|
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 2018
and 2017 quarters are as follows:
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
March
31
|
$
0.038
|
$
0.022
|
$
0.09
|
$
0.04
|
|
June
30
|
$
0.035
|
$
0.0249
|
$
0.083
|
$
0.02
|
|
September
30
|
$
0.033
|
$
0.025
|
$
0.065
|
$
0.03
|
|
December
31
|
$
0.05
|
$
0.022
|
$
0.05
|
$
0.032
|
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, 2018, we had 66 shareholders of record of our
common stock.
There are no present plans, understandings or agreements, and we
are not engaged in any negotiations that will involve the issuance
of capital 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, 2018 and to date 50,605,965 (2017: 49,127,825)
shares of common stock have been issued. No shares of preferred
stock have been issued to date.
Stock Options
On November 20, 2018, we granted 500,000 non-qualified stock
options pursuant to the Equity Incentive Plan, to key outside
consultants, with 50% vesting after one year and 50% vesting after
two years. Each option is exercisable into one share of our common
stock at a price of $0.06 per share, for a term of five years. None
of the options have been exercised to date.
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 10, 2020 to purchase 3,336,060 shares of
common stock at a price of $0.02 per share, including a cashless
exercise option.
|
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, 2018 and 2017, we had no
subscriptions for shares of our common stock.
On December 3, 2018, the Company issued 1,478,140 common shares in
exchange for debt totaling $48,778 owed to a related party,
comprised of $40,205 in loans and $8,573 in accrued
interest.
Other than as disclosed above, 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)
|
Property - 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 $7 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 now permitted for production and should be mine ready
during 2019. 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 need
to be executed. We plan to explore through production and chase our
known, high-grade vein zones.
Third Party Assay Data Audit
Mine Development Associates (MDA Reno), a highly regarded third
party NI 43-101 service provider, has audited our drill hole
database and performed a comparative QA/QC check assay analysis on
selected drilling and determined no inconsistencies to exist and
assays were repeatable within both the Red Hills and Church
Zones.
NI 43-101 Update Status
The Company's most recent NI 43-101 report was completed on July
12, 2014 by Dana Durgan, QP and AIPG Certified Professional
Geologist #10364. This report was a revision of an earlier report
Dana prepared for ICN Resources for the property on August 1, 2012.
Since then, Dana has passed away and the Company has hired Mr. Doug
Wood, P. Geo, a Qualified Person in accordance with the Canadian
regulatory requirements as set out within the National Instrument
43-101, to revise the July 12, 2014 report. Mr. Wood is completing
an updated 43-101 with the assistance of MDA Reno.
|
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.
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 Zone Summary
The drilling of this resource area was performed by LSG from 2000
to 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 contains 10,000
ounces of AU (This assumption is non-NI 43-101 compliant). 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-foot 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-foot mine level. Mine Development
Associates has audited LSG's drilling data base and concluded
analyses of drill-sample pulps compared well with the original
database gold analyses at grades relevant to the potential
underground mining scenario at Red Hills.
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
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
During 2011, ICN (a previous operator of the property) drilled 26
core holes for a total of 1,767 meters 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:
●
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)
|
GOLD MINERALIZATION and ALTERATION
Goldfield is one of the most prominent North American examples of
the epithermal subclass classification known as high-sulfidation
(or alunite-gold) deposits. This type of deposit is characterized
by intense pyritization and low-pH, acid-sulfate hydrothermal
alteration of the volcanic host rocks. Gold mineralization occurs
in brecciated, quartz-alunite vein-filled faults and fractures.
Individual veined zones are typically one to three feet in total
width and are characterized by a clustering of several smaller
veins up to three inches in width each. Gold deposition has been
dated (using isotopes) as occurring 22 to 18 million years ago
(Silberman, 1985). Fluid inclusion and oxygen isotope data from
several locations within the district indicate an ore deposition
temperature ranging from 200 to 2900 degrees C.
Host rocks surrounding the brecciated quartz-alunite-filled faults
and fractures typically display a near-symmetrical pattern of three
successive hydrothermal alteration zones. The gold-bearing veined
zones containing predominantly quartz, alunite and pyrite,
invariably are surrounded by strongly developed silicification
(silica replacement of host rock). An advanced argillic zone
enveloping the silicification is characterized by the presence of
alunite, kaolinite, pyrite, quartz and montmorillonite, which
further grades into a more regional propylitic alteration zone
containing calcite, chlorite, and pyrite. Widespread intense
hydrothermal alteration often makes it difficult to trace
individual volcanic units.
HIGH-GRADE GOLD OCCURRENCES
The Goldfield mining district has recorded production of more than
4.2 million ounces of gold and 1.5 million ounces of silver.
Production in the district generally has been limited to an area
about one mile (east-west) by about one and one-half mile
(north-south).
High-grade gold ores (>1.0 oz/ton) typically occur as
breccia-matrix and open-space vug fillings within a series of
banded quartz-alunite veins, surrounded by pervasively silicified
zones that often contain lower-grade gold (>0.05 oz/ton). From
1903 to 1925, about fifteen individual high-grade ore bodies
averaging 100,000 tons and yielding 100,000 to 500,000 ounces of
gold each were mined from the veins in the immediate vicinity of
the Apex of the Main Vein at the Combination pit. Typical
dimensions of these ore bodies are approximately 200 feet along
strike, 300 feet on dip, and up to 20 feet in width. Of the total
tonnage, high-grade ores accounted for 51% mined. The average grade
of total gold produced during this period was 1.13 ounces per ton;
96% of total gold produced had an average grade greater than 1
ounce per ton, while 39% of total gold produced had an average
grade of 2.9 ounces per ton. The cutoff grade in the district was
0.25 ounces of gold per ton. The majority (75% to 80%) of the
district's gold production occurred from depths of 600 feet or
less. The deepest ores mined at Goldfield were 1,900 feet below the
surface and approximately 2,500 feet downdip from the apex of the
lode.
Unoxidized ore, formed as cavity fillings in brecciated veins,
consists of varying proportions of native gold and gold tellurides
including calaverite and goldfieldite, as well as sulfosalt
minerals including bismuthinite and famatinite, each of which are
associated with high-grade gold.
