come to the surface and LSM
will avoid, for the short-term, the expense of having to build and
maintain a surface storage facility.
We are hopeful that the two aforementioned mitigating circumstances
will make our permitting process more rapid and therefore, the
costs of execution and infrastructure improvements will be kept at
a minimum.
Permitting costs to date are approximately $240,000 and are
anticipated to total $250,000.
In addition to the permitting costs the Company expects its 1 year
development costs to come in as follows:
Site
and Surface Preparation
|
$
100,000
|
Equipment
and Mining Materials
|
$
500,000
|
Underground
Rehab & Preliminary Mine Development
|
$
110,000
|
Ore
Grade Control
|
$
50,000
|
Red
Hills Vein Zone Work
|
$
270,000
|
General
Corporate and Administration Fees
|
$
720,000
|
Funding
We do not currently have sufficient funds to carry out our entire
plan of operations, so we intend to meet the balance of our cash
requirements for the next 12 months through a combination of debt
financing and equity financing through private
placements. Currently we are active in contacting
broker/dealers regarding possible financing arrangements; however,
we do not currently have any arrangements in place to complete any
private placement financings and there is no assurance that we
will be successful in completing any such
financings.
If we are unsuccessful in obtaining sufficient funds through our
capital raising efforts, we may review other financing options,
although we cannot provide any assurance that any such options will
be available to us or on terms reasonably acceptable to
us. Further, if we are unable to secure any additional
financing then we plan to reduce the amount that we spend on our
operations, including our management-related consulting fees and
other general expenses, so as not to exceed the capital resources
available to us. Regardless, our current cash reserves and
working capital will not be sufficient for us to sustain our
business for the next 12 months, even if we decide to scale back
our operations.
Going Concern
Our auditors have issued a going concern opinion. This means that
there is substantial doubt that we can continue as an on-going
business for the next twelve months unless we obtain additional
capital to pay our expenses. This is because we have not generated
any revenues to date and we cannot currently estimate the timing of
any possible future revenues. Our only source for cash at this time
is loans or investments by others in our common stock.
Intellectual Property
We do not own any intellectual property and we have not filed for
any protection of our trademark.
Personnel
We have no employees. Our president and CEO, our COO and our
Corporate Secretary receive no compensation for their services
other than stock options issued in 2017, as detailed in Item 11. We
expect to continue to use outside consultants, advisors, attorneys
and accountants as necessary. See Item 10 for information regarding
our officers and directors.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Government Regulations
We plan to engage in mineral exploration and are accordingly
exposed to environmental risks associated with mineral exploration
activity. LSG is currently in the exploration stage on the Property
and, pursuant to the Option Agreement, once formal work plans are
mutually agreed between us and LSG, we will be the
operator.
In general, in Nevada, no government permits are required on mining
claims for exploration activities which do not involve the use of
powered equipment. Any disturbance of existing land and
vegetation by powered means will generally require a permit which
will specify that after work is completed land be re-contoured to
the original surface and be seeded with native plant
species. On unpatented claims with federally-owned
surface, a “Notice of Intent” must be filed with the
BLM for all activities involving the disturbance of five acres (two
hectares) or less of the surface. A Notice of Intent
will include details on the company submitting the notice, maps of
the proposed disturbance, equipment to be utilized, the general
schedule of operations, a calculation of the total disturbance
anticipated, and a detailed reclamation plan and
budget. A bond will be required to ensure reclamation
and the amount will be determined by the calculated acreage being
disturbed. The notice does not have an approval process
associated with it but the bond calculation does have to be
approved with a letter from the BLM before work can
proceed. It is not necessary to file a Notice of Intent
prior to work on land with privately owned surface.
Measurement of land disturbance is cumulative, and once five acres
total has been disturbed on one project, a “Plan of
Operations” must be filed and approved by the BLM before
additional work can take place. This too requires a cash
bond along with a reclamation plan.
LSG is not required to file a Notice of Intent for the Property
with the BLM; instead, it is required to file one with the
Department of Environmental Protection of the State of Nevada
(NDEP), since the only portion of the Property that has
publicly-owned surface rights is that which overlaps the Goldfield
town limits. This form of notice includes the same information as
the BLM Notice of Intent except that a detailed reclamation plan,
budget and bond are not required. The notice also has a
very informal approval process associated with it.
LSG is currently operating under a Notice of Intent filed with the
NDEP and dated January, 2011. This is an open-ended permit that
does not require bonding for reclamation and allows for a total of
five acres of disturbance. We do not have any additional pending
Notices of Intent.
To the best of our knowledge, there are no existing environmental
liabilities on the Property. A detailed environmental investigation
has not been conducted.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Results of Operations
The following summary of our results of operations should be read
in conjunction with our audited financial statements for the year
ended December 31, 2017 which are included with this Report. See
the “Cautionary Note Regarding Forward Looking
Statements” above for a discussion of forward-looking
statements and the significance of such statements in the context
of this Report.
Revenues
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
-
|
Operating
Expenses
|
646,008
|
234,375
|
411,633
|
176
%
|
Operating
Loss
|
(646,008
)
|
(234,375
)
|
(411,633
)
|
176
%
|
Other
Expense
|
(45,620
)
|
(33,741
)
|
(11,879
)
|
35
%
|
Net
Loss
|
$
(691,628
)
|
$
(268,116
)
|
$
(423,512
)
|
158
%
|
We recorded a net loss of $691,628 for the year ended December 31,
2017, have an accumulated deficit of $2,371,768 and have had no
operating revenues. The possibility and timing of revenue being
generated from our mineral property interest is
uncertain.
