LSMG Lode Star Mining Inc (PK)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report. In addition to historical financial information, the following discussion includes certain forward-looking statements that reflect our plans, estimates and our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results

New Business

On December, 28, 2021, we entered into an agreement with Sapir Pharmaceuticals, Inc. to acquire all of the assets used in connection with the proprietary stabilized formulation of the Epigallocatechin-gallate (EGCG) molecule for further pharmaceutical development. The molecule is an antioxidant polyphenol with a variety of potential profound health benefits. The consideration agreed to be paid by us for these assets was 1,000,000 shares of Series A Preferred Stock, nominally valued at $1.00 per share. Sapir has the right to convert each preferred share to 450 shares of common stock. Each share of preferred stock will vote as 450 shares per one share of common stock. At the date of this report, the 1,000,000 shares have not been issued.

Any amendment to the Certificate of Designation designating the rights and preferences of the Preferred Stock requires the consent of the holders of at least two-thirds of the shares of Preferred Stock then outstanding. Pursuant to the terms of the Purchase Agreement, Sapir, as the holder of the Preferred Stock, agreed that until December 28, 2022, without the prior written consent of the holders of a majority of the common stock of the Company issued and outstanding immediately prior to the closing, it will not (i) cause the Company to effect more than one reverse stock split; (ii) issue any additional shares of Preferred Stock or rights to acquire the same or (iii) create any new series of preferred stock. At the closing, the parties also executed and delivered a royalty agreement (the “Royalty Agreement”) pursuant to which the Company shall pay Sapir a royalty equal to five percent (5%) of the gross revenues realized from licenses or products generated or derived from the Business, including all license and/or sublicense fees, development and/or research fees, grants, joint ventures and other royalty payments received directly or indirectly by the Company. The royalty is due each quarter commencing when the Company first receives revenues generated by the Business. The royalty is to be paid for 5 years from the first date that initial proceeds are received by the Company directly or indirectly from the Business, and is automatically extended for a single additional 5-year period unless terminated in accordance with the terms of the Royalty Agreement.

The foregoing descriptions of the Purchase Agreement, the Royalty Agreement and the Certificate of Designation of Series A Preferred Stock include a summary of all the material provisions but are qualified in their entirety by reference to the complete text of those documents included as Exhibits 10.1, 10.2 and 4.1, respectively, to our report filed on Form 8-K on January 3, 2022 and incorporated herein by reference.

During the quarter ended March 31, 2022 the Company has been in a state of transition as it remains assessing its staffing requirements.

Mineral Property Interest (now terminated) - History

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 represented 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 failed to make any cash payments to LSG within one year of October 4, 2014, we were 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 were required to make quarterly cash payments to LSG of $25,000 until we 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, both of which will continue to be accrued.

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:

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:

The primary effect of the Amendment is therefore to increase 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 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 our report filed on Form 8-K on November 6, 2019 and incorporated herein by reference.

We agreed with LSG that upon the successful completion of a toll milling agreement after permitting is achieved, there would 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.

Termination of the Option Agreement

Despite ongoing efforts to utilize the Company as the primary means of raising funds to finance development of the Property, such investment has not been obtained from the public markets. We and LSG agreed that there were no indicators to suggest that was likely to change and that a new strategic approach was in the best interest of both entities. On January 14, 2022, we executed a settlement and termination agreement (the “Settlement Agreement”) with LSG in order to terminate the mineral option agreement between the parties (the “Option Agreement”) pursuant to which we acquired an interest in the Goldfield Bonanza Project. Pursuant to the Settlement Agreement, we and LSG have agreed to the immediate termination of the Option Agreement (other than certain standard provisions that will survive according to their terms), with the result that we will return our 20% undivided interest in and to the Property to LSG. In exchange, LSG has agreed to forgive all amounts owing by us to LSG under the Option Agreement, which includes approximately $2.224 million in accrued, unpaid penalty and other payments. The Settlement Agreement also includes a broad mutual release. Importantly, the Settlement Agreement does not require LSG to surrender any portion of the 35,000,000 shares of our common stock that LSG previously received in consideration for selling us a 20% interest in the Property.

The full terms of the Settlement Agreement had been agreed to between the parties prior to December 31, 2021, with the signing of the documentation left as a formality to be completed as soon as the final documents were drafted. For that reason, the impact of the agreement has been reflected in the accompanying financial statements, to most accurately reflect our financial position on December 31, 2021.

The foregoing description of the Settlement Agreement includes a summary of all the material provisions but is qualified in its entirety by reference to the complete text of the Agreement included as Exhibit 10.9 to our report filed on Form 8-K on January 14, 2022 and incorporated herein by reference.

This change gives LSG more flexibility in pursuing private or other funding options for developing the Property, while we pursue new business opportunities for the Company, such as the agreement with Sapir Pharmaceuticals, Inc., described above under New Business.

Funding

All of our ongoing operations, since we entered into an agreement with Sapir Pharmaceuticals, Inc on December 28, 2021 have continued to be 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.

Intellectual Property

We do not have any intellectual property.

As detailed above under New Business, on December, 28, 2021, we entered into an agreement with Sapir Pharmaceuticals, Inc. to acquire all of the assets used in connection with the proprietary stabilized formulation of the Epigallocatechin-gallate (EGCG) molecule for further pharmaceutical development. The molecule is an antioxidant polyphenol with a variety of potential profound health benefits. This acquired in-process research and development (“IPR&D”) expense includes the initial costs of the IPR&D project, acquired directly in a transaction other than a business combination. It does not have an alternative future use and has been expensed on acquisition, as opposed to being recorded as intellectual property.

Personnel

We have no employees. Apart from quarterly consulting fees, our president and CEO, Mark Walmesley, receives no compensation for his services. We expect to continue to use outside consultants, advisors, attorneys and accountants as necessary.

Our CFO and Corporate Secretary, Samuel Sternheim, also receives no compensation for his services.

Going Concern

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 of cash at this time is from loans or investments by others in our common stock.

Revenues

We had no operating revenues during the three-months ended March 31, 2022 and 2021. We recorded a net loss of $33,920 for the current quarter and have an accumulated deficit of $4,082,029.

Consulting services expense was lower in the first quarter of 2022 primarily due to management evaluating its new staffing requirement and no longer spending on mining efforts.

Exploration and evaluation expense and mineral option fees were reduced to $Nil in the first quarter of 2022 due to the Company terminating its mineral property option and no longer spending on mining efforts.

Professional fees in the first quarter of 2022 included legal and bookkeeping costs for the 2021 year-end. Costs for the 2021 quarter included 2020 year-end accounting and audit costs. Audit fees related to 2021 year-end had not yet been invoiced yet in the first quarter of 2022.

Interest, bank and finance charges were lower primarily due to the write down in loans from LSG.