FINTRADE SHERPA, INC.
10-Ks and 10-Qs
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
|
☒
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
|
Commission File Number:
000-53676
LODE-STAR MINING INC.
(Exact name
of registrant as specified in its charter)
|
NEVADA
|
47-4347638
|
|
(State or other jurisdiction of incorporation or
organization)
|
(IRS Employer Identification No.)
|
13529 Skinner Road, Suite N
Cypress, TX 77429-1775
(Address of principal
executive offices, including zip code.)
(832) 371-6531
(Registrant’s telephone
number, including area code)
|
Securities registered pursuant to Section 12(b) of the
Act:
|
Securities registered pursuant to section 12(g) of the
Act:
|
|
NONE
|
Common Stock, $0.001 par value
|
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
YES
☐
NO
☑
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act:
YES
☐
NO
☑
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES
☑
NO
☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).
YES
☑
NO
☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
☑
1
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
|
Large Accelerated Filer
|
☐
|
Accelerated Filer
|
☐
|
|
Non-accelerated Filer
|
☐
|
Smaller Reporting Company
|
☑
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
YES
☐
NO
☑
The aggregate market value of the registrant’s common stock
held by non-affiliates of the registrant as of December 31, 2016
was $452,523.
The stock price used in this calculation was the
closing price of the registrant’s stock reported on the OTCQB
marketplace on December 23, 2016, the date of trading activity
closest to the last business day of the registrant’s 2016
fiscal year.
For purposes of calculating this amount only, all
executive officers and directors and beneficial owners of 5% or
more of the outstanding shares of common stock have been treated as
affiliates.
At March 30, 2017 there were 49,127,825 shares of the
registrant’s common stock outstanding.
2
TABLE OF CONTENTS
|
|
|
|
|
PART I
|
||
|
Item 1.
|
Business.
|
4
|
|
Item 1A.
|
Risk Factors.
|
5
|
|
Item 1B.
|
Unresolved Staff Comments.
|
9
|
|
Item 2.
|
Properties.
|
9
|
|
Item 3.
|
Legal Proceedings.
|
13
|
|
Item 4
|
Mine Safety Disclosure
|
13
|
|
PART II
|
||
|
Item 5
|
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
|
14
|
|
Item 6.
|
Selected Financial Data.
|
16
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operation.
|
16
|
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market
Risk.
|
33
|
|
Item 8.
|
Financial Statements and Supplementary Data.
|
24
|
|
Item 9.
|
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
|
35
|
|
Item 9A.
|
Controls and Procedures.
|
35
|
|
Item 9B.
|
Other Information.
|
36
|
|
PART III
|
||
|
Item 10.
|
Directors, Executive Officers and Corporate
Governance.
|
36
|
|
Item 11.
|
Executive Compensation.
|
39
|
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
40
|
|
Item 13.
|
Certain Relationships and Related Transactions, and Director
Independence.
|
41
|
|
Item 14.
|
Principal Accounting Fees and Services.
|
42
|
|
PART IV
|
||
|
Item 15.
|
Exhibits and Financial Statement Schedules.
|
43
|
Cautionary Note Regarding Forward-Looking Statements.
This current report on Form 10-K (this “Report”)
contains forward-looking statements. In some cases, forward-looking
statements can be identified by terminology such as
“may”, “should”, “expects”,
“plans”, “anticipates”,
“believes”, “estimates”,
“predicts”, “potential” or
“continue” or the negative of these terms or other
comparable terminology. These statements are only
predictions and involve known and unknown risks and the risks set
out below, any of which may cause our actual results, levels of
activity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements. These risks include, by way of example and
not in limitation:
●
the uncertainty of
future revenue and profitability based upon our current financial
condition and history of losses;
●
our lack of
operating history;
●
we
have no proven and/or probable reserves at the present
time;
●
risks relating to
our liquidity;
●
risks related to
the market for our common stock and our ability to dilute our
current shareholders’ interest;
●
risks related to
our ability to locate and proceed with a new project or business
for which we can obtain funding;
●
risks related to
our ability to obtain adequate financing on a timely basis and on
acceptable terms; and
●
other risks and
uncertainties related to our business strategy.
This list is not an exhaustive list of the factors that may affect
any of our forward-looking statements. These and other factors
should be considered carefully and readers should not place undue
reliance on our forward-looking statements.
Forward looking statements are made based on management’s
beliefs, estimates and opinions on the date the statements are made
and we undertake no obligation to update forward-looking statements
if these beliefs, estimates and opinions or other circumstances
should change. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or
achievements. Except as required by applicable law,
including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform
these statements to actual results.
Unless the context otherwise requires, references in this Report to
“LSM,” the “Company”, “we”,
“us”, “our”, or
“ours” refer to Lode-Star Mining INC.
3
|
ITEM 1.
|
BUSINESS
|
Lode-Star Mining INC. (formerly International Gold Corp.) was
incorporated in the State of Nevada on December 9, 2004 for the
purpose of acquiring and exploring mineral properties. Our
principal executive offices are located at 13529 Skinner Road,
Suite N, Cypress, Texas 77429-1775. We also maintain a Canadian
business office at 666 Burrard Street, Suite 600, Vancouver,
British Columbia, Canada V6C 2X8.
On May 12, 2015, International Gold Corp. completed a merger with
its wholly owned subsidiary, Lode-Star Mining INC., and formally
assumed the subsidiary’s name by filing Articles of Merger
with the Nevada Secretary of State (the “Name
Change”). The subsidiary was incorporated entirely for
the purpose of effecting the Name Change and the merger did not
affect our corporate structure in any other way.
We have no revenues, have losses since inception, have no direct
operations, and have been issued a going concern opinion by our
auditor. We are relying upon the sale of securities and loans to
fund our operations. We have no employees and expect to use outside
consultants, advisors, attorneys and accountants as necessary for
the next twelve months.
Mineral Property Interest
Further to a Mineral Option Agreement dated October 4, 2014, on
December 5, 2014, we entered into a subscription agreement (the
“Subscription Agreement”) with Lode Star Gold INC.
(“LSG”), a private Nevada corporation, pursuant to
which we agreed to issue 35,000,000 shares of our common stock,
valued at $230,180, to LSG in exchange for a 20% undivided
beneficial interest in and to the mineral claims owned by LSG (the
“Acquisition”). The Closing Date of the Subscription
Agreement was December 11, 2014 (the “Closing
Date”).The mineral claims, known as the “Goldfield
Bonanza Project” (the “Property”), are located in
the State of Nevada.
The Mineral Option Agreement can be found as Exhibit 10.1 to our
report filed on Form 8-K on October 9, 2014 and is incorporated by
reference, shown as Exhibit 10.5 to this report. The Subscription
Agreement can be found as Exhibit 10.7 to our report filed on Form
10-K/A on January 11, 2017 and is incorporated by reference, shown
as Exhibit 10.7 to this report.
The execution of the Subscription Agreement was one of the closing
conditions of the Mineral Option Agreement dated October 4, 2014,
(the “Effective Date”) pursuant to which we acquired
the sole and exclusive option to earn up to an 80% undivided
interest in and to the Property. In order to earn the
additional 60% interest in the Property, we are required to fund
all expenditures on the Property and pay LSG an aggregate of $5
million in cash from the Property’s mineral production
proceeds in the form of a net smelter royalty (“NSR”).
Until such time as we have earned the additional 60% interest, the
NSR will be split 79.2% to LSG, 19.8% to us and 1% to the former
Property owner.
If we fail to make any cash payments to LSG within one year of the
Effective Date, we are required to pay LSG an additional $100,000,
and in any subsequent years in which we fail to complete the
payment of the entire $5 million described above, we must make
quarterly cash payments to LSG of $25,000 until such time as we
have earned the additional 60% interest in the
Property.
Given that permitting for operations on the Property is still to be
completed, LSG granted a series of deferrals of the payments, with
the most recent being granted on January 11, 2017. LSG agreed on
that date to defer payment of all amounts due in accordance with
the Mineral Option Agreement until further notice. On January 17,
2017, the Company and LSG agreed that as of January 1, 2017, all
outstanding balances shall carry a compound interest rate of 5% per
annum. It was further agreed that the ongoing payment deferral
shall apply to interest and principal.
The Option Agreement provides that we will act as the operator on
the Property and that a management committee will be formed,
comprised of representatives from us and LSG, with voting based on
each party’s proportionate interest, to
supervise exploration of the Property and approve work
programs and budgets. To the date of this report, no work programs
have been approved and LSG has borne all costs in connection with
operations on the Property. We expect the first work program,
entailing Property-related costs for which we will be responsible,
to be approved in the latter half of 2017.
Change in Shell Company Status
Prior to our acquisition of the mineral property interest, we were
a “
shell company”
(
as such term is defined in
Rule 12b-2 under the Exchange Act)
since we were not
generating revenues, did not own an operating business, did not
have any assets other than cash and cash equivalents, and had no
specific plan other than to engage in a merger or acquisition
transaction with an operating company or
business.
4
|
ITEM 1.
|
BUSINESS
(
continued
)
|
Change in Control of Registrant
As a result of the Acquisition, LSG acquired 35,000,000 shares of
our common stock, or approximately 71.2% (currently) of the total
voting power of all of our outstanding voting securities. LSG
assumed control from the holders of our issued and outstanding
common stock, and in particular our former president, who owned
approximately 24.3% of our common stock prior to the Closing
Date.
Lode-Star Gold INC. (“LSG”)
LSG was incorporated in the State of Nevada on March 13, 1998 for
the purpose of acquiring exploration stage mineral
properties. It currently has one shareholder, Lonnie
Humphries, who is the spouse of Mark Walmesley, our President and
Chief Financial Officer. Mr. Walmesley is also the
Director of Operations and a director of LSG.
LSG acquired the leases to the Property in 1997 and became the
registered and beneficial owner of the Property on September 19,
2009. Since the earlier of those dates, it has conducted
contract exploration work on the Property but has not determined
whether it contains mineral reserves that are economically
recoverable.
LSG is an exploration stage company and has not generated any
revenues since its inception. The Property represents
its only material asset.
|
ITEM 1A.
|
RISK FACTORS
|
You should carefully consider the risks described below before
purchasing our common stock. The following risk factors could have
a material adverse effect on our business, financial condition and
results of operations.
We have a history of operating losses and there can be no assurance
that we can achieve or maintain profitability.
We have a history of operating losses and may not achieve or
sustain profitability. We cannot guarantee that we will become
profitable. Even if we achieve profitability, given the
competitive and evolving nature of the industry in which we
operate, we may be unable to sustain or increase profitability and
our failure to do so would adversely affect our business, including
our ability to raise additional funds.
Because our auditors have issued a going concern opinion, there is
substantial uncertainty that we will be able to continue our
operations.
Our auditors have issued a going concern opinion. This means
that there is substantial doubt that we can continue to operate
over the next 12 months. Our 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
we cannot continue in existence. As such, if we are unable to
obtain new financing to execute our business plan we may be
required to cease our operations.
The Property may not contain mineral reserves that are economically
recoverable and we cannot accurately predict the effect of certain
factors affecting such a determination.
LSG has not determined if the Property contains mineral reserves
that are economically recoverable. Exploration for mineral
reserves involves a high degree of risk, which even a combination
of careful evaluation, experience and knowledge, may not
eliminate. Few properties which are explored are ultimately
developed into producing properties. Estimates of mineral reserves
and any potential determination as to whether a mineral deposit
will be commercially viable can be affected by such factors as
deposit size; grade; unusual or unexpected geological formations
and metallurgy; proximity to infrastructure; metal prices which are
highly cyclical; environmental factors; unforeseen technical
difficulties; work interruptions; and government regulations,
including regulations relating to permitting, prices, taxes,
royalties, land tenure, land use, importing and exporting of
minerals and environmental protection. The exact effect of
these factors cannot be accurately predicted. The long term
profitability of our operations will be, in part, directly related
to the cost and success of our exploration and development
program. Substantial expenditures are required to establish
reserves through drilling, to develop processes to extract the ore
and, in the case of new properties, to develop the extraction and
processing facilities and infrastructure at any site chosen for
extraction. Although substantial benefits may be derived from
the discovery of a major deposit, we cannot provide any assurance
that any such deposit will be commercially viable or that we will
be able to obtain the funds required for development on a timely
basis.
5
|
ITEM 1A.
|
RISK FACTORS
(continued)
|
If the Property is ultimately placed into production, we will
encounter hazards and risks that could result in significant legal
liability.
In the event that we are ultimately able to commence commercial
production on the Property, our operations will be subject to all
of the hazards and risks normally encountered in the exploration,
development and production of gold, including unusual and
unexpected geologic formations, seismic activity, rock bursts,
cave-ins, flooding and other conditions involved in the drilling
and removal of material, any of which could result in damage to, or
destruction of, the mine and other producing facilities, damage to
life or property, environmental damage and possible legal
liability. Although we plan to take appropriate precautions to
mitigate these hazards and risks by, among other things, obtaining
liability insurance in an amount considered to be adequate by
management, their nature is such that the liabilities might exceed
policy limits, they might not be insurable, or we may not elect to
insure against them due to high premium costs or other reasons,
which could have a material adverse effect upon our financial
condition and results of operations.
