PART
I
FINANCIAL
INFORMATION AND ACCOUNTING PRINCIPLES
The
consolidated financial statements and summaries of financial information contained in this document are reported in U.S. dollars
(“$”) unless otherwise stated. All such consolidated financial statements have been prepared in accordance with United
States generally accepted accounting principles.
The
consolidated financial statements of the Company for the year ended December 31, 2014, 2015 and 2016 have been audited by Anton
& Chia LLP, 3501 Jamboree Rd., Newport Beach, CA 92660.
ITEM
1. Identity of Directors, Senior Management and Advisers
Not
Required.
ITEM
2. Offer Statistics and Expected Timetable
Not
Required.
ITEM
3. Key Information
A.
Selected Financial Data
The
following tables set forth the data of our fiscal years ended December 31, 2009 to December 31, 2016. We derived all figures from
our financial statements as prepared by our management, approved by our audit committee and audited by our independent auditor.
This information should be read in conjunction with our financial statements included in this annual report.
Our
financial statements included in this Report have been prepared in accordance with accounting principles generally accepted (“GAAP”)
in the United States (“US”). All amounts are expressed in United States dollars.
SUMMARY
OF FINANCIAL INFORMATION IN THE COMPANY'S FINANCIAL STATEMENTS
|
|
2010
(1)
$
|
2011
(1)
$
|
2012
(1)
$
|
2013
(1)(2)
$
|
2014
(1)(2)
$
|
2015
(1)
$
|
2016
(1)
$
|
|
OPERATING
DATA:
|
|
|
|
|
|
|
|
|
Revenue
|
—
|
—
|
—
|
—
|
—
|
|
|
|
Gross
Profit
|
—
|
—
|
—
|
—
|
—
|
|
|
|
Net
Income (Loss)
|
(1,447,030)
|
(580,330)
|
(368,707)
|
(523,784)
|
(808,710)
|
(716,943)
|
(1,169,425)
|
|
Earnings
(Loss) Per Share
|
(0.02)
|
(0.01)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
|
|
|
|
|
|
|
|
|
|
BALANCE
SHEET DATA:
|
|
|
|
|
|
|
|
|
Cash
|
779
|
379,014
|
578
|
43,560
|
3,363
|
164,808
|
17,063
|
|
Total
Assets
|
24,433
|
402,825
|
15,713
|
60,552
|
13,689
|
168,899
|
17,063
|
|
Total
Liabilities
|
281,100
|
221,897
|
192,017
|
380,587
|
304,714
|
438,685
|
244,257
|
|
Shareholders’
Equity (Deficit)
|
(256,667)
|
180,928
|
(176,304)
|
(354,361)
|
(291,025)
|
(269,786)
|
227,194
|
|
|
(1)
|
As of December 31 of the respective
fiscal year.
|
|
|
(2)
|
As restated.
|
B.
Capitalization and Indebtedness
Not
required.
C.
Reasons for the Offer and Use of Proceeds
Not
required.
D.
Risk Factors
This
Report contains forward-looking statements which relate to future events or our future performance, including our future financial
performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”,
“expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”,
or “potential” or the negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, including the risks enumerated in this section entitled
“Risk Factors”, that may cause our Company’s or our industry’s actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements.
While
these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested in 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.
An
investment in our common stock involves a number of very significant risks. You should carefully consider the following risks
and uncertainties in addition to other information in this Report in evaluating our Company and our business before purchasing
shares of our Company’s common stock. Our business, operating results and financial condition could be seriously harmed
due to any of the following risks. The risks described below are not the only ones facing our Company. Additional risks not presently
known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.
Risks
Associated with Mining
Our
mining properties are in the exploration stage. There is no assurance that our properties contain any mineral resources in commercially
exploitable quantities. If we do not discover any mineral resource in a commercially exploitable quantity, our business will fail
and investors may lose all of their investment in our Company.
Despite
our acquisition of mineral claims and rights, and continuous search to develop those claims, we have not established that any
of them contain any commercially exploitable mineral reserves, nor can there be any assurance that we will ever find commercially
exploitable mineral reserves. The probability of an individual prospect ever having a commercially exploitable mineral reserve
is extremely remote; in all probability, our mineral resource claims do not contain any reserves and any funds that we spend on
exploration will probably be lost. The search for valuable minerals as a business is extremely risky. We can provide investors
with no assurance that any exploration on our properties will establish that commercially exploitable reserves of minerals exist
on our mining claims. Additional potential problems that may prevent us from discovering any reserves of minerals on our properties
include, but are not limited to, unanticipated problems relating to exploration and additional costs and expenses that may exceed
current estimates. Most of these factors are beyond our control, and any of them could increase costs and make extraction of any
identified mineral resource unprofitable.