Expenses
Our expenses for the years ended December 31, 2017 and 2016 are
shown below:
|
|
|
|
|
|
|
|
Consulting
services
|
$
466,715
|
$
25,776
|
$
440,939
|
1,711
%
|
Corporate
support services
|
1,913
|
2,099
|
(186
)
|
(9
%)
|
Exploration
and evaluation
|
3,190
|
-
|
3,190
|
-
|
Interest,
bank and finance charges
|
45,620
|
28,628
|
16,992
|
59
%
|
Mineral
option fees
|
100,000
|
100,000
|
-
|
0
%
|
Office,
foreign exchange and sundry
|
7,593
|
11,783
|
(4,190
)
|
(36
%)
|
Penalties
|
-
|
5,113
|
(5,113
)
|
(100
%)
|
Professional
fees
|
44,876
|
67,182
|
(22,306
)
|
(33
%)
|
Transfer
and filing fees
|
21,721
|
27,535
|
(5,814
)
|
(21
%)
|
Total
Operating and Other Expenses
|
$
691,628
|
$
268,116
|
$
423,512
|
158
%
|
Consulting services
In
2017 we granted stock options to key corporate officers and outside
consultants. The related Consulting services expense based on a
fair value estimate for the year ended December 31, 2017 was
$442,808, which accounts for the majority of the change in
Consulting services expense between 2017 and 2016.
Exploration and evaluation
In
2017 we incurred a $3,190 expense related to our pilot toll milling
test, with no equivalent expense in 2016.
Interest, bank and finance charges
The
increase in interest expense in 2017 was mainly due to a net
increase of approximately $114,000 in interest-bearing loans during
the year.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Office, foreign exchange and sundry
Office,
foreign exchange and sundry expenses were lower in 2017 than in
2016 mainly due to lower expenditures for charitable contributions
($1,000), travel, meals and entertainment (approximately $2,000),
and foreign exchange (approximately $1,000).
Penalties
The
2016 Penalties expense was due to an IRS penalty in connection with
our 2013 income tax filing. There was no equivalent item in
2017.
Professional fees
The
decrease in Professional fees in 2017 resulted from the following
items:
■
tax-related
accounting and legal services that were lower by approximately
$2,000 as IRS issues were settled;
■
accounting
fees decreased approximately $9,000 as a result of a reduced
consultant rate;
■
our
auditor’s review of certain 2016 filings which were not
repeated in 2017 (approximately $6,000);
■
final
services of our previous (2015) auditor invoiced in 2016
(approximately $3,000);
■
reduced
legal fees (approximately $7,000) that were mainly due to 2016
legal work on our S-1 filing and other general corporate issues
such as our Stock Plan, with no 2017 equivalent;
■
partly
offset by 2017 consulting fees of approximately $4,000 for services
related to technical analysis and documentation of our mineral
property, with no 2016 equivalent.
Transfer and filing fees
Transfer
and filing fees decreased in 2017 because filing fees were incurred
in 2016 related to an amended 10-K and 10-Q, and an S-1, with no
equivalent filings in the current year.
Assets and Liabilities
Balance Sheet items with notable year over year differences are as
follows:
|
|
|
|
|
|
|
|
Cash
|
$
818
|
$
5,134
|
$
(4,316
)
|
(84
%)
|
Prepaid
fees
|
$
3,725
|
$
-
|
$
3,725
|
-
|
Accounts
payable and accrued liabilities
|
$
8,048
|
$
19,016
|
$
(10,968
)
|
(58
%)
|
Due
to related parties and accrued interest
|
$
1,036,569
|
$
762,117
|
$
274,452
|
36
%
|
Loans
payable and accrued interest
|
$
47,055
|
$
62,310
|
$
(15,255
)
|
(25
%)
|
Additional
Paid-In Capital
|
$
1,512,872
|
$
1,070,064
|
$
442,808
|
41
%
|
Cash
decreased due to the amount of cash
provided by loans being approximately $4,000 less than the amount
of cash used in operating activities.
Prepaid fees
increased due to a $5,000 retainer for
legal services paid in 2017, of which $1,275 was
expensed.
Accounts payable and
accrued liabilities
decreased
primarily due a combination of the following: payment of an IRS
penalty assessed in 2016 (approximately $5,000); payment of 2016
tax-related legal services (approximately $4,000); payment of a
2016 partial audit fee (approximately $5,000); offset by the
accrual at December 31, 2017 of management travel expenses totaling
approximately $4,000.
Due to related parties
and accrued interest
increased
due to the following:
the
accrual of mineral option fees and related interest due to LSG
totaling approximately $111,000;
net
cash loan advances from related parties of $75,000;
accrued
loan interest due to related parties of approximately $29,000;
and
expenses
paid by a related party on our behalf of approximately
$59,000
Loans payable and
accrued interest
decreased due
to repayment of loan principal totaling $20,000, offset by accrued
interest of approximately $5,000.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Additional Paid-In
Capital
increased due to the
fair value estimate attributed to options granted in 2017, which
was charged to Consulting services.