We face significant competition in the mineral resource industry
that presents an ongoing threat to the success of our
business.
The mining industry is intensely competitive in all of its phases,
and we will be forced to compete with many companies that possess
greater financial resources and technical facilities than we
do. Significant competition exists for the limited number of
mineral acquisition opportunities available in our sphere of
operations. As a result of this competition, our ability to
acquire additional attractive mining properties on terms we
consider acceptable may be adversely affected.
Fluctuating mineral prices may negatively affect our ability to
secure financing or our results of operations.
Our future revenues, if any, will likely be derived from the
extraction and sale of base and precious metals. The price of
those commodities has fluctuated widely, particularly in recent
years, and is affected by numerous factors beyond our control
including economic and political trends, expectations of inflation,
currency exchange fluctuations, interest rates, global and regional
consumptive patterns, speculative activities and increased
production due to new extraction developments and improved
extraction and production methods. The effect of these factors
on the price of base and precious metals, and therefore the
economic viability of our business, could negatively affect our
ability to secure financing or our results of
operations.
We are subject to government laws and regulations particular to our
operations with which we may be unable to comply.
We may not be able to comply with all current and future government
environmental laws and regulations which are applicable to our
business. Our operations are subject to all government
regulations normally incident to conducting business: occupational
safety and health acts, workmen’s compensation statutes,
unemployment insurance legislation, income tax and social security
laws and regulations, and most importantly, environmental laws and
regulations. In addition, we are subject to laws and
regulations regarding the development of mineral properties in the
State of Nevada. We are also subject to governmental laws and
regulations applicable to small public companies and their capital
formation efforts.
We are engaged in mineral exploration and are accordingly exposed
to environmental risks associated with mineral exploration and
mining activity. LSG is currently in the exploration stage
and has not determined whether significant site reclamation costs
will be required on the Property in the future, which we will
likely be responsible for as well. Although we will make every
effort to comply with all applicable laws and regulations, we
cannot provide any assurance that we will be able to deal with
evolving environmental attitudes and regulations, nor can we
predict the effect of any future changes to environmental
regulations on our proposed business activities. We only plan
to record liabilities for site reclamation when reasonably
determinable and when such costs can be reliably
quantified. Other costs of compliance with environmental
regulations may also be burdensome. Our failure to comply with
material regulatory requirements could have an adverse effect on
our ability to conduct our business. The expenditure of
substantial sums on environmental matters would have a materially
negative effect on our ability to implement our business plan and
could require us to cease operations.
Our business depends substantially on the continuing efforts of our
officers, and our business may be severely disrupted if we lose
their services.
Our future success heavily depends on the continued service of our
officers. Although we plan to increase the size of our Board
of Directors, appoint additional officers and engage various
consultants as our business grows, if they are unable or unwilling
to continue to work for us in their present capacities, we may have
to spend a considerable amount of time and resources searching,
recruiting and integrating one or more replacements into our
operations, which would severely disrupt our business. This
may also adversely affect our ability to execute our business
strategy.
6
|
ITEM 1A.
|
RISK FACTORS
(
continued)
|
Our President’s limited experience managing a publicly traded
company may divert his attention from operations and harm our
business.
Mark Walmesley, our President, Chief Executive Officer, Chief
Financial Officer, Treasurer and director, has no previous
experience managing a publicly traded company and complying with
federal securities laws, including compliance with recently adopted
disclosure requirements on a timely basis. He will be required
to design and implement appropriate programs and policies in
responding to increased legal, regulatory compliance and reporting
requirements, and any failure to do so could lead to the imposition
of fines and penalties and harm our business.
We may be unable to attract and retain qualified, experienced,
highly skilled personnel, which could adversely affect the
implementation of our business plan.
Our success depends to a significant degree upon our ability to
attract, retain and motivate skilled and qualified
personnel. As we become a more mature company in the future,
we may find recruiting and retention efforts more
challenging. If we do not succeed in attracting, hiring and
integrating such personnel, or retaining and motivating existing
personnel, we may be unable to grow effectively. The
loss of any key employee, including members of our management
team, and our inability to attract highly skilled personnel with
sufficient experience in our industry could harm our
business.
We may indemnify our officers and directors against liability to us
and our security holders, and such indemnification could increase
our operating costs.
Our Amended and Restated Articles of Incorporation allow us to
indemnify our officers and directors against claims associated with
carrying out the duties of their offices. Our Bylaws also
allow us to reimburse them for the costs of certain legal
defenses. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our officers,
directors or control persons, we have been advised by the SEC that
such indemnification is against public policy and is therefore
unenforceable.
Since our officers and directors are aware that they may be
indemnified for carrying out the duties of their offices, they may
be less motivated to meet the standards required by law to properly
carry out such duties, which could increase our operating
costs. Further, if any of our officers and directors files a
claim against us for indemnification, the associated expenses could
also increase our operating costs.
Failure to comply
with the
Foreign Corrupt
Practices Act
could subject us to
penalties and other adverse consequences.
As a Nevada corporation, we are subject to
the
Foreign Corrupt Practices
Act
, which generally prohibits
United States companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of
obtaining or retaining business. Some foreign companies,
including some that may compete with us, may not be subject to
these prohibitions. Corruption, extortion, bribery, pay-offs,
theft and other fraudulent practices may occur from time-to-time in
the countries in which we conduct our business. However, our
employees or other agents may engage in conduct for which we might
be held responsible. If our employees or other agents are
found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse
effect on our business, financial condition and results of
operations.
Current global financial and economic conditions could adversely
impact our operations and financial condition.
Current global financial and economic conditions, while improving,
remain volatile. Many industries, including the mineral
resource industry, are impacted by these market
conditions. Some of the key impacts of the current financial
market turmoil include contraction in credit markets resulting in a
widening of credit risk; devaluations and high volatility in global
equity, commodity, foreign exchange and precious metal markets; and
a lack of market liquidity. Such factors may impact our
ability to obtain financing on favorable terms or at
all. Additionally, global economic conditions may cause a long
term decrease in asset values. If such global volatility
and market turmoil continue, our operations and financial condition
could be adversely impacted.
Risks Related to Ownership of Our Common Stock
Because there is a limited public trading market for our common
stock, investors may not be able to resell their
shares.
There is currently a limited public trading market for our common
stock. Therefore, there is no central place, such as stock
exchange or electronic trading system, to resell any shares of our
common stock. If investors wish to resell their shares, they
will have to locate a buyer and negotiate their own sale. As a
result, they may be unable to sell their shares or may be forced to
sell them at a loss.
7
|
ITEM 1A.
|
RISK FACTORS
(
continued)
|
We cannot assure investors that there will be a market in the
future for our common stock. The trading of securities on the
OTCQB is often sporadic and investors may have difficulty buying
and selling our shares or obtaining market quotations for them,
which may have a negative effect on the market price of our common
stock. Investors may not be able to sell shares at their
purchase price or at any price at all.
LSG has voting control over matters submitted to a vote of the
stockholders, and it may take actions that conflict with the
interests of our other stockholders and holders of our debt
securities.
We issued 35,000,000 shares of our common stock to LSG on the
Closing Date, and LSG therefore controls approximately 71.2% of the
votes eligible to be cast by stockholders in the election of
directors and generally. As a result, LSG has the power to
control all matters requiring the approval of our stockholders,
including the election of directors and the approval of mergers and
other significant corporate transactions.
The sale of securities by us in any equity or debt financing could
result in dilution to our existing stockholders and have a material
adverse effect on our earnings.
Any sale of common stock by us in a future private placement
offering could result in dilution to the existing stockholders as a
direct result of our issuance of additional shares of our capital
stock. In addition, our business strategy may include
expansion through the acquisition of additional property interests
or through business combinations with entities operating in our
industry. In order to do so, or to finance the cost of our
operations, we may issue additional equity securities that could
dilute our stockholders’ stock ownership. We may also
pursue debt financing, if and when available, and this could
negatively impact our earnings and results of operations.
If
the board of directors issues an additional class of voting for
less than fair value, the value of your interest in the company
will be diluted. We have no present intention to issue any
additional class of voting securities.
We are subject to penny stock regulations and restrictions and
investors may have difficulty selling shares of our common
stock.
Our common stock is subject to the provisions of Section 15(g) and
Rule 15g-9 of the Exchange Act, commonly referred to as the
“penny stock rules”. 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 (excluding the value of
such person’s primary residence) 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 such security
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 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 the 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 of
common stock.
There can be no assurance that our common stock will qualify for
exemption from the penny stock rules. In any event, even if
our common stock was exempt from the penny stock rules, we would
remain subject to Section 15(b)(6) of the Exchange Act, which gives
the SEC the authority to restrict any person from participating in
a distribution of penny stock if the SEC finds that such a
restriction would be in the public interest.
We do not expect to pay dividends for the foreseeable
future.
We do not intend to declare dividends for the foreseeable future,
as we anticipate that we will reinvest any future earnings in the
development and growth of our business. Therefore, our
stockholders will not receive any funds unless they sell their
common stock, and stockholders may be unable to sell their shares
on favorable terms or at all.
8
|
ITEM 1A.
|
RISK FACTORS
(
continued)
|
Investors may face significant restrictions on the resale of their
shares due to state “blue sky” laws.
Each state has its own securities laws, commonly known as
“blue sky” laws, which (1) limit sales of securities to
a state’s residents unless the securities are registered in
that state or qualify for an exemption from registration, and (2)
govern the reporting requirements for broker-dealers doing business
directly or indirectly in the state. Before a security is sold
in a state, there must be a registration in place to cover the
transaction, or it must be exempt from registration. The
applicable broker-dealer must also be registered in that
state.
We do not know whether our securities will be registered or exempt
from registration under the laws of any state. A determination
regarding registration will be made by those broker-dealers, if
any, who agree to serve as market makers for our common
stock. There may be significant state blue sky law
restrictions on the ability of investors to sell, and on purchasers
to buy, our securities. Investors should therefore consider
the resale market for our common stock to be limited, as they may
be unable to resell their shares without the significant expense of
state registration or qualification.
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
None.
|
ITEM 2.
|
PROPERTIES
|
The Property is located in west-central Nevada (Figure 1), in the
Goldfield Mining District at Latitude 37° 42’, and
Longitude 117° 14’. The claims comprising the
Property are located in surveyed sections 35 and 36, Township 2
South, Range 42 East, and in sections 1, 2, 11, and 12, Township 3
South, Range 42 East, in Esmeralda County, Nevada. The
Property is accessible by traveling approximately one-half mile
northeast of the community of Goldfield, along a county-maintained
road that originates at U.S. Highway 95, which runs through
“downtown” Goldfield. The town of Goldfield,
which is the Esmeralda county seat (population 300), is
approximately 200 air miles south of Reno and 180 air miles north
of Las Vegas. Surface access on the Property is excellent and the
relief is low, at an elevation of approximately 6000
feet. Vegetation is sparse, consisting largely of
sagebrush, rabbitbrush, Joshua trees and grasses.
9
|
ITEM 2.
|
PROPERTIES
(continued)
|
Figure
1: Property Location Map
The Property is wholly owned by the company's largest shareholder
and is clear titled. The property consists of 31 patented claims
and 1 unpatented millsite claim, covering a total of approximately
460 acres, or 186 hectares. Only the single unpatented claim
is administered by the United States Bureau of Land Management, and
annual assessment filings and payments are due on it. The
patented claims are owned as private land by LSG, and only annual
property taxes must be paid. We have mineral rights to all the
following claims. We have surface rights on all claims except for a
portion of five claims that exist within the town boundary of
Goldfield. See Figure 2, Claim Map.
10
|
ITEM 2.
|
PROPERTIES
(continued)
|
The 31 patented claims and one unpatented millsite claim are as
follows:
Patented Claims
|
Claim
Name
|
U.S. Survey
No.
|
|
Combination No.
3
|
2375
|
|
August
|
2916
|
|
Great Western
|
2525
|
|
Gold Coin
|
2525
|
|
February
|
2941
|
|
Mohawk No. 1
|
2283
|
|
Side Line
Fraction
|
2567
|
|
January
|
2941
|
|
Silver Pick
|
2203
|
|
Silver Pick
Fraction
|
2203
|
|
Deserted
(1)
|
2203
|
|
Pipe Dream
|
2203
|
|
North End
(2)
|
2203
|
|
Hazel Queen
|
2375
|
|
Fraction
|
2844
|
|
White Horse
|
2844
|
|
White Rock
|
2844
|
|
Yellow Jacket
|
2844
|
|
Firelight
|
2749
|
|
Emma Fraction
|
2360
|
|
S.E. 2/3 Red King (more or
less)
|
2361
|
|
S.E. 1/2
(Cornishman)
|
2750
|
|
Kewana #3
|
2565
|
|
Blue Jay
|
2375
|
|
Combination No. 1 Claim
(3)
|
2375
|
|
Combination No 2 Claim
(4)
|
2844 (19/24th
interest)
|
|
Omega
|
2844 (19/24th
interest)
|
|
Apazaca
|
2844 (19/24th
interest)
|
|
Alpha
|
2844 (19/24th
interest)
|
|
Jim Fraction
|
4096 (19/24th
interest)
|
|
O.K. Fraction
|
2560 (¾ of ½
interest)
|
Notes:
(1)
Excluding the upper 200 feet from surface of the north ½ of
such claim (the “Deserted Excluded Zone”). We may, in
our sole and unfettered discretion, by written notice to LSG at any
time during the term of the Option Agreement, opt to include the
Deserted Excluded Zone in the Property.