If
we are unable to establish the presence of commercially exploitable reserves of minerals on our properties, our ability to fund
future exploration activities will be impeded, we will not be able to operate profitably and investors may lose all of their investment
in our Company.
We
face intense competition in the mineral exploration and exploitation industry and we compete with our competitors for financing,
for new mineral resource properties and for qualified managerial and technical employees.
Our
competition includes large established mining companies with substantial capabilities and with greater financial and technical
resources than those available to us. As a result of this competition, we may have to compete for financing and be unable to acquire
financing on terms we consider acceptable. This competition could adversely affect our ability to acquire suitable prospects for
exploration in the future. We may also have to compete with other mining companies in the recruitment and retention of qualified
managerial and technical employees. If we are unable to successfully compete for financing or for qualified employees, our exploration
programs may be slowed down or suspended. If we are unable to successfully compete for the acquisition of suitable prospects for
exploration in the future, there can be no assurance that we will acquire any interest in additional mineral resource properties.
The occurrence of any of these things may cause us to cease operations as a company.
Because
of the inherent dangers involved in mineral exploration and exploitation, there is a risk that we may incur liability or damages
as we conduct our business.
The
search for valuable minerals involves numerous hazards that may subject us to liability including pollution, cave-ins and other
hazards against which we cannot insure or against which we may elect not to insure. At the present time we have no coverage to
insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position.
Title
to our resource properties may be challenged by third parties which could result in the loss of substantial amounts of money and
resources and could cause our interests in our properties to expire or be forfeit.
We
have investigated the status of our titles to our mineral resource properties and we are satisfied that the title to these properties
is properly registered in the name of our Company, but we cannot guarantee that the rights to explore our claims will not be revoked
or altered to our detriment. The ownership and validity of mining claims and concessions are often uncertain and may be contested.
Should such a challenge to the boundaries or registration of ownership arise, the resolution of disputes or the process of clarifying
the accuracy of our mining license registration could take substantial time and money. Further, the preservation of our title
to our mineral claims requires that we continue to expend money or work the claims. If we fail to expend the necessary amount
of money or if we fail to work our mineral claims, then our title to our mineral claims could expire or be forfeited.
Mineral
prices are subject to dramatic and unpredictable fluctuations.
The
market price of precious metals and other minerals is volatile and has fluctuated widely, particularly in recent years. The prices
of various metals are affected by numerous factors beyond our control, including international economic and political trends,
expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative
activities and increased production due to improved mining and production methods. The supply of and demand for metals are affected
by various factors, including political events, economic conditions and production casts in major mineral producing regions. Variations
in the market prices of metals may have an impact on our ability to raise funding to continue exploration of our claims. In addition,
any significant fluctuations in metal prices will impact our decision to accelerate or reduce our exploration activities. If the
price of precious metals and other minerals should drop significantly, the cost of mineral extraction may be higher than is economically
feasible. The marketability of minerals is also affected by numerous other factors beyond our control, including government regulations
relating to royalties, allowable production and importing and exporting of minerals, the effect of which cannot be accurately
predicted.
Mineral
operations are subject to government regulations which could have the effect of reducing or preventing us from exploiting any
possible mineral reserves on our claims.
Exploration
activities are subject to national and local laws and regulations governing prospects, taxes, labor standards, occupational health,
land use, environmental protection, mine safety and others which may in the future have a substantial adverse impact on our Company’s
prospects. In order to comply with applicable laws, we may be required to make capital expenditures until a particular problem
is remedied. Existing and possible future environmental legislation, regulation and action could cause additional expense, capital
expenditure, restriction and delay in the activities of our Company, the extent of which cannot be reasonably predicted. If we
violate any applicable law or regulation, we could be forced to stop work and we could be fined. If we are forced to suspend our
activities or if we are required to pay a large fine for a violation of these applicable laws and regulations, our business could
be adversely affected.
Our
operations may be subject to environmental regulations which may result in the imposition of fines and penalties.
Our
operations may be subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation
provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with
certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution.
A breach of such legislation may result in the imposition of fines and penalties. Environmental legislation is evolving in a manner
which means stricter standards, and enforcement; fines and penalties for non-compliance are more stringent. Environmental assessments
of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost
of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.
Risks
Related to Our Company
The
fact that we have not generated any operating revenues for the last ten years raises substantial doubt about our ability to continue
as a going concern.
