PART
I.
Lode-Star
Mining Inc. 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 in Reno, Nevada. We also maintain a business office in Vancouver, British Columbia, Canada.
We
have no revenues, have losses since inception, and have been issued a going concern opinion by our auditor. We are relying upon
loans and/or the sale of securities 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 (the “Option Agreement”) dated October 4, 2014, on December 5, 2014, we entered into
a subscription agreement (the “Subscription Agreement”) with Lode-Star Gold INC., a private Nevada corporation (“LSG”)
in which we agreed to issue 35,000,000 shares of our common stock, valued at $230,180, to LSG in exchange for an initial 20% undivided
beneficial interest in and to LSG’s Goldfield property, which made LSG our largest and controlling shareholder.
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’s
Goldfield Bonanza property is comprised of 31 patented mineral claims owned 100% by LSG, located on approximately 460 acres in
the district of Goldfield in the state of Nevada (the “Property”). The Property is clear titled, with a 1% Net Smelter
Royalty (“NSR”) existing in the favor of the original property owner. LSG has rehabbed approximately 1/2 mile of drift
at the 300ft level and completed 22 surface core drill holes for a total of 10,400 ft and 152 underground core drill holes for
a total of 23,000ft.
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.
The
Property is located in west-central Nevada, 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 6,000 feet. Vegetation is sparse, consisting largely of sagebrush, rabbitbrush,
Joshua trees and grasses. Water, electricity and other sundry needs such as restaurants, lodging, minor medical needs, fire station,
and police are within 1 mile of the property.
All
properties, claims, buildings, equipment, and supplies are owned by LSG and we have free access to utilize and manage all those
items. Operations are managed 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. The program
that we envision undertaking includes the mining of approximately 10,000 tons of non-NI 43-101 compliant gold mineralization at
an approximate grade of 0.9 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 that were 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
onsite and we must rely on a third party to receive our mineralized material and tombstone our tailings.
The
execution of the Subscription Agreement was one of the closing conditions of the Option Agreement, pursuant to which we acquired
the sole and exclusive option to earn up to an 80% undivided interest in and to the Property. To earn the additional 60% interest
in the Property, we were 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 an NSR. Until 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.
The
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.
If
we fail to make any cash payments to LSG within one year of October 4, 2014, 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 we have earned the additional 60% interest in the Property.
LSG
granted us 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 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.
Amendment
to Option Agreement
On
October 31, 2019, we entered into an amendment (the “Amendment”) to the Option Agreement with LSG.
Under
the Amendment, the exercise of the 60% option was restructured into two separate 30% options, such that we may now earn a 30%
interest in the Property (for a total of 50%) (the “Second Option”) by completing the following actions:
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paying
LSG $5 million in cash from the Property’s mineral production proceeds in the form of an NSR royalty (the “Initial
Payment”);
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paying
LSG all accrued and unpaid penalty payments under the Option Agreement;
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repaying
to LSG (i) all loans, advances or other payments made by LSG to the Company and (ii) all expenditures on the Property funded by
or on behalf of LSG until the date on which the Initial Payment has been completed; and
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funding
all expenditures on the Property until the date on which the Initial Payment has been completed.
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Following
the exercise of the Second Option, we may earn an additional 30% interest in the Property (for a total of 80%) (the “Third
Option”) by completing the following actions:
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paying
LSG a further $5 million in cash from the Property’s mineral production proceeds in the form of a NSR royalty (the “Final
Payment”); and
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funding
all expenditures on the Property from the date on which the Second Option is exercised until the date on which the Final Payment
has been completed.
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The
primary effect of the Amendment is therefore to increase to the purchase price for the additional 60% interest in the Property
from $5 million to $10 million, while at the same time separating it into tranches.
The
Amendment also corrects a number of inconsistences in the Option Agreement, updates the defined terms to accommodate the creation
of the Second Option and Third Option, and includes our acknowledgements regarding accrued and unpaid penalty payments and amounts
owing by us to LSG as of September 30, 2019.
The
foregoing description of the Amendment includes a summary of all the material provisions but is qualified in its entirety by reference
to the complete text of the Amendment included as Exhibit 10.8 to this report and incorporated herein by reference.
We
agreed with LSG that upon the successful completion of a toll milling agreement after permitting is achieved, there will be a
basis to form a joint management committee to outline work programs and budgets, as contemplated in the Option Agreement and for
us to act as the operator of the Property. To the date of this report 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 2020.
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.
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.
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ITEM
1A.
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RISK
FACTORS (continued)
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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.
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 or directors files a claim against us for indemnification, the associated expenses could also increase
our operating costs.
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ITEM 1A.
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RISK
FACTORS (continued)
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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 remain volatile. Many industries, including the mineral resource industry, are impacted
by these market conditions. Some of the key impacts of 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 were to 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.
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 in the acquisition of our mineral property interest. LSG and its owner control
approximately 72 % 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.
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ITEM
1A.
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RISK
FACTORS (continued)
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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-dealers 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.
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.
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ITEM
1 B.
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UNRESOLVED
STAFF COMMENTS
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None.
Our
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 6,000 feet. Vegetation is sparse, consisting largely
of sagebrush, rabbitbrush, Joshua trees and grasses.
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ITEM
2.
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PROPERTIES
(continued)
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Figure
1: Property Location Map
The
Property is wholly owned by LSG, the company’s largest shareholder and is clear titled. The 31 patented claims cover an area of
approximately 460 acres, or 186 hectares. The claims are owned as private land by LSG, and only annual property taxes must be
paid.
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ITEM
2.
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PROPERTIES
(continued)
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We
have mineral rights to all the claims listed below. We have surface rights on all claims except for a portion of five claims that
exist within the town boundary of Goldfield. 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 LSG. The annual fee for maintaining
all the claims is under $1,500. A map of the claims is shown below in Figure 2.
Patented
Claims
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Claim
Name
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U.S.
Survey No.
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Combination
No. 3
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2375
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August
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2916
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Great
Western
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2525
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Gold
Coin
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2525
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February
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2941
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Mohawk
No. 1
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2283
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Side
Line Fraction
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2567
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January
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2941
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Silver
Pick
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2203
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Silver
Pick Fraction
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2203
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Deserted
(1)
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2203
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Pipe
Dream
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2203
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North
End (2)
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2203
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Hazel
Queen
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2375
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Fraction
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2844
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White
Horse
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2844
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White
Rock
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2844
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Yellow
Jacket
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2844
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Firelight
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2749
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Emma
Fraction
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2360
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S.E.
2/3 Red King (more or less)
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2361
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S.E.
1/2 (Cornishman)
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2750
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Kewana
#3
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2565
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Blue
Jay
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2375
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Combination
No. 1 Claim (3)
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2375
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Combination
No 2 Claim (4)
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2844
(19/24th interest)
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Omega
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2844
(19/24th interest)
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Apazaca
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2844
(19/24th interest)
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Alpha
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2844
(19/24th interest)
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Jim
Fraction
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4096
(19/24th interest)
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O.K.
Fraction
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2560
(¾ of ½ interest)
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Notes:
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(1)
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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.
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(2)
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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.
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(3)
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Includes
all depths of the north ½ of such claim along with depths beneath 380 feet on the south ½ of such claim.
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(4)
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Includes
all depths of the south ½ of such claim along with depths beneath 380 feet on the south ½ of such claim.
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ITEM
2.
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PROPERTIES
(continued)
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Figure
2: Claim Map
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ITEM
2.
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PROPERTIES
(continued)
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Current
Infrastructure and recent developments:
All
properties, claims, buildings, equipment, and supplies are owned by our largest shareholder, LSG. We have 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, and police
are within 1 mile of the property.
Operations
are managed 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. The program
that we envision undertaking includes the mining of approximately 10,000 tons of non-NI 43-101 compliant gold mineralization at
an approximate grade of 0.9 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 that were 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.
The
Company has been issued Water Pollution Control Permit NEV2017109 from the Nevada Department of Environmental Protection (NDEP)
regarding production at the property, as at November 20, 2018. This Permit authorizes the construction, operation, and closure
of approved mining facilities in Esmeralda County, Nevada. The Permit is effective for 5 years until November 20, 2023 and authorizes
the processing of 10,000 tons of ore per year from Lode-Star’s underground operations. In
accordance with MSHA guidelines, we are in the process of re-occupying the Property’s underground workings.
On
February 17, 2017, we executed an agreement with Scorpio Gold Corporation (Scorpio) for a pilot toll milling test. We
completed the first test in May 2017 and both companies have determined that further testing needs to be completed to determine
a definitive cost analysis and other operational details. The sample processed was historic
material stockpiled on the property surface and therefore of limited metallurgical value, but indicative of material that will
be run through the mill. Milling throughput did identify specific equipment configuration details that need to be considered for
future runs. Both parties agree that additional milling circuitry is needed for the most optimum gold yield. We expect to provide
material from our targeted underground zone for more comprehensive milling results.
On
January 22, 2020 we executed a toll milling agreement (the “Agreement”) with Scorpio’s affiliate, Goldwedge LLC. The
Agreement will allow for the processing of ore delivered from our Property to the 400 ton per day Goldwedge milling facility located
in Manhattan, Nevada.
Based
on previous metallurgical testing, our ore requires gravity combined with flotation for optimal recoveries of contained precious
metals. The Goldwedge milling circuit is currently configured with a gravity recovery circuit. Under the terms of the Agreement,
we will advance funds required for the design, engineering, permitting and modifications to the Goldwedge facility to include
the addition of a flotation circuit, supporting reagent tanks/silos, secondary lining of process containment ponds, leak detection
and monitoring wells associated with fluid containments.
The
Agreement provides for us to recoup the advanced funds through a reduction in toll milling rates until all advanced funds have
been repaid. Following repayment, the toll charges will revert to standard rates.
|
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.
PART
II
|
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 2019 and 2018 quarters are as follows:
|
|
|
2019
|
|
|
2018
|
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
March 31
|
|
$
|
0.06
|
|
|
$
|
0.022
|
|
|
$
|
0.038
|
|
|
$
|
0.022
|
|
|
June 30
|
|
$
|
0.15
|
|
|
$
|
0.045
|
|
|
$
|
0.035
|
|
|
$
|
0.0249
|
|
|
September 30
|
|
$
|
0.056
|
|
|
$
|
0.0425
|
|
|
$
|
0.033
|
|
|
$
|
0.025
|
|
|
December 31
|
|
$
|
0.07402
|
|
|
$
|
0.0325
|
|
|
$
|
0.05
|
|
|
$
|
0.022
|
|
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, 2019, we had 69 shareholders of record of our common stock.
We competed our NI 43-101 report as of January 15, 2020.
Capitalization
Shares
Our
authorized capital is 500,000,000 shares of capital stock, divided into 480,000,000 shares of common stock with a par value of
$0.001 per share, and 20,000,000 shares of preferred stock with a par value of $0.001 par value per share.
At
December 31, 2019 and to date 50,605,965 (2018: 50,605,965) shares of common stock have been issued. No shares of preferred stock
have been issued to date.
Stock
Options
On
November 20, 2018, we granted 500,000 non-qualified stock options pursuant to the Equity Incentive Plan, to key outside consultants,
with 50% vesting after one year and 50% vesting after two years. Each option is exercisable into one share of our common stock
at a price of $0.06 per share, for a term of five years. None of the options have been exercised to date.
On
February 14, 2017, we granted 9,500,000 non-qualified stock options to key corporate officers and outside consultants, with 25%
vesting immediately and a further 25% vesting every six months thereafter for eighteen months. Each option is exercisable into
one share of our common stock at a price of US$0.06 per share, equal to the closing price of the common stock on the grant date,
for a term of five years. None of the options have been exercised to date.
Warrants
In
connection with a 2015 consulting agreement, there are warrants outstanding to November 10, 2020 to purchase 3,336,060 shares
of common stock at a price of $0.02 per share, including a cashless exercise option.
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (continued)
|
|
|
|
Securities
Authorized for Issuance under Equity Compensation Plans
We
reserved 10,000,000 shares of common stock for issuance under our 2015 Omnibus Equity Incentive Plan. The purpose of the Plan
is to maintain our ability to attract and retain highly qualified and experienced directors, officers and consultants and to give
such directors, officers and consultants a continued proprietary interest in our success. The Plan is available to any stockholder
on request.
Dividends
We
have not declared any cash dividends, nor do we have any plans to do so. Management anticipates that, for the foreseeable future,
all available cash will be needed to fund our operations.