(2)
Excluding the upper 200 feet from surface of the east ½ of
such claim (the “North End Excluded Zone”). We may, in
our sole and unfettered discretion, by written notice to LSG at any
time during the term of the Agreement, opt to include the North End
Excluded Zone in the Property.
(3)
Includes all depths of the north ½ of such claim along with
depths beneath 380 feet on the south ½ of such
claim.
(4)
Includes all depths of the south ½ of such claim along with
depths beneath 380 feet on the south ½ of such
claim.
Unpatented Claims
|
Claim
Name
|
Nevada Mining Claim
(NMC) No.
|
|
Troublemaker
|
1034313
|
The claims include any and all contracts, easements, leases and
rights-of-way affecting or appurtenant thereto.
The fees and maintenance of the claims are currently being paid by
the property's owner Lode-Star Gold, INC. The annual fee for
maintaining all the claims is under $1,500. A map of the claims is
shown below in Figure 2.
11
|
ITEM 2.
|
PROPERTIES
(continued)
|
Figure
2: Claim Map
12
|
ITEM 2.
|
PROPERTIES
(continued)
|
Current Infrastructure:
All properties, claims, buildings, equipment, and supplies are
owned by the Company's largest shareholder, Lode-Star Gold, INC.
The Company has free access to utilize and manage all the above
noted items.
The property is immediately adjacent to the historic gold producing
town of Goldfield, NV, which is the county seat for Esmeralda
County. Water, electricity and other sundry needs such as
restaurants, lodging, minor medical needs, fire station, police,
are within 1 mile of the property.
The Company manages operations from a 6,000 sq. ft. office and
warehouse facility complete with showers and laundry amenities. Two
residential trailer sites are immediately adjacent to this building
for crew needs.
The property has one working shaft, the February Premier, which has
access to the 300 ft level, with approximately 1/2 mile of
ventilated drift. Underground work has identified 2 high-grade
gold-bearing zones which the company plans to further explore.
Given that the most prudent exploration must take place
underground, the company is applying through LSG for a "Surface
Separation Facility” through the Nevada Department of
Environmental Protection. The program that we envision undertaking
in the first half of 2017 includes the mining of approximately
10,000 tons of non NI 43-101 compliant gold mineralization at an
approximate grade of .9 ounces per ton. The estimated grade is
based on historic drilling work done by LSG, for which the 1.5 inch
core samples were consumed by assay requirements. In order to
provide adequate sample weights to the assaying lab, the entire
core was processed for individual samples. While we have
encountered several additional high-grade drill anomalies
throughout the property, it is important to note that we have no
proven and/or probable reserves at the present time and therefore
the program is exploratory in nature.
The property has two operating water monitoring wells (completed
April 15, 2016) that are mandatory for us to receive a water
pollution control permit. Part of the permitting application is for
the allowance of the company to store its waste rock underground.
The property has no milling on site and we must rely on a third
party to receive our mineralized material and tombstone our
tailings.
On February 17, 2017 we executed an agreement with Scorpio Gold
Corporation (Scorpio) for a pilot toll milling test of our
mineralized material. Upon our completion of required permitting
activities with the Nevada Division of Environmental Protection,
Bureau of Mining Regulation and Reclamation (NDEP), the bulk sample
pilot test will provide the baselines for metallurgical recoveries
and mill throughput. Dependent on the pilot test results and
completion of a cost analysis and other operational details,
negotiation of a full scale, custom milling agreement is planned.
That milling agreement would allow material from our Property to be
processed through Scorpio’s Goldwedge property, located 75
miles north of Goldfield in Manhattan, Nevada. The Goldwedge mill
is a fully permitted, 400 tpd facility with an associated gravity
recovery circuit. Scorpio has received approval under their permits
to test and process material from other facilities.
Any coarse gold component of Lode-Star’s material will be
recovered by the gravity circuit. Further testing will be conducted
on the tailings to determine the economics of shipping tailings to
Scorpio's Mineral Ridge heap leach property for final recovery of
cyanide leachable precious metals. Mineral Ridge has also indicated
it can provide assaying services to Lode-Star.
100% of the permitting cost, approximately $200,000 to date, has
been borne by our largest shareholder, Lode-Star Gold INC. The
budget for this exercise is $250,000. Once permitting is completed,
further estimated costs are as detailed in Item 7.
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
We are not a party to any pending legal proceeding which management
believes is likely to result in a material liability and no such
action has been threatened against us, or, to the best of our
knowledge, is contemplated.
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable.
13
|
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 periods
indicated below are as follows:
|
|
2016
|
2015
|
||
|
Quarter Ended
|
High
|
Low
|
High
|
Low
|
|
March
31
|
$
0.04
|
$
0.025
|
$
0.11
|
$
0.03
|
|
June
30
|
$
0.05
|
$
0.03
|
$
0.05
|
$
0.02
|
|
September
30
|
$
0.04
|
$
0.032
|
$
0.0275
|
$
0.015
|
|
December
31
|
$
0.052
|
$
0.031
|
$
0.04
|
$
0.01
|
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, 2016, we had 68 shareholders of record of our
common stock.
Capitalization
There was no change to our capitalization in the year ended
December 31, 2016.
On February 14, 2017, we granted 9,500,000 non-qualified stock
options, pursuant to our Equity Incentive Plan (see below), 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.
On November 24, 2015, the board of directors authorized the
following changes to our capitalization:
Our authorized capital was increased from 100,000,000 shares of
common stock with a par value of $0.00001 per share to 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.
No shares of preferred stock have been issued to date.
There are no present plans, understandings or agreements, and we
are not engaged in any negotiations that will involve the issuance
of capital stock. However, the board of directors believes it
prudent to have shares of common and preferred stock available for
such corporate purposes as the board of directors may from time to
time deem necessary and advisable including, without limitation,
acquisitions, the raising of additional capital and assurance of
flexibility of action in the future.
14
|
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
As part of the November 24, 2015 changes to our capitalization, we
reserved 10,000,000 shares of common stock for issuance under a new
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 posted on our website at
www.lodestarmining.
com and is
available to any stockholder by request to us.
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.
15
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(continued)
|
Recent Sales of Unregistered Securities
During the years ended December 31, 2016 and 2015, we had no cash
subscriptions for shares of our common stock.
On November 11, 2015, we entered into a one year agreement to
obtain assistance in conducting business strategy and
communications planning, public financial disclosure reporting, and
various matters in connection with directors and other
professionals as needed by us. In consideration for the services to
be provided, we granted the consultant 1,469,825 shares of common
stock. Those shares were issued on December 11, 2015 and were
valued at $29,397, based on market price at the date of the
agreement. In addition, the consultant was granted warrants with a
five year term, commencing the date of the agreement, to purchase
3,336,060 shares of common stock at a price of $0.02 per share,
including a cashless exercise option. The warrants were valued at
$66,721 using the Black-Scholes option pricing model.
The shares and warrants issued to the consultant were offered and
sold in a private transaction in reliance upon the exemption from
registration pursuant to Section 4(2) of the Securities
Act. Our reliance on Section 4(2) of the Securities Act
was based upon the following factors: (a) the issuance of the
securities was an isolated private transaction by us which did not
involve a public offering; (b) there was only one offeree; (c) we
did not engage in any subsequent or contemporaneous public
offerings of securities; (d) the securities were not broken down
into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the consultant and
us.
On January 9, 2015, we reached agreements in connection with the
loans to us of $24,696 (CAD $28,650) and $1,767 (CAD $2,050)
whereby the loan amounts were to be converted to our common shares
at a price of CAD $0.05, to result in the issuance of 573,000 and
41,000 common shares respectively. Those shares were issued on
April 6, 2015.
On January 9, 2015, an agreement was reached to modify the terms of
a loan to us such that $26,750 of accrued interest together with a
premium was to be converted to our common shares at a price of
$0.05 per share, to result in the issuance of 535,000 common
shares. Those shares were issued on April 6, 2015.
Other than as described above, or as disclosed in previous reports
filed with the SEC, we have not issued any equity securities that
were not registered under the Securities Act within the past three
years.
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information under
this item.
|
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.
Plan of Operations
We anticipate that we will require approximately $2 million to
pursue our plan of operations over the next 12 months, as detailed
below:
Previous Exploration Work, Mineralization, State of
Exploration.
The Property is wholly owned by LSG, our largest shareholder and is
clear titled. A 1% net smelter royalty exists in the favor of the
original property owner. The property consists of 31 patented
claims on approximately 460 acres. LSG, over the past 15 years and
continuing, has spent over $5 million on underground rehab of
approximately 1/4 mile of drift at the 300ft sub surface level. LSG
also executed 22 surface core drill holes for a total of 10,400ft
and 152 underground core drill holes for a total of
23,000ft.
16
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
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. 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 5-foot intervals entirely. Quality control
for all samples included a protocol of inserting duplicate samples,
blanks, and known standards, at repeating intervals so as to
maintain 08% check sampling. Lab preparation of Individual samples
included crushing and grinding to minus 200 mesh, followed by a
1-ton assay for gold. All samples that initially assayed over 1.0
opt Au were systematically re-assayed.
Underground work has identified 2 high-grade gold-bearing zones
(see the small yellow stars in Fig. 1. and see Fig. 2.) that can
support mine development utilizing our current infrastructure. The
property is being permitted for production and should be mine ready
by early 2017. It is our intention to then start mining the
property. Much of the property remains under explored and it is our
belief that the district's high-grade, million ounce ore zones
repeat themselves. Further surface and underground exploration work
needs to be executed. We plan to explore through production and
chase our known high-grade vein zones.
17
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
The
white stars
below
show the historic zones where roughly 1 million ounces per star
were produced during the period 1904-1918 (See Figure 1a. below):
Last year of production by Goldfield Consolidated, (Source: Albers
and Stewart, 1972). The
large yellow stars
indicate
areas we need to explore to possibly repeat the past high-grade
production intercepts. The
yellow lines
are known
geophysical interpreted structures. The
small yellow stars
are the
immediate production zones targeted by us for development at an
estimated cost of $2 million.
Fig. 1. - The red vein zones contained in the aerial photo below
depict the historic mined veins
18
|
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
19
|
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
20
|
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 either to
the north or to the south.
21
|
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
22
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Fig. 4. - Plan View of Red Hills Vein Zones
23
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Fig. 5 - Red Hills Vein Zones Cross Section 3370N
Red Hills Stope Zone Summary
The drilling of this resource area was performed by LSG from 2000 -
2006 and assaying was performed by ALS Chemex. All activity was
performed prior to the company's need to have the drilling be
resource NI 43-101 compliant. We assume the zone could produce
10,000 ounces of AU. Historic underground mining was executed by
chasing veins that yielded pockets of high grade gold production.
It is LSM's intention to follow the same method and chase its known
high-grade gold-bearing veins. LSM'S initial mining stage in the
Red Hills area will extract mineralized material from the currently
exposed Stope Vein Zone, and the Decline Vein Zone on the 300-ft
mine level. Mining dimensions in the Stope Zone are expected to be
an average of 4 to 10 feet wide, approximately 80 feet upwards and
100 feet along strike. The mining in the Decline will achieve
mineralized material extraction while developing access to lower
levels. Eventually the gold mineralization below the 300 foot level
in both the Stope and Decline Vein Zones will be removed through
the development of a downward spiral ramping approach, ultimately
accessing mining depths to approximately the 450-ft mine
level.
Church Vein Zone - Priority 2.
Based on the success and encouragement realized through drilling
conducted by Trafalgar in 1982 and Westley in 1985, and further
success through follow-up drilling by LSG and ICN to date, a vein
zone measuring up to 40 feet in width and trending at least 600
feet north-northeasterly, exists immediately west of the Church
shaft (fig. 6 below).
As shown on fig. 6, our interpretation of drilling to date
indicates this vein zone, which is comprised of numerous individual
veins up to several inches in width each, to be a steeply
westerly-dipping feature, with several intercepts of high-grade
gold exceeding 1.0 ounce of gold per ton. Areas highlighted in red
on figures 6 and 7 display interpreted orientation of repeated vein
sets based on drill intercepts. Figure 6 also shows the high
priority drill targets that we expect to yield additional
high-grade gold concentrations in the Church Vein zone. The nearly
200-foot vertical interval between the 100-level gold
mineralization and the 300-level gold mineralization is a high
priority target, as are the extensions to the north and south, and
down-dip from the 300-level workings.