We
have not generated any operating revenues for the last ten years and we will, in all likelihood, continue to incur operating expenses
without revenues until our mining claims are fully developed and in commercial production. As a result, we need to generate significant
revenues from our operations or obtain financing. We cannot assure that we will be able to successfully explore and develop our
mining claims or assure that viable reserves exist on the claims for extraction. These circumstances raise substantial doubt about
our ability to continue as a going concern. It is unlikely that we will generate any funds internally until we discover commercially
viable quantities of precious metals and other minerals. If we are unable to generate revenue from our business in the next twelve
months, we may be forced to delay, scale back, or eliminate our exploration activities. If any of these actions were to become
necessary, we may not be able to continue to explore our properties or operate our business and if either of those events happen,
then there is a substantial risk our business would fail.
We
have a limited operating history on which to base an evaluation of our business and prospects.
As
of the date of this Report, we have not yet located any mineral reserve. As a result, we have never had any revenues from our
operations. In addition, we have no operating history related to the acquisition and exploration of our mineral properties. We
have no way to evaluate the likelihood of whether our mineral claims contain any mineral reserve or, if they do that we will be
able to build or operate a mine successfully. We anticipate that we will continue to incur operating costs without realizing any
revenues during the period when we are exploring our claims. We expect to continue to incur significant losses into the foreseeable
future. We recognize that if we are unable to generate significant revenues from mining operations and any dispositions of our
claims, we will not be able to earn profits or continue operations. At this stage of our operation in this industry, we also expect
to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the start up stage of their
business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure
to do so could have a material adverse effect on our financial condition. There is no history upon which to base any assumption
as to the likelihood that we will prove successful and we can provide investors with no assurance that we will generate any operating
revenues or ever achieve profitable operations.
We
have not generated any revenue from our business and we may need to raise additional funds in the near future. If we are not able
to obtain future financing when required, we might be forced to discontinue our business.
Because
we have not generated any revenue from our business and we cannot anticipate when we will be able to generate revenue from our
business, we will need to raise additional funds for the further exploration and future development of our mining claims and to
respond to unanticipated requirements or expenses. During the year ended December 31, 2016, we received $98,500 in financing.
However, if our expenses exceed these funds, we will need to secure additional financing for further exploration and development
of our projects or to fulfill our obligations under any applicable agreements. Although we have been successful in the past in
obtaining financing, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms
of such financing will be favorable. Failure to obtain such additional financing could result in a delay or indefinite postponement
of further exploration and development of our projects with the possible loss of such properties.
Canada
Business Corporations Act provides for the indemnification of our officers and directors against all costs, charges and expenses
incurred by them in respect of any civil, criminal, administrative, investigative or other proceeding.
The
Canada Business Corporations Act contains provisions limiting the liability of our officers and directors for their acts and failures
to act and for any loss, damage or expense incurred by our Company which shall happen in the execution of their duties of such
officers or directors, unless the officers or directors did not act honestly and in good faith with a view to the best interests
of our Company. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors
and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our
Company, though such an action, if successful, might otherwise benefit our Company and our shareholders.
Risks
Relating to our Securities
Investors’
interests in our Company will be diluted and investors may suffer dilution in their net book value per share if we issue additional
shares or raise funds through the sale of equity securities.
We
are currently without a source of revenue and will most likely be required to issue additional shares to finance our operations
and, depending on the outcome of our exploration programs, may issue additional shares to finance additional exploration programs
of any or all of our projects or to acquire additional properties. If we are required to issue additional shares to raise financing,
your interests in our Company will be diluted and you may suffer dilution in your net book value per share depending on the price
at which such securities are sold. Further, if we issue any share purchase warrants or share purchase options, and they are exercised,
there will be a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in
a decline in the market price of our common shares.
Investors’
interests in our Company will be diluted and investors will suffer dilution in their net book value per share if we issue employee/director/consultant
options.
We
may in the future grant to some or all of our directors, officers, insiders, and key employees, options to purchase our common
shares as non-cash incentives to those persons. Such options may be granted at exercise prices equal to market prices, or at such
other price as may be permitted under the policies of any stock exchange upon which our securities are traded (currently, our
common shares are listed for trading on the OTCPK), when the public market is depressed. The issuance of additional shares will
cause our existing shareholders to experience dilution of their ownership interests.
We
do not plan to pay any Dividends in the foreseeable future.
The
Company has never paid a dividend and it is unlikely that the Company will declare or pay a dividend until warranted based on
the factors outlined below. The declaration, amount and date of distribution of any dividends in the future will be decided by
the Board of Directors from time-to-time, based upon, and subject to, the Company’s earnings, financial requirements and
other conditions prevailing at the time.