Liquidity and Capital Resources
Our financial condition at December 31, 2017 and 2016 and the
changes between those dates are summarized below:
Working Capital
|
|
|
|
|
|
|
|
Current
Assets
|
$
4,543
|
$
5,134
|
$
(591
)
|
(12
%)
|
Current
Liabilities
|
1,091,672
|
843,443
|
248,229
|
29
%
|
Working
Capital (Deficiency)
|
$
(1,087,129
)
|
$
(838,309
)
|
$
(248,820
)
|
30
%
|
Our working capital decreased as expected, from December 31, 2016
to December 31, 2017, primarily due to ongoing funding from LSG,
increasing our current liabilities. In current assets, the decrease
in cash was offset by an increase in prepaid fees. In current
liabilities, the reductions in accounts payable and accrued
liabilities of approximately $11,000 and in non-related party loans
and accrued interest of approximately $15,000 were more than offset
by the increase in accrued mineral option fees, loans, accrued
interest, and expenses paid on our behalf by LSG, totaling
approximately $274,000.
Cash Flows
|
|
|
|
|
|
|
|
Cash
Flows Provided By (Used In):
|
|
|
|
|
Operating
Activities
|
$
(59,316
)
|
$
(62,322
)
|
$
3,066
|
(5
%)
|
Financing
Activities
|
55,000
|
55,000
|
-
|
-
|
Net
(decrease) increase in cash
|
$
(4,316
)
|
$
(7,322
)
|
$
3,066
|
(5
%)
|
As of the date of this report, we have yet to generate any revenues
from our business operations. Our principal sources of working
capital have been related party loans and funds received as
subscriptions for our common stock. For the foreseeable future, we
will have to continue to rely on those sources for funding. We have
no assurance that we can successfully engage in any further private
sales of our securities or that we can obtain any additional
loans.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
Commitments
We do not have any commitments as of December 31, 2017 which are
required to be disclosed in tabular form.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Critical Accounting Policies
Our critical accounting policies are mainly those subject to
significant judgments and uncertainties which could potentially
result in materially different results under different conditions
and assumptions. We believe the following critical accounting
policies reflect our most significant estimates, judgments and
assumptions used in the preparation of our financial
statements:
Use of Estimates and Assumptions
The preparation of financial statements, in conformity with US
GAAP, requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying disclosures. By their nature, these
estimates are subject to measurement uncertainty and the effect on
the financial statements of changes in such estimates in future
periods could be significant. Management bases its
estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Significant areas requiring
management’s estimates and assumptions are determining the
fair
value of transactions involving related parties
and common stock. Actual results may differ from the
estimates.
Foreign Currency Accounting
Our functional currency is the U.S. dollar. Branch office
activities are generally in Canadian dollars. Transactions in
Canadian currency are translated into U.S. dollars as
follows:
·
monetary
items at the exchange rate prevailing at the balance sheet
date;
·
non-monetary
items at the historical exchange rate; and
·
revenue
and expense items at the rate in effect of the date of
transactions.
Gains and losses arising on the settlement of foreign currency
denominated transactions or balances are recorded in the statements
of operations.
Income Taxes
We use the asset and liability method of accounting for income
taxes in accordance with ASC Topic 740, Income
Taxes. This standard requires the use of an asset and
liability approach for financial accounting and reporting on income
taxes. If it is more likely than not that some portion or all
of a deferred tax asset will not be realized, a valuation allowance
is recognized.
In addition and as a result of completing the Acquisition, we
anticipate that the following critical accounting policies of LSG
will also become our critical accounting policies:
Mineral Property
Mineral property interests are capitalized and recorded at fair
value. The property interests are periodically assessed for
impairment of value when facts and circumstances suggest that the
carrying amount of the property interest may exceed its recoverable
amount. Costs of exploration, evaluation and retaining mineral
property interests are expensed as incurred. Once we have
identified proven and probable reserves in our investigation of our
property interests and upon development of a plan for operating a
mine, we would enter the development stage and capitalize future
costs until production is established. When a property reaches the
production stage, the related capital costs will be amortized,
using the units-of-production method over proven and probable
reserves.
Reclamation Liabilities and Asset Retirement
Obligations
Minimum standards for site reclamation and closure have been
established by various government agencies that affect our
operations. We calculate estimates of reclamation liabilities based
on current laws and regulations. US GAAP requires that the fair
value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred. It further
requires the recording of a liability for the present value of
estimated environmental remediation costs and the related asset
when a recoverable asset (long-lived asset) can be realized. To
date, no asset retirement obligation exists due to the early stage
of exploration. Accordingly, no liability has been
recorded.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board, (“FASB”) or other
standard setting bodies that are adopted by us as of the specified
effective date. Unless otherwise discussed, we believe
that the impact of recently issued standards that are not yet
effective will not have a material impact on our financial
statements upon adoption.
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
LODE-STAR MINING INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Reports of Independent Registered Public Accounting
Firms
|
F-1
|
|
|
Balance Sheets
|
F-3
|
|
|
Statements of Operations
|
F-4
|
|
|
Statements of Cash Flows
|
F-5
|
|
|
Statements of Changes in Stockholders’
Deficiency
|
F-6
|
|
|
Notes to Financial Statements
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and the Board of Directors of
Lode-Star Mining Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Lode-Star Mining
Inc. (the "Company") as at December 31, 2017, the related
statements of operations, cash flows, and changes in
stockholders’ deficiency, for the year then ended, and the
related notes (collectively referred to as the "financial
statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the
Company as at December 31, 2017, and the results of its operations
and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
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 audit. 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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis
for our opinion.