Geophysics
CSAMT
In 2008, Lode-Star contracted Zonge Geophysics to carry out an
orientation CSAMT (controlled source, audio-frequency
magneto-telluric) survey. The objective was to determine the
effectiveness of this technique in detecting resistivity variations
that correlate with known gold-bearing quartz vein zones. Five
east-west lines were run across the Church-Red Hills-Newmont Zone
area for a total of 1.7 line miles (2.7km) of coverage. The results
clearly defined several pronounced resistivity gradients with
patterns associated with aforementioned areas of known gold
mineralization.
In February 2012, ICN contracted Zonge Geophysics to carry out a
similar CSAMT survey which covered nearly all of the Goldfield
Bonanza property. It included 32 lines for a total of 10.6
line-miles (17 line-kilometers). The survey data was acquired using
30-meter (100 ft) receiver dipoles in spreads of six down-line
electric field dipoles with two magnetic field measurements taken
per spread in the broadside mode of operation. The signal source
was a Zonge GGT-30 constant current transmitter. Survey control was
maintained using a Trimble PRO-XRS GPS receiver.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Figure 8 below displays the results of the property-wide survey.
Overlain on the CSAMT is drilling in the Northeast Corridor with
drill hole assays presented as calculated grade X thickness (GxT)
values. There is a clear association of CSAMT resistivity highs
with high gold assays from these drill holes, occurring in highly
silicified areas. Also shown on figure 8, the biogeochemical survey
anomalies are overlain on the CSAMT results, indicating close
correlation with high resistivity values. The biogeochemistry
patterns are discussed further in the Biogeochemistry section
below.
The main NE Corridor is defined by a major break in the CSAMT data.
This break is directly indicative of significant northwest and
northeast oriented structures at depth, some of which have been
observed in underground exposures and interpreted through drilling.
The potential significance of the CSAMT break is demonstrated by
the drill holes in and around the Newmont Lode in the southern
portion of the grid.
Holes in this area are weakly to strongly gold mineralized,
suggesting that further drill testing southwest along this break is
warranted.
In addition, the mineralization trending northwesterly in the
Sheets-Ish, Silver Pick, Phelan area is shown to hug the sharp
Northwest break in the CSAMT response. Thus, the better gold grades
seem to follow the margins of the CSAMT highs. The principal
conclusion was that the general exploration model was verified
– “Main District style” high-grade gold
mineralization is, in fact, localized beneath the post-mineral
cover below the Lode-Star Gold claim block.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Figure 8 - Geophysics & Biochemistry Anomalies w/ GxT Drill
Assays
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Biogeochemistry
|
Conventional surface sampling of outcrops and soils on the
Lode-Star claims is not useful due to poor exposures and
contamination by waste dumps and tailings. However, biogeochemical
sampling has been shown to be effective in indicating areas of
anomalous gold and other gold-related trace metal values below the
Seibert gravels.
In August 2011, ICN personnel sampled rabbit brush in an area
measuring approximately 4000 feet (1200 m) by 2000 feet (600 m) in
the northern and central portions of the property, including in the
Silver Pick shaft area and in the NE Corridor target area. The
program was designed, and the data interpreted by Shea Clark Smith
of Minerals Exploration & Environmental Geochemistry (Smith,
2012). Large areas that are defined by gold concentrations from 2
– 60 ppb are significant and attest to the volume (and
possibly grade) of mineralized rock in contact with groundwater in
these areas. Smith states that metal uptake in rabbit brush is not
overwhelmed by mineralized dust that might have masked the metal
concentrations in plant tissues of less well endowed (by gold)
areas.
The Figure to the right displays the gold-mineralized areas
indicated by the biogeochemical data. The anomalies cluster in
areas of historically mined mineralization near the Phelan,
Sheets-Ish and Silver Pick shafts. Most importantly multiple
clusters occur in the Northeast Corridor area, which includes the
Newmont Lode and especially the Church Zone. Of particular note is
the cluster of anomalies that exist to the northwest of the NE
Corridor, correlating closely with interpreted northwest-trending
structures. Thus, the biogeochemical data confirms the conclusions
from drilling and underground geologic work as shown on Figure 8
above. Overall the biogeochemical anomalies were found in four
areas of the property that have had no drilling, as
follows:
1.
the area
immediately east of the Church Zone coinciding with a CSAMT
anomaly;
2.
several grouped
anomalies immediately northwest of the Newmont Lode and the
January-Whiterock shaft;
3.
a northwest
trending series of anomalies extending 400 meters to the northwest
of the Church discovery zone; and,
4.
three separate
anomalies located to the west of the Silver Pick shaft and to the
east of the Phelan shaft in the northern portion of the claim
group. In general, all of the drill holes with anomalous gold
values fall within biogeochemical anomalies and all those holes
with no significant gold intercepts are outside the biogeochemical
anomalies.
|
|
Figure 9
Biogeochemical Interpretive Map
|
Seismic Survey
In 1980 Trafalgar Mines contracted Cooksley Geophysics to conduct a
refraction seismic survey over a small area in the Church zone.
This survey delineated several shallow silica ledges which were
confirmed by drilling to be gold bearing. Westley Mines leased the
property during 1985. They contracted Dr. McWilliams, a professor
at Stanford, to conduct a more extensive refraction seismic survey.
Thirteen east-west lines were run at approximately a 400-foot
(122m) spacing covering an area from about 600 feet (183m) south of
the Silver Pick shaft to 2000 feet (610m) south of the
January-Whiterock shaft. This work delineated silicified zones and
ledges which are interpreted to have horizontal thicknesses of up
to 200 feet (61 m) and varying lengths. See Fig. 10
below.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Figure 10 - Seismic Survey Anomalies
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Mine Development - Drilling the Northeast Corridor
The Company's immediate drill program is to define its existing and
mineable Gold mineralization within the northeast corridor. See
Fig. 11. Specifically, the Church, Red Hills and Newmont Zones.
Referred to as the CRN Area. Current drill budgeting is US$800,000
plus $200,000 in analytical fees. Combined total cost:
US$1,000,000.