24
|
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
25
|
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 metres and 63 RC holes for a total
of 8,375 meters. (See ICN press release dated August, 2011). The
core holes were drilled in the Church Zone. Per ICN's press
release, highlights of the better holes
included:
ICN's 2011 Church Zone Core Hole Drilling Highlights:
●
Hole ICN-003 intersects
45.6 metres of 96.3 g/t
Au
,
including
2.90
metres of 1,454.3 g/t AU.
●
Hole ICN-013 intersects
14.9 metres of 164.5 g/t
Au
,
including
5.5 M @ 445.2 g/t
Au
.
●
Hole ICN-014 intersects
12.0 metres of 222.6 g/t
Au
,
including
2.9 m @ 918.0 g/t
Au
.
|
Hole ID
|
Azimuth
|
Angle
|
TD
|
From (m)
|
To (m)
|
Interval (m)
|
Au (g/t)
|
Au (oz/t)
|
|
ICN-001
|
vertical
|
-
|
197.9
|
51.5
|
74.7
|
23.2
|
10.50
|
|
|
|
including
|
|
|
59.8
|
61.6
|
1.83
|
119.3
|
|
|
|
|
|
|
80.5
|
123.2
|
42.7
|
1.40
|
|
|
ICN-002
|
vertical
|
-
|
107.9
|
36.3
|
45.4
|
9.1
|
4.08
|
|
|
ICN-003
|
vertical
|
-
|
121.6
|
16.9
|
62.5
|
45.6
|
96.3
|
3.09
|
|
|
including
|
|
|
16.9
|
19.8
|
2.90
|
1454.3
|
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
|
70.15
|
|
|
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
|
|
Permitting, Toll milling and Site preparation
Our primary objective remains the completion of our mine permitting
process. This entails having a toll milling agreement with an
existing milling operation to handle processing of our mineralized
material as well as the tomb-stoning of the tailings from that
mineralized material. As detailed above in Item 2, on February 17,
2017 we executed an agreement with Scorpio Gold Corporation for a
pilot toll milling test of our mineralized material. Dependent on
the pilot test results and completion of a cost analysis and other
operational details, negotiation of a full scale, custom milling
agreement is planned.
In late October of 2016 the Company's largest shareholder Lode-Star
Gold, INC hired four personnel to initiate site preparation of its
surface facilities in anticipation of filing a Notification of
Commencement with both the State of Nevada and MSHA agencies in
order to reoccupy its mine workings.
26
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Permitting
Unique to our permitting is the proposed underground area of work
named the Red Hills Stope Zone. It is 150 feet above the 450 foot
deep water table, making the mine essentially a dry
mine.
The mine’s 300 foot level workings has pockets of unused
volume where our potentially acid generating waste rock can be
stored. This means no waste rock will come to the surface and LSM
will avoid, for the short-term, the expense of having to build and
maintain a surface storage facility.
We are hopeful that the two aforementioned mitigating circumstances
will make our permitting process more rapid and therefore, the
costs of execution and infrastructure improvements will be kept at
a minimum.
Permitting costs to date are approximately $200,000 and are
anticipated to total $250,000.
In addition to the permitting costs the Company expects its 1 year
development costs to come in as follows:
|
Site and Surface Preparation
|
$100,000
|
|
Equipment and Mining Materials
|
$500,000
|
|
Underground Rehab & Preliminary Mine Development
|
$110,000
|
|
Ore Grade Control
|
$50,000
|
|
Red Hills Vein Zone Work
|
$270,000
|
|
General Corporate and Administration Fees
|
$720,000
|
Funding
We do not currently have sufficient funds to carry out our entire
plan of operations, so we intend to meet the balance of our cash
requirements for the next 12 months through a combination of debt
financing and equity financing through private
placements. Currently we are active in contacting
broker/dealers regarding possible financing arrangements; however,
we do not currently have any arrangements in place to complete any
private placement financings and there is no assurance that we
will be successful in completing any such
financings.
If we are unsuccessful in obtaining sufficient funds through our
capital raising efforts, we may review other financing options,
although we cannot provide any assurance that any such options will
be available to us or on terms reasonably acceptable to
us. Further, if we are unable to secure any additional
financing then we plan to reduce the amount that we spend on our
operations, including our management-related consulting fees and
other general expenses, so as not to exceed the capital resources
available to us. Regardless, our current cash reserves and
working capital will not be sufficient for us to sustain our
business for the next 12 months, even if we decide to scale back
our operations.
Going Concern
Our auditors have issued a going concern opinion. This means that
there is substantial doubt that we can continue as an on-going
business for the next twelve months unless we obtain additional
capital to pay our expenses. This is because we have not generated
any revenues to date and we cannot currently estimate the timing of
any possible future revenues. Our only source for cash at this time
is investments by others in our common stock, or
loans.
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, Mark Walmesley, our
COO and our Corporate Secretary receive no compensation for their
services. We expect to continue to use outside consultants,
advisors, attorneys and accountants as necessary.
27
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
On January 19, 2015, Thomas Temkin was appointed as Chief Operating
Officer and to the Board of Directors. Mr. Temkin is a Certified
Professional Geologist and a Qualified Person under National
Instrument (NI) 43101, with more than 39 years of experience in the
mining industry, primarily in exploration in the Western United
States. He is currently a consulting geologist working with LSG.
Mr. Temkin has been associated with LSG and the Property for over
15 years and has been instrumental through its entire exploration
program to date.
On April 22, 2015, Pam Walters was appointed as our Corporate
Secretary. Ms. Walters has been associated with the mining industry
for over 25 years and has managed the corporate finance and
business operations of LSG and its owners.
Other than our three officers, we have no employees. We plan to
rely on the efforts of our officers and directors, as well as a
number of independent consultants, to manage our
operations. However, we may hire workers on a contract
basis from time to time as the need arises.
Government Regulations
We plan to engage in mineral exploration and are accordingly
exposed to environmental risks associated with mineral exploration
activity. LSG is currently in the exploration stage on
the Property and, pursuant to the Option Agreement, once formal
work plans are mutually agreed between us and LSG, we will be the
operator.
In general, in Nevada, no government permits are required on mining
claims for exploration activities which do not involve the use of
powered equipment. Any disturbance of existing land and
vegetation by powered means will generally require a permit which
will specify that after work is completed land be re-contoured to
the original surface and be seeded with native plant
species. On unpatented claims with federally-owned
surface, a “Notice of Intent” must be filed with the
BLM for all activities involving the disturbance of five acres (two
hectares) or less of the surface. A Notice of Intent
will include details on the company submitting the notice, maps of
the proposed disturbance, equipment to be utilized, the general
schedule of operations, a calculation of the total disturbance
anticipated, and a detailed reclamation plan and
budget. A bond will be required to ensure reclamation
and the amount will be determined by the calculated acreage being
disturbed. The notice does not have an approval process
associated with it but the bond calculation does have to be
approved with a letter from the BLM before work can
proceed. It is not necessary to file a Notice of Intent
prior to work on land with privately owned surface.
Measurement of land disturbance is cumulative, and once five acres
total has been disturbed on one project, a “Plan of
Operations” must be filed and approved by the BLM before
additional work can take place. This too requires a cash
bond along with a reclamation plan.
LSG is not required to file a Notice of Intent for the Property
with the BLM; instead, it is required to file one with the
Department of Environmental Protection of the State of Nevada
(NDEP), since the only portion of the Property that has
publicly-owned surface rights is that which overlaps the Goldfield
town limits. This form of notice includes the same information as
the BLM Notice of Intent except that a detailed reclamation plan,
budget and bond are not required. The notice also has a
very informal approval process associated with it.
LSG is currently operating under a Notice of Intent filed with the
NDEP and dated January, 2011. This is an open-ended
permit that does not require bonding for reclamation and allows for
a total of five acres of disturbance. We do not have any
additional pending Notices of Intent.
To the best of our knowledge, there are no existing environmental
liabilities on the Property. A detailed environmental
investigation has not been conducted.
28
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Results of Operations
The following summary of our results of operations should be read
in conjunction with our restated audited financial statements for
the year ended December 31, 2016 which are included with this
Report. 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.
Revenues
|
|
Year
Ended December 31
|
Increase/(Decrease)
|
||
|
|
2016
|
2015
|
Amount
|
Percentage
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
-
|
|
Operating
Expenses
|
234,375
|
390,796
|
(156,421
)
|
(40
%)
|
|
Operating
Loss
|
(234,375
)
|
(390,796
)
|
156,421
|
(40
%)
|
|
Other
Income (Expense)
|
(33,741
)
|
(20,525
)
|
(13,216
)
|
64
%
|
|
Net
Loss
|
$
(268,116
)
|
$
(411,321
)
|
$
143,205
|
(35
%)
|
We recorded a net loss of $268,116 for the year ended December 31,
2016, have an accumulated deficit of $1,680,140 and have had no
operating revenues. The possibility and timing of revenue being
generated from our mineral property interest is
uncertain.
Expenses
Our expenses for the years ended December 31, 2016 and 2015 are
outlined below:
|
|
Year
Ended December 31
|
Increase/(Decrease)
|
||
|
|
2016
|
2015
|
Amount
|
Percentage
|
|
Consulting
services
|
$
25,776
|
$
121,409
|
$
(95,633
)
|
(79
%)
|
|
Corporate
support services
|
2,099
|
12,759
|
(10,660
)
|
(84
%)
|
|
Interest,
bank and finance charges
|
28,628
|
20,525
|
8,103
|
39
%
|
|
Mineral
option fees
|
100,000
|
123,913
|
(23,913
)
|
(19
%)
|
|
Office,
foreign exchange and sundry
|
11,783
|
10,136
|
1,647
|
16
%
|
|
Penalties
|
5,113
|
-
|
5,113
|
-
|
|
Professional
fees
|
67,182
|
94,783
|
(27,601
)
|
(29
%)
|
|
Transfer
and filing fees
|
27,535
|
27,796
|
(261
)
|
(1
%)
|
|
Total
Operating and Other Expenses
|
$
268,116
|
$
411,321
|
$
(143,205
)
|
(35
%)
|
Consulting services
In
2015, we entered into a one year agreement to obtain assistance in
conducting business strategy and communications planning, public
financial disclosure reporting, and various matters in connection
with directors and other professionals as needed by us. In
consideration for the services to be provided, we granted the
consultant a combination of common stock and warrants valued at
approximately $96,000. That expense in 2015 accounts for the
majority of the difference in consulting expense between 2015 and
2016.
Corporate support services
Approximately
$5,000 was incurred in 2015 with our provider of corporate support
services, compared to approximately $2,000 in 2016, due to a
decreased level of activity related to regulatory filings and share
issuances in 2016. In addition, $8,000 was incurred for services
from the Depository Trust Company in 2015, with no equivalent in
2016.
Interest, bank and finance charges
The
increase in interest expense in 2016 was mainly due to a net
increase of approximately $125,000 in interest-bearing loans during
the year.
29
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Mineral option fees
Mineral
option fees payable under the terms of our Option Agreement with
LSG totaled $123,913 in 2015 (a $100,000 initial fee, plus the
major portion of one quarter at $25,000) and $100,000 in 2016 (four
full quarters at $25,000).
Penalties
The
2016 Penalties expense is due to the accrual of an IRS penalty in
connection with our 2013 income tax filing.
Professional fees
The
majority of the decrease in Professional fees in 2016 was due to
lower legal fees. Tax-related legal services were higher in 2015 by
approximately $6,000 as a result of work required on prior
years’ tax issues, while general legal services were also
higher that year by approximately $20,000, mainly due to legal work
for our S-1 and Schedule 14C filings.
Assets and Liabilities
Balance Sheet items with notable year over year differences are as
follows:
|
|
December
31
|
Change
|
||
|
|
2016
|
2015
|
Amount
|
Percentage
|
|
Cash
|
$
5,134
|
$
12,456
|
$
(7,322
)
|
(59
%
)
|
|
Prepaid
fees
|
$
-
|
$
3,217
|
$
(3,217
)
|
(100
%
)
|
|
Accounts
payable and accrued liabilities
|
$
19,016
|
$
14,302
|
$
4,714
|
33
%
|
|
Due
to related parties
|
$
762,117
|
$
495,384
|
$
266,733
|
54
%
|
|
Loans
payable
|
$
62,310
|
$
76,180
|
$
(13,870
)
|
(18
%
)
|
Cash
decreased due to the amount of cash
provided by loans being approximately $7,000 lower than the amount
of cash used in operating activities.
Prepaid fees
decreased due to the remaining balance
of a retainer for legal services which was paid in 2015, being
expensed in 2016. The retainer was $20,000, of which approximately
$17,000 was expensed in 2015.
Accounts payable and
accrued liabilities
increased
mainly due to the accrual of an IRS penalty assessed in 2016 in
connection with our income tax filing for 2013. See
Penalties
in the
Expenses
section above.
Due to related
parties
increased due to the
following:
º
the
accrual of mineral option fees due to LSG totaling
$100,000;
º
net
cash loan advances from related parties of approximately
$75,000;
º
accrued
loan interest due to related parties of approximately $22,000;
and
º
expenses
(net of foreign exchange) paid by a related party on our behalf of
approximately $69,000
Loans payable
decreased due to repayment of loan
principal totaling $20,000, offset by accrued interest of
approximately $6,000.