Emphasis of Matter
The accompanying financial statements referred to above have been
prepared assuming the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company
incurred losses from operations since inception, has not attained
profitable operations and is dependent upon obtaining adequate
financing to fulfill its operating activities. These conditions
raise substantial doubt about the Company’s ability to
continue as a going concern. Management’s plans in regard to
these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
We served as the Company's auditor from 2004 to 2014, and
commencing again in 2017.
Vancouver, Canada
|
“Morgan & Company LLP”
|
|
|
March 23, 2018
|
Chartered Professional Accountants
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors of
Lode-Star Mining,
Inc.
We have
audited the accompanying balance sheet of Lode-Star Mining, Inc.
(the “Company”) as of December 31, 2016, and the
related statements of operations, changes in stockholders’
deficiency, and cash flows for the year then ended. These financial
statements are the responsibility of the entity’s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lode-Star
Mining, Inc. as of December 31, 2016, and the results of its
operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
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 that 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.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston,
Texas
March
29, 2017
LODE-STAR MINING INC.
BALANCE SHEETS
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets
|
|
|
Cash
|
$
818
|
$
5,134
|
Prepaid
fees
|
3,725
|
-
|
Total current assets
|
4,543
|
5,134
|
|
|
|
Mineral
Property Interest, unproven
|
230,180
|
230,180
|
|
|
|
Total assets
|
$
234,723
|
$
235,314
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
Current liabilities:
|
|
|
Accounts
payable and accrued liabilities
|
$
8,048
|
$
19,016
|
Due
to related parties and accrued interest
|
1,036,569
|
762,117
|
Loans
payable and accrued interest
|
47,055
|
62,310
|
Total current liabilities
|
1,091,672
|
843,443
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
Capital Stock:
|
|
|
Authorized:
|
|
|
480,000,000
voting common shares with a par value of $0.001 per
share
|
|
|
20,000,000
preferred shares with a par value of $0.001 per share
|
|
|
Issued:
|
|
|
49,127,825
common shares at December 31, 2017 and 2016
|
1,947
|
1,947
|
Additional
Paid-In Capital
|
1,512,872
|
1,070,064
|
Accumulated
Deficit
|
(2,371,768
)
|
(1,680,140
)
|
Total stockholders’ deficiency
|
(856,949
)
|
(608,129
)
|
|
|
|
Total liabilities and stockholders’ deficiency
|
$
234,723
|
$
235,314
|
The accompanying notes are an integral part of these financial
statements.
LODE-STAR MINING INC.
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
|
|
|
Operating Expenses
|
|
|
Consulting
services
|
466,715
|
25,776
|
Corporate
support services
|
1,913
|
2,099
|
Exploration
and evaluation
|
3,190
|
-
|
Mineral
option fees
|
100,000
|
100,000
|
Office,
foreign exchange and sundry
|
7,593
|
11,783
|
Professional
fees
|
44,876
|
67,182
|
Transfer
and filing fees
|
21,721
|
27,535
|
Total operating expenses
|
646,008
|
234,375
|
|
|
|
Operating Loss
|
(646,008
)
|
(234,375
)
|
|
|
|
Other Expenses
|
|
|
Interest,
bank and finance charges
|
(45,620
)
|
(28,628
)
|
Penalties
|
-
|
(5,113
)
|
Total other expenses
|
(45,620
)
|
(33,741
)
|
|
|
|
Net Loss For The Year
|
$
(691,628
)
|
$
(268,116
)
|
|
|
|
Basic And Diluted Net Loss Per Common Share
|
$
(0.01
)
|
$
(0.01
)
|
|
|
|
Weighted Average Number Of Common Shares Outstanding - Basic and
Diluted
|
49,127,825
|
49,127,825
|
The accompanying notes are an integral part of these financial
statements.
LODE-STAR MINING INC.
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
Net
loss for the year
|
$
(691,628
)
|
$
(268,116
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
Foreign
exchange loss
|
7
|
830
|
Stock
options issued for services
|
442,808
|
-
|
Changes
in operating assets and liabilities:
|
|
|
Prepaid
fees
|
(3,725
)
|
3,217
|
Accounts
payable and accrued liabilities
|
48,274
|
73,704
|
Due
to related parties
|
100,000
|
100,000
|
Accrued
interest payable
|
44,948
|
28,043
|
Net
cash used in operating activities
|
(59,316
)
|
(62,322
)
|
|
|
|
Financing Activities
|
|
|
Repayment
of loans payable
|
(20,000
)
|
(20,000
)
|
Proceeds
from loans payable – related party
|
75,000
|
75,000
|
Net
cash provided by financing activities
|
55,000
|
55,000
|
|
|
|
Net Decrease In Cash
|
(4,316
)
|
(7,322
)
|
|
|
|
Cash, Beginning Of Year
|
5,134
|
12,456
|
|
|
|
Cash, End Of Year
|
$
818
|
$
5,134
|
|
|
|
Supplemental Disclosure Of Cash Flow Information
|
|
|
Cash
paid during the year for:
|
|
|
Interest
|
$
-
|
$
-
|
Income
taxes
|
$
-
|
$
-
|
|
|
|
Non-cash Financing Activity
|
|
|
Expenses
paid by related party on behalf of the Company
|
$
59,242
|
$
68,990
|
The accompanying notes are an integral part of these financial
statements.