Fig. 11 Immediate Drill Program Area
|
|
Red Hills, Decline Zone:
The
Company is planning for 6,000 combined feet of deep core drilling
for the Red Hills and Decline Zone.
Anticipated Cost
$400,000. See Table 11a.
Church Zone:
The
Company is planning for 6,400 combined feet of drilling for the
Church Zone.
Anticipated Cost
$400,000 See Table 11b.
Newmont Zone:
Future planning
for an initial 22,200 combined feet of surface drilling in the
Newmont Zone.
Anticipated Cost
(Surface) $1,000,000 See Table 11c.
Anticipated Cost
(Underground) $1,000,000 See Table 11c.
|
Table 11a. - Red Hills & Decline Zone Drilling
Budget
|
Red
Hills Surface
|
Hole
Depth
|
$/ft
|
Cost/Hole
|
# of
Holes
|
Cost
|
TTl
ft Drilled
|
|
|
Core Drilling
|
1000 avg.
|
60.00
|
$ 60,000
|
6
|
$ 360,000
|
6,000
|
|
|
Contingency
|
|
|
|
|
$ 40,000
|
|
|
|
Total Budget
|
|
|
|
6
|
$ 400,000
|
6,000
|
Sample
Prep., Assays, CSAMT interpretation and third-party verification of
the drilling results is expected to add a cost of approximately
$100,000
.
Table 11b. - Church Zone Drilling Budget
|
Church Zone
Surface
|
Hole
Depth
|
$/ft
|
Cost/Hole
|
# of
Holes
|
Price
|
TTl
ft Drilled
|
|
|
Core Drilling
|
300
|
50.00
|
$ 15,000
|
8
|
$ 120,000
|
2,400
|
|
|
Core Drilling
|
1000
|
60.00
|
$ 60,000
|
4
|
$ 240,000
|
4,000
|
|
|
Contingency
|
|
|
|
|
$ 40,000
|
|
|
|
Total Budget
|
|
|
|
12
|
$ 400,000
|
6,400
|
Sample
Prep., Assays, CSAMT interpretation and third-party verification of
the drilling results is expected to add a cost of approximately
$100,000
.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Table 11c. - Newmont Zone Drilling Budget (Future)
|
Newmont Zone
Surface
|
Hole
Depth
|
$/ft
|
Cost/Hole
|
# of
Holes
|
Price
|
TTl
ft Drilled
|
|
|
RC Drilling
|
1000
|
38.00
|
$ 38,000
|
10
|
$ 380,000
|
10,000
|
|
|
RC Drilling
|
500
|
38.00
|
$ 19,500
|
10
|
$ 190,000
|
5,000
|
|
|
Core Drilling
|
1000
|
60.00
|
$ 60,000
|
4
|
$ 240,000
|
4,000
|
|
|
Core Drilling
|
400
|
50.00
|
$ 20,000
|
8
|
$ 160,000
|
3,200
|
|
|
Contingency
|
|
|
|
|
$ 30,000
|
|
|
|
Surface Budget
|
|
|
|
32
|
$ 1,000,000
|
22,200
|
Sample
Prep., Assays, CSAMT interpretation and third-party verification of
the drilling results is expected to add a cost of approximately
$200,000.
|
|
Underground Budget
|
Newmont Underground - Yet to be Determined
|
$1,000,000
|
|
Total
for immediate planned step-out drilling –
Red Hills/Decline Zone and Church
Zone
|
|
Combined 11a & 11b
|
Drilling
|
$800,000
|
|
|
|
|
Analytical Fees
|
$200,000
|
|
|
|
Total
|
|
$1,000,000
|
|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Future Exploration Targets
|
Target Area 1.
North-south oriented CSAMT gradient that indicates extension of the
known high-grade gold in the Red Hills Vein Zone.
Target Area 2.
Several Refractive Seismic responses along a north-northwest
oriented alignment, suggesting the existence of one (or more)
siliceous zones, likely below the 1,700 meter search
horizon.
The pronounced south-pointing protruding gradient at the south end
of this linear, which is similar to the northeast pointing gradient
in the Red Hills. This is indicative of the existence of a
siliceous zone.
Target Area 3.
A major northwest oriented CSAMT gradient trending similar to
numerous historic ore zones in the main district (note the repeated
spacing of the prominent NW historic ore zones).
Intersection of this northwest oriented gradient with the southern
projection of the NE Corridor, that correlates with the existence
of biogeochemical anomalies.
Target Area 4.
A
north-northeast oriented CSAMT gradient adjacent to the NE Corridor
with coincident Refractive Seismic responses and biogeochemical
anomalies.
A sharp
embayment and protruding CSAMT gradient with coincident RS
responses and biogeochemical anomaly.
Target Area 5.
Several
Refractive Seismic responses along a north-northwest oriented
alignment, suggesting the existence of one (or more) siliceous
zones, likely below the 1,700 meter search horizon.
The
intersection of RS responses with CSAMT gradient.
Target Area 6.
A major
northwest oriented CSAMT gradient trending similar to numerous
historic ore zones in the main district coincident with
biogeochemical anomalies.
|
Figure
12 - Seismic Survey
|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Permitting and Production
On November 20, 2018 the Company was issued Water Pollution Control
Permit NEV2017109 from the Nevada Department of Environmental
Protection (NDEP) regarding production at the property. This Permit
authorizes the construction, operation, and closure of approved
mining facilities in Esmeralda County, Nevada. The Permit is
effective for 5 years until November 20, 2023 and authorizes the
processing of 10,000 tons of ore per year from Lode-Star's
underground operations. 100% of the permitting cost has been borne
by our largest shareholder, Lode-Star Gold INC.
Unique to the Company's production permit, the Nevada Department of
Environmental Protection has endorsed the Company's intensions to
temporarily store waste rock underground. Once stockpiled, waste
rock is brought to the surface to backfill and remediate our
historic abandoned mine shafts. This will save the Company the
significant time and expense of having to permit and build a
surface waste containment facility.
Presently, the Company is under application review by ATF to
receive its blasting permit. Further, fulfillment of blasting
related materials is underway to meet a Q2 mine operational
deadline.