30
|
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, 2016 and 2015 and the
changes between those dates are summarized below:
Working Capital
|
|
December
31
|
Increase/(Decrease)
|
||
|
|
2016
|
2015
|
Amount
|
Percentage
|
|
Current
Assets
|
$
5,134
|
$
15,673
|
$
(10,539
)
|
(67
%)
|
|
Current
Liabilities
|
843,443
|
585,866
|
257,577
|
44
%
|
|
Working
Capital (Deficiency)
|
$
(838,309
)
|
$
(570,193
)
|
$
(268,116
)
|
47
%
|
The decrease in our working capital from December 31, 2015 to
December 31, 2016 was due to a decrease in cash of approximately
$7,000 and prepaid fees of approximately $3,000, together with an
increase in accounts payable and accrued liabilities of
approximately $5,000, accrued mineral option fees of $100,000, and
a net increase in loans, accrued interest, and expenses paid on our
behalf by related parties totaling approximately 167,000, offset by
a net decrease of approximately $14,000 in non-related party loans
payable.
Cash Flows
|
|
Year
Ended December 31
|
Increase/(Decrease)
|
||
|
|
2016
|
2015
|
Amount
|
Percentage
|
|
Cash
Flows Provided By (Used In):
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
|
$
(62,322
)
|
$
(146,316
)
|
$
83,994
|
(57
%)
|
|
|
|
|
|
|
|
Financing
Activities
|
55,000
|
153,400
|
(98,400
)
|
(64
%)
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
$
(7,322
)
|
$
7,084
|
$
(14,406
)
|
(203
%)
|
As a result of the decrease in cash used in operating activities in
2016, the requirement for additional loan amounts also
decreased.
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 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.
31
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
|
Commitments
We do not have any commitments as of December 31, 2016 which are
required to be disclosed in tabular form.
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.
32
|
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 7A
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information
required under this item.
33
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
LODE-STAR MINING INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
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
|
34
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of
Lode-Star Mining,
Inc.
Cypress,
TX
We have audited the accompanying balance sheets of Lode-Star
Mining, Inc. (the “Company”) as of December 31, 2016
and 2015, and the related statements of operations, changes in
stockholders’ deficiency, and cash flows for each of the
years then ended. These financial statements are the responsibility
of the entity’s management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Lode-Star Mining, Inc. as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for each of the years
then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency
that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston,
Texas
March
29, 2017
F-1
LODE-STAR MINING INC.
|
|
DECEMBER 31
|
|
|
|
2016
|
2015
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
|
|
|
|
Cash
|
$
5,134
|
$
12,456
|
|
Prepaid
fees
|
-
|
3,217
|
|
Total current assets
|
5,134
|
15,673
|
|
|
|
|
|
Mineral
Property Interest, unproved
|
230,180
|
230,180
|
|
|
|
|
|
Total assets
|
$
235,314
|
$
245,853
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
Accounts
payable and accrued liabilities
|
$
19,016
|
$
14,302
|
|
Due
to related parties and accrued interest
|
762,117
|
495,384
|
|
Loans
payable and accrued interest
|
62,310
|
76,180
|
|
Total current liabilities
|
843,443
|
585,866
|
|
|
|
|
|
Commitments and contingencies (Notes 3, 7 and 8)
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
Capital Stock:
|
|
|
|
Authorized:
|
|
|
|
480,000,000
voting common shares with a par value of $0.001 per
share
|
|
|
|
20,000,0000
preferred shares with a par value of $0.001 per share
|
|
|
|
Issued:
|
|
|
|
49,127,825
common shares at December 31, 2016 and 2015
|
1,947
|
1,947
|
|
Additional
Paid-In Capital
|
1,070,064
|
1,070,064
|
|
Accumulated
Deficit
|
(1,680,140
)
|
(1,412,024
)
|
|
Total stockholders’ deficiency
|
(608,129
)
|
(340,013
)
|
|
|
|
|
|
Total
liabilities and stockholders’ deficiency
|
$
235,314
|
$
245,853
|
The accompanying notes are an integral part of these financial
statements.
F-2
LODE-STAR MINING INC.
|
|
YEARS ENDED DECEMBER 31
|
|
|
|
2016
|
2015
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
|
|
|
|
|
Operating Expenses
|
|
|
|
Consulting
services
|
25,776
|
121,409
|
|
Corporate
support services
|
2,099
|
12,759
|
|
Mineral
option fees
|
100,000
|
123,913
|
|
Office,
foreign exchange and sundry
|
11,783
|
10,136
|
|
Professional
fees
|
67,182
|
94,783
|
|
Transfer
and filing fees
|
27,535
|
27,796
|
|
Total operating expenses
|
234,375
|
390,796
|
|
|
|
|
|
Operating Loss
|
(234,375
)
|
(390,796
)
|
|
|
|
|
|
Other Expense
|
|
|
|
Penalties
|
(5,113
)
|
-
|
|
Interest,
bank and finance charges
|
(28,628
)
|
(20,525
)
|
|
Total other expense
|
(33,741
)
|
(20,525
|
|
|
|
|
|
Net Loss For The Year
|
$
(268,116
)
|
$
(411,321
)
|
|
|
|
|
|
Basic And Diluted Net Loss Per Common Share
|
$
(0.01
)
|
$
(0.01
)
|
|
|
|
|
|
Weighted Average Number Of Common Shares Outstanding – basic
and diluted
|
49,127,825
|
47,436,336
|
The accompanying notes are an integral part of these financial
statements.
F-3
LODE-STAR MINING INC.
|
|
YEARS ENDED DECEMBER 31,
|
|
|
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
Net loss for the
year
|
$
(268,116
)
|
$
(411,321
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Foreign
exchange (gain)
|
830
|
(4,791
)
|
|
Stock
issued for services
|
-
|
29,397
|
|
Warrants
issued for services
|
-
|
66,721
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Prepaid
expenses
|
3,217
|
(3,217
)
|
|
Accounts
payable and accrued liabilities
|
73,704
|
33,194
|
|
Due
to related party
|
100,000
|
123,913
|
|
Accrued
interest payable
|
28,043
|
19,788
|
|
Net cash used in operating activities
|
(62,322
)
|
(146,316
)
|
|
|
|
|
|
Financing Activities
|
|
|
|
Repayment
of loans payable
|
(20,000
)
|
(14,000
)
|
|
Repayment
of loans payable – related party
|
-
|
(5,000
)
|
|
Proceeds
from loans payable – related party
|
75,000
|
172,400
|
|
Net cash provided by financing activities
|
55,000
|
153,400
|
|
|
|
|
|
Net (Decrease) Increase In Cash
|
(7,322
)
|
7,084
|
|
|
|
|
|
Cash, Beginning Of Year
|
12,456
|
5,372
|
|
|
|
|
|
Cash, End Of Year
|
$
5,134
|
$
12,456
|
|
|
|
|
|
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
|
$
68,990
|
$
57,289
|
|
Common
shares issued for debt settlements
|
$
-
|
$
53,213
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-4
LODE-STAR MINING INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’
DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
|
NUMBER OF COMMON SHARES
|
PAR VALUE
|
ADDITIONAL PAID-IN CAPITAL
|
ACCUMULATED DEFICIT
|
TOTAL
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
46,509,000
|
$
465
|
$
922,215
|
$
(1,000,703
)
|
$
(78,023
)
|
|
|
|
|
|
|
|
|
Shares
issued for debt
|
1,149,000
|
12
|
53,201
|
-
|
53,213
|
|
Shares
issued for consulting services
|
1,469,825
|
1,470
|
27,927
|
-
|
29,397
|
|
Warrants
issued for consulting services
|
-
|
-
|
66,721
|
-
|
66,721
|
|
Net
loss for the year
|
-
|
-
|
-
|
(411,321
)
|
(411,321
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
49,127,825
|
1,947
|
1,070,064
|
(1,412,024
)
|
(340,013
)
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
-
|
-
|
-
|
(268,116
)
|
(268,116
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
49,127,825
|
$
1,947
|
$
1,070,064
|
$
(1,680,140
)
|
$
(608,129
)
|
The accompanying notes are an integral part of these financial
statements.
F-5
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
1.
|
BASIS OF PRESENTATION AND NATURE OF OPERATIONS
|
Organization
Lode-Star
Mining INC. (formerly International Gold Corp.) (“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 Cypress, Texas. 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 (See
Note 3) in consideration for the issuance of 35,000,000 common
shares of the Company. As a result of this transaction,
control of the Company was acquired by LSG.
On
May 12, 2015, International Gold Corp. completed a merger with its
wholly owned subsidiary, Lode-Star Mining Inc., and formally
assumed the subsidiary’s name by filing Articles of Merger
with the Nevada Secretary of State (the “Name
Change”). The subsidiary was incorporated entirely for
the purpose of effecting the Name Change and the merger did not
affect the Company’s corporate structure in any other
way.
Going Concern
The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The future of the Company
is dependent upon its ability to establish a business and to obtain
new financing to execute its business plan. As shown in the
accompanying financial statements, the Company has had no revenue
and has incurred accumulated losses of $1,680,140 as of December 31
2016. 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:
|
|
a)
|
Basis of Accounting
|
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, 2016 and 2015, 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;
F-6
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
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.
|
|
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, and loans
payable. The Company is not exposed to significant interest,
currency or credit risks arising from these financial
instruments.
Pursuant to ASC 820 and 825, the fair value of
cash is determined based on “Level 1” inputs, which
consist of quoted prices in active markets for identical assets.
Accounts payable and accrued liabilities and loans payable are
measured using “Level 2” inputs as there are no quoted
prices in active markets for identical instruments.
The carrying values of cash, accounts payable and
accrued liabilities, and loans payable approximate their fair
values due to the immediate or short term maturity of these
financial instruments.
|
|
e)
|
Asset Retirement Obligations
|
The
Company has no asset retirement obligations, including
environmental rehabilitation expenditures, which relate to an
existing condition caused by past operations.
|
|
f)
|
Use of Estimates and Assumptions
|
The
preparation of financial statements, in conformity with GAAP,
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
disclosures. By their nature, these estimates are
subject to measurement uncertainty and the effect on the financial
statements of changes in such estimates in future periods could be
significant. Significant areas requiring
management’s estimates and assumptions are determining the
fair value of transactions involving related parties and common
stock. Actual results may differ from the
estimates.
|
|
g)
|
Basic and Diluted Earnings Per Share
|
The
Company reports basic earnings or loss per share in accordance with
ASC Topic 260, “Earnings Per Share”. Basic
earnings per share is computed by dividing net earnings available
to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per
share is computed similarly, except that the common stock number is
increased to include the any potential additional common shares,
for example from the exercise of options or warrants. As the
Company generated net losses in the periods presented, the
additional impact of including potential shares from outstanding
warrants would be anti-dilutive and is therefore not part of the
earnings per share calculation.
|
|
h)
|
Income Taxes
|
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.
F-7
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued
)
|
|
|
i)
|
Stock-Based Compensation
|
Stock-based
compensation of employees is accounted for in accordance with ASC
718 whereby a compensation charge based on the fair value of the
equity instruments issued, measured at the grant date, is recorded
against earnings over the period during which the employee is
required to perform the services in exchange for the award
(generally the vesting period).
For
transactions with non-employees in which services are performed in
exchange for the Company’s common stock or other equity
instruments, the transactions are accounted for in accordance with
ASC 505-50, whereby the compensation charge is recorded on the
basis of the fair value of the goods or services received or the
fair value of the equity instruments granted, whichever is more
reliably measurable at the earlier of the date at which a
commitment for performance is reached or the date at which the
performance is complete. The expense is recognized in the same
manner as if the Company had paid cash for the goods or
services.
|
|
j)
|
Mineral Property Interest and Impairment
|
Mineral
property interests are capitalized and recorded at fair value. The
property interests are periodically assessed for impairment of
value when facts and circumstances suggest that the carrying amount
of the property interest may exceed its recoverable amount. Costs
of exploration, evaluation and retaining mineral property interests
are expensed as incurred. Once the Company has identified proven
and probable reserves in its investigation of its property
interests and upon development of a plan for operating a mine, it
would enter the development stage and capitalize future costs until
production is established. When a property reaches the production
stage, the related capital costs will be amortized, using the
units-of-production method over proven and probable
reserves.
|
|
k)
|
Related Party Transactions
|
In
accordance with ASC 850, the Company discloses: the nature of the
related party relationship(s) involved; a description of the
transactions, including transactions to which no amounts or nominal
amounts were ascribed, for each of the periods for which income
statements are presented, and such other information deemed
necessary to an understanding of the effects of the transactions on
the financial statements; the dollar amounts of transactions for
each of the periods for which income statements are presented and
the effects of any change in the method of establishing the terms
from that used in the preceding period; and amounts due from or to
related parties as of the date of each balance sheet presented and,
if not otherwise apparent, the terms and manner of
settlement.
|
|
l)
|
Recent Accounting Pronouncements
|
The
Company has implemented all applicable new accounting
pronouncements that are in effect. Those pronouncements did not
have any material impact on the financial statements unless
otherwise disclosed, and the Company does not believe that there
are any other new accounting pronouncements that have been issued
that might have a material impact on its financial position or
results of operations.
|
3.
|
MINERAL PROPERTY INTEREST
|
On
December 5, 2014, the Company entered into a subscription agreement
(the “Subscription Agreements”) with Lode Star Gold
INC. (“LSG”), a private Nevada corporation controlled
by the spouse of the Company’s current
President, pursuant to which the Company agreed to issue
35,000,000 shares of its common stock, valued at $230,180, to LSG
in exchange for a 20% undivided interest in and to the mineral
claims owned by LSG. The mineral claims, known as the
“Goldfield Bonanza Project” (the
“Property”), are located in the State of
Nevada.