LODE-STAR MINING INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’
DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2015
|
49,127,825
|
$
1,947
|
$
1,070,064
|
$
(1,412,024
)
|
$
(340,013
)
|
|
|
|
|
|
|
Net
loss for the year
|
-
|
-
|
-
|
(268,116
)
|
(268,116
)
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
49,127,825
|
1,947
|
1,070,064
|
(1,680,140
)
|
(608,129
)
|
|
|
|
|
|
|
Stock
options issued for services
|
-
|
-
|
442,808
|
-
|
442,808
|
|
|
|
|
|
|
Net
loss for the year
|
-
|
-
|
-
|
(691,628
)
|
(691,628
)
|
|
|
|
|
|
|
Balance, December 31, 2017
|
49,127,825
|
$
1,947
|
$
1,512,872
|
$
(2,371,768
)
|
$
(856,949
)
|
The accompanying notes are an integral part of these financial
statements.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
1.
|
BASIS OF PRESENTATION AND NATURE OF OPERATIONS
|
Organization
Lode-Star
Mining Inc. (“the Company”) was incorporated in the
State of Nevada, U.S.A., on December 9, 2004. The Company’s
principal executive offices are located in Reno, Nevada. The
Company was originally formed for the purpose of acquiring
exploration stage natural resource properties. The Company acquired
a mineral property interest from Lode Star Gold Inc., a private
Nevada corporation (“LSG”) on December 11, 2014 in
consideration for the issuance of 35,000,000 common shares of the
Company. As a result of this transaction, control of the Company
was acquired by LSG.
On
May 12, 2015, International Gold Corp. completed a merger with its
wholly owned subsidiary, Lode-Star Mining Inc., and formally
assumed the subsidiary’s name by filing Articles of Merger
with the Nevada Secretary of State (the “Name
Change”). The subsidiary was incorporated entirely for
the purpose of effecting the Name Change and the merger did not
affect the Company’s corporate structure in any other
way.
Going Concern
The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. The
future of the Company is dependent upon its ability to establish a
business and to obtain new financing to execute its business plan.
As shown in the accompanying financial statements, the Company has
had no revenue and has incurred accumulated losses of $2,371,768 as
of December 31 2017. These factors raise substantial doubt about
the Company’s ability to continue as a going
concern.
In order to continue as a going
concern, the Company will need, among other things, additional
capital resources. The Company is significantly dependent upon its
ability, and will continue to attempt, to secure additional equity
and/or debt financing. There are no assurances that the Company
will be successful and without sufficient financing it would be
unlikely for the Company to continue as a going concern. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the
amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue in
existence.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The
financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States (“GAAP”). Because a precise
determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period
necessarily involves the use of estimates which have been made
using careful judgment. All dollar amounts are in U.S.
dollars unless otherwise noted. The financial statements have, in
management’s opinion, been properly prepared within
reasonable limits of materiality and within the framework of the
significant accounting policies summarized below:
The
Company’s financial statements have been prepared using the
accrual method of accounting. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of financial position and the results of
operations for the periods presented have been reflected
herein.
|
b)
|
Cash and Cash Equivalents
|
Cash
consists of cash on deposit with high quality, major financial
institutions. For purposes of the balance sheets and
statements of cash flows, the Company considers all highly liquid
debt instruments purchased with maturity of 90 days or less to be
cash equivalents. At December 31, 2017 and 2016, the Company had no
cash equivalents.
|
c)
|
Foreign Currency Accounting
|
The
Company’s functional currency is the U.S.
dollar. Branch office activities are generally in
Canadian dollars. Transactions in Canadian currency are translated
into U.S. dollars as follows:
i)
monetary
items at the exchange rate prevailing at the balance sheet
date;
ii)
non-monetary
items at the historical exchange rate; and
iii)
revenue
and expense items at the rate in effect of the date of
transactions.
Gains
and losses arising on the settlement of foreign currency
denominated transactions or balances are recorded in the statements
of operations.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
d)
|
Fair Value of Financial Instruments
|
ASC
Topic 820-10 establishes a three-tier value hierarchy, which
prioritizes the inputs used in measuring fair value. The
hierarchy prioritizes the inputs into three levels based on the
extent to which inputs used in measuring fair value are observable
in the market. These tiers include:
■
Level
1 – defined as observable inputs such as quoted prices in
active markets;
■
Level
2 – defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable;
and
■
Level
3 – defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its
own assumptions.
The Company’s financial instruments consist
of cash, accounts payable and accrued liabilities, due to related
parties, and loans payable. The Company is not exposed to
significant interest, currency or credit risks arising from these
financial instruments.
Pursuant to ASC 820 and 825, the fair
value of cash is determined based on “Level 1” inputs,
which consist of quoted prices in active markets for identical
assets. Accounts payable and accrued liabilities and loans payable
are measured using “Level 2” inputs as there are no
quoted prices in active markets for identical instruments.