Metallurgy Reports
To date the Company has had three metallurgy reports prepared. In
order they are: Kappes Cassady & Associates located in Reno, NV
dated July 10,2006, Newmont Mining located in Carlin, NV dated May
27, 2010, and McClelland Laboratories, Inc. located in Reno, NV
dated January 26, 2016. Indications are that the Company can expect
at a minimum, an 85% AU recovery from floatation milling. Better
recovery is achieved by Agitated Leach processing, which show
results closer to +90%. The best recovery results, +95%, due to the
high sulphide content of the ore, is achieved through roasting. An
additional lab report has been generated by Kappes Cassady &
Associates to determine ore compatibility for processing at Scorpio
Gold's milling circuit.
Milling
The Company is seeking toll milling candidates.
Mine Design and Utilization of Equipment
The mine will be designed through the interpretation of detailed
drilling data in cross sections and the use of conventional
software. Currently there are two areas, the Red Hills and the
Church, containing high-grade gold mineralization identified that
are to be incorporated into the mine plan. Currently the mine is
equipped with a 1-yard scoop-tram loader. Mining activity will be
conducted with the utilization of this loader, pneumatic equipment
and by an existing conveyor system providing for the transfer of
ore to the surface.
|
Production Mining Method
We intend to maximize profitability through a disciplined approach
involving the separation of high-grade gold ore from waste rock
during the mining stage, thus avoiding the additional cost of
pre-shipment concentration. In order to maintain the highest grade
of ore production the blast holes will be sampled during drilling,
then assayed to determine ore boundaries prior to blasting. The
current plan is to ship ore directly from the mine to an offsite
mill employing a toll-milling arrangement. A summary of the mining
methodology is as follows:
●
Timbered
raises
●
Cut &
Fill/Resuing Narrow Vein Stoping (described below)
●
Mechanized internal
decline
|
Figure
M1. - A typical blast pattern to extract the ore from waste using
two detonations.
|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Timbered Raise Summary
The design accommodates the ease of installation of the timber
using pre-cut timbers. Caps, and Gerts are jointed on each end so
that each fits on another, with a place for each corner post. The
timbers are designed to be carried by a pneumatic tugger hoist and
set by a crew of two men. A man-way is provided with landings every
4 sets vertically. A utility compartment is provided with
accommodation for air and water lines as well as ventilation
tubing. The raise timbering is designed to accommodate chute
lagging on each end of the raise, with a timber slide along the
footwall. Each set is to be blocked to the sides and ends of the
raise using similar size timber and wedges. The timbering in this
design is intended for temporary vertical access for mining
operations and is not intended for permanent long-term ground
support. (Fig. M2 below).
Cut & Fill/Resuing Stope Summary
Access is provided by first constructing an internal ramp system,
or by timbered raise. RESUING (Shrink Stoping): A method that
reduces dilution when the vein is narrower than the heading.
Historically a drift round was taken in two passes. First pass was
to extract the gold vein, and the second pass was to extract the
waste. CUT & FILL: Access is provided by first taking a sill
cut, then taking down the back in successive slices. After mucking,
the stope is backfilled, but enough space is left to mine the next
slice.
Fig. M2 - A typical timber raise and a spiral ramp. The arrow
indicates where the raise will be constructed.
Site and Equipment Preparation
80% of our underground workings are being rehabbed. We anticipate
being mine-ready by Q2 of 2019.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Plan of Operations
We estimate that the capital required to achieve project
development (Red Hills Vein Zone) through to the end of Q1 2020 is
approximately $3.8M, as detailed below.
|
Item
|
Description
|
Cost
|
|
1.
|
Equipment &
Materials
|
$500,000
|
|
2.
|
Remaining
Underground Rehab
|
$15,000
|
|
3.
|
Secondary
Escape
|
$750,000
|
|
4.
|
Ore
Grade Control
|
$50,000
|
|
5.
|
Red
Hills Vein Zone Mining
|
$800,000
|
|
6.
|
Mine
Development Drilling (required to fully assess our
resource)
|
$1,000,000
|
|
7.
|
Corporate &
General Admin.
|
$720,835
|
|
|
Total
|
$3,835,835
|
All the above amounts are
estimates
and may not exactly match the actual future
costs.
1. Equipment & Mining Materials
|
Description
|
Cost
|
Quantity
|
Total
|
|
a.
Blasting Materials and Storage
|
$30,000
|
N/A
|
$30,000
|
|
b.
Pneumatic Jackleg new
|
$4,000
|
4
|
$16,000
|
|
c.
Pneumatic Slusher/w bucket used
|
$20,000
|
2
|
$40,000
|
|
d.
Pneumatic Tugger used
|
$5,000
maint.
|
1
|
$5,000
|
|
e.
Stopers/Buzzies
|
$2,000
|
2
|
$4,000
|
|
f.
1-yard used Scoop
|
$210,000
|
1
|
$210,000
|
|
g.
Compressor
|
$30,000
|
1
|
$30,000
|
|
h.
Hoist Rehab and Retrofitting
|
$100,000
|
1
|
$100,000
|
|
i.
Ancillary
|
$55,000
|
1
|
$55,000
|
|
Contingency
|
|
|
$10,000
|
|
Total Equipment Items and Cost
|
|
|
$500,000
|
2. Remaining Underground Rehab & Preliminary Mine
Development
|
Location
|
Description
|
Costs
|
Comments
|
|
300
Ft Level
|
Labor
|
$15,000
|
Mainly
Labor
|
3. Secondary Escape
|
Location
|
Description
|
Costs
|
Comments
|
|
300
Ft Level
|
Labor +
Equipment
|
$750,000
|
MSHA
Mandated
|
4. Ore Grade Control
|
Location
|
Description
|
Costs
|
Comments
|
|
Off
Site
|
Lab
Analyses
|
$50,000
|
Assays
|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
5. Phase 1. Red Hills Vein Zone Metallurgical Sample
Extraction
|
Description
|
Costs
|
Comments
|
|
Labor
Related
|
$400,000
|
5-man crew @ 10
hours per day, estimated 15 months to complete
|
|
Ore
Grade Control
|
$50,000
|
Sampling time
and logistics
|
|
Timber
|
$15,000
|
Timber Prep,
crib, man-way & service raise timbers
|
|
Equipment
Maintenance
|
$30,000
|
0.5
man-hours. $2,000=Tire wear, service & diesel
consumption
|
|
Ground
Support
|
$13,000
|
4'
Split Set w/plate& monster mat. Estimated 1,000
bolts
|
|
Explosives
|
$75,000
|
Ongoing Blasting
Materials
|
|
Fuel
|
$105,000
|
15
months @ $7,000/month
|
|
Backfill
Material
|
$47,000
|
Limestone
|
|
Consumables
|
$5,000
|
Small hand tools
(Fin hoes, drill steel, bits, drivers, axes, nails,
etc.)