In
the event that key employees leave the Company, the Company would be harmed since we are heavily dependent upon them for all aspects
of our activities.
The
Company is heavily dependent on our officers and directors, key employees and contractors, the loss of whom could have, in the
short-term, a negative impact on our ability to conduct our activities and could cause a decline in profitability of our properties
or additional costs from a delay in development or exploration of properties. The Company has consulting agreements with key employees
and contractors, and an employment agreement with our President.
We
face exposure to fluctuations in the price of our common stock due to the very limited cash resources we have.
The
Company has very limited resources to pay its professionals. If we are unable to pay professionals in order to perform various
professional services for the Company, it may be difficult, if not impossible, for the Company to maintain its reporting status
under the Exchange Act. If the Company felt that it was likely that it would not be able to maintain its reporting status, it
would make a disclosure by filing a Form 6-K with the SEC. In any case, if the Company was not able to maintain its reporting
status, it would become “delisted” and this would potentially cause an investor or an existing shareholder to lose
all or part of his investment.
The
Company does not anticipate any contingency upon which it would voluntarily cease filing reports with the SEC, even though it
may cease to be required to do so.
It
is in the compelling interest of the Company to report its affairs annually and currently, as the case may be, generally to provide
accessible public information to interested parties, and also specifically to maintain its qualification for the OTCPK, if and
when the Company’s intended application for submission is effective.
The
success of the Company will depend on the developments of an active trading market.
While
the Company's common shares are included on Over the Counter Markets (OTCPK), there can be no assurance that an active trading
market for the common shares will develop. In the absence of such a market, investors may be unable to readily liquidate their
investment in the common shares. The market for equity securities in general has been volatile and the trading price of the common
shares could be subject to wide fluctuations in response to general market trends, changes in general conditions in the economy,
the financial markets and other factors that may be unrelated to the Company's performance.
Low-Priced
Stocks are subject to greater Disclosure Requirements.
The
Securities and Exchange Commission adopted rules (“Penny Stock Rules”) that regulate broker-dealer practices in connection
with transactions in penny stocks. The common shares of the Company fall within the Commission's definition of a penny stock.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current prices and volume information with respect to transactions
in such securities is provided by the exchange or system). The Penny Stock Rules require a broker-dealer, prior to effecting a
transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared
by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given
to the customer in writing before or with the customer's confirmation. In addition, the Penny Stock Rules require that prior to
a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must receive the purchaser's written agreement
to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary
market for a stock that is subject to the Penny Stock Rules. At any time when the Company's common stock is subject to the Penny
Stock Rules, shareholders may find it more difficult to sell their shares.
ITEM
4. Information on the Company
A.
History and Development of the Company
The
Company was incorporated as a federal company pursuant to the laws of Canada under the
Canada Business Corporations Act
(the “Act”) on October 30, 1997, under the name 3430502 Canada Ltd. In December 1997, the Company changed its name
to Four Crown Foods Inc. At the time, the Company was involved in the food and beverage retail business. Then in June, 2000, the
Company changed its name to Universal Domains Incorporated and operated in the domain registration business upon the acquisition
of the license rights to a domain registration agreement for the “.cc” internet registration domain.
In
November 2003, the Company ceased all operations and in September, 2004, the Company changed its name to Pure Capital Incorporated.
From that time until November 1, 2006, the Company’s goals were to continue to reduce the liabilities of the Company in
an effort to obtain additional financing and explore the possibilities of starting a new operating business, and/or merge with
or become acquired by another company or entity.
On
November 27, 2006, the Company acquired full rights and title to certain mining and exploration claims located in the State of
Arizona along with other equipment and properties from Redhawk Exploration & Development, Inc., a Texas corporation.
Then
on February 6, 2007, the Company changed its name to Tombstone Exploration Corporation to reflect its current operations in the
mining and exploration industry. Since that time we have been operating in the mineral resource business and the primary focus
of operations has been to generate revenue from the production of silver and gold, as well as additional base minerals such as
copper, lead and zinc. The goal is to produce metals and minerals at or below standard industry costs. The historical nature of
mining activities of our present holdings and the acceptance of governmental agencies will enable easier startup here than in
non-mining oriented locations.
Following
identification of suitable areas during our drilling programs, which we anticipate will continue in the future, the Company may
initiate mineral extraction if sufficient funding and permitting are secured. These efforts will provide an operating financial
base from which to expand. Continuing geological research, testing and drilling is planned based on the initial geological report.
This will assist in the identification of key target areas, as well as establish reserve categories.