The carrying values of cash, accounts
payable and accrued liabilities, and loans payable approximate
their fair values due to the immediate or short term maturity of
these financial instruments.
|
e)
|
Asset Retirement Obligations
|
The
Company has no asset retirement obligations, including
environmental rehabilitation expenditures, which relate to an
existing condition caused by past operations.
|
f)
|
Use of Estimates and Assumptions
|
The
preparation of financial statements, in conformity with GAAP,
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
disclosures. By their nature, these estimates are
subject to measurement uncertainty and the effect on the financial
statements of changes in such estimates in future periods could be
significant. Significant areas requiring
management’s estimates and assumptions are determining the
fair value of transactions involving related parties and common
stock. Actual results may differ from the
estimates.
|
g)
|
Basic and Diluted Earnings Per Share
|
The
Company reports basic earnings or loss per share in accordance with
ASC Topic 260, “Earnings Per Share”. Basic
earnings per share is computed by dividing net earnings available
to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per
share is computed similarly, except that the common stock number is
increased to include the any potential additional common shares,
for example from the exercise of options or warrants. As the
Company generated net losses in the periods presented, the
additional impact of including potential shares from outstanding
warrants would be anti-dilutive and is therefore not part of the
earnings per share calculation.
The
Company uses the asset and liability method of accounting for
income taxes in accordance with ASC Topic 740, Income
Taxes. This standard requires the use of an asset and
liability approach for financial accounting and reporting on income
taxes. If it is more likely than not that some portion
or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued
)
|
|
i)
|
Stock-Based Compensation
|
Stock-based
compensation of employees is accounted for in accordance with ASC
718 whereby a compensation charge based on the fair value of the
equity instruments issued, measured at the grant date, is recorded
against earnings over the period during which the employee is
required to perform the services in exchange for the award
(generally the vesting period).
For
transactions with non-employees in which services are performed in
exchange for the Company’s common stock or other equity
instruments, the transactions are accounted for in accordance with
ASC 505-50, whereby the compensation charge is recorded on the
basis of the fair value of the goods or services received or the
fair value of the equity instruments granted, whichever is more
reliably measurable at the earlier of the date at which a
commitment for performance is reached or the date at which the
performance is complete. The expense is recognized in the same
manner as if the Company had paid cash for the goods or
services.
|
j)
|
Mineral Property Interest and Impairment
|
Mineral
property interests are capitalized and recorded at fair value. The
property interests are periodically assessed for impairment of
value when facts and circumstances suggest that the carrying amount
of the property interest may exceed its recoverable amount. Costs
of exploration, evaluation and retaining mineral property interests
are expensed as incurred. Once the Company has identified proven
and probable reserves in its investigation of its property
interests and upon development of a plan for operating a mine, it
would enter the development stage and capitalize future costs until
production is established. When a property reaches the production
stage, the related capital costs will be amortized, using the
units-of-production method over proven and probable
reserves.
|
k)
|
Related Party Transactions
|
In
accordance with ASC 850, the Company discloses: the nature of the
related party relationship(s) involved; a description of the
transactions, including transactions to which no amounts or nominal
amounts were ascribed, for each of the periods for which income
statements are presented, and such other information deemed
necessary to an understanding of the effects of the transactions on
the financial statements; the dollar amounts of transactions for
each of the periods for which income statements are presented and
the effects of any change in the method of establishing the terms
from that used in the preceding period; and amounts due from or to
related parties as of the date of each balance sheet presented and,
if not otherwise apparent, the terms and manner of
settlement.
|
l)
|
Recent Accounting Pronouncements
|
The
Company has implemented all applicable new accounting
pronouncements that are in effect. Those 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.
3.
|
MINERAL PROPERTY INTEREST
|
On
December 5, 2014, the Company entered into a subscription agreement
(the “Subscription Agreements”) with Lode Star Gold
Inc. (“LSG”), a private Nevada corporation controlled
by the spouse of the Company’s current
President, pursuant to which the Company agreed to issue
35,000,000 shares of its common stock, valued at $230,180, to LSG
in exchange for an initial 20% undivided interest in and to the
mineral claims owned by LSG. The mineral claims, known as the
“Goldfield Bonanza Project” (the
“Property”), are located in the State of
Nevada.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
3.
|
MINERAL PROPERTY INTEREST
(Continued)
|
The
execution of the Subscription Agreement was one of the closing
conditions of an Option Agreement dated October 4, 2014, pursuant
to which the Company acquired the sole and exclusive option to earn
up to an 80% undivided interest in and to the
Property. In order to earn the additional 60% interest
in the Property, the Company is required to fund all expenditures
on the Property and pay LSG an aggregate of $5 million in cash in
the form of a net smelter royalty, each beginning on the Closing
Date, which was December 11, 2014. Until such time as the Company
has earned the additional 60% interest, the net smelter royalty
will be split 79.2% to LSG, 19.8% to the Company and 1% to the
former Property owner.
If
the Company fails to make any cash payments to LSG within one year
of the Effective Date of the Mineral Option Agreement with LSG
dated October 4, 2014, it is required to pay LSG an additional
$100,000, and in any subsequent years in which the Company fails to
complete the payment of the entire $5 million described above, it
must make quarterly cash payments to LSG of $25,000 until such time
as the Company has earned the additional 60% interest in the
Property. At December 31, 2017, $323,913 (2016: $223,913) in fees
payable to LSG has been accrued.