|
|
Utilities
|
$5,000
|
24"
vent bag, 2" water & 2" air pipe
|
|
Contingency
|
$55,000
|
|
|
Total
|
$800,000
|
|
6. Mine Development - Drilling the Northeast Corridor
|
Description
|
Cost
|
Comments
|
|
Red
Hills / Decline
|
$400,000
|
Budgeted
|
|
Church
Zone
|
$400,000
|
Budgeted
|
|
Analytical
Fees
|
$200,000
|
Budgeted
|
|
Total
|
$1,000,000
|
|
6.a. Future Mine development (Not included in $3.8M total
above)
|
Description
|
Cost
|
Comments
|
|
Newmont Surface
|
$1,000,000
|
Planned for the future. Not accounted for.
|
|
Newmont Underground
|
$1,000;000
|
Planned for the future. Not accounted for.
|
|
Total
|
$2,000,000
|
|
7. General Corporate and Administration Fees (Public Company Admin
Costs)
|
Description
|
Cost
|
Comments
|
|
Personnel
|
$304,168
|
Budgeted
|
|
Regulatory
|
$166,667
|
Budgeted
|
|
General
|
$250,000
|
Budgeted
|
|
Total
|
$720,835
|
|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Funding
All of
our ongoing operations, since the inception of our Mineral Option
Agreement on October 4, 2014, have been funded by monies advanced
to us by Lode-Star Gold INC. (LSG) our largest shareholder.
We do not currently have enough 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. Now that we have received our production
permit, financing instruments can include a gold streaming or
royalty financing alternative. 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 currently
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 received no compensation in the years ended
December 31, 2018 and 2017 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.
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.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
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.
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, 2018 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. We recorded a net loss of $332,606 for the year
ended December 31, 2018, have an accumulated deficit of $2,704,374
and have had no operating revenues. The possibility and timing of
revenue being generated from our mineral property interest is
uncertain.
Revenues
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
-
|
|
Operating
Expenses
|
273,431
|
646,008
|
(372,577
)
|
(58
%)
|
|
Operating
Loss
|
(273,431
)
|
(646,008
)
|
372,577
|
(58
%)
|
|
Other
Expense
|
(59,175
)
|
(45,620
)
|
(13,555
)
|
30
%
|
|
Net
Loss
|
$
(332,606
)
|
$
(691,628
)
|
$
359,022
|
(52
%)
|
Expenses
Our expenses for the years ended December 31, 2018 and 2017 are
shown below:
|
|
|
|
|
|
|
|
|
|
|
Consulting
services
|
$
82,375
|
$
466,715
|
$
(384,340
)
|
(82
%)
|
|
Corporate
support services
|
1,904
|
1,913
|
(9
)
|
-
|
|
Exploration
and evaluation
|
-
|
3,190
|
(3,190
)
|
(100
%)
|
|
Interest,
bank and finance charges
|
59,175
|
45,620
|
13,555
|
30
%
|
|
Mineral
option fees
|
100,000
|
100,000
|
-
|
-
|
|
Office,
foreign exchange and sundry
|
16,947
|
7,593
|
9,354
|
123
%
|
|
Professional
fees
|
49,348
|
44,876
|
4,472
|
10
%
|
|
Transfer
and filing fees
|
22,857
|
21,721
|
1,136
|
5
%
|
|
Total
Operating and Other Expenses
|
$
332,606
|
$
691,628
|
$
(359,022
)
|
(52
%)
|
Consulting services
In
2017 we granted stock options to key corporate officers and outside
consultants. The related Consulting services expense based on a
Black-Scholes calculation for the year ended December 31, 2018 was
$57,912, compared to $442,808 in 2017, which accounts for the
majority of the year over year change in Consulting services
expense.
Exploration and evaluation
In
2017 we incurred a $3,190 expense related to a pilot toll milling
test, with no equivalent expense in 2018.
Interest, bank and finance charges
The
increase in interest expense in 2018 was mainly due to a net
increase of approximately $83,000 in interest-bearing loans during
the year. One interest-bearing loan of approximately $40,000 was
converted to shares almost at the end of 2018, meaning that the
increase over 2017 was, effectively, closer to $123,000 in terms of
its impact on 2018 interest expense. Also, interest-bearing amounts
due to LSG for mineral option fees and accrued interest increased
approximately $121,000 in 2018, further impacting interest
expense.
|
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 higher in 2018 than in
2017 mainly due to a combination of higher expenditures for civic
contributions (Goldfield Chamber of Commerce - $1,000), travel,
meals and entertainment (approximately $4,000), Nevada state
business license (approximately $1,000), rent for a new Nevada
office location (approximately $1,000) and foreign exchange
(approximately $1,000).
Professional fees
The
increase in Professional fees in 2018 resulted primarily from
approximately $10,000 higher accounting expense due to the timing
of invoicing by service providers, which was partly offset
by:
i.
there
being no 2018 equivalent to the 2017 consulting fees of
approximately $4,000 for services related to technical analysis and
documentation of our mineral property; and
ii.
approximately
$1,000 lower legal fees in 2018 due to a minor reduction in the
requirement for legal services.