F-8
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
3.
|
MINERAL PROPERTY INTEREST
(Continued)
|
The
execution of the Subscription Agreement was one of the closing
conditions of an Option Agreement dated October 4, 2014, pursuant
to which the Company acquired the sole and exclusive option to earn
up to an 80% undivided interest in and to the
Property. In order to earn the additional 60% interest
in the Property, the Company is required to fund all expenditures
on the Property and pay LSG an aggregate of $5 million in cash in
the form of a net smelter royalty, each beginning on the Closing
Date, which was December 11, 2014. Until such time as the Company
has earned the additional 60% interest, the net smelter royalty
will be split 79.2% to LSG, 19.8% to the Company and 1% to the
former Property owner.
If
the Company fails to make any cash payments to LSG within one year
of the Effective Date of the Mineral Option Agreement with LSG
dated October 4, 2014, it is required to pay LSG an additional
$100,000, and in any subsequent years in which the Company fails to
complete the payment of the entire $5 million described above, it
must make quarterly cash payments to LSG of $25,000 until such time
as the Company has earned the additional 60% interest in the
Property. At December 31, 2016 $223,913 in fees payable to LSG has
been accrued.
Given
that permitting for operations on the Property is still to be
completed, LSG granted a series of deferrals of the payment, with
the most recent being granted on January 11, 2017. LSG agreed on
that date to defer payment of all amounts due in accordance with
the Mineral Option Agreement until further notice. On January 17,
2017, the Company and LSG agreed that as of January 1, 2017, all
outstanding balances shall carry a compound interest rate of 5% per
annum. It was further agreed that the ongoing payment deferral
shall apply to interest and principal.
The
Option Agreement provides that the Company will act as the operator
on the Property and that a management committee will be
formed, comprised of representatives from the Company and LSG, with
voting based on each party’s proportionate interest, to
supervise exploration of the Property and approve work
programs and budgets. To December 31, 2016 and to the date of these
financial statements, no work programs had been
approved.
The
Company assessed its mineral property interest at December 31, 2016
and to the date of these financial statements and concluded that
facts and circumstances do not suggest that the mineral property
interest’s carrying value exceeds its recoverable amount and
therefore no impairment is required.
On
February 17, 2017 the Company executed an agreement with Scorpio
Gold Corporation (Scorpio) for a pilot toll milling test of its
mineralized material. Upon the Company’s completion of
required permitting activities with the Nevada Division of
Environmental Protection, Bureau of Mining Regulation and
Reclamation (NDEP), the bulk sample pilot test will provide the
baselines for metallurgical recoveries and mill throughput.
Dependent on the pilot test results and completion of a cost
analysis and other operational details, negotiation of a full
scale, custom milling agreement is planned.
|
4.
|
CAPITAL STOCK
|
During
the years ended December 31, 2016 and 2015, the Company had no cash
subscriptions for shares of its common stock.
On
November 11, 2015, the Company entered into a one year agreement to
obtain assistance in conducting business strategy and
communications planning, public financial disclosure reporting, and
various matters in connection with directors and other
professionals as needed by the Company. In consideration for the
services to be provided, the Company granted the consultant
1,469,825 shares of common stock. Those shares were issued on
December 11, 2015 and were valued at $29,397, based on market price
at the date of the agreement. In addition, the consultant was
granted warrants with a five year term, commencing the date of the
agreement, to purchase 3,336,060 shares of common stock at a price
of $0.02
per
share, including a cashless exercise option. The warrants were
valued at $66,721 using the Black-Scholes option pricing model with
an average risk-free rate of 1.68%, estimated life of 5 years,
volatility of 208.7% and dividend yield of 0%.
On
January 9, 2015, agreements were reached in connection with the
loans of $24,696 (CAD $28,650) and $1,767 (CAD $2,050) whereby the
loan amounts were to be converted to Company shares at a price of
CAD $0.05, to result in the issuance of 573,000 and 41,000 common
shares respectively. Those shares were issued on April 6,
2015.
F-9
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
4.
|
CAPITAL STOCK
(Continued)
|
On
January 9, 2015, an agreement was reached to modify the terms of a
loan such that $26,750 of accrued interest together with a premium
was to be converted to Company shares at a price of $0.05 per
share, to result in the issuance of 535,000 common shares. Those
shares were issued on April 6, 2015.
Capitalization
The
authorized capital of the Company is 500,000,000 shares of capital
stock, divided into 480,000,000 shares of common stock with a par
value of $0.001 per share, and 20,000,000 shares of preferred stock
with a par value of $0.001 per share. The Company reserved
10,000,000 shares of common stock for issuance under its new 2016
Omnibus Equity Incentive Plan. No preferred shares have been issued
to December 31, 2016 or to the date of issue of these financial
statements.
To
December 31, 2016 and to the date of issue of these financial
statements, warrants to purchase 3,336,060 shares of common stock
have been issued and none of those warrants have been exercised. At
December 31, 2016 the warrants had an intrinsic value of $66,721
based on the exercise price of $0.02 per warrant and a market price
of $0.04 per share.
No
stock options had been issued at December 31, 2016.
Warrants
Summary
of warrant activity and warrants outstanding at December 31,
2016:
|
|
Number
of Warrants
|
Exercise
Price
|
Weighted
Average Exercise Price
|
Weighted
Average Life Remaining (Years)
|
Expiry
Date
|
Intrinsic
Value
|
|
Balance
December 31, 2014
|
-
|
-
|
-
|
-
|
|
-
|
|
Issued
|
3,336,060
|
$
0.02
|
$
0.02
|
5.00
|
November 10,
2020
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance
December 31, 2015
|
3,336,060
|
$
0.02
|
$
0.02
|
4.86
|
November 10,
2020
|
-
|
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance
December 31, 2016
|
3,336,060
|
$
0.02
|
$
0.02
|
3.86
|
November
10, 2020
|
$
66,721
|
|
5.
|
LOANS PAYABLE
|
At
December 31, 2016, the Company had the following loans
payable:
i.
$1,000
(December 31, 2015 - $1,000): unsecured; interest at 15% per annum;
originally due on April 20, 2012. Accrued interest payable on the
loan at December 31, 2016 was $3,218 (December 31, 2015:$3,068).
During the year 2016, the Company repaid $0 (2015: $4,000) on this
loan.
ii.
$45,000
(December 31, 2015 - $65,000): unsecured; interest at 10% per annum
from January 10, 2015. During the year 2016, the Company repaid
$20,000 (2015: $10,000) on this loan.
●
The
balance of the outstanding principal $27,500, 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
balance of the outstanding principal $17,500, and any accrued
interest was due and payable on written demand in full (not
received to date) on January 9, 2016; and
●
The
Company shall have 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.
●
The
above said notes are currently in default; there are no changes to
the terms due to these being in default.
●
Accrued
interest payable on the loan at December 31, 2016 was $13,091
(December 31, 2015:$7,112).
At
December31, 2016, total interest accrued on the above loans was
$16,309 (December 31, 2015: 10,180).
F-10
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
6.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE
|
At
December 31, 2016, the Company had the following amounts due to
related parties
:
i.
$39,777
(December 31, 2015 - $40,789): 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, 2016
was $4,655 (December 31, 2015:$2,609). During the year 2016 the
Company’s President paid $0 (2015: $11,592) for expenses
directly on behalf of the Company. The Company repaid $0
(2015:$5,000) and borrowed $0 (2015:$2,348) from the
President.
ii.
$345,000
(December 31, 2015 - $290,000): 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, 2016 was $25,551 (December 31,
2015:$10,157). During the year 2016, the Company borrowed $75,000
(2015: $170,000) from LSG and a $20,000 expense paid directly on
behalf of the Company by LSG was reallocated to Loan iii)
below.
iii.
$114,688
(December 31, 2015 - $23,966): 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, 2016 was $4,810 (December 31, 2015:$336).
During the year 2016, LSG paid expenses directly on behalf of the
Company totaling $68,981 (2015:$45,707).
iv.
$3,724
(December 31, 2015 - $3,613): unsecured; non-interest bearing; with
no specific terms of repayment, due to the controlling shareholder
of LSG. The change in value during the year is entirely due to a
change in foreign exchange.
At
December 31, 2016, total interest accrued on the above related
party loans was $35,016 (December 31, 2015: 13,102).
During
the year ended December 31, 2016, there was an $830 foreign
exchange loss (2015:$4,791 gain) due to related party loan amounts
in non-US currency.
During
the year ended December 31, 2016, the Company incurred $100,000
(2015 - $123,913) 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, 2016 was $223,913 (December 31, 2015:
$123,913).
|
7.
|
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
|
See
Note 3 for details about the Company’s obligations and
commitments regarding its Mineral Property Interest.
|
8.
|
INCOME TAXES
|
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.
Years 2004 to 2011 remain subject to review by the
IRS.
A
reconciliation of income tax benefit to the amount computed at the
statutory rate of 34% (2015 – 34%) is as
follows:
|
|
2016
|
2015
|
|
Expected
income tax recovery
|
$
(91,200
)
|
$
(139,800
)
|
|
Adjustment
for non-deductible stock compensation
|
-
|
32,700
|
|
Estimated
decrease in expected tax recovery resulting from Section 382 net
operating loss limitations after change in control
|
-
|
296,400
|
|
Increase
(decrease) in valuation allowance
|
(91,200
)
|
(189,300
)
|
|
|
$
-
|
$
-
|
F-11
LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
8.
|
INCOME TAXES
(Continued)
|
Significant
components of deferred income tax assets are as
follows:
|
|
2016
|
2015
|
|
Deferred
income tax assets
|
|
|
|
Net
operating losses carried forward
|
$
242,200
|
$
151,000
|
|
Valuation
allowance
|
(242,200
)
|
(151,000
)
|
|
|
$
-
|
$
-
|
The
Company has approximately $712,000 (2015 - $444,000) in net
operating losses carried forward which will expire by 2036 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:
|
2024
|
$
10,000
|
|
2025
|
7,600
|
|
2026
|
6,000
|
|
2027
|
10,900
|
|
2028
|
53,200
|
|
2029
|
8,975
|
|
2030
|
6,445
|
|
2031
|
6,445
|
|
2032
|
6,445
|
|
2033
|
6,445
|
|
2034
|
6,445
|
|
2035
|
315,200
|
|
2036
|
268,100
|
|
|
$
712,200
|
Realization of the above losses carried forward is
dependent on the Company filing the applicable tax returns with the
tax authorities, generating sufficient taxable income prior to
expiration of the losses carried forward and continuing use of the
acquired historic business or a significant portion of the acquired
assets for two years after the change of control transaction. If
this
continuity of business
enterprise
requirement is not
met, the annual net operating loss limitation on pre-change losses
is zero. The two year continuing use component of the
requirement has been met.
|
9.
|
SUBSEQUENT EVENTS
|
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 US$0.06 per share,
equal to the closing price of the common stock on the grant date,
for a term of five years.
On
February 17, 2017 the Company executed an agreement with Scorpio
Gold Corporation (Scorpio) for a pilot toll milling test of its
mineralized material. Upon the Company’s completion of
required permitting activities with the Nevada Division of
Environmental Protection, Bureau of Mining Regulation and
Reclamation (NDEP), the bulk sample pilot test will provide the
baselines for metallurgical recoveries and mill throughput.
Dependent on the pilot test results and completion of a cost
analysis and other operational details, negotiation of a full
scale, custom milling agreement is planned.
On
March 9, 2017 the IRS issued a letter to the Company advising that,
on appeal, a previously assessed penalty in connection with the
filing of its tax return for the year ended December 31, 2013 had
been reduced from $20,000 to $5,000 plus related
interest.
F-12
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL
DISCLOSURE
|
There have been no disagreements on accounting and financial
disclosures from the inception of our company through the date of
this report on Form 10-K. Our financial statements for the years
ended December 31, 2016 and 2015, included in this report, have
been audited by MaloneBailey LLP, 9801 Westheimer Road, Suite 1100,
Houston, Texas.