Given
that permitting for operations on the Property is still to be
completed, LSG has granted a series of deferrals of the payment,
with the most recent being granted on January 11, 2017. LSG agreed
on that date to defer payment of all amounts due in accordance with
the Mineral Option Agreement until further notice. On January 17,
2017, the Company and LSG agreed that as of January 1, 2017, all
outstanding balances shall carry a compound interest rate of 5% per
annum. It was further agreed that the ongoing payment deferral
shall apply to interest and principal. The total amount of such
fees due at December 31, 2017 was $323,913 (2016: $223,913), with
total interest due in the amount of $11,196 (2016:
$0).
The
Company has agreed with LSG that upon the successful completion of
a toll milling agreement after permitting is achieved, the Company
will have the basis to form a joint management committee to outline
work programs and budgets, as contemplated in the Option agreement
dated October 4, 2014, and for the Company to act as the operator
of the property.
The
Company assessed its mineral property interest at December 31, 2017
and to the date of these financial statements and concluded that
facts and circumstances do not suggest that the mineral property
interest’s carrying value exceeds its recoverable amount, and
therefore, no impairment is required.
During
the years ended December 31, 2017 and 2016, the Company did not
issue any shares of its common stock.
Capitalization
The
authorized capital of the Company is 500,000,000 shares of capital
stock, divided into 480,000,000 shares of common stock with a par
value of $0.001 per share, and 20,000,000 shares of preferred stock
with a par value of $0.001 per share. The Company reserved
10,000,000 shares of common stock for issuance under its 2016
Omnibus Equity Incentive Plan. No preferred shares have been issued
to December 31, 2017 or to the date of issue of these financial
statements.
Options
On
February 14, 2017, the Company granted 9,500,000 non-qualified
stock options pursuant to the Equity Incentive Plan, to key
corporate officers and outside consultants, with 25% vesting
immediately and a further 25% vesting every six months thereafter
for eighteen months. Each option is exercisable into one share of
the Company’s common stock at a price of $0.06 per share,
equal to the closing price of the common stock on the grant date,
for a term of five years. The options had an estimated fair value
of $509,702 at December 31, 2017. For the year ended December 31,
2017, $442,808 has been included in consulting services expense,
based on fair value estimates determined using the Black-Scholes
option pricing model with an average risk-free rate of 1.98%, a
weighted average life of 4.88 years, volatility of 193.66% and
dividend yield of 0%. The valuation used average weekly
pricing. At December 31, 2017, the options had an intrinsic
value of $0 based on the exercise price of $0.06 per option and a
market price of $0.032 per share.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
4.
|
CAPITAL STOCK
(Continued)
|
A
summary of option activity in the current year and options
outstanding at December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Life Remaining (Years)
|
|
|
Balance December
31, 2016
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Issued
|
9,500,000
|
4,750,000
|
$
0.06
|
$
0.06
|
5.00
|
|
-
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Balance
December 31, 2017
|
9,500,000
|
4,750,000
|
$
0.06
|
$
0.06
|
4.12
|
|
-
|
Warrants
During
the years ended December 31, 2017 and 2016, no warrants to purchase
shares of common stock were issued and no warrants were exercised.
At December 31, 2017, warrants issued in 2015 had an intrinsic
value of $40,033 based on the exercise price of $0.02 per warrant
and a market price of $0.032 per share.
A
summary of warrant activity and warrants outstanding at December
31, 2017 and 2016 is as follows:
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Life Remaining (Years)
|
|
|
Balance December
31, 2015
|
3,336,060
|
$
0.02
|
$
0.02
|
4.86
|
|
$
33,361
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
Balance December
31, 2016
|
3,336,060
|
$
0.02
|
$
0.02
|
3.86
|
|
$
66,721
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
Balance
outstanding and exercisable at December 31, 2017
|
3,336,060
|
$
0.02
|
$
0.02
|
2.86
|
|
$
40,033
|
At
December 31, 2017, the Company had the following loans
payable:
i.
$1,000
(2016: $1,000): unsecured; interest at 15% per annum; originally
due on April 20, 2012. Accrued interest payable on the loan at
December 31, 2017 was $3,368 (2016: $3,218). During 2017, the
Company repaid $0 (2016: $0) of this loan.
ii.
$25,000
(2016: $45,000): unsecured; interest at 10% per annum from January
10, 2015.
●
The
outstanding principal, and any accrued interest was due and payable
on written demand in full (not received to date) on the earlier of
June 9, 2015 or the date on which the Company completes one or more
debt or equity financings that generate aggregate gross proceeds of
at least $250,000;
●
There
are no changes to the terms due to the loan being in
default.
●
The
Company has the right to repay all or any part of the Principal and
any accrued interest to the lender at any time and from time to
time, without any premium.
●
Accrued
interest payable on the loan at December 31, 2017 was $17,687
(2016: $13,091). During 2017, the Company repaid $20,000 (2016:
$20,000) of this loan.
At
December 31, 2017, total interest accrued on the above loans was
$21,055 (2016: $16,309).
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
6.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE
|
At
December 31, 2017, the Company had the following amounts due to
related parties:
i.