Assets and Liabilities
Balance Sheet items with notable year over year differences are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
6,508
|
$
818
|
$
5,690
|
696
%
|
|
Prepaid
fees
|
$
1,979
|
$
3,725
|
$
(1,747
)
|
(47
%)
|
|
Accounts
payable and accrued liabilities
|
$
5,254
|
$
8,048
|
$
(2,794
)
|
(35
%)
|
|
Due
to related parties and accrued interest
|
$
1,286,011
|
$
1,036,569
|
$
249,442
|
24
%
|
|
Loans
payable and accrued interest
|
$
30,267
|
$
47,055
|
$
(16,788
)
|
(36
%)
|
|
Capital
Stock
|
3,425
|
1,947
|
1,478
|
76
%
|
|
Additional
Paid-In Capital
|
1,618,084
|
1,512,872
|
105,212
|
7
%
|
Cash
increased due to the amount of cash
provided by loans being approximately $6,000 more than the amount
of cash used in operating activities.
Prepaid fees
decreased due to legal services
expensed in 2018 reducing a $3,725 retainer paid in
2017.
Accounts payable and
accrued liabilities
decreased
mainly due to the amount of management travel expenses payable at
the end of 2018 being lower than at the end of
2017.
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 $121,000;
°
net
cash loan advances from related parties of $105,000;
°
accrued
loan interest due to related parties of approximately $34,000;
and
°
expenses
paid by a related party on our behalf of approximately
$37,000
°
partially
offset by conversion to shares of a related party loan and accrued
interest totaling approximately $48,000
Loans payable and
accrued interest
decreased due
to repayment of loan principal totaling $20,000, partially offset
by accrued interest of approximately $3,000.
Capital
Stock
and
Additional Paid-In
Capital
increased approximately
$1,000 and $47,000 respectively as a result of the conversion to
shares of a related party loan and accrued interest totaling
approximately $48,000. Additional Paid-In capital also increased
approximately $58,000 as a result of the current year expense of a
portion of the value assigned to the 9.5 million stock options
issued on February 14, 2017 and 0.5 million stock options issued
November 20, 2018, calculated using the Black-Scholes option
pricing model. The expense was charged to Consulting
services.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Liquidity and Capital Resources
Our financial condition at December 31, 2018 and 2017 and the
changes between those dates are summarized below:
Working Capital
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
$
8,487
|
$
4.543
|
$
3,944
|
87
%
|
|
Current
Liabilities
|
1,321,532
|
1,091,672
|
229,860
|
21
%
|
|
Working
Capital (Deficiency)
|
$
(1,313,045
)
|
$
(1,087,129
)
|
$
(225,916
)
|
21
%
|
Our working capital decreased, as expected, from December 31, 2017
to December 31, 2018, primarily due to ongoing funding from LSG,
increasing our current liabilities. In current assets, the increase
in cash of approximately $6,000 was partially offset by the
decrease in prepaid fees of approximately $2,000. In current
liabilities, the reductions in accounts payable and accrued
liabilities of approximately $3,000 and in non-related party loans
and accrued interest of approximately $17,000 were more than offset
by the increase in amounts due to related parties, comprised of
accrued mineral option fees, related party loans, accrued interest,
and expenses paid on our behalf by LSG, totaling approximately
$249,000. The changes in assets and liabilities noted here are
explained in the Assets and Liabilities section above.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows Provided By (Used In):
|
|
|
|
|
|
Operating
Activities
|
$
(79,309
)
|
$
(59,316
)
|
$
19,993
|
(34
%)
|
|
Financing
Activities
|
85,000
|
55,000
|
30,000
|
55
%
|
|
Net
increase (decrease) in cash
|
$
5,691
|
$
(4,316
)
|
$
10,007
|
232
%
|
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, 2018 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, 2018 AND 2017
|
Report of Independent Registered Public Accounting
Firm
|
F-1
|
|
|
|
|
Balance Sheets
|
F-2
|
|
|
|
|
Statements of Operations
|
F-3
|
|
|
|
|
Statements of Cash Flows
|
F-4
|
|
|
|
|
Statements of Changes in Stockholders’
Deficiency
|
F-5
|
|
|
|
|
Notes to Financial Statements
|
F-6
|
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 sheets of Lode-Star Mining
Inc. (the "Company") as at December 31, 2018 and 2017, the related
statements of operations, cash flows, and changes in
stockholders’ deficiency, for the years 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, 2018 and 2017, and the results of its
operations and its cash flows for the years 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 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.
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 26, 2019
|
Chartered Professional Accountants
|
LODE-STAR MINING INC.
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
Cash
|
$
6,508
|
$
818
|
|
Prepaid
fees
|
1,979
|
3,725
|
|
Total current assets
|
8,487
|
4,543
|
|
|
|
|
|
Mineral
Property Interest, unproven
|
230,180
|
230,180
|
|
|
|
|
|
Total assets
|
$
238,667
|
$
234,723
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
Accounts
payable and accrued liabilities
|
$
5,254
|
$
8,048
|
|
Due
to related parties and accrued interest
|
1,286,011
|
1,036,569
|
|
Loans
payable and accrued interest
|
30,267
|
47,055
|
|
Total current liabilities
|
1,321,532
|
1,091,672
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
Capital Stock:
|
|
|
|
Authorized:
|
|
|
|
480,000,000
voting common shares and 20,000,000 preferred shares
|
|
|
|
Issued:
|
3,425
|
1,947
|
|
50,605,965
common shares and no preferred shares at December 31,
2018
49,127,285
common shares and no preferred shares at December 31,
2017
|
|
|
|
Additional
Paid-In Capital
|
1,618,084
|
1,512,872
|
|
Accumulated
Deficit
|
(2,704,374
)
|
(2,371,768
)
|
|
Total stockholders’ deficiency
|
(1,082,865
)
|
(856,949
)
|
|
|
|
|
|
Total liabilities and stockholders’ deficiency
|
$
238,667
|
$
234,723
|
The accompanying notes are an integral part of these financial
statements.
LODE-STAR MINING INC.