Penny
Stock
Our
common stock is subject to the provisions of Section 15(g) of the Exchange Act and Rule 15g-9 thereunder, commonly referred to
as the “penny stock rule”. Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule
15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally
defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions.
We are subject to the SEC’s penny stock rules.
Since
our common stock is deemed to be penny stock, trading in the shares of our common stock is subject to additional sales practice
requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited
investors” are generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the
purchase of securities and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally,
for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of
a risk disclosure document prepared by the SEC relating to the penny stock market. A broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information for penny stocks held in an account and information to the limited
market in penny stocks. Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market
in our common stock and may affect the ability of our stockholders to sell their shares.
Recent
Sales of Unregistered Securities
During
the years ended December 31, 2019 and 2018, we had no subscriptions for shares of our common stock.
On
December 3, 2018, the Company issued 1,478,140 common shares in exchange for debt totaling $48,778 owed to a related party, comprised
of $40,205 in loans and $8,573 in accrued interest.
Other
than as disclosed above, we have not issued any equity securities that were not registered under the Securities Act within the
past three years.
|
ITEM
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.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Property
- Previous Exploration Work, Mineralization and State of Exploration
The
Property is wholly owned by LSG, our largest shareholder, and is clear titled. A 1% net smelter royalty exists in the favor of
the original property owner. The property consists of 31 patented claims on approximately 460 acres. LSG, over the past 15 years
and continuing, has spent over $7 million on underground rehab of approximately 1/4 mile of drift at the 300ft sub-surface level.
LSG also executed 22 surface core drill holes for a total of 10,400ft and 152 underground core drill holes for a total of 23,000ft.
It
is important to note the following sample preparation and quality controls used by LSG and by ICN, a previous operator of the
Property:
Lode-Star
Gold drill hole core sampling and analytical protocol
All
drill core samples were prepared and delivered to ALS Minerals in Reno by Tom Temkin, our COO. Individual sampled intervals varied
from one to five-foot lengths, based on geologic parameters, and included 100% of core intervals. No core splitting was conducted.
No duplicate samples or standards were introduced other than those inserted and utilized by ALS for their internal quality control.
Lab preparation of individual samples included crushing and grinding to minus 200 mesh, followed by a 1-ton assay for gold. All
samples that initially assayed over 1.0 opt Au were systematically re-assayed.
ICN
drill hole core and Rotary RC sampling and analytical protocol
All
drill core samples were prepared by ICN personnel and either delivered to the assay lab or were picked up on-site by lab personnel.
Rotary RC chip drilling samples were collected on-site and transported to Reno by the respective labs. The labs used included
ALS Minerals and American Assay Lab. Core was sawn by ALS Minerals and/or ICN personnel. Individual core sampled intervals varied
from one to five-foot lengths, based on geologic parameters, and included one-half of the original core material. Rotary RC samples
were taken at five-foot intervals entirely. Quality control for all samples included a protocol of inserting duplicate samples,
blanks, and known standards, at repeating intervals to maintain .08% check sampling. Lab preparation of Individual samples included
crushing and grinding to minus 200 mesh, followed by a 1-ton assay for gold. All samples that initially assayed over 1.0 opt Au
were systematically re-assayed.
Underground
work has identified 2 high-grade gold-bearing zones (see the small yellow stars in Fig. 1. and see Fig. 2.) that can support mine
development utilizing our current infrastructure. The property is now permitted for production and should be mine ready by the
end of Q2, 2020. It is our intention to then start mining the property. Much of the property remains under-explored and it is
our belief that the district’s high-grade, million-ounce ore zones repeat themselves. Further surface and underground exploration
work need to be executed. We plan to explore through production and chase our known, high-grade vein zones.
Third
Party Assay Data Audit
Mine
Development Associates (MDA Reno), a highly regarded, third party NI 43-101 service provider, has audited our drill hole database
and performed a comparative QA/QC check assay analysis on selected drilling and determined no inconsistencies to exist and assays
were repeatable within both the Red Hills and Church Zones.
NI
43-101 Update Status
We
filed an independent Technical Report written in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral
Projects (NI 43-101) on our property located in Goldfield, Nevada. Although not required for OTC listing, we had this report prepared
under NI 43-101 guidelines to provide a summary of the Goldfield Bonanza Project. This NI 43-101 is required documentation for
future possible business transactions and listings on Canadian exchanges. The Technical Report titled “Technical Report on
the Goldfield Bonanza Project Esmeralda County Nevada U.S.A.” dated January 15, 2020 has been prepared by Mr. Robert M. Hatch,
SME Registered Geologist.
The
report is available for review on EDGAR (https://www.sec.gov/edgar/searchedgar/companysearch.html)
and SEDAR (https://www.sedar.com/)
under Lode-Star Mining’s issuer profile.
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
The
white stars below show the historic zones where roughly 1 million ounces per star were produced during the period 1904-1918
(See Figure 1a. below): Last year of production by Goldfield Consolidated, (Source: Albers and Stewart, 1972). The large yellow
stars indicate areas we need to explore to possibly repeat the past high-grade production intercepts. The yellow lines are known geophysical interpreted structures. The small yellow stars are the immediate production zones targeted by
us for development.
Fig.
1. - The red vein zones contained in the aerial photo below depict the historic mined veins
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
HISTORIC
PRODUCTION
Figure
1a. - Production from Goldfield Mining District
|
Year
|
Ore
(tons)
|
Gold
(ounces)
|
● Silver
(ounces)
|
|
1903
|
|
3,419
|
287
|
|
1904
|
8,000
|
113,293
|
19,954
|
|
1905
|
11,700
|
91,088
|
8,589
|
|
1906
|
59,628
|
339,890
|
15,648
|
|
1907
|
101,136
|
406,756
|
71,710
|
|
1908
|
88,152
|
236,082
|
30,823
|
|
1909
|
297,199
|
453,915
|
33,164
|
|
1910
|
339,219
|
538,760
|
117,598
|
|
1911
|
390,431
|
497,637
|
126,406
|
|
1912
|
362,777
|
301,848
|
125,736
|
|
1913
|
364,785
|
242,815
|
153,984
|
|
1914
|
367,166
|
227,612
|
129,830
|
|
1915
|
418,935
|
212,337
|
165,305
|
|
1916
|
383,456
|
128,250
|
129,781
|
|
1917
|
339,488
|
91,917
|
78,184
|
|
1918*
|
264,237
|
58,685
|
90,560
|
|
1919
|
16,435
|
35,810
|
39,912
|
|
1920
|
6,571
|
7,536
|
6,081
|
|
1921
|
1,903
|
7,101
|
1,761
|
|
1922
|
5,619
|
12,773
|
5,755
|
|
1923
|
3,137
|
4,471
|
3,613
|
|
1924
|
7,352
|
4,336
|
3,982
|
|
1925
|
2,773
|
5,053
|
2,369
|
|
1925-1960
|
129,705
|
168,616
|
88,967
|
|
Total
|
3,958,104
|
4,190,000
|
1,450,000
|
|
|
*
|
Last
year of production by Goldfield Consolidated
|
SOURCE:
Albers and Stewart, 1972
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Geologic
Structure
The
geologic model that made Goldfield successful still exists today. Fig. 1b. shows the formation of the Goldfield high-grade gold
zones which leads to our conclusion that more multi-million-ounce intercepts are possible.
Fig.
1b. Geologic Structural Model
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Fig.
2. - Church and Red Hills Vein Zones are the two high-grade gold-bearing
zones that we expect to yield high-grade gold concentrations.
Red
Hills Vein System - Priority 1.
Two
major vein zones exist in the Red Hills area, including the Stope veins and the Decline vein (see Fig. 4 on the following page).
The respective names refer to the nature of brief mining conducted previously in these areas. As further defined through LSG’s
drilling to date, the area referred to as the Stope Veins is comprised of two intersecting vein-filled faults, including the West
vein zone and the East vein zone (Fig. 3 below). The average width of each of these vein zones is approximately three feet. Drilling
to date suggests the West vein zone to be essentially vertical and near parallel to the East vein zone. The Decline vein zone
is also shown on Fig. 3, as a north-northwest trending zone. Drilling on the Decline vein zone indicates a generally westerly
dipping feature with an average width of several feet. To date, drilling has yielded very encouraging gold values within each
of the vein zones described above. As shown on Figures 4 and 5 on the following page, several high-grade intercepts have been
encountered with values up to 75.0 oz/ton gold (East vein zone). Drilling indicates each of these vein zones to be open along
strike and at depth.
A
3-D depiction, (Fig. 3 below), of the three identified vein zones within the Red Hills shows the complex nature of their intersecting
relationship. This complex intersection of the three vein components provides several locations where high-grade gold concentrations
are identified. Two readily obvious targets where high-grade gold in excess of 1.0 ounce of gold per ton has been intersected
is shown on Figure 3 with dashed outlines. The drill holes and actual values have been omitted for sake of clarity. Additionally,
each of these vein zones appear to be open to the north, to the south, and to depth.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Fig.
3. - 3D Section of the Red Hills Vein Zones
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Fig.
4. - Red Hills Vein Zones Composite Cross Section
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Fig.
5 - Red Hills Vein Zones Plan View
Red
Hills Zone Summary
The
drilling of this resource area was performed by LSG from 2000 to 2006 and assaying was performed by ALS Chemex. All activity was
performed prior to the company’s need to have the drilling be resource NI 43-101 compliant. We assume the zone contains 10,000
ounces of AU (This assumption is non-NI 43-101 compliant). Historic underground mining was executed by chasing veins that yielded
pockets of high-grade gold production. It is LSM’s intention to follow the same method and chase its known high-grade gold-bearing
veins. LSM’S initial mining stage in the Red Hills area will extract mineralized material from the currently exposed Stope Vein
Zone, and the Decline Vein Zone on the 300-foot mine level. Mining dimensions in the Stope Zone are expected to be an average
of 4 to 10 feet wide, approximately 80 feet upwards and 100 feet along strike. The mining in the Decline will achieve mineralized
material extraction while developing access to lower levels. Eventually the gold mineralization below the 300-foot level in both
the Stope and Decline Vein Zones will be removed through the development of a downward spiral ramping approach, ultimately accessing
mining depths to approximately the 450-foot mine level. Mine Development Associates has audited LSG’s drilling data base and concluded
analyses of drill-sample pulps compared well with the original database gold analyses at grades relevant to the potential underground
mining scenario at Red Hills.
Church
Vein Zone - Priority 2.
Based
on the success and encouragement realized through drilling conducted by Trafalgar in 1982 and Westley in 1985, and further success
through follow-up drilling by LSG and ICN to date, a vein zone measuring up to 40 feet in width and trending at least 600 feet
north-northeasterly, exists immediately west of the Church shaft (fig. 6 below).
As
shown on fig. 6, our interpretation of drilling to date indicates this vein zone, which is comprised of numerous individual veins
up to several inches in width each, to be a steeply westerly-dipping feature, with several intercepts of high-grade gold exceeding
1.0 ounce of gold per ton. Areas highlighted in red on figures 6 and 7 display interpreted orientation of repeated vein sets based
on drill intercepts. Figure 6 also shows the high priority drill targets that we expect to yield additional high-grade gold concentrations
in the Church Vein zone. The nearly 200-foot vertical interval between the 100-level gold mineralization and the 300-level gold
mineralization is a high priority target, as are the extensions to the north and south, and down-dip from the 300-level workings.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Fig.
6 - Church Vein Zones and Decline Vein Zone
Figure
7 - Cross Section of Church Vein Zone at Section 3555
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
ICN
Resources Drilling
ICN
Resources acquired control of the property in March 2011. During that year ICN drilled 26 core holes for a total of 5,795 ft (1,767
m) and an additional 63 RC holes for a total of 27,470 ft (8,375 m). The core holes (hole ID prefixed with “ICN-”
) were drilled largely in the Church Zone and the RC holes (hole ID prefixed with “ICR-”) were utilized to test other
exploration targets throughout the property.
The
third core hole, ICN-003, returned a weighted-average intercept of 9.5 ft (2.90 m) that assayed 40.8 oz/ton (1.4 kg/t) gold. Eleven
holes were then drilled around the ICN-003 discovery hole within a 100 meter by 150-meter area. Additional extraordinary high-grade
intercepts included 4.5 ft (1.37 m) in ICN-013 that assayed 51.46 oz/ton (1.76 kg) gold, and a weighted average of 9.5 ft (2.9
m) in ICN-014 that averaged 26.8 oz/ton (918.0 g/t) gold. The next highest-grade intervals are 4 ft (1.22 m) in ICN-023 that averaged
1.46 oz/ton (50 g/t) and 3 ft (.91 m) in ICN-024 that assayed .802 oz/ton (27.5 g/t). All of these high-grade intercepts lie along
the same north-northeast structural trend, which also falls in the broader NE corridor of mineralization. See the table below
for drill hole intercepts greater or equal to 0.5 oz/ton (17.14 g/t).
ICN’s
core drilling showed that the Church Zone is covered by as little as 55 ft (16.9 m) of post-mineral cover. The zone remains open
along strike and down-dip and falls within the NE Corridor as defined by mineralization and geophysics.
The
RC drilling program was designed to test four areas. Most of the work was focused on the 600-foot (183 m) strike length of the
NE Corridor between the Church Zone and the Combination Pit. Six holes were drilled to test the January area, immediately west
of the Combination Pit. An additional 19 holes were drilled to test mineralized zones noted by prior exploration programs in the
northeastern portion of the claim block, including the Sheets-Ish Silver Pick and Phelan Shaft areas. Five holes were located
in the Newmont Lode area to test extensions of known mineralization.
Drilling
in the NE Corridor (away from the Church Zone) showed that the structure and alteration persist throughout, and that attractive
gold mineralization is present. Numerous lower grade intercepts were encountered, which contained shorter high-grade intervals.
The degree of silicification, quartz veining and fracturing in these intercepts indicates that the lower grade intercepts may
represent halos to higher grade mineralization. Additional drilling will be required to better delineate these mineralized zones.
ICN
Resources Drill Intercepts Greater or Equal To 0.5 oz/ton (17.14 g/t)
Intervals greater than 1.0 oz/ton (34.29 g/t) are in bold.
|
Hole
ID
|
From
m
|
To
m
|
From
ft
|
To
ft
|
Length
ft
|
Au
g/t
|
Au
oz/ton
|
|
ICN-001
|
59.7
|
60.7
|
196.0
|
199.0
|
3.0
|
23.2
|
0.677
|
|
ICN-001
|
60.7
|
61.6
|
199.0
|
202.0
|
3.0
|
215.7
|
6.290
|
|
ICN-003
|
16.9
|
19.8
|
55.5
|
65.0
|
9.5
|
1398.6
|
40.793
|
|
Incl.
|
16.9
|
18.6
|
55.5
|
61.0
|
5.5
|
547.3
|
15.963
|
|
Incl.
|
18.6
|
19.8
|
61.0
|
65.0
|
4.0
|
2569.2
|
74.935
|
|
ICN-003
|
24.8
|
26.8
|
81.5
|
88.0
|
6.5
|
57.1
|
1.665
|
|
ICN-008
|
94.5
|
95.3
|
310.0
|
312.5
|
2.5
|
183.6
|
5.355
|
|
ICN-013
|
28.0
|
29.4
|
92.0
|
96.5
|
4.5
|
1,764.2
|
51.455
|
|
ICN-014
|
25.1
|
26.1
|
82.5
|
85.5
|
3.0
|
181.9
|
5.306
|
|
ICN-014
|
27.0
|
28.0
|
88.5
|
92.0
|
3.5
|
2,332.0
|
68.018
|
|
ICN-015
|
66.4
|
67.2
|
218.0
|
220.5
|
2.5
|
24.5
|
0.714
|
|
ICN-018
|
57.9
|
59.4
|
190.0
|
195.0
|
5.0
|
23.5
|
0.684
|
|
ICN-023
|
64.3
|
64.9
|
211.0
|
213.0
|
2.0
|
61.6
|
1.798
|
|
ICN-023
|
64.9
|
65.5
|
213.0
|
215.0
|
2.0
|
37.1
|
1.081
|
|
ICN-024
|
24.1
|
25.0
|
79.0
|
82.0
|
3.0
|
27.6
|
0.805
|
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
ICN
Resources Drill Intercepts Greater or Equal To 0.5 oz/ton (17.14 g/t) (Continued)
Intervals
greater than 1.0 oz/ton (34.29 g/t) are in bold.
|
ICN
Resources rotary-reverse circulation
|
|
ICR-003
|
18.3
|
19.8
|
60.0
|
65.0
|
5.0
|
39.0
|
1.138
|
|
ICR-003
|
19.8
|
21.3
|
65.0
|
70.0
|
5.0
|
21.7
|
0.633
|
|
ICR-003
|
39.6
|
41.1
|
130.0
|
135.0
|
5.0
|
17.2
|
0.502
|
|
ICR-003
|
59.4
|
61.0
|
195.0
|
200.0
|
5.0
|
19.0
|
0.554
|
|
ICR-031
|
105.2
|
106.7
|
345.0
|
350.0
|
5.0
|
17.3
|
0.505
|
|
ICR-032
|
64.0
|
65.5
|
210.0
|
215.0
|
5.0
|
18.2
|
0.530
|
|
ICR-044
|
12.2
|
13.7
|
40.0
|
45.0
|
5.0
|
28.3
|
0.826
|
GOLD
MINERALIZATION and ALTERATION
Goldfield
is one of the most prominent North American examples of the epithermal subclass classification known as high-sulfidation (or alunite-gold)
deposits. This type of deposit is characterized by intense pyritization and low-pH, acid-sulfate hydrothermal alteration of the
volcanic host rocks. Gold mineralization occurs in brecciated, quartz-alunite vein-filled faults and fractures. Individual veined
zones are typically one to three feet in total width and are characterized by a clustering of several smaller veins up to three
inches in width each. Gold deposition has been dated (using isotopes) as occurring 22 to 18 million years ago (Silberman, 1985).
Fluid inclusion and oxygen isotope data from several locations within the district indicate an ore deposition temperature ranging
from 200 to 2900 degrees C.
Host
rocks surrounding the brecciated quartz-alunite-filled faults and fractures typically display a near-symmetrical pattern of three
successive hydrothermal alteration zones. The gold-bearing veined zones containing predominantly quartz, alunite and pyrite, invariably
are surrounded by strongly developed silicification (silica replacement of host rock). An advanced argillic zone enveloping the
silicification is characterized by the presence of alunite, kaolinite, pyrite, quartz and montmorillonite, which further grades
into a more regional propylitic alteration zone containing calcite, chlorite, and pyrite. Widespread intense hydrothermal alteration
often makes it difficult to trace individual volcanic units.
HIGH-GRADE
GOLD OCCURRENCES
The
Goldfield mining district has recorded production of more than 4.2 million ounces of gold and 1.5 million ounces of silver. Production
in the district generally has been limited to an area about one mile (east-west) by about one and one-half mile (north-south).
High-grade
gold ores (>1.0 oz/ton) typically occur as breccia-matrix and open-space vug fillings within a series of banded quartz-alunite
veins, surrounded by pervasively silicified zones that often contain lower-grade gold (>0.05 oz/ton). From 1903 to 1925, about
fifteen individual high-grade ore bodies averaging 100,000 tons and yielding 100,000 to 500,000 ounces of gold each were mined
from the veins in the immediate vicinity of the Apex of the Main Vein at the Combination pit. Typical dimensions of these ore
bodies are approximately 200 feet along strike, 300 feet on dip, and up to 20 feet in width. Of the total tonnage, high-grade
ores accounted for 51% mined. The average grade of total gold produced during this period was 1.13 ounces per ton; 96% of total
gold produced had an average grade greater than 1 ounce per ton, while 39% of total gold produced had an average grade of 2.9
ounces per ton. The cutoff grade in the district was 0.25 ounces of gold per ton. The majority (75% to 80%) of the district’s
gold production occurred from depths of 600 feet or less. The deepest ores mined at Goldfield were 1,900 feet below the surface
and approximately 2,500 feet downdip from the apex of the lode.
Unoxidized
ore, formed as cavity fillings in brecciated veins, consists of varying proportions of native gold and gold tellurides including
calaverite and goldfieldite, as well as sulfosalt minerals including bismuthinite and famatinite, each of which are associated
with high-grade gold.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Geophysics
CSAMT
In
2008, Lode-Star Gold contracted Zonge Geophysics to carry out an orientation CSAMT (controlled source, audio-frequency magneto-telluric)
survey. The objective was to determine the effectiveness of this technique in detecting resistivity variations that correlate
with known gold-bearing quartz vein zones. Five east-west lines were run across the Church-Red Hills-Newmont Zone area for a total
of 1.7 line miles (2.7km) of coverage. The results clearly defined several pronounced resistivity gradients with patterns associated
with aforementioned areas of known gold mineralization.
In
February 2012, ICN contracted Zonge Geophysics to carry out a similar CSAMT survey which covered nearly all of the Goldfield Bonanza
property. It included 32 lines for a total of 10.6 line-miles (17 line-kilometers). The survey data was acquired using 30-meter
(100 ft) receiver dipoles in spreads of six down-line electric field dipoles with two magnetic field measurements taken per spread
in the broadside mode of operation. The signal source was a Zonge GGT-30 constant current transmitter. Survey control was maintained
using a Trimble PRO-XRS GPS receiver.
Figure
8 below displays the results of the property-wide survey. Overlain on the CSAMT is drilling in the Northeast Corridor with drill
hole assays presented as calculated grade X thickness (GxT) values. There is a clear association of CSAMT resistivity highs with
high gold assays from these drill holes, occurring in highly silicified areas. Also shown on figure 8, the biogeochemical survey
anomalies are overlain on the CSAMT results, indicating close correlation with high resistivity values. The biogeochemistry patterns
are discussed further in the Biogeochemistry section below.
The
main NE Corridor is defined by a major break in the CSAMT data. This break is directly indicative of significant northwest and
northeast oriented structures at depth, some of which have been observed in underground exposures and interpreted through drilling.
The potential significance of the CSAMT break is demonstrated by the drill holes in and around the Newmont Lode in the southern
portion of the grid.
Holes
in this area are weakly to strongly gold mineralized, suggesting that further drill testing southwest along this break is warranted.
In
addition, the mineralization trending northwesterly in the Sheets-Ish, Silver Pick, Phelan area is shown to hug the sharp Northwest
break in the CSAMT response. Thus, the better gold grades seem to follow the margins of the CSAMT highs. The principal conclusion
was that the general exploration model was verified – “Main District style” high-grade gold mineralization is,
in fact, localized beneath the post-mineral cover below the Lode-Star Gold claim block.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Figure
8 - Geophysics & Biochemistry Anomalies w/ GxT Drill Assays
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
Biogeochemistry
Conventional surface sampling of outcrops and soils on the Lode-Star claims is not useful due to poor exposures and contamination by waste dumps and tailings. However, biogeochemical sampling has been shown to be effective in indicating areas of anomalous gold and other gold-related trace metal values below the Seibert gravels.
In August 2011, ICN personnel sampled rabbit brush in an area measuring approximately 4000 feet (1200 m) by 2000 feet (600 m) in the northern and central portions of the property, including in the Silver Pick shaft area and in the NE Corridor target area. The program was designed, and the data interpreted by Shea Clark Smith of Minerals Exploration & Environmental Geochemistry (Smith, 2012). Large areas that are defined by gold concentrations from 2 – 60 ppb are significant and attest to the volume (and possibly grade) of mineralized rock in contact with groundwater in these areas. Smith states that metal uptake in rabbit brush is not overwhelmed by mineralized dust that might have masked the metal concentrations in plant tissues of less well endowed (by gold) areas.
The Figure to the right displays the gold-mineralized areas indicated by the biogeochemical data. The anomalies cluster in areas of historically mined mineralization near the Phelan, Sheets-Ish and Silver Pick shafts. Most importantly multiple clusters occur in the Northeast Corridor area, which includes the Newmont Lode and especially the Church Zone. Of particular note is the cluster of anomalies that exist to the northwest of the NE Corridor, correlating closely with interpreted northwest-trending structures. Thus, the biogeochemical data confirms the conclusions from drilling and underground geologic work as shown on Figure 8 above. Overall the biogeochemical anomalies were found in four areas of the property that have had no drilling, as follows:
|
|
Figure 9
Biogeochemical Interpretive Map
|
|
|
1.
|
the
area immediately east of the Church Zone coinciding with a CSAMT anomaly;
|
|
|
2.
|
several
grouped anomalies immediately northwest of the Newmont Lode and the January-Whiterock shaft;
|
|
|
3.
|
a
northwest trending series of anomalies extending 400 meters to the northwest of the Church discovery zone; and,
|
|
|
4.
|
three
separate anomalies located to the west of the Silver Pick shaft and to the east of the Phelan shaft in the northern portion of
the claim group. In general, all of the drill holes with anomalous gold values fall within biogeochemical anomalies and all those
holes with no significant gold intercepts are outside the biogeochemical anomalies.
|
Seismic
Survey
In
1980 Trafalgar Mines contracted Cooksley Geophysics to conduct a refraction seismic survey over a small area in the Church zone.
This survey delineated several shallow silica ledges which were confirmed by drilling to be gold bearing. Westley Mines leased
the property during 1985. They contracted Dr. McWilliams, a professor at Stanford, to conduct a more extensive refraction seismic
survey. Thirteen east-west lines were run at approximately a 400-foot (122m) spacing covering an area from about 600 feet (183m)
south of the Silver Pick shaft to 2000 feet (610m) south of the January-Whiterock shaft. This work delineated silicified zones
and ledges which are interpreted to have horizontal thicknesses of up to 200 feet (61 m) and varying lengths. See Fig. 10 below.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Figure
10 - Seismic Survey Anomalies
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Mine
Development - Drilling the Northeast Corridor
The
Company’s immediate drill program is to define its existing and mineable Gold mineralization within the northeast corridor. See
Fig. 11. Specifically, the Church, Red Hills/Decline and Newmont Zones, referred to as the CRN Area. Current drill budget is US$1,800,000
plus $200,000 in analytical fees. Combined total cost: US$2,000,000.
Fig.
11 Immediate Drill Program Area
|
Red
Hills, Decline Zone:
The
Company is planning for 6,000 combined feet of deep core drilling for the Red Hills and Decline Zone.
Anticipated
Cost $400,000. See Table 11a.
Church
Zone:
The
Company is planning for 6,400 combined feet of drilling for the Church Zone.
Anticipated
Cost $400,000 See Table 11b.
Newmont
Zone:
Future
planning for an initial 22,200 combined feet of surface drilling in the Newmont Zone.
Anticipated
Cost (Surface) $1,000,000 See Table 11c.
|
Phase
1
Table
11a. - Red Hills / Decline Zone Drilling Budget
|
Red
Hills Surface
|
Hole
Depth
|
$/ft
|
Cost/Hole
|
#
of Holes
|
Cost
|
TTl
ft Drilled
|
|
|
Core
Drilling
|
1000
avg.
|
60.00
|
$
60,000
|
6
|
$ 360,000
|
6,000
|
|
|
Contingency
|
|
|
|
|
$ 40,000
|
|
|
|
Total
Budget
|
|
|
|
6
|
$
400,000
|
6,000
|
Sample
Prep., Assays, CSAMT interpretation and third-party verification of the drilling results are expected to add a cost of approximately
$100,000.
Table
11b. - Church Zone Drilling Budget
|
Church
Zone Surface
|
Hole
Depth
|
$/ft
|
Cost/Hole
|
#
of Holes
|
Price
|
TTl
ft Drilled
|
|
|
Core
Drilling
|
300
|
50.00
|
$
15,000
|
8
|
$ 120,000
|
2,400
|
|
|
Core
Drilling
|
1000
|
60.00
|
$
60,000
|
4
|
$ 240,000
|
4,000
|
|
|
Contingency
|
|
|
|
|
$ 40,000
|
|
|
|
Total
Budget
|
|
|
|
12
|
$
400,000
|
6,400
|
Sample
Prep., Assays, CSAMT interpretation and third-party verification of the drilling results are expected to add a cost of approximately
$100,000.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Phase
2
Table
11c. - Newmont Zone Surface Drilling Budget (Planned)
|
Newmont
Zone Surface
|
Hole
Depth
|
$/ft
|
Cost/Hole
|
#
of Holes
|
Price
|
TTl
ft Drilled
|
|
|
RC
Drilling
|
1000
|
38.00
|
$
38,000
|
10
|
$ 380,000
|
10,000
|
|
|
RC
Drilling
|
500
|
38.00
|
$
19,500
|
10
|
$ 190,000
|
5,000
|
|
|
Core
Drilling
|
1000
|
60.00
|
$
60,000
|
4
|
$ 240,000
|
4,000
|
|
|
Core
Drilling
|
400
|
50.00
|
$
20,000
|
8
|
$ 160,000
|
3,200
|
|
|
Contingency
|
|
|
|
|
$ 30,000
|
|
|
|
Surface
Budget
|
|
|
|
32
|
$
1,000,000
|
22,200
|
Sample
Prep., Assays, CSAMT interpretation and third-party verification of the drilling results are expected to add a cost of approximately
$200,000.
|
|
Underground
Budget
|
Newmont
Underground - Yet to be Determined
|
Unplanned
|
|
Total
for Phase 1 planned step-out drilling – Red Hills/Decline Zone and Church Zone
|
|
Combined
11a & 11b
|
Drilling
|
$ 800,000
|
|
|
|
|
Analytical
Fees
|
$ 200,000
|
|
|
|
Total
|
|
$1,000,000
|
|
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Future
Exploration Targets
|
Target
Area 1.
North-south
oriented CSAMT gradient that indicates extension of the known high-grade gold in the Red Hills Vein Zone.
Target
Area 2.
Several
Refractive Seismic responses along a north-northwest oriented alignment, suggesting the existence of one (or more) siliceous
zones, likely below the 1,700 meter search horizon.
The
pronounced south-pointing protruding gradient at the south end of this linear, which is similar to the northeast pointing
gradient in the Red Hills. This is indicative of the existence of a siliceous zone.
Target
Area 3.
A
major northwest oriented CSAMT gradient trending similar to numerous historic ore zones in the main district (note the
repeated spacing of the prominent NW historic ore zones).
Intersection
of this northwest oriented gradient with the southern projection of the NE Corridor, that correlates with the existence
of biogeochemical anomalies.
Target
Area 4.
A
north-northeast oriented CSAMT gradient adjacent to the NE Corridor with coincident Refractive Seismic responses and biogeochemical
anomalies.
A
sharp embayment and protruding CSAMT gradient with coincident RS responses and biogeochemical anomaly.
Target
Area 5.
Several
Refractive Seismic responses along a north-northwest oriented alignment, suggesting the existence of one (or more) siliceous
zones, likely below the 1,700 meter search horizon.
The
intersection of RS responses with CSAMT gradient.
Target
Area 6.
A
major northwest oriented CSAMT gradient trending similar to numerous historic ore zones in the main district coincident
with biogeochemical anomalies.
|
Figure
12 - Seismic Survey
|
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Permitting
and Production
On
November 20, 2018 we were issued Water Pollution Control Permit NEV2017109 from the Nevada Department of Environmental Protection
(NDEP) regarding production at the property. This Permit authorizes the construction, operation, and closure of approved mining
facilities in Esmeralda County, Nevada. The Permit is effective for 5 years until November 20, 2023 and authorizes the processing
of 10,000 tons of ore per year from Lode-Star’s underground operations. 100% of the permitting cost has been borne by our largest
shareholder, Lode-Star Gold INC.
Unique
to our production permit, the Nevada Department of Environmental Protection has endorsed our intensions to temporarily store waste
rock underground. Once stockpiled, waste rock is brought to the surface to backfill and remediate our historic abandoned mine
shafts. This will save us the significant time and expense of having to permit and build a surface waste containment facility.
We
have received our blasting permit from the ATF.
Metallurgy
Reports
To
date we have had three metallurgy reports prepared. In order they are: Kappes Cassady & Associates located in Reno, NV dated
July 10,2006, Newmont Mining located in Carlin, NV dated May 27, 2010, and McClelland Laboratories, Inc. located in Reno, NV dated
January 26, 2016. Indications are that the Company can expect at a minimum, an 85% AU recovery from floatation milling. Better
recovery is achieved by Agitated Leach processing, which show results closer to +90%. The best recovery results, +95%, due to
the high sulphide content of the ore, is achieved through roasting. An additional lab report has been generated by Kappes Cassady
& Associates to determine ore compatibility for processing at Scorpio Gold’s milling circuit.
Milling
On
January 22, 2020 we executed a toll milling agreement (the “Agreement”) with Scorpio Gold Corporation’s affiliate, Goldwedge
LLC. The Agreement will allow for the processing of ore delivered from our Property to the 400 ton per day Goldwedge milling facility
located in Manhattan, Nevada.
Based
on previous metallurgical testing, our ore requires gravity combined with flotation for optimal recoveries of contained precious
metals. The Goldwedge milling circuit is currently configured with a gravity recovery circuit. Under the terms of the Agreement,
we will advance funds required for the design, engineering, permitting and modifications to the Goldwedge facility to include
the addition of a flotation circuit, supporting reagent tanks/silos, secondary lining of process containment ponds, leak detection
and monitoring wells associated with fluid containments.
The
Agreement provides for us to recoup the advanced funds through a reduction in toll milling rates until all advanced funds have
been repaid. Following repayment, the toll charges will revert to standard rates.
Mine
Design and Utilization of Equipment
The
mine will be designed through the interpretation of detailed drilling data in cross sections and the use of conventional software.
Currently there are two areas, the Red Hills and the Church, containing high-grade gold mineralization identified that are to
be incorporated into the mine plan. Currently the mine is equipped with a 1-yard scoop-tram loader. Mining activity will be conducted
with the utilization of this loader, pneumatic equipment and by an existing conveyor system providing for the transfer of ore
to the surface.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Production
Mining Method
We
intend to maximize profitability through a disciplined approach involving the separation of high-grade gold ore from waste rock
during the mining stage, thus avoiding the additional cost of pre-shipment concentration. In order to maintain the highest grade
of ore production the blast holes will be sampled during drilling, then assayed to determine ore boundaries prior to blasting.
The current plan is to ship ore directly from the mine to an offsite mill employing a toll-milling arrangement. A summary of the
mining methodology is as follows:
|
|
●
|
Cut
& Fill/Resuing Narrow Vein Stoping (described below)
|
|
|
●
|
Mechanized
internal decline
|
Figure
M1. - A typical blast pattern to extract the ore from waste using two detonations.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Timbered
Raise Summary
The
design accommodates the ease of installation of the timber using pre-cut timbers. Caps, and Gerts are jointed on each end so that
each fits on another, with a place for each corner post. The timbers are designed to be carried by a pneumatic tugger hoist and
set by a crew of two men. A man-way is provided with landings every 4 sets vertically. A utility compartment is provided with
accommodation for air and water lines as well as ventilation tubing. The raise timbering is designed to accommodate chute lagging
on each end of the raise, with a timber slide along the footwall. Each set is to be blocked to the sides and ends of the raise
using similar size timber and wedges. The timbering in this design is intended for temporary vertical access for mining operations
and is not intended for permanent long-term ground support. (Fig. M2 below).
Cut
& Fill/Resuing Stope Summary
Access
is provided by first constructing an internal ramp system, or by timbered raise. RESUING (Shrink Stoping): A method that reduces
dilution when the vein is narrower than the heading. Historically a drift round was taken in two passes. First pass was to extract
the gold vein, and the second pass was to extract the waste. CUT & FILL: Access is provided by first taking a sill cut, then
taking down the back in successive slices. After mucking, the stope is backfilled, but enough space is left to mine the next slice.
Fig.
M2 - A typical timber raise and a spiral ramp. The arrow indicates where the raise will be constructed.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Plan
of Operations
Drilling
and Mine Development:
The
Company’s underground workings are 100% rehabbed and ready to mine. We anticipate being fully mine-ready by Q2 of 2020.
The
capital requirement to achieve our next phase of project development is estimated at US$5,000,000.
|
|
-
|
Line
items 1, 2, 3 and 5 below, totaling $3,000,000 are required for bulk sampling of the mine’s current workings.
|
|
|
-
|
Line
item 4 accounts for the Development Drilling required to fully assess the property’s resource.
|
Application
of Funds
|
Item
|
Major
Categories
|
Cost
|
Comments
|
|
1.
|
Equipment
& Mining Materials
|
$275,000
|
Budgeted,
|
|
2.
|
Secondary
Escape & Second Production Shaft
|
$1,000,000
|
Budgeted
|
|
3.
|
Red
Hills/Stope & Decline Vein Zones Mining
|
$860,000
|
Budgeted
|
|
4.
|
Drilling
the North-East Corridor
|
$2,000,000
|
Budgeted
|
|
5.
|
Corporate
& General Admin.
|
$865,000
|
Budgeted
|
|
|
Total
|
$5,000,000
|
Budgeted
|
The
estimates above are for discussion purposes only. No information contained herein should be considered an official corporate offering.
All costing of the application of funds is an estimate and may not exactly match the actual future costs.
The
following tables shows the estimated, detailed application of the $5.0 million Total above, by Category, required for step-out
property development and gold output from the Red Hills Vein Zone.
|
|
1.
|
Equipment
& Mining Materials
|
|
Description
|
Cost
|
Quantity
|
Total
|
|
a.
Blasting Materials and Storage
|
$30,000
|
N/A
|
Stocked
|
|
b.
Pneumatic Jackleg new
|
$5,000
|
4
|
$20,000
|
|
c.
Pneumatic Slusher/w bucket used
|
$20,000
|
2
|
Purchased
|
|
d.
Pneumatic Tugger used
|
$5,000
|
1
|
Purchased
|
|
e.
Stopers/Buzzies
|
$2,000
|
2
|
Purchased
|
|
f.
1-yard used Scoop
|
$200,000
|
1
|
$200,000
|
|
g.
Compressor
|
$130,000
|
1
|
Leased
|
|
h.
Hoist Rehab and Retrofitting
|
$25,000
|
1
|
$25,000
|
|
i.
Ancillary
|
$30,000
|
1
|
$30,000
|
|
Total
Equipment Items and Cost
|
|
|
$275,000
|
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
|
|
2.
|
Secondary
Escape and Second, Higher Volume Production Shaft
|
|
Location
|
Description
|
Costs
|
Comments
|
|
300
ft Level
|
Labor
+ Equipment
|
$1,000,000
|
MSHA
Mandated
|
|
|
|
|
|
|
300
ft Level
|
Total
|
$1,000,000
|
Budgeted
|
|
|
3.
|
Phase
1. Mining the Red Hills/Stope and Decline Vein Zones
|
|
Location
|
Description
|
Costs
|
Comments
|
|
RH/St/Dec
|
Labor
Related
|
$450,000
|
5-man
crew @ 10 hours per day, estimated 15 months to complete
|
|
|
Ore
Grade Control
|
$50,000
|
Sampling
time and logistics
|
|
|
Timber
|
$35,000
|
Timber
Prep, crib, man-way & service raise timbers
|
|
|
Equipment
Maintenance
|
$30,000
|
0.5-man
hours. $2,000=Tire wear, service & diesel consumption
|
|
|
Ground
Support
|
$20,000
|
4'
Split Set w/plate& monster mat. Estimated 1000 bolts
|
|
|
Explosives
|
$100,000
|
Ongoing
Blasting Materials
|
|
|
Fuel
|
$75,000
|
15
months @ $5,000/month
|
|
|
Backfill
Material
|
$40,000
|
Limestone
|
|
|
Consumables
|
$5,000
|
Small
hand tools (Fin hoes, drill steel, bits, drivers, axes, nails, etc.
|
|
|
Utilities
|
$5,000
|
24"
vent bag, 2" water & 2" air pipe
|
|
|
Contingency
|
$50,000
|
|
|
RH
|
Total
|
$860,000
|
Budgeted
|
|
|
4.
|
Mine
Development - Drilling the Northeast Corridor
|
|
|
Description
|
Cost
|
Comments
|
|
|
Red
Hills / Decline / Church Zone
|
$800,000
|
Budgeted
|
|
|
Newmont
Zone
|
$1,000,000
|
Budgeted
|
|
|
Analytical
Fees
|
$200,000
|
Budgeted
|
|
|
Total
|
$2,000,000
|
Budgeted
|
|
|
7.
|
General
Corporate and Administration Fees
|
|
Public
Company Administrative Costs
|
Description
|
Cost
|
Comments
|
|
|
Personnel
|
$365,000
|
Budgeted
|
|
|
Regulatory
|
$200,000
|
Budgeted
|
|
|
General
|
$300,000
|
Budgeted
|
|
|
Total
|
$865,000
|
Budgeted
|
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
Funding
All of our ongoing operations, since the inception
of our Mineral Option Agreement on October 4, 2014, have been funded by monies advanced to us by Lode-Star Gold INC. (LSG) our
largest shareholder. We do not currently have enough funds to carry out our entire plan of operations, so we intend to meet the
balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private
placements. There is no assurance that we will be successful in completing any such financings.
If
we are unsuccessful in obtaining sufficient funds through our capital raising efforts, we may review other financing options,
although we cannot provide any assurance that any such options will be available to us or on terms reasonably acceptable to us. Further,
if we are unable to secure any additional financing then we plan to reduce the amount that we spend on our operations, including
our management-related consulting fees and other general expenses, so as not to exceed the capital resources available to us. Regardless,
our current cash reserves and working capital will not be sufficient for us to sustain our business for the next 12 months, even
if we decide to scale back our operations.
Going
Concern
Our
auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business
for the next twelve months unless we obtain additional capital to pay our expenses. This is because we have not generated any
revenues to date, and we cannot currently estimate the timing of any possible future revenues. Our only source for cash currently
is loans or investments by others in our common stock.
Intellectual
Property
We
do not own any intellectual property and we have not filed for any protection of our trademark.
Personnel
We
have no employees. Our president and CEO, our COO and our Corporate Secretary received no compensation in the years ended December
31, 2019 and 2018 for their services, other than stock options issued in 2017, as detailed in Item 11 and $12,000 in consulting
fees paid to our CEO in 2019. We expect to continue to use outside consultants, advisors, attorneys and accountants as necessary.
See Item 10 for information regarding our officers and directors.
Government
Regulations
We
plan to engage in mineral exploration and are accordingly exposed to environmental risks associated with mineral exploration activity.
LSG is currently in the exploration stage on the Property and, pursuant to the Option Agreement, once formal work plans are mutually
agreed between us and LSG, we will be the operator.
In
general, in Nevada, no government permits are required on mining claims for exploration activities which do not involve the use
of powered equipment. Any disturbance of existing land and vegetation by powered means will generally require a permit which will
specify that after work is completed land be re-contoured to the original surface and be seeded with native plant species. On
unpatented claims with federally owned surface, a “Notice of Intent” must be filed with the BLM for all activities
involving the disturbance of five acres (two hectares) or less of the surface. A Notice of Intent will include details on the
company submitting the notice, maps of the proposed disturbance, equipment to be utilized, the general schedule of operations,
a calculation of the total disturbance anticipated, and a detailed reclamation plan and budget. A bond will be required to
ensure reclamation and the amount will be determined by the calculated acreage being disturbed. The notice does not have
an approval process associated with it but the bond calculation does have to be approved with a letter from the BLM before work
can proceed. It is not necessary to file a Notice of Intent prior to work on land with privately owned surface.
Measurement
of land disturbance is cumulative, and once five acres total has been disturbed on one project, a “Plan of Operations”
must be filed and approved by the BLM before additional work can take place. This too requires a cash bond along with a reclamation
plan.
LSG
is not required to file a Notice of Intent for the Property with the BLM; instead, it is required to file one with the Department
of Environmental Protection of the State of Nevada (NDEP), since the only portion of the Property that has publicly-owned surface
rights is that which overlaps the Goldfield town limits. This form of notice includes the same information as the BLM Notice of
Intent except that a detailed reclamation plan, budget and bond are not required. The notice also has a very informal approval
process associated with it.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
LSG
is currently operating under a Notice of Intent filed with the NDEP and dated January 2011. This is an open-ended permit that
does not require bonding for reclamation and allows for a total of five acres of disturbance. We do not have any additional pending
Notices of Intent.
To
the best of our knowledge, there are no existing environmental liabilities on the Property. A detailed environmental investigation
has not been conducted.
Results
of Operations
The
following summary of our results of operations should be read in conjunction with our audited financial statements for the year
ended December 31, 2019 which are included with this Report. See the “Cautionary Note Regarding Forward Looking Statements”
above for a discussion of forward-looking statements and the significance of such statements in the context of this Report.
We
recorded a net loss of $296,887 for the year ended December 31, 2019, have an accumulated deficit of $3,001,261 and have had no
operating revenues. The possibility and timing of revenue being generated from our mineral property interest is uncertain.
Revenues
and Net Loss
|
|
|
Years Ended December 31
|
|
|
Increase/(Decrease)
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
Percentage
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Operating Expenses
|
|
|
231,811
|
|
|
|
273,431
|
|
|
|
(41,620
|
)
|
|
|
(15
|
%)
|
|
Operating Loss
|
|
|
(231,811
|
)
|
|
|
(273,431
|
)
|
|
|
41,620
|
|
|
|
(15
|
%)
|
|
Other Expense
|
|
|
(65,076
|
)
|
|
|
(59,175
|
)
|
|
|
(5,901
|
)
|
|
|
10
|
%
|
|
Net Loss
|
|
$
|
(296,887
|
)
|
|
$
|
(332,606
|
)
|
|
$
|
35,719
|
|
|
|
(11
|
%)
|
Expenses
Our
expenses for the years ended December 31, 2019 and 2018 are shown below:
|
|
|
Years Ended December 31
|
|
|
Increase/(Decrease)
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
Percentage
|
|
|
Consulting services
|
|
$
|
46,274
|
|
|
$
|
82,375
|
|
|
$
|
(36,101
|
)
|
|
|
(44
|
%)
|
|
Corporate support services
|
|
|
1,835
|
|
|
|
1,904
|
|
|
|
(69
|
)
|
|
|
(4
|
%)
|
|
Interest, bank and finance charges
|
|
|
65,076
|
|
|
|
59,175
|
|
|
|
5,901
|
|
|
|
10
|
%
|
|
Mineral option fees
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
Office, foreign exchange and sundry
|
|
|
15,567
|
|
|
|
16,947
|
|
|
|
(1,380
|
)
|
|
|
(8
|
%)
|
|
Professional fees
|
|
|
45,342
|
|
|
|
49,348
|
|
|
|
(4,006
|
)
|
|
|
(8
|
%)
|
|
Transfer and filing fees
|
|
|
22,793
|
|
|
|
22,857
|
|
|
|
(64
|
)
|
|
|
-
|
|
|
Total Operating and Other Expenses
|
|
$
|
296,887
|
|
|
$
|
332,606
|
|
|
$
|
(35,719
|
)
|
|
|
(11
|
%)
|
Consulting
services
We
granted stock options to key corporate officers and outside consultants in 2017 and 2018. The related Consulting services expense
for the year ended December 31, 2019 based on a Black-Scholes calculation was $10,562, compared to $57,912 in 2018, lower by
approximately $47,000. That decrease was partially offset by $12,000 in consulting fees paid to our CEO in 2019, compared to
$0 in 2018. The net of those two changes accounted for the majority of the total year over year decrease.
Interest,
bank and finance charges
The
increase in interest expense in 2019 was mainly due to a net increase of approximately $140,000 in interest-bearing loans and
approximately $125,000 in interest-bearing amounts due to LSG for mineral option fees and accrued interest.
Professional
fees
The
majority of the decrease in Professional fees was the result of no equivalent in 2019 to a fee in 2018 from our previous auditors
for reissuance of their 2016 audit report in connection with the comparative figures on our 2017 financial statements.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Assets
and Liabilities
Balance
Sheet items with notable year over year differences are as follows:
|
|
|
December 31
|
|
|
Change
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
Percentage
|
|
|
Cash
|
|
$
|
10,499
|
|
|
$
|
6,508
|
|
|
$
|
3,991
|
|
|
|
61
|
%
|
|
Due to related parties and accrued interest
|
|
$
|
1,598,114
|
|
|
$
|
1,286,011
|
|
|
$
|
312,103
|
|
|
|
24
|
%
|
|
Loans payable and accrued interest
|
|
$
|
5,819
|
|
|
$
|
30,267
|
|
|
$
|
(24,448
|
)
|
|
|
(81
|
%)
|
|
Additional Paid-In Capital
|
|
|
1,628,646
|
|
|
|
1,618,084
|
|
|
|
10,562
|
|
|
|
1
|
%
|
Cash increased due to the amount of cash provided by loans being approximately $4,000 more than the amount of cash used in operating
activities.
Due
to related parties and accrued interest increased due to the following:
|
|
°
|
the
accrual of mineral option fees and related interest due to LSG totaling approximately $125,000;
|
|
|
°
|
net
cash loan advances from related parties of $110,000;
|
|
|
°
|
accrued
loan interest due to related parties of approximately $41,000; and
|
|
|
°
|
expenses
paid by related parties on our behalf of approximately $36,000
|
Loans
payable and accrued interest decreased due to repayment of loan principal totaling $6,000 and accrued interest of approximately
$18,000.
Additional
Paid-In Capital increased as a result of the current year expense of a portion of the value assigned to 0.5 million stock
options issued November 20, 2018, calculated using the Black-Scholes option pricing model. The expense was charged to Consulting
services.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
Liquidity
and Capital Resources
Our
financial condition at December 31, 2019 and 2018 and the changes between those dates are summarized below:
Working
Capital
|
|
|
December 31
|
|
|
Increase/(Decrease)
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
Percentage
|
|
|
Current Assets
|
|
$
|
12,577
|
|
|
$
|
8,487
|
|
|
$
|
4,090
|
|
|
|
48
|
%
|
|
Current Liabilities
|
|
|
1,611,947
|
|
|
|
1,321,532
|
|
|
|
290,415
|
|
|
|
22
|
%
|
|
Working Capital (Deficiency)
|
|
$
|
(1,599,370
|
)
|
|
$
|
(1,313,045
|
)
|
|
$
|
(286,325
|
)
|
|
|
22
|
%
|
Our
working capital decreased, as expected, from December 31, 2018 to December 31, 2019, primarily due to ongoing funding from LSG,
increasing our current liabilities. In current assets, the majority of the change was due to the increase in cash of approximately
$4,000. In current liabilities, majority of the change was due to the increase in amounts due to related parties, comprised of
accrued mineral option fees, related party loans, accrued interest, and expenses paid on our behalf by related parties, totaling
approximately $312,000, partially offset by the decrease in non-related party loans and accrued interest of approximately $24,000.
The changes in assets and liabilities noted here are explained in the Assets and Liabilities section above.
Cash
Flows
|
|
|
Year Ended December 31
|
|
|
Increase/(Decrease)
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
Percentage
|
|
|
Cash Flows Provided By (Used In):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
$
|
(100,009
|
)
|
|
$
|
(79,310
|
)
|
|
$
|
(20,699
|
)
|
|
|
26
|
%
|
|
Financing Activities
|
|
|
104,000
|
|
|
|
85,000
|
|
|
|
19,000
|
|
|
|
22
|
%
|
|
Net increase (decrease) in cash
|
|
$
|
3,991
|
|
|
$
|
5,690
|
|
|
$
|
(1,699
|
)
|
|
|
(30
|
%)
|
As
of the date of this report, we have yet to generate any revenues from our business operations. Our principal sources of working
capital have been related party loans and funds received as subscriptions for our common stock. For the foreseeable future, we
will continue to rely on those sources for funding. We have no assurance that we can successfully engage in any private sales
of our securities or that we can obtain any additional loans.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Commitments
We
do not have any commitments as of December 31, 2019 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.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
|
|
|
|
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.
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.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
LODE-STAR
MINING INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and the Board of Directors of
Lode-Star Mining Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Lode-Star Mining Inc. (the "Company") as at December 31, 2019 and 2018,
the related statements of operations, cash flows, and changes in stockholders’ deficiency, for the years then ended, and
the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and the results
of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Emphasis
of Matter
The
accompanying financial statements referred to above have been prepared assuming the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the Company incurred losses from operations since inception, has not attained
profitable operations and is dependent upon obtaining adequate financing to fulfill its operating activities. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to
these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We
served as the Company's auditor from 2004 to 2014, and commencing again in 2017.
|
Vancouver,
Canada
|
“Morgan & Company LLP”
|
|
|
|
|
March
23, 2020
|
Chartered
Professional Accountants
|
|
PO
Box 10007, 1630 – 609 Granville Street, Vancouver, British Columbia, Canada V7Y 1A1
Tel: (604) 687 – 5841 Fax: (604) 687 –
0075 www.morgancollp.com
|
|
LODE-STAR
MINING INC.
BALANCE SHEETS
|
|
|
DECEMBER 31
|
|
|
|
|
2019
|
|
|
2018
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,499
|
|
|
$
|
6,508
|
|
|
Prepaid fees
|
|
|
2,078
|
|
|
|
1,979
|
|
|
Total current assets
|
|
|
12,577
|
|
|
|
8,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral Property Interest, unproven
|
|
|
230,180
|
|
|
|
230,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
242,757
|
|
|
$
|
238,667
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
8,014
|
|
|
$
|
5,254
|
|
|
Due to related parties and accrued interest
|
|
|
1,598,114
|
|
|
|
1,286,011
|
|
|
Loans payable and accrued interest
|
|
|
5,819
|
|
|
|
30,267
|
|
|
Total current liabilities
|
|
|
1,611,947
|
|
|
|
1,321,532
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock:
|
|
|
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
|
|
|
480,000,000 voting common shares and 20,000,000 preferred shares
|
|
|
3,425
|
|
|
|
3,425
|
|
|
Issued:
|
|
|
|
|
|
|
|
|
|
50,605,965 common shares and no preferred shares at December 31, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
|
1,628,646
|
|
|
|
1,618,084
|
|
|
Accumulated Deficit
|
|
|
(3,001,261
|
)
|
|
|
(2,704,374
|
)
|
|
Total stockholders’ deficiency
|
|
|
(1,369,190
|
)
|
|
|
(1,082,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficiency
|
|
$
|
242,757
|
|
|
$
|
238,667
|
|
The
accompanying notes are an integral part of these financial statements.
LODE-STAR
MINING INC.
STATEMENTS OF OPERATIONS
|
|
|
YEARS ENDED DECEMBER 31
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
Consulting services
|
|
|
46,274
|
|
|
|
82,375
|
|
|
Corporate support services
|
|
|
1,835
|
|
|
|
1,904
|
|
|
Mineral option fees
|
|
|
100,000
|
|
|
|
100,000
|
|
|
Office, foreign exchange and sundry
|
|
|
15,567
|
|
|
|
16,947
|
|
|
Professional fees
|
|
|
45,342
|
|
|
|
49,348
|
|
|
Transfer and filing fees
|
|
|
22,793
|
|
|
|
22,857
|
|
|
Total operating expenses
|
|
|
231,811
|
|
|
|
273,431
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(231,811
|
)
|
|
|
(273,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
|
|
|
|
|
|
|
|
Interest, bank and finance charges
|
|
|
(65,076
|
)
|
|
|
(59,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss For The Year
|
|
$
|
(296,887
|
)
|
|
$
|
(332,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss Per Common Share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding – Basic and Diluted
|
|
|
50,605,965
|
|
|
|
49,241,217
|
|
The
accompanying notes are an integral part of these financial statements.
LODE-STAR
MINING INC.
STATEMENTS OF CASH FLOWS
|
|
|
YEARS ENDED DECEMBER 31
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
(296,887
|
)
|
|
$
|
(332,606
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
|
85
|
|
|
|
362
|
|
|
Stock options issued for services
|
|
|
10,562
|
|
|
|
57,912
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid fees
|
|
|
-
|
|
|
|
1,746
|
|
|
Accounts payable and accrued liabilities
|
|
|
38,417
|
|
|
|
34,679
|
|
|
Due to related parties
|
|
|
100,000
|
|
|
|
100,000
|
|
|
Accrued interest payable
|
|
|
47,814
|
|
|
|
58,597
|
|
|
Net cash used in operating activities
|
|
|
(100,009
|
)
|
|
|
(79,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Repayment of loans payable
|
|
|
(6,000
|
)
|
|
|
(20,000
|
)
|
|
Proceeds from loans payable – related party
|
|
|
110,000
|
|
|
|
105,000
|
|
|
Net cash provided by financing activities
|
|
|
104,000
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash
|
|
|
3,991
|
|
|
|
5,690
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Beginning of Year
|
|
|
6,508
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, End of Year
|
|
$
|
10,499
|
|
|
$
|
6,508
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
35,657
|
|
|
$
|
37,473
|
|
The
accompanying notes are an integral part of these financial statements.
LODE-STAR
MINING INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
|
|
NUMBER OF
COMMON
SHARES
|
|
|
PAR
VALUE
|
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
|
ACCUMULATED
DEFICIT
|
|
|
TOTAL
|
|
|
Balance, December 31, 2017
|
|
|
49,127,825
|
|
|
|
1,947
|
|
|
|
1,512,872
|
|
|
|
(2,371,768
|
)
|
|
|
(856,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
57,912
|
|
|
|
-
|
|
|
|
57,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in exchange for debt
|
|
|
1,478,140
|
|
|
|
1,478
|
|
|
|
47,300
|
|
|
|
-
|
|
|
|
48,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(332,606
|
)
|
|
|
(332,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
50,605,965
|
|
|
|
3,425
|
|
|
|
1,618,084
|
|
|
|
(2,704,374
|
)
|
|
|
(1,082,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
10,562
|
|
|
|
-
|
|
|
|
10,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(296,887
|
)
|
|
|
(296,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
50,605,965
|
|
|
$
|
3,425
|
|
|
$
|
1,628,646
|
|
|
$
|
(3,001,261
|
)
|
|
$
|
(1,369,190
|
)
|
The
accompanying notes are an integral part of these financial statements.
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
1.
|
BASIS
OF PRESENTATION AND NATURE OF OPERATIONS
|
|
|
|
Organization
Lode-Star
Mining Inc. (“the Company”) was incorporated in the State of Nevada, U.S.A., on December 9, 2004. The Company’s
principal executive offices are located in Reno, Nevada. The Company was originally formed for the purpose of acquiring exploration
stage natural resource properties. The Company acquired a mineral property interest from Lode-Star Gold INC., a private Nevada
corporation (“LSG”) on December 11, 2014 in consideration for the issuance of 35,000,000 common shares of the Company.
As a result of this transaction, control of the Company was acquired by LSG.
Going
Concern
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. The future of the
Company is dependent upon its ability to establish a business and to obtain new financing to execute its business plan. As shown
in the accompanying financial statements, the Company has had no revenue and has incurred accumulated losses of $3,001,261 as
of December 31, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company
is significantly dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing.
There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company
to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot
continue in existence.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
|
The
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United
States (“GAAP”). Because a precise determination of many assets and liabilities is dependent upon future events, the
preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful
judgment. All dollar amounts are in U.S. dollars unless otherwise noted.
The
financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within
the framework of the significant accounting policies summarized below:
The
Company’s financial statements have been prepared using the accrual method of accounting. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results
of operations for the periods presented have been reflected herein.
|
|
b)
|
Cash
and Cash Equivalents
|
Cash
consists of cash on deposit with high quality, major financial institutions. For purposes of the balance sheets and statements
of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of 90 days or less to be cash
equivalents. At December 31, 2019 and 2018, the Company had no cash equivalents.
|
|
c)
|
Foreign
Currency Accounting
|
The
Company’s functional currency is the U.S. dollar. Branch office activities are generally in Canadian dollars. Transactions
in Canadian currency are translated into U.S. dollars as follows:
|
|
i)
|
monetary
items at the exchange rate prevailing at the balance sheet date;
|
|
|
ii)
|
non-monetary
items at the historical exchange rate; and
|
|
|
iii)
|
revenue
and expense items at the rate in effect of the date of transactions.
|
Gains
and losses arising on the settlement of foreign currency denominated transactions or balances are recorded in the statements of
operations.
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
|
|
d)
|
Fair
Value of Financial Instruments
|
ASC
Topic 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the
market. These tiers include:
|
|
■
|
Level
1 – defined as observable inputs such as quoted prices in active markets;
|
|
|
■
|
Level
2 – defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and
|
|
|
■
|
Level
3 – defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
|
The
Company’s financial instruments consist of cash, accounts payable and accrued liabilities, due to related parties, and loans
payable. The Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted
prices in active markets for identical assets. Accounts payable and accrued liabilities and loans payable are measured using “Level
2” inputs as there are no quoted prices in active markets for identical instruments. The carrying values of cash, accounts
payable and accrued liabilities, and loans payable approximate their fair values due to the immediate or short term maturity of
these financial instruments.
|
|
e)
|
Asset
Retirement Obligations
|
The
Company has no asset retirement obligations, including environmental rehabilitation expenditures, which relate to an existing
condition caused by past operations.
|
|
f)
|
Use
of Estimates and Assumptions
|
The
preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying disclosures. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant.
Significant areas requiring management’s estimates and assumptions are determining the fair value of transactions involving
related parties and common stock. Actual results may differ from the estimates.
|
|
g)
|
Basic
and Diluted Earnings Per Share
|
The
Company reports basic earnings or loss per share in accordance with ASC Topic 260, “Earnings Per Share”. Basic
earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common
shares outstanding during the period. As the Company generated net losses in the periods presented, the impact of including
potential shares from outstanding warrants would be anti-dilutive and is therefore not part of the net loss per share calculation.
The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes. This
standard requires the use of an asset and liability approach for financial accounting and reporting on income taxes. If it is
more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
i) Stock-Based
Compensation
Stock-based
compensation of employees is accounted for in accordance with ASC 718 whereby a compensation charge based on the fair value of
the equity instruments issued, measured at the grant date, is recorded against earnings over the period during which the employee
is required to perform the services in exchange for the award (generally the vesting period).
For
transactions with non-employees in which services are performed in exchange for the Company’s common stock or other equity
instruments, the transactions are accounted for in accordance with ASC 505-50, whereby the compensation charge is recorded on
the basis of the fair value of the goods or services received or the fair value of the equity instruments granted, whichever is
more reliably measurable at the earlier of the date at which a commitment for performance is reached or the date at which the
performance is complete. The expense is recognized in the same manner as if the Company had paid cash for the goods or services.
|
|
j)
|
Mineral
Property Interest and Impairment
|
Mineral
property interests are capitalized and recorded at fair value. The property interests are periodically assessed for impairment
of value when facts and circumstances suggest that the carrying amount of the property interest may exceed its recoverable amount.
Costs of exploration, evaluation and retaining mineral property interests are expensed as incurred. Once the Company has identified
proven and probable reserves in its investigation of its property interests and upon development of a plan for operating a mine,
it would enter the development stage and capitalize future costs until production is established. When a property reaches the
production stage, the related capital costs will be amortized, using the units-of-production method over proven and probable reserves.
|
|
k)
|
Related
Party Transactions
|
In
accordance with ASC 850, the Company discloses: the nature of the related party relationship(s) involved; a description of the
transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income
statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on
the financial statements; the dollar amounts of transactions for each of the periods for which income statements are presented
and the effects of any change in the method of establishing the terms from that used in the preceding period; and amounts due
from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner
of settlement.
|
|
l)
|
Recent
Accounting Pronouncements
|
The
Company has implemented all applicable new accounting pronouncements that are in effect. Those pronouncements did not have any
material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other
new accounting pronouncements that have been issued that might have a material impact on its financial position or results of
operations.
|
3.
|
MINERAL
PROPERTY INTEREST
|
|
|
|
The
Company’s mineral property interest is a group of thirty-one claims known as the “Goldfield Bonanza Project”
(the “Property”), in the State of Nevada. Pursuant to an option agreement dated October 14, 2014 with Lode-Star Gold
INC. (“LSG”), a private Nevada corporation, the Company acquired an initial 20% undivided interest in and to the mineral
claims owned by LSG and an option to earn a further 60% interest in the claims. LSG received 35,000,000 shares of the Company’s
common stock and is its controlling shareholder. Until the Company has earned the additional 60% interest, the net smelter royalty
will be split 79.2% to LSG, 19.8% to the Company and 1% to the former Property owner.
To
earn the additional 60% interest, the Company was required to fund all expenditures on the Property and pay LSG an aggregate of
$5 million in cash in the form of a net smelter royalty, commencing after December 11, 2014. If the Company fails to make any
cash payments to LSG within one year of the date of the option agreement, it is required to pay LSG an additional $100,000, and
in any subsequent years in which the Company fails to complete the payment of the entire $5 million, it must make quarterly cash
payments to LSG of $25,000.
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
3.
|
MINERAL
PROPERTY INTEREST (Continued)
|
|
|
|
On
January 11, 2017, LSG agreed to defer payment of all amounts due in accordance with the mineral option agreement until further
notice. On January 17, 2017, the Company and LSG agreed that as of January 1, 2017, all outstanding balances shall carry a compound
interest rate of 5% per annum. It was further agreed that the ongoing payment deferral shall apply to both interest and principal.
The total amount of such fees due at December 31, 2019 was $523,913 (2018: $423,913), with total interest due in the amount of
$57,413 (2018: $32,220).
On
October 31, 2019, the Company and LSG executed an amendment (the “Amendment”) to their mineral option agreement dated
October 4, 2014 (the “Option Agreement”). According to the terms of the Option Agreement the Company acquired an initial
20% undivided interest in and to the mineral claims owned by LSG and an option to earn a further 60% interest in the claims.
Under
the Amendment, the exercise of the 60% option was restructured into two separate 30% options, such that the Company may now earn
a 30% interest in the Property (for a total of 50%) (the “Second Option”) by completing the following actions:
|
|
●
|
paying
LSG $5 million in cash from the Property’s mineral production proceeds in the form of a NSR royalty (the “Initial
Payment”);
|
|
|
●
|
paying
LSG all accrued and unpaid penalty payments under the Option Agreement;
|
|
|
●
|
repaying
to LSG (i) all loans, advances or other payments made by LSG to the Company and (ii) all expenditures on the Property funded by
or on behalf of LSG until the date on which the Initial Payment has been completed; and
|
|
|
●
|
funding
all expenditures on the Property until the date on which the Initial Payment has been completed.
|
Following
the exercise of the Second Option, the Company may earn an additional 30% interest in the Property (for a total of 80%) (the “Third
Option”) by completing the following actions:
|
|
●
|
paying
LSG a further $5 million in cash from the Property’s mineral production proceeds in the form of an NSR royalty (the “Final
Payment”); and
|
|
|
●
|
funding
all expenditures on the Property from the date on which the Second Option is exercised until the date on which the Final Payment
has been completed.
|
The
primary effect of the Amendment is therefore to increase to the purchase price for the additional 60% interest in the Property
from $5 million to $10 million, while at the same time separating it into tranches.
The
Amendment also corrects a number of inconsistences in the Option Agreement, updates the defined terms to accommodate the creation
of the Second Option and Third Option, and includes acknowledgements of the Company regarding accrued and unpaid penalty payments
and amounts owing by the Company to LSG as of September 30, 2019.
The
Company assessed its mineral property interest to the date of issue of these financial statements and concluded that facts and
circumstances do not suggest that the mineral property interest’s carrying value exceeds its recoverable amount and therefore
no impairment is required.
See
Subsequent Events Note 9.
Capitalization
The
authorized capital of the Company is 500,000,000 shares of capital stock, divided into 480,000,000 shares of common stock with
a par value of $0.001 per share, and 20,000,000 shares of preferred stock with a par value of $0.001 per share. The Company reserved
10,000,000 shares of common stock for issuance under its 2016 Omnibus Equity Incentive Plan. The Company has issued 50,605,965
common shares and no preferred shares.
No
shares were issued during the year ended December 31, 2019. During the year ended December 31, 2018, the Company issued 1,478,140
common shares in exchange for debt totaling $48,778 owed to a related party, comprised of $40,205 in loans and $8,573 in accrued
interest.
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
4.
|
CAPITAL
STOCK (Continued)
|
|
|
|
Options
A
total of 10,000,000 options are issued and outstanding, of which 9,750,000 were vested at December 31, 2019.
On November 20, 2018, the Company
granted 500,000 non-qualified stock options pursuant to the Equity Incentive Plan, to keyoutside consultants, with 50% vesting
after one year and 50% vesting after two years. Each option is exercisable into one share of the Company’s common stock at
a price of $0.06 per share, for a term of five years. The options had an estimated grant date fair value of $10,408. For the year
ended December 31, 2019, $10,562 (2018 - $1,340)was included in consulting services expense, based on fair value estimates determined
using the Black-Scholes option pricing model with an average risk-free rate of 2.88%, a weighted average life of 5.00years, volatility
of 195.37%, and dividend yield of 0%. The valuation used average weekly pricing. At December 31, 2019, the options had an intrinsic
value of $7,000 ($2018 - $0) based on the exercise price of $0.06 per option and a market price of $0.074 per share.
On
February 14, 2017, the Company granted 9,500,000 non-qualified stock options pursuant to the Equity Incentive Plan, to key corporate
officers and outside consultants, with 25% vesting immediately and a further 25% vesting every six months thereafter for eighteen
months. Each option is exercisable into one share of the Company’s common stock at a price of $0.06 per share, equal to
the closing price of the common stock on the grant date, for a term of five years. The options had an estimated grant date fair
value of $536,750. The options were fully amortized by the end of 2018 so for the year ended December 31, 2019, $0 (2018 - $56,572)
was included in consulting services expense, based on fair value estimates determined using the Black-Scholes option pricing model
with an average risk-free rate of 1.98%, a weighted average life of 4.837 years, volatility of 189.07%, and dividend yield of
0%. The valuation used average weekly pricing. At December 31, 2019, the options had an intrinsic value of $133,000 ($2018 - $0)
based on the exercise price of $0.06 per option and a market price of $0.074 per share.
A
summary of option activity in the current year and options outstanding at December 31, 2019 is as follows:
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
Vested
|
|
|
Exercise
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Life
Remaining
(Years)
|
|
|
Expiry Date
|
|
Intrinsic
Value
(Issued)
December
31, 2019
|
|
|
Issued February 14, 2017
|
|
|
9,500,000
|
|
|
|
9,500,000
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
3.13
|
|
|
February 14, 2022
|
|
$
|
133,000
|
|
|
Issued November 20, 2018
|
|
|
500,000
|
|
|
|
-
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
4.89
|
|
|
November 20, 2023
|
|
$
|
7,000
|
|
|
Balance December 31, 2018
|
|
|
10,000,000
|
|
|
|
9,500,000
|
|
|
|
|
|
|
|
|
|
|
|
3.21
|
|
|
|
|
|
|
|
|
Issued / Expired / Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019
|
|
|
10,000,000
|
|
|
|
9,750,000
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
2.21
|
|
|
|
|
$
|
140,000
|
|
Warrants
During
the years ended December 31, 2019 and 2018, no warrants to purchase shares of common stock were issued and no warrants were exercised.
At December 31, 2019, warrants issued in 2015 had an intrinsic value of $180,147 (2018 - $6,672) based on the exercise price of
$0.02 per warrant and a market price of $0.074 per share.
A
summary of warrant activity in the current year and warrants outstanding at December 31, 2019 is as follows:
|
|
|
Number
of
Warrants
|
|
|
Exercise
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average Life
Remaining
(Years)
|
|
|
Expiry Date
|
|
Intrinsic
Value
December
31, 2019
|
|
|
Balance December 31, 2018
|
|
|
3,336,060
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
1.88
|
|
|
November 19, 2020
|
|
|
|
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Balance outstanding and exercisable at December 31, 2019
|
|
|
3,336,060
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
0.89
|
|
|
|
|
$
|
180,147
|
|
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
At
December 31, 2019, the Company had the following loans payable:
|
|
i)
|
$0
(2018: $1,000): unsecured; interest at 15% per annum; originally due on April 20, 2012. Accrued interest payable on the loan at
December 31, 2019 was $0 (2018: $3,518). During 2019, the Company reached an agreement with the lender to settle the outstanding
principal of $1,000 and accrued interest of $3,555 for a payment of $2,500. Interest of $2,055 was forgiven and credited to interest
expense for the year.
|
|
|
ii)
|
$0
(2018: $5,000): unsecured; interest at 10% per annum from January 10, 2015. Accrued interest payable on the loan at December 31,
2019 was $5,819 (2018: $20,749). During the year ended December 31, 2019, the Company repaid $14,929 of accrued interest
(2018: $0) and $5,000 of principal (2018: $20,000). No further interest was required to be accrued after January 10, 2019, when
the final principal balance outstanding was repaid.
|
|
|
●
|
The
outstanding principal, and any accrued interest was due and payable on written demand in full (never received) on the earlier
of June 9, 2015 or the date on which the Company completes one or more debt or equity financings that generate aggregate gross
proceeds of at least $250,000;
|
|
|
●
|
The
Company has the right to repay all or any part of the Principal and any accrued interest to the lender at any time and from time
to time, without any premium.
|
|
|
●
|
There
are no changes to the terms as a result of the loan being in default.
|
|
6.
|
RELATED
PARTY TRANSACTIONS AND AMOUNTS DUE
|
|
|
|
At
December 31, 2019, the Company had the following amounts due to related parties:
|
|
i)
|
$247,060
(2018: $211,403): 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 loans at December 31, 2019 was $32,414 (2018: $20,776). During 2019, LSG paid expenses
directly on behalf of the Company totaling $35,657 (2018: $37,473).
|
|
|
ii)
|
$635,000
(2018: $525,000): 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, 2019 was $98,464 (2018: $69,034). During
2019, the Company borrowed $110,000 (2018: $105,000) from LSG.
|
|
|
iii)
|
$3,850
(2018: $3,665): unsecured; non-interest bearing; with no specific terms of repayment, due to the controlling shareholder of LSG.
The change in value during the year was due to fluctuation in the US to Canadian dollar exchange rate.
|
At
December 31, 2019, total interest accrued on the above related party loans was $130,878 (2018: $89,810).
During
the year ended December 31, 2019, there was a $185 foreign exchange loss (2018: $362) due to related party loan amounts in non-US
currency. No stock-based compensation to related parties was incurred during the year ended December 31, 2019 (2018: $58,246).
During
the year ended December 31, 2019, the Company incurred $100,000 (2018: $100,000) in mineral option fees payable to LSG, which
have been accrued as of that date. The total amount of such fees due at December 31, 2019 was $523,913 (2018: $423,913), with
total interest due in the amount of $57,414 (2018: $32,220).
At
December 31, 2019, the total due to related parties of $1,598,115 (2018: $1,286,011) is comprised of the following:
|
|
●
|
Loans
and accrued interest - $1,016,788 (2018: $829,878)
|
|
|
●
|
Mineral
option fees payable and accrued interest - $581,327 (2018: $456,133)
|
During
the year ended December 31, 2019, $12,000 (2018: $0) in consulting fees for strategic development was paid to the Company’s
President. $0 (2018: $966) was owing to the President for expenses outstanding in accounts payable as at December
31, 2019.
In
2018, the full amount of a loan ($40,205) and accrued interest ($8,573) due to the President was exchanged for 1,478,140 shares
of the Company’s common stock.
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
7.
|
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
|
|
|
|
See
Notes 3 and 9 for details about the Company’s obligations and commitments.
In
December 2014, the Company underwent a change in control which subjected it to limitations under Internal Revenue Code Section
382. That section restricts post-change annual net operating loss utilization, based on applying an IRS- prescribed rate to the
purchase price of the stock acquired in the change in control. The Company accordingly revised its estimates of net operating
loss carry forwards, resulting in a reduction in the estimate of losses available for utilization in the amount of approximately
$872,000.
A
reconciliation of income tax benefit to the amount computed at the estimated rate of 34% (2018 – 34%) is as follows:
|
|
|
2019
|
|
|
2018
|
|
|
Expected income tax recovery
|
|
$
|
100,900
|
|
|
$
|
113,100
|
|
|
Adjustment for non-deductible amounts
|
|
|
(78,900
|
)
|
|
|
(93,100
|
)
|
|
Increase in valuation allowance
|
|
|
(22,000
|
)
|
|
|
(20,000
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant
components of deferred income tax assets are as follows:
|
|
|
2019
|
|
|
2018
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
|
Net operating losses carried forward
|
|
$
|
365,400
|
|
|
$
|
343,400
|
|
|
Valuation allowance
|
|
|
(365,400
|
)
|
|
|
(343,400
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company has approximately $1,075,000 (2018: $1,010,000) in net operating losses carried forward which will expire by 2039 if not
utilized. Future tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements,
and have been offset by a valuation allowance.
The
Company’s net operating losses carried forward for United States income tax purposes will expire if not utilized, as follows:
|
2032
|
|
$
|
116,010
|
|
|
2033
|
|
|
6,445
|
|
|
2034
|
|
|
6,445
|
|
|
2035
|
|
|
315,203
|
|
|
2036
|
|
|
263,003
|
|
|
2037
|
|
|
244,111
|
|
|
2038
|
|
|
58,752
|
|
|
2039
|
|
|
64,632
|
|
|
|
|
$
|
1,074,601
|
|
Realization
of the above losses carried forward is dependent on the Company filing the applicable tax returns with the tax authorities and
generating sufficient taxable income prior to expiration of the losses carried forward. Continuing use of the acquired historic
business or a significant portion of the acquired assets for two years after a change of control transaction is required, otherwise
the annual net operating loss limitation on pre-change losses is zero. The two year continuing use requirement has been met.
LODE-STAR
MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
On
January 22, 2020 the Company executed a toll milling agreement (the “Agreement”) with Scorpio Gold Corporation’s affiliate,
Goldwedge LLC. The Agreement will allow for the processing of ore delivered from the Company’s Property to the 400 ton per
day Goldwedge milling facility located in Manhattan, Nevada.
Based
on previous metallurgical testing, the Company’s ore requires gravity combined with flotation for optimal recoveries of contained
precious metals. The Goldwedge milling circuit is currently configured with a gravity recovery circuit. Under the terms of the
Agreement, the Company will advance funds required for the design, engineering, permitting and modifications to the Goldwedge
facility to include the addition of a flotation circuit, supporting reagent tanks/silos, secondary lining of process containment
ponds, leak detection and monitoring wells associated with fluid containments.
The
Agreement provides for the Company to recoup the advanced funds through a reduction in toll milling rates until all advanced funds
have been repaid. Following repayment, the toll charges will revert to standard rates.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
|
|
|
There
have been no disagreements regarding 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, 2019 and 2018, included in this report, have
been audited by Morgan & Company LLP, 609 Granville Street, Vancouver, BC, Canada.
|
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, 2019, 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, 2019, 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, 2019, 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, 2019 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
ITEM
9B.
|
OTHER
INFORMATION
|
|
|
|
None.
PART
III
|
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
|
|
62
|
|
President,
Chief Executive Officer, Chief Financial Officer, Treasurer, Director
|
|
Thomas
Temkin
|
|
66
|
|
Chief
Operating Officer, Director
|
|
Pam
Walters
|
|
70
|
|
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 December 11, 2014. 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, which specializes 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 33 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, a Certified Instructor, Federal Mine Safety and Health Administration (MSHA) 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 Lode-Star Gold, Inc. Mr. Temkin has been associated with LSG and the project for over 18 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.
|
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.
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.
|
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.
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 as
employees.
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;
|
|
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, 2019 and 2018. We do not
have any other executive officers and no other individual received total compensation from us in excess of $100,000 during those
years.
Pursuant
to Item 402(a)(5) of Regulation S-K we have omitted certain columns from the table since there was no compensation awarded to,
earned by or paid to these individuals required to be reported in such columns in either year.
|
Name and Principal Position
|
|
Years Ended
December 31
|
|
Salary
($)
|
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Mark Walmesley, CEO (1)
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
2018
|
|
|
-
|
|
|
|
39,357
|
|
|
|
-
|
|
|
|
39,357
|
|
|
Thomas Temkin, Director and COO (2)
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2018
|
|
|
-
|
|
|
|
12,594
|
|
|
|
-
|
|
|
|
12,594
|
|
|
Pam Walters, Secretary (3)
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2018
|
|
|
-
|
|
|
|
6,295
|
|
|
|
-
|
|
|
|
6,295
|
|
|
ITEM
11.
|
EXECUTIVE
COMPENSATION (continued)
|
|
|
|
|
|
(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.
|
On
February 14, 2017 Mr. Walmesley was granted 5,000,000 non-qualified stock options pursuant to our Equity Incentive Plan, with
25% vesting immediately and a further 25% vesting every six months thereafter for eighteen months. Each option is exercisable
into one share of the Company’s common stock at a price of $0.06 per share, equal to the closing price of the common stock
on the grant date, for a term of five years. The options had an estimated grant date fair value of $290,640. For the year ended
December 31, 2019, $0 (2018: $39,357) was included in Consulting services expense, based on fair value estimates determined using
the Black-Scholes option pricing model. The full amount of the Black Scholes valuation had been amortized by the end of 2018.
At December 31, 2019, the options had an intrinsic value of $70,000 based on the exercise price of $0.06 per option and a market
price of $0.074 per share.
During
the year ended December 31, 2019, we paid Mr. Walmesley $12,000 in consulting fees (2018: $0).
|
|
(2)
|
Thomas
Temkin was appointed as our Chief Operating Officer and director on January 19, 2015.
|
On
February 14, 2017 Mr. Temkin was granted 1,600,000 non-qualified stock options pursuant to our Equity Incentive Plan, with 25%
vesting immediately and a further 25% vesting every six months thereafter for eighteen months. Each option is exercisable into
one share of the Company’s common stock at a price of $0.06 per share, equal to the closing price of the common stock on
the grant date, for a term of five years. The options had an estimated grant date fair value of $93,004. For the year ended December
31, 2019, $0 (2018: $12,594) was included in Consulting services expense, based on fair value estimates determined using the Black-Scholes
option pricing model. The full amount of the Black Scholes valuation had been amortized by the end of 2018. At December 31, 2019,
the options had an intrinsic value of $22,400 based on the exercise price of $0.06 per option and a market price of $0.074 per
share.
|
|
(3)
|
Pam
Walters was appointed as our Secretary on April 22, 2015.
|
On
February 14, 2017 Ms. Walters was granted 800,000 non-qualified stock options pursuant to our Equity Incentive Plan, with 25%
vesting immediately and a further 25% vesting every six months thereafter for eighteen months. Each option is exercisable into
one share of the Company’s common stock at a price of $0.06 per share, equal to the closing price of the common stock on
the grant date, for a term of five years. The options had an estimated grant date fair value of $46,504. For the year ended December
31, 2019, $0 (2018: $6,295) was included in Consulting services expense, based on fair value estimates determined using the Black-Scholes
option pricing model. The full amount of the Black Scholes valuation had been amortized by the end of 2018. At December 31, 2019,
the options had an intrinsic value of $11,200 based on the exercise price of $0.06 per option and a market price of $0.074 per
share.
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.
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.
Outstanding
Equity Awards at Fiscal Year-End
As
of December 31, 2019, we had no unvested stock awards held by the named executive officers, which are part of the option awards
described in the table notes above.
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.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION (continued)
|
|
|
|
Director
Compensation
We
have not compensated any of our directors for their service on the Board. Management directors are not compensated for their service
as officers except as detailed in the compensation table above.
|
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, 2019, (iv) up to two executive officers other
than the Chief Executive Officer who were serving as executive officers on December 31, 2018 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, 2019 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, 2019 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)
|
|
|
2,553,140
|
|
|
|
5.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Temkin (4)
|
|
|
70,000
|
|
|
|
0.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group (2 persons)
|
|
|
2,623,140
|
|
|
|
5.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Lode Star Gold INC. (5)
|
|
|
35,000,000
|
|
|
|
69.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Lonnie S. Humphries Non-Exempt Trust (5)
|
|
|
200,000
|
|
|
|
0.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Lonnie S. Humphries
|
|
|
1,369,756
|
|
|
|
2.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
1)
|
Unless
otherwise indicated, the address of all named persons is 1 East Liberty Street, Suite 600, Reno, NV 89501
|
|
|
2)
|
Based
on 50,605,965 shares of our common stock issued and outstanding as of December 31, 2019.
|
|
|
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
|
|
|
|
As
of December 31, 2019, the following amounts were due to related parties:
|
|
●
|
To
Lode Star Gold INC., our controlling shareholder (“LSG”): unsecured loans with interest at 5% per annum, with no specific
terms of repayment, totaling $882,060 plus accrued interest totaling $130,878, and $523,913 in accrued mineral option fees payable
under the terms of our Mineral Option Agreement, plus accrued interest of $57,413.
|
|
|
●
|
To
Lonnie Humphries, the sole shareholder of Lode Star Gold INC., our controlling shareholder: an unsecured, non-interest-bearing
loan of $3,850, with no specific terms of repayment
|
In
2018, the full amount of a loan ($40,205) and accrued interest ($8,573) due to the President was exchanged for 1,478,140 shares
of the Company’s common stock.
Other
than as described above and in Item 11, Executive Compensation, 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;
|
|
|
●
|
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 because they are also our executive officers.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
|
|
|
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:
|
2019
|
|
$
|
20,042
|
|
|
Morgan & Co LLP
|
|
2018
|
|
$
|
20,644
|
|
|
Morgan & Co LLP
|
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:
|
2019
|
|
$
|
0
|
|
|
Morgan & Co LLP
|
|
2018
|
|
$
|
0
|
|
|
Morgan & Co LLP
|
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:
|
2019
|
|
$
|
0
|
|
|
Morgan & Co LLP
|
|
2018
|
|
$
|
0
|
|
|
Morgan & Co LLP
|
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:
|
2019
|
|
$
|
0
|
|
|
Morgan & Co LLP
|
|
2018
|
|
$
|
0
|
|
|
Morgan & Co 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.
|
PART
IV. OTHER INFORMATION