$39,783
(2016: $39,777): unsecured; interest at 5% per annum; with no
specific terms of repayment, due to the President of the Company.
Accrued interest payable on the loan at December 31, 2017 was
$6,641 (2016: 4,655). During 2017 and 2016, the Company made no
repayments to or borrowed any additional amounts from the
President.
ii.
$420,000
(2016: $345,000): unsecured; interest at 5% per annum from January
1, 2015; with no specific terms of repayment, due to LSG, the
Company’s majority shareholder. Accrued interest payable on
the loan at December 31, 2017 was $45,047 (2016: $25,551). During
2017, the Company borrowed $75,000 (2016: $75,000) from
LSG.
iii.
$173,930
(2016: $114,688): unsecured; interest at 5% per annum; with no
specific terms of repayment, due to LSG, the Company’s
majority shareholder. Accrued interest payable on the loan at
December 31, 2017 was $12,334 (2016: $4,810). During 2017, LSG paid
expenses directly on behalf of the Company totaling $59,242 (2016:
$68,990).
iv.
$3,725
(2016: $3,724): unsecured; non-interest bearing; with no specific
terms of repayment, due to the controlling shareholder of LSG. The
change in value during the year is due to fluctuation in the US to
Canadian dollar exchange rate.
At
December 31, 2017, total interest accrued on the above related
party loans was $64,022 (2016: 35,016).
During
the year ended December 31, 2017, there was an $7 foreign exchange
loss (2016: $830) due to related party loan amounts in non-US
currency.
During
the year ended December 31, 2017, the Company incurred $100,000
(2016: $100,000) in mineral option fees payable to LSG, which have
been accrued as of that date. The total amount of such fees due at
December 31, 2017 was $323,913 (2016: $223,913), with total
interest due in the amount of $11,196 (2016: $0).
At
December 31, 2017, the total due to related parties of $1,036,569
(2016: $762,117) is comprised of the following:
■
Loans
and accrued interest - $701,460 (2016: $538,204)
■
Mineral
option fees payable and accrued interest - $335,109 (2016:
$223,913)
At
no cost to the Company, the President provides a full spectrum of
senior management services, functioning also as the Company’s
CEO and CFO.
7.
|
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
|
See
Note 3 for details about the Company’s obligations and
commitments regarding its Mineral Property Interest.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
In
December, 2014, the Company underwent a change in control which
subjected it to limitations under Internal Revenue Code Section
382. That section restricts post-change annual net operating loss
(NOL) utilization, based on applying an IRS- prescribed rate to the
purchase price of the stock acquired in the change in control. The
Company accordingly revised its estimates of NOL carry forwards,
resulting in a reduction in the estimate of losses available for
utilization in the amount of approximately $872,000.
A
reconciliation of income tax benefit to the amount computed at the
statutory rate of 34% (2016 – 34%) is as
follows:
|
|
|
Expected
income tax recovery
|
$
235,200
|
$
91,200
|
Adjustment
for non-deductible stock compensation
|
(150,600
)
|
-
|
Increase
in valuation allowance
|
(84,600
)
|
(91,200
)
|
|
$
-
|
$
-
|
Significant
components of deferred income tax assets are as
follows:
|
|
|
Deferred
income tax assets
|
|
|
Net
operating losses carried forward
|
$
326,800
|
$
242,200
|
Valuation
allowance
|
(326,800
)
|
(242,200
)
|
|
$
-
|
$
-
|
The
Company has approximately $961,000 (2016: $712,000) in NOLs carried
forward which will expire by 2037 if not utilized. Future tax
benefits, which may arise as a result of these losses, have not
been recognized in these financial statements, and have been offset
by a valuation allowance.
Amendments
to the Internal Revenue Code of 1986 that were signed into law on
December 22, 2017 reduce the corporate tax rate from 35% to 21% for
tax years beginning after December 31, 2017. For NOLs arising after
December 31, 2017, the amendments limit a taxpayer’s ability
to utilize NOL carryforwards to 80% of taxable income. In addition,
NOLs arising after 2017 can be carried forward indefinitely, but
carryback is generally prohibited. NOLs generated in tax years
beginning before January 1, 2018 will not be subject to the taxable
income limitation. The amendments generally eliminate the carryback
of all NOLs arising in a tax year ending after 2017 and instead
permit all such NOLs to be carried forward indefinitely. The
Company’s NOLs to December 31, 2017, carried forward for
United States income tax purposes, will expire, if not utilized, as
follows:
2024
|
$
10,000
|
2025
|
7,600
|
2026
|
6,000
|
2027
|
10,900
|
2028
|
53,200
|
2029
|
8,975
|
2030
|
6,445
|
2031
|
6,445
|
2032
|
6,445
|
2033
|
6,445
|
2034
|
6,445
|
2035
|
315,200
|
2036
|
268,100
|
2037
|
248,800
|
|
$
961,000
|
Realization of the above losses carried forward is
dependent on the Company filing the applicable tax returns with the
tax authorities, generating sufficient taxable income prior to
expiration of the losses carried forward and continuing use of the
acquired historic business or a significant portion of the acquired
assets for two years after the change of control transaction. If
this
continuity of business
enterprise
requirement is not
met, the annual net operating loss limitation on pre-change losses
is zero. The two year continuing use component of the
requirement has been met.