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
|
|
|
|
|
Operating Expenses
|
|
|
|
Consulting
services
|
82,375
|
466,715
|
|
Corporate
support services
|
1,904
|
1,913
|
|
Exploration
and evaluation
|
-
|
3,190
|
|
Mineral
option fees
|
100,000
|
100,000
|
|
Office,
foreign exchange and sundry
|
16,947
|
7,593
|
|
Professional
fees
|
49,348
|
44,876
|
|
Transfer
and filing fees
|
22,857
|
21,721
|
|
Total operating expenses
|
273,431
|
646,008
|
|
|
|
|
|
Operating Loss
|
(273,431
)
|
(646,008
)
|
|
|
|
|
|
Other Expenses
|
|
|
|
Interest,
bank and finance charges
|
(59,175
)
|
(45,620
)
|
|
|
|
|
|
Net Loss For The Year
|
$
(332,606
)
|
$
(691,628
)
|
|
|
|
|
|
Basic And Diluted Net Loss Per Common Share
|
$
(0.01
)
|
$
(0.01
)
|
|
|
|
|
|
Weighted Average Common Shares Outstanding – Basic and
Diluted
|
49,241,217
|
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
|
$
(332,606
)
|
$
(691,628
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Foreign
exchange loss
|
362
|
7
|
|
Stock
options issued for services
|
57,912
|
442,808
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Prepaid
fees
|
1,746
|
(3,725
)
|
|
Accounts
payable and accrued liabilities
|
34,679
|
48,274
|
|
Due
to related parties
|
100,000
|
100,000
|
|
Accrued
interest payable
|
58,597
|
44,948
|
|
Net
cash used in operating activities
|
(79,310
)
|
(59,316
)
|
|
|
|
|
|
Financing Activities
|
|
|
|
Repayment
of loans payable
|
(20,000
)
|
(20,000
)
|
|
Proceeds
from loans payable – related party
|
105,000
|
75,000
|
|
Net
cash provided by financing activities
|
85,000
|
55,000
|
|
|
|
|
|
Net Increase (Decrease) In Cash
|
5,690
|
(4,316
)
|
|
|
|
|
|
Cash, Beginning Of Year
|
818
|
5,134
|
|
|
|
|
|
Cash, End Of Year
|
$
6,508
|
$
818
|
|
|
|
|
|
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
|
$
37,473
|
$
59,242
|
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, 2018 AND 2017
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
|
|
|
|
|
|
|
|
|
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
)
|
|
|
|
|
|
|
|
|
Stock
options issued for services
|
-
|
-
|
57,912
|
-
|
57,912
|
|
|
|
|
|
|
|
|
Shares
issued in exchange for debt
|
1,478,140
|
1,478
|
47,300
|
-
|
48,778
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
-
|
-
|
-
|
(332,606
)
|
(332,606
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
50,605,965
|
$
3,425
|
$
1,618,084
|
$
(2,704,374
)
|
$
(1,082,865
)
|
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, 2018 AND 2017
|
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.
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 $2,704,374 as
of December 31, 2018. 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, 2018 and 2017, 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, 2018 AND 2017
|
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, using the treasury stock method,
whereby the common stock number is increased to include potential
additional common shares from the exercise of in-the-money options
and warrants. As the Company generated net losses in the periods
presented, the impact of including potential shares from
outstanding warrants would be anti-dilutive and is therefore not
part of the net loss per share calculation. The actual impact, if
included, was not significant enough in any case to change the
basic net loss per share amount shown.
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, 2018 AND 2017
|
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
|
The
Company’s mineral property interest is a group of thirty-one
claims known as the “Goldfield Bonanza Project” (the
“Property”), in the State of Nevada. Pursuant to an
option agreement dated October 14, 2014 with Lode-Star Gold INC.
(“LSG”), a private Nevada corporation, the Company
acquired an initial 20% undivided interest in and to the mineral
claims owned by LSG and an option to earn a further 60% interest in
the claims. LSG received 35,000,000 shares of the Company’s
common stock and is its controlling shareholder. Until 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.
To
earn the additional 60% interest, 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, commencing
after December 11, 2014. If the Company fails to make any cash
payments to LSG within one year of the date of the option
agreement, 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, it must make quarterly cash
payments to LSG of $25,000.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
3.
|
MINERAL PROPERTY INTEREST
(Continued)
|
On
January 11, 2017, LSG agreed 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 both interest and principal. The
total amount of such fees due at December 31, 2018 was $423,913
(2017: $323,913), with total interest due in the amount of $32,220
(2017: $11,196).
The
Company has agreed with LSG that upon the successful completion of
a toll milling agreement after permitting is achieved, it will have
the basis to form a joint management committee to outline work
programs and budgets, as contemplated in the option agreement, and
for the Company to act as the operator of the
property.
The
Company assessed its mineral property interest to the date of issue
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.
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. Prior to an amendment on
November 24, 2014, capitalization was 100,000,000 shares of common
stock with a par value of $0.00001 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, 2018 or to the date of issue of these financial
statements.
Shares
On
December 3, 2018, the Company issued 1,478,140 common shares in
exchange for debt totaling $48,778 owed to a related party,
comprised of $40,205 in loans and $8,573 in accrued
interest.
During
the year ended December 31, 2017, the Company did not issue any
shares of its common stock.
Options
On
November 20, 2018, the Company granted 500,000 non-qualified stock
options pursuant to the Equity Incentive Plan, to key outside
consultants, with 50% vesting after one year and 50% vesting after
two years. Each option is exercisable into one share of the
Company’s common stock at a price of $0.06 per share, for a
term of five years. The options had an estimated grant date fair
value of $10,408. For the year ended December 31, 2018, $1,340
(2017 - $Nil) was 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 2.51%, a weighted
average life of 4.89 years, volatility of 190.47%, and dividend
yield of 0%. The valuation used average weekly pricing. At December
31, 2018, the options had an intrinsic value of $0 ($2017 - $0)
based on the exercise price of $0.06 per option and a market price
of $0.022 per share.
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 grant date
fair value of $536,750. For the year ended December 31, 2018,
$56,572 (2017 - $442,808) was 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 4.837 years, volatility of
189.07%, and dividend yield of 0%. The valuation used average
weekly pricing. At December 31, 2018, the options had an
intrinsic value of $0 ($2017 - $0) based on the exercise price of
$0.06 per option and a market price of $0.022 per
share.