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. The
term “disclosure controls and procedures,” as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company in
the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules
and forms. Disclosure controls and procedures also include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its
principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded
that, as of December 31, 2016, our disclosure controls and
procedures were not effective, due to the size and nature of the
existing business operation. Given the size of our current
operation and existing personnel, the opportunity to implement
disclosure control procedures is limited. Until such time as the
organization can increase sufficiently in size to warrant an
increase in personnel required to effectively execute and monitor
formal disclosure control procedures, those formal procedures will
not be implemented. As a result of the current size of the
organization, there are not significant levels of supervision,
review, independent directors or a formal audit
committee.
Management’s Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company.
Internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) is a process to provide reasonable
assurance regarding the reliability of our financial reporting for
external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal
control over financial reporting includes maintaining records that
in reasonable detail accurately and fairly reflect our
transactions; providing reasonable assurance that transactions are
recorded as necessary for preparation of our financial statements;
providing reasonable assurance that receipts and expenditures of
Company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a
material effect on our financial statements would be prevented or
detected on a timely basis.
Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance
that a misstatement of our financial statements would be prevented
or detected. Also, projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may
deteriorate.
Management conducted an evaluation of the effectiveness, as of
December 31, 2016, of our internal control over financial reporting
based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this
evaluation, our Chief Executive and Chief Financial Officer
concluded that, as of December 31, 2016, our internal control over
financial reporting was not effective, due to the size and nature
of the existing business operation. Given the size of our current
operation and existing personnel, the opportunity to implement
internal control procedures that segregate accounting duties and
responsibilities is limited. Until such time as the organization
can increase sufficiently in size to warrant an increase in
personnel required to effectively execute and monitor formal
internal control procedures, those formal procedures will not be
implemented. As a result of the size of the current organization,
there are not significant levels of supervision, review,
independent directors or a formal audit committee.
Changes in Internal Control Over Financial Reporting:
There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2016 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
35
|
ITEM 9B.
|
OTHER INFORMATION
|
None.
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Officers and Directors
As of the date of this report, the names, ages and positions of our
executive officers and directors were as follows:
|
Name
|
|
Age
|
|
Position
|
|
Mark Walmesley
|
|
59
|
|
President, Chief Executive Officer, Chief Financial Officer,
Treasurer, Director
|
|
Thomas Temkin
|
|
63
|
|
Chief Operating Officer, Director
|
|
Pam Walters
|
|
67
|
|
Secretary
|
Mark Walmesley
was appointed as
our Chief Financial Officer, Treasurer and director on September
22, 2014, and our President and Chief Executive Officer on the
Closing Date. He has been LSG’s Director of
Operations since 2005 and a director of the company since March
2009.
From 2005 to 2010, Mr. Walmesley directed operations on the
Property, during which time LSG had a crew of up to eight people
performing surface and underground exploratory drilling and mine
rehabilitation work. In 2010 and 2011, he negotiated the
terms of the ICN Option Agreement on behalf of LSG, and he is
currently directing all of LSG’s advancement
activities.
Since 1985, Mr. Walmesley has been the owner and operator of Mark
Walmesley, Inc., a private Texas corporation, and MWI Utah, Inc., a
private Utah corporation, both of which specialize in the sale of
window etching theft deterrent products that are distributed
throughout the United States in the automotive aftermarket
industry. Through an established network of agents and
car dealerships, he has achieved product fulfillment on millions of
vehicles over his 30 year career.
Since 2008, Mr. Walmesley has been developing an emergency medical
communications platform for FAST Alert Support Team,
Inc.,
a company dedicated to
facilitating worldwide communication between emergency medical
technicians (EMTs), incapacitated individuals and people assigned
by those individuals to accommodate pre-determined essential
support.
Although
the project is currently on hold, Mr. Walmesley originally
developed this online software solution for the medical industry in
the United States and plans to build the business using his
existing network of automotive industry contacts. He
remains the company’s Founder and Chief Software
Architect.
Mr. Walmesley has also been involved in financing and mentoring a
variety of other private companies throughout his professional
career.
Thomas Temkin
was appointed as
Chief Operating Officer and to the Board of Directors on January
19, 2015. Mr. Temkin is a Certified Professional Geologist and a
Qualified Person under National Instrument (NI) 43101, with more
than 38 years of experience in the mining industry, primarily in
exploration in the Western United States. As senior project manager
for several major mining companies, Mr. Temkin has been associated
with several advanced gold exploration projects, some of which
developed into significant mines. After receiving his Bachelor of
Science degree in Economic Geology in 1976 from the Mackay School
of Mines, Mr. Temkin began his career as an exploration Geologist.
He is currently a consulting geologist working with LodeStar Gold,
Inc. Mr. Temkin has been associated with LSG and the project for
over 15 years and has been instrumental through its entire
exploration program to date.
Pam Walters
was
appointed as our Secretary on April 22, 2015. Since 1985 Ms.
Walters has been working as the Corporate Administration person
responsible for employee relations as well as managing the
day-to-day corporate finance and business operations of Lode Star
Gold, INC. Ms. Walters has been associated with the mining industry
for over 25 years. She attended the University of New Orleans in
the early 1970s and since 1998 she has been acquiring and
practicing the skills required to manage and maintain our busy and
growing corporate needs.
Term of Office
Our officers are appointed to serve until the meeting of our Board
of Directors following the next annual meeting of our stockholders
and until their successors have been elected and
qualified.
36
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(continued)
|
Committees of the Board of Directors
Our
board of directors has authorized an audit committee charter,
compensation committee charter, nominating and governance committee
charter, executive committee charter and nominating committee
charter. Our board may also establish from time to time any other
committees that it deems necessary or desirable. The composition of
each committee will comply, when required, with NYSE MKT listing
standards and other rules of the SEC and NYSE MKT.
Audit Committee
We have
not appointed members of our audit committee. However the chairman
will be independent within the meaning of applicable SEC rules and
NYSE MKT listing standards as an “audit committee financial
expert” as defined in the rules and regulations of the SEC,
and that is financially literate under the current listing
standards of the NYSE MKT. The audit committee has oversight
responsibilities regarding matters including:
● the
integrity of our financial statements and our financial reporting
and disclosure practices.
● the
soundness of our system of internal controls regarding finance and
accounting compliance.
● the
independent registered public accounting firm’s
qualifications and independence.
● the
engagement of the independent registered public accounting
firm.
● the
performance of our internal audit function and independent
registered public accounting firm.
● our
compliance with legal and regulatory requirements in connection
with the foregoing.
●
review of related party transactions in accordance with our written
policy as to such transactions. and
●
compliance with our Code of Conduct and Ethics.
We will
rely on the phase-in rules of the SEC and NYSE MKT with respect to
the independence of our audit committee. These rules permit us to
have an audit committee that has at least one member who is
independent by the NYSE MKT listing date, at least two members (a
majority of whom are independent) within 90 days after the listing
date, and at least three members (all of whom are independent)
within one year thereafter.
Our
written charter for our audit committee will be available on our
website, www.lodestarmining.com. The information on our website is
not and will not be deemed to be part of this Report and our web
address is included herein as an inactive textual reference
only.
Compensation Committee
We have
not appointed members of our compensation committee. However, the
chairman of the committee will be independent within the meaning of
the listing standards of the NYSE MKT. The compensation committee
is authorized to assist the board in discharging the board’s
responsibilities relating to matters including:
●
review and administration of compensation and benefit policies and
programs designed to attract, motivate and retain personnel with
the requisite skills and abilities to us to achieve superior
operating results.
●
review and approval, annually of goals and objectives relevant to
compensation of our Chief Executive Officer, including evaluating
the performance of the Chief Executive Officer in light of those
goals and objectives and setting of our Chief Executive
Officer’s compensation based on such evaluation (and our
compensation committee will have sole authority to determine such
compensation).
●
establishment of the compensation of our other executives and the
Chairman of our board, and recommendation of the compensation of
our non-employee directors for approval by majority vote of
independent directors, and
●
issuance of an annual report on executive compensation for
inclusion in our annual proxy statement, once
required.
We will
rely on the phase-in rules of the SEC and NYSE MKT with respect to
the independence of our compensation committee. These rules permit
us to have a compensation committee that has at least one member
who is independent by five business days from the NYSE MKT listing
date, at least a majority of members who are independent within 90
days of the NYSE MKT listing date and all independent members
within one year of the NYSE MKT listing date.
37
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(continued)
|
Nominating and Governance Committee
We have
not appointed members of our nominating and governance committee.
However, the chairman of the committee will be independent within
the meaning of the listing standards of NYSE MKT. The nominating
and governance committee is authorized to:
●
recommend to the board nominees for election as directors and
committee members.
●
develop and recommend to the board a set of corporate governance
guidelines.
●
review candidates for nomination for election as directors
submitted by directors, officers, employees and stockholders and
establish procedures to be followed by stockholders in submitting
nominees.
●
recommend to the board non-renomination or removal from the board
or a board committee as appropriate.
●
review with the board the requisite skills and characteristics for
continuation as board members, the selection
of new
board members and board composition. and
●
select, retain and evaluate any search firm with respect to the
identification of candidates for nomination for election as
directors (and our nominating and governance committee shall have
the sole authority to approve any such firm’s fees and other
retention terms).
We will
rely on the phase-in rules of the SEC and NYSE MKT with respect to
the independence of our nominating and governance committee. These
rules permit us to have a nominating and governance committee that
has at least one member who is independent by five business days
from the NYSE MKT listing date, at least a majority of members who
are independent within 90 days of the NYSE listing date and all
independent members within one year of the NYSE listing
date.
The
committee will assist the board in the selection of nominees for
election as directors at each annual meeting of our stockholders
and will establish policies and procedures regarding the
consideration of director nominations from stockholders. Our board
has adopted a written charter for our nominating and governance
committee, which will be available on our website,
www.lodestarmining.com. The information on our website is not and
will not be deemed to be part of this prospectus and our web
address is included herein as an inactive textual reference
only.
Code of Ethics
We have adopted a corporate code of ethics. We believe
our code of ethics is reasonably designed to deter wrongdoing and
promote honest and ethical conduct; provide full, fair, accurate,
timely and understandable disclosure in public reports; comply with
applicable laws; ensure prompt internal reporting of code
violations; and provide accountability for adherence to the
code. A copy of the code of ethics was included as
Exhibit 14.1 to our annual report on Form 10-K filed with the SEC
on April 7, 2009.
Significant Employees
Other than our officers and directors, we do not expect any other
individuals to make a significant contribution to our
business.
Family Relationships
There are no family relationships among our directors, executive
officers or persons nominated or chosen by us to become directors
or executive officers.
Involvement in Certain Legal Proceedings
None of our directors, executive officers, promoters or control
persons has been involved in any of the following events during the
past 10 years:
·
any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years
prior to that time;
·
any conviction in a criminal proceeding or being
subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses);
·
being subject to any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any
type of business, securities or banking
activities;
38
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(continued)
|
·
being found by a court of competent jurisdiction
(in a civil action), the SEC or the Commodity Futures Trading
Commission to have violated any federal or state securities or
commodities law, and the judgment has not been reversed, suspended
or vacated;
·
being the subject of, or a party to, any federal
or state judicial or administrative order, judgment, decree or
finding, not subsequently reversed, suspended or vacated, relating
to an alleged violation of any law or regulation prohibiting mail
or wire fraud or fraud in connection with any business
activity;
·
being the subject of, or a party to, any judicial
or administrative order, judgment, decree or finding, not
subsequently reversed, suspended or vacated relating to an alleged
violation of any federal or state securities or commodities law or
regulation or any law or regulation respecting financial
institutions or insurance companies; or
·
being the subject of, or a party to, any sanction
or order, not subsequently reversed, suspended or vacated, of any
stock, commodities or derivatives exchange or other self-regulatory
organization.
Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our
directors or executive officers has been involved in any
transactions with us or any of our directors, executive officers,
affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the SEC.
Management Agreements
We do not yet have a formal management or consulting agreement in
place with Mark Walmesley, our President, Chief Executive Officer,
Chief Financial Officer, Treasurer and
director. Regardless, we expect Mr. Walmesley to
allocate the majority of his working time to our
business. We also do not yet have a formal management or
consulting agreement in place with Thomas Temkin, our Chief
Operating Officer and director. Until a formal work program for the
Property is in place, Mr. Temkin is being compensated by Lode Star
Gold INC.
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Summary Compensation Table
The following sets forth information with respect to the
compensation awarded or paid to Mark Walmesley, our President,
Chief Executive Officer, Chief Financial, Treasurer and director,
Thomas Temkin, our Chief Operating Officer and director, and Pam
Walters, our Secretary, for all services rendered in all capacities
to us during our fiscal years ended December 31, 2016 and
2015. We do not have any other executive officers and no other
individual received total compensation from us in excess of
$100,000 during those years.
Pursuant to Item 402(a)(5) of Regulation S-K we have omitted
certain columns from the table since there was no compensation
awarded to, earned by or paid to these individuals required to be
reported in such columns in either year.
|
Name and Principal Position
|
|
Year Ended
December 31
|
Salary
($)
|
Total
($)
|
|
Mark
Walmesley, CEO (1)
|
|
2016
|
-
|
-
|
|
|
|
2015
|
-
|
-
|
|
Thomas
Temkin, Director and COO (2)
|
|
2016
|
-
|
-
|
|
|
|
2015
|
-
|
-
|
|
Pam
Walters, Secretary (3)
|
|
2016
|
-
|
-
|
|
|
|
2015
|
-
|
-
|
|
(1)
|
Mark Walmesley was appointed as our Chief Financial Officer,
Treasurer and director on September 22, 2014, and our President and
Chief Executive Officer on the December 11, 2014. Mr.
Walmesley has been LSG’s Director of Operations since 2005
and a director of the company since March 2009.
|
|
(2)
|
Thomas Temkin
was appointed as
our
Chief Operating Officer and
director on January 19, 2015.
|
|
(3)
|
Pam Walters was appointed as our Secretary on April 22,
2015.
|
39
|
ITEM 11.
|
EXECUTIVE COMPENSATION
(continued)
|
Section 16(a) Beneficial Ownership Compliance
Section
16(a) of the Exchange Act, as amended, requires our executive
officers, directors and persons who beneficially own more than 10%
of our common stock to file reports of their beneficial ownership
and changes in ownership (Forms 3, 4 and 5, and any amendment
thereto) with the SEC. Executive officers, directors, and greater
than ten percent holders are required to furnish us with copies of
all Section 16(a) forms they file. Based solely on a review of the
Forms 3 and 4 and amendments thereto furnished pursuant to Rule
16a3(c) during its most recent fiscal year and Form 5 and
amendments thereto furnished with respect to our most recent fiscal
year, and any written representations to the effect that no Form 5
is required.
To the
best of our knowledge, no person who, at any time during such
fiscal year, was a director, officer, or beneficial owner of more
than 10% of our common stock, or any other reporting person (as
defined in Item 405 of Regulation SK) (“reporting
person”), failed to file on a timely basis, as disclosed in
the above forms, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal year:
2015.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2016, we did not have any outstanding equity
awards.
Benefit Plans
We do not have any pensions plan, profit sharing plan or similar
plan for the benefit of our officers, directors or
employees. However, we may establish such plans in the
future.
Director Compensation
We have not compensated any of our directors for their service on
the Board of Directors. Management directors are not
compensated for their service as directors; however they may, in
the future, receive compensation for their services as our
employees.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The following table lists the beneficial ownership of shares of our
common stock by (i) all persons and groups known by the
company
to own beneficially more than 5% of the outstanding shares of our
common stock, (ii) each director, (iii) each person who held the
office of chief executive officer at any time during the year ended
December 31, 2015, (iv) up to two executive officers other than the
Chief Executive Officer who were serving as executive officers on
December 31, 2015 and to whom the company paid more than $100,000
in compensation during the last fiscal year, (v) up to two
additional persons to whom the company paid more than $100,000
during the last fiscal year but who were not serving as an
executive officer on December 31,2015 and (vi) all directors and
officers as a group. None of the directors, nominees, or officers
of the company owned any equity security issued by the
company’s subsidiaries. Information with respect to officers,
directors and their families is as of December 31, 2016, updated to
March 30, 2017, and is based on the books and records of the
company and information obtained from each individual. Information
with respect to other stockholders is based upon the Schedule 13D
or Schedule 13G filed by such stockholders with the Securities and
Exchange Commission. Unless otherwise stated, the business address
of each individual or group is the same as the address of the
company’s principal executive office.
|
|
Number of
|
Percentage of
|
|
Name and Address of Beneficial Owner
(1)
|
Common Shares
|
Ownership
(2)
|
|
Mark Walmesley
(3)
|
1,225,000
|
2.49
%
|
|
|
|
|
|
Thomas Temkin
(4)
|
20,000
|
0.04
%
|
|
|
|
|
|
All
executive officers and directors as a group (2
persons)
|
1,245,000
|
2.53
%
|
|
|
|
|
|
Lode Star Gold INC.
(5)
|
35,000,000
|
71.24
%
|
|
|
|
|
|
Lonnie S. Humphries Non-Exempt Trust
(5)
|
200,000
|
0.41
%
|
|
|
|
|
|
Lonnie
S. Humphries
|
1,369,756
|
2.79
%
|
40
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
(continued)
|
||
1)
Unless otherwise indicated, the address of all
named persons is
13529 Skinner Road, Suite N,
Cypress, Texas 77429-1775
2)
Based
on 49,127,825 shares of our common stock issued and outstanding as
of December 31, 2016.
3)
Mark
Walmesley was appointed as our Chief Financial Officer, Treasurer
and director on September 22, 2014, and our President and Chief
Executive Officer on December 11, 2014. Mr. Walmesley
has been LSG’s Director of Operations since 2005 and a
director of the company since March 2009.
4)
Thomas
Temkin was appointed as Chief Operating Officer and to the Board of
Directors on January 19, 2015.
5)
The
person with investment and dispositive authority is Lonnie
Humphries
Changes in Control
As of the date of this report, we are not aware of any
arrangements, including any pledge by any person of our securities,
the operation of which may at a subsequent date result in a change
in our control.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
On December 11, 2014, pursuant to the Subscription Agreement, we
issued 35,000,000 shares of our common stock to
LSG. Upon the closing of the Acquisition, LSG became our
principal stockholder and Mark Walmesley, the Director of
Operations and a director of LSG, was appointed as our President
and Chief Executive Officer.
As of December 31, 2016, the following amounts were due to related
parties:
·
To Mark Walmesley, our President, Chief Executive
Officer, Chief Financial Officer, Treasurer and director: unsecured
loans with interest at 5% per annum; with no specific terms of
repayment, in the amount of $39,777 plus accrued interest of
$4,655
·
To Lode Star Gold INC., our controlling
shareholder (“LSG”): two unsecured loans with interest
at 5% per annum, with no specific terms of repayment, totaling
$459,688 plus accrued interest totaling $30,361, and $223,913 in
accrued mineral option fees payable under the terms of our Mineral
Option Agreement with LSG dated October 4, 2014
·
To Lonnie Humphries, the sole shareholder of Lode
Star Gold INC., our controlling shareholder: an unsecured,
non-interest bearing loan of $3,724, with no specific terms of
repayment
Other than as described above, we have not entered into any
transactions with our officers, directors, persons nominated for
these positions, beneficial owners of 5% or more of our common
stock, or family members of those persons wherein the amount
involved in the transaction or a series of similar transactions
exceeded the lesser of $120,000 or 1% of the average of our total
assets for the last two fiscal years.
Director Independence
Because our common stock is not currently listed on a national
securities exchange, we currently use the definition in NASDAQ
Listing Rule 5605(a)(2) for determining director independence,
which provides that an “independent director” is a
person other than an executive officer or employee of the company
or any other individual having a relationship which, in the opinion
of the company’s Board of Directors, would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director. The NASDAQ listing rules
provide that a director cannot be considered independent
if:
·
the director is, or at any time during the past
three years was, an employee of the company;
·
the director or a family member of the director
accepted any compensation from the company in excess of $120,000
during any period of 12 consecutive months within the three years
preceding the independence determination (subject to certain
exclusions, including, among other things, compensation for board
or board committee service);
·
a family member of the director is, or at any time
during the past three years was, an executive officer of the
company;
41
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
(continued)
|
·
the director or a family member of the director is
a partner in, controlling stockholder of, or an executive officer
of an entity to which the company made, or from which the company
received, payments in the current or any of the past three fiscal
years that exceed 5% of the recipient’s consolidated gross
revenue for that year or $200,000, whichever is greater (subject to
certain exclusions);
·
the director or a family member of the director is
employed as an executive officer of an entity where, at any time
during the past three years, any of the executive officers of the
company served on the compensation committee of such other entity;
or
·
the director or a family member of the director is
a current partner of the company’s outside auditor, or at any
time during the past three years was a partner or employee of the
company’s outside auditor, and who worked on the
company’s audit.
We have determined that none of our directors meet this definition
of independence due to the fact that they are also our executive
officers.
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for our
audit of annual financial statements and review of financial
statements included in our Form 10-Qs or services that are normally
provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years
was:
|
2016
|
$
18,500
|
MaloneBailey
LLP
|
|
2015
|
$
8,000
|
MaloneBailey
LLP
|
|
2015
|
$
23,793
|
Morgan
& Company LLP
|
(2) Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountants that
are reasonably related to the performance of the audit or review of
our financial statements and are not reported in the preceding
paragraph:
|
2016
|
$
0
|
MaloneBailey
LLP
|
|
2015
|
$
0
|
MaloneBailey
LLP
|
|
2015
|
$
0
|
Morgan
& Company LLP
|
(3) Tax Fees
The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning was:
|
2016
|
$
0
|
MaloneBailey
LLP
|
|
2015
|
$
0
|
MaloneBailey
LLP
|
|
2015
|
$
0
|
Morgan
& Company LLP
|
(4) All Other Fees
The aggregate fees billed in each of the last two fiscal years for
the products and services provided by the principal accountant,
other than the services reported in paragraphs (1), (2), and (3)
was:
|
2016
|
$
0
|
MaloneBailey
LLP
|
|
2015
|
$
0
|
MaloneBailey
LLP
|
|
2015
|
$
0
|
Morgan
& Company LLP
|
(5) The percentage of hours expended on the principal
accountant’s engagement to audit our financial statements for
the most recent fiscal year that were attributed to work performed
by persons other than the principal accountant’s full time,
permanent employees was nil.
42
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
The following is a complete list of exhibits filed as part of this
annual report:
|
|
|
Incorporated by reference
|
|
||
|
Exhibit
|
Document Description
|
Form
|
Date
|
Number
|
Filed herewith
|
|
3.1
|
Articles of Incorporation.
|
SB-2
|
3/04/05
|
3.1
|
|
|
3.2
|
Bylaws.
|
SB-2
|
3/04/05
|
3.2
|
|
|
3.3
|
Amended and Restated Articles of Incorporation
|
14-C
|
11/24/14
|
3.3
|
|
|
3.4
|
Omnibus Equity Incentive Plan
|
14-C
|
11/24/15
|
3.4
|
|
|
4.1
|
Specimen Stock Certificate.
|
SB-2
|
3/04/05
|
4.1
|
|
|
10.1
|
Mining Claim.
|
S-1/A-5
|
2/08/08
|
10.1
|
|
|
10.2
|
Bill of Sale.
|
SB-2
|
3/04/05
|
10.2
|
|
|
10.3
|
Trust Agreement.
|
SB-2
|
12/19/07
|
10.3
|
|
|
10.4
|
Consulting Agreement with Woodburn Holdings Ltd.
|
8-K
|
2/21/12
|
10.1
|
|
|
10.5
|
Mineral Option Agreement with Lode Star Gold INC.
|
8-K
|
10/09/14
|
10.1
|
|
|
10.6
|
Settlement Agreement
|
8-K
|
12/16/14
|
10.2
|
|
|
10.7
|
Acquisition of Mineral Property Interest
|
10-K/A2
|
1/11/2017
|
10.7
|
|
|
14.1
|
Code of Ethics.
|
10-K
|
4/15/11
|
14.1
|
|
|
|
|
|
X
|
||
|
|
|
|
X
|
||
|
99.1
|
Subscription Agreement.
|
SB-2
|
3/04/05
|
99.1
|
|
|
99.2
|
Charter Audit Committee
|
10-K
|
4/15/11
|
99.2
|
|
|
99.3
|
Disclosure Committee
|
10-K
|
4/15/11
|
99.3
|
|
|
101.INS
|
XBRL Instance Document
|
10-K
|
4/14/14
|
101.INS
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
10-K
|
4/14/14
|
101.SCH
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
10-K
|
4/14/14
|
101.CAL
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
10-K
|
4/14/14
|
101.DEF
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
10-K
|
4/14/14
|
101.LAB
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
10-K
|
4/14/14
|
101.PRE
|
|
43
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and
Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this
30
th
day of March, 2017
|
|
LODE-STAR MINING INC.
|
||
|
|
|
|
|
|
|
By:
|
/s/
Mark
Walmesley
|
|
|
|
|
Mark Walmesley
|
|
|
|
|
President, Principal Executive Officer, Treasurer, Principal
Financial Officer, and Principal Accounting Officer
|
|
|
|
|
|
|
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/
Mark
Walmesley
|
Director, President, Chief Executive Officer and Chief Financial
Officer
|
March 30, 2017
|
|
Mark Walmesley
|
|
|
44
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1. Business (continued)Item 1A. Risk FactorsItem 1A. Risk Factors (continued)Item 1B. Unresolved Staff CommentsItem 2. PropertiesItem 2. Properties (continued)Item 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities (continued)Item 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of Operations (continued)Item 7A Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 10. Directors, Executive Officers and Corporate Governance (continued)Item 11. Executive CompensationItem 11. Executive Compensation (continued)Item 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)Item 13. Certain Relationships and Related Transactions, and Director IndependenceItem 13. Certain Relationships and Related Transactions, and Director Independence (continued)Item 14. Principal Accounting Fees and ServicesPart IV. Other InformationItem 15. Exhibits and Financial Statement Schedules