Discussions
with precious metal processing and consulting companies to assist in the design of the overall operation of our mining claims
have been initiated. Relationships have already been established with refineries, assay companies and engineering firms supporting
worldwide mineral processing operations.
The
Stardust Mine, Yuma County Arizona, Eagletail Mining District
The
Company holds the mineral rights to approximately 400 acres of BLM lode claims which includes the Stardust Mine in Yuma County
Arizona, the Eagletail Mining District. Exploration work has begun on the property starting in October 1, 2015. The Stardust Mine
is a disseminated Gold Property.
Tombstone
holds US Federal unpatented lode claims over the Stardust project area. Tombstone has staked these claims by locations.
Stardust
Project, Yuma Co AZ: 100% interest in 20 unpatented federal lode claims found within Sections 1,2, T2S,R11W, Yuma County, Arizona,
USA.
Stardust
claims acquired by staking of lode claims. Surface and mineral rights are authorized under United States locatable mining rights
- The General Mining Law of 1872. An annual Maintenance fee system under which federal claims are held is established by section
314 of the FLPMA (43 USC 1744 and 43 CFR 3833).
The
current lode claims “Star1 – Star20” held from dates:
|
|
•
|
Location
date of Claims Star1 thru Star4 - located Star4 May 19, 2015 to Sept 1 2017.
|
|
|
•
|
Location
of Claims Star5 thru Star20 - located Sept 12
th
,2015 to Sept 1
st
2017.
|
|
|
•
|
Stardust
claims (Star1 –Star20) are United States federal unpatented lode claims.
|
|
|
•
|
Stardust
project is an Exploration project.
|
|
|
•
|
Project
name: Stardust
|
|
|
•
|
Claim
names: Star1 through Star20
|
|
|
•
|
List
of claims at Stardust project included in below compiled listing of Stardust project claims:
|
These
claims can be found recorded in the Phoenix BLM system and accessed through the online LR2000 system found at: https://www.blm.gov/lr2000/
|
AMC
Number
|
Name
|
Loc
Date
|
Maintance
Paid to
|
Type
|
Surface
Owner
|
Mineral
Owner
|
|
AMC433664
|
Star1
|
5/19/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433665
|
Star2
|
5/19/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433666
|
Star3
|
5/19/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433667
|
Star4
|
5/19/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433914
|
Star5
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433915
|
Star6
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433916
|
Star7
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433917
|
Star8
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433918
|
Star9
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433919
|
Star10
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433920
|
Star11
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433921
|
Star12
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433922
|
Star13
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433923
|
Star14
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433924
|
Star15
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433925
|
Star16
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433926
|
Star17
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433927
|
Star18
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433928
|
Star19
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
AMC433928
|
Star20
|
9/12/2015
|
1-Sep-17
|
Lode
|
BLM
|
BLM
|
|
|
•
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A yearly maintenance
payment is due prior to Sept 1
st
of each year.
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Tombstone Exploration Corporation
responsible for paying fees.
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Mr. Alan Brown, President and CEO.
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Stardust project currently has area
of approximately 413.2 acres.
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Stardust Project / property: A block
of continuous claims (a claim block) of 20 claims called Star claims (Star1 – Star20).
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The Star claims are found within Sections
1 & 2, T2S,R11W, Gila and Salt Base and Meridian, Yuma County, Arizona, USA.
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See
attached Stardust Project maps:
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A State scale
map titled
“ Tombstone Exploration Corporation, State Index map & location of Stardust project.”
–
This map shows an inset US map, as well as a larger scale Arizona map showing relative position of the Stardust project area
within the State.
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A
regional scale map titled:
“Regional Access Map – Stardust Project – Tombstone Exploration Corp.”
with the Stardust claims, county, Interstate, and regional urban areas displayed, as well as 100k scale USGS topographic background.
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A
project scale map plotted at 1” = 1000’ - Map Titled “
Tombstone Exploration, Stardust claims, Yuma Co.”
shows the Stardust project area and lode claims held by Tombstone Exploration Corporation. Additionally, a USGS quadrangle
7.5 minute background image is present within the map showing planimetric, topographic features, and roads within and outside
the project area.
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An
Application to conduct exploration trenching and drilling on the Stardust Claim block was received by the Bureau of Land Management
on March 18, 2016. This work program has not been started as of December 31, 2016 and the bond requirement had not been sent.
As discussed below, subsequent to the year ended December 31, 2016, the Company’s Reclamation Bond was accepted by the US
Bureau of Land Management on May 17, 2017. Prior to May, the Company’s Notice Application to conduct exploration drilling
plan was