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
4.
|
CAPITAL STOCK
(Continued)
|
A
summary of option activity in the current year and options
outstanding at December 31, 2018 is as follows:
|
|
Options
|
Exercise Price
|
Weighted Average Exercise Price
|
Weighted Average Life Remaining (Years)
|
Expiry Date
|
Intrinsic Value
|
|
Issued
|
Vested
|
|
Balance
December 31, 2017
|
9,500,000
|
4,750,000
|
$0.06
|
$0.06
|
4.12
|
February
14, 2022
|
-
|
|
Issued
|
500,000
|
-
|
$0.06
|
$0.06
|
4.89
|
November
20, 2023
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance December 31, 2018
|
10,000,000
|
9,500,000
|
$0.06
|
$0.06
|
3.21
|
|
-
|
Warrants
During
the years ended December 31, 2018 and 2017, no warrants to purchase
shares of common stock were issued and no warrants were exercised.
At December 31, 2018, warrants issued in 2015 had an intrinsic
value of $6,672 (2017 - $40,033) based on the exercise price of
$0.02 per warrant and a market price of $0.022 per
share.
A
summary of warrant activity in the current year and warrants
outstanding at December 31, 2018 is as follows:
|
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Life Remaining (Years)
|
|
|
|
Balance December
31, 2017
|
3,336,060
|
$
0.02
|
$
0.02
|
2.88
|
|
$
40,033
|
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance
outstanding and exercisable at December 31, 2018
|
3,336,060
|
$
0.02
|
$
0.02
|
1.88
|
|
$
6,672
|
At
December 31, 2018, the Company had the following loans
payable:
i.
$1,000
(2017: $1,000): unsecured; interest at 15% per annum; originally
due on April 20, 2012. Accrued interest payable on the loan at
December 31, 2018 was $3,518 (2017: $3,368). During 2018, the
Company repaid $0 (2017: $0) of this loan.
ii.
$5,000
(2017: $25,000): 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;
●
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.
●
There
are no changes to the terms as a result of the loan being in
default.
●
Accrued
interest payable on the loan at December 31, 2018 was $20,749
(2017: $17,687). During 2018, the Company repaid $20,000 (2017:
$20,000) of this loan.
At
December 31, 2018, total interest accrued on the above loans was
$24,267 (2017: $21,055).
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
6.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE
|
At
December 31, 2018, the Company had the following amounts due to
related parties:
i.
$0
(2017: $39,783): 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, 2018 was $0
(2017: $6,641). On December 3, 2018, the full amount of the loan
($40,205) and accrued interest ($8,573) was exchanged for 1,478,140
shares of the Company’s common stock. During 2017, the
Company made no repayments to or borrowed any additional amounts
from the President.
ii.
$525,000
(2017: $420,000): 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, 2018 was $69,034 (2017: $45,047). During
2018, the Company borrowed $105,000 (2017: $75,000) from
LSG.
iii.
$211,403
(2017: $173,930): 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, 2018 was $20,776 (2017: $12,334). During 2018, LSG
paid expenses directly on behalf of the Company totaling $37,473
(2017: $59,242).
iv.
$3,665
(2017: $3,725): unsecured; non-interest bearing; with no specific
terms of repayment, due to the controlling shareholder of LSG. The
change in value during the year was due to fluctuation in the US to
Canadian dollar exchange rate.
At
December 31, 2018, total interest accrued on the above related
party loans was $89,810 (2017: $64,022).
During
the year ended December 31, 2018, there was a $362 foreign exchange
loss (2017: $7) due to related party loan amounts in non-US
currency. Stock-based compensation to related parties of $58,246
(2017: $371,902) was also recognized during the year ended December
31, 2018.
During
the year ended December 31, 2018, the Company incurred $100,000
(2017: $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, 2018 was $423,913 (2017: $323,913), with total
interest due in the amount of $32,220 (2017: $11,196).
At
December 31, 2018, the total due to related parties of $1,286,011
(2017: $1,036,569) is comprised of the following:
■
Loans
and accrued interest - $829,878 (2017: $701,460)
■
Mineral
option fees payable and accrued interest - $456,133 (2017:
$335,109)
At
December 31, 2018, $966 (2017: $Nil) owing to the Company’s
President was outstanding in accounts payable. During the years
ended December 31, 2018 and 2017, the President provided a full
spectrum of senior management services, functioning also as the
Company’s CEO and CFO, without compensation.
|
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, 2018 AND 2017
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
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 net operating loss
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
estimated rate of 34% (2017 – 34%) is as
follows:
|
|
|
|
|
Expected
income tax recovery
|
$
113,100
|
$
235,200
|
|
Adjustment
for non-deductible amounts
|
(22,600
)
|
(152,200
)
|
|
Increase
in valuation allowance
|
(90,500
)
|
(83,000
)
|
|
|
$
-
|
$
-
|
Significant
components of deferred income tax assets are as
follows:
|
|
|
|
|
Deferred
income tax assets
|
|
|
|
Net
operating losses carried forward
|
$
413,900
|
$
323,400
|
|
Valuation
allowance
|
(413,900
)
|
(323,400
)
|
|
|
$
-
|
$
-
|
The
Company has approximately $1,217,000 (2017: $951,000) in net
operating losses carried forward which will expire by 2038 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.
The
Company’s net operating losses carried forward for United
States income tax purposes will expire if not utilized, as
follows:
|
2032
|
$
116,010
|
|
2033
|
6,445
|
|
2034
|
6,445
|
|
2035
|
315,203
|
|
2036
|
263,003
|
|
2037
|
244,111
|
|
2038
|
266,265
|
|
|
$
1,217,482
|
Realization
of the above losses carried forward is dependent on the Company
filing the applicable tax returns with the tax authorities and
generating sufficient taxable income prior to expiration of the
losses carried forward. Continuing use of the acquired historic
business or a significant portion of the acquired assets for two
years after a change of control transaction is required, otherwise
the annual net operating loss limitation on pre-change losses is
zero. The two year continuing use requirement has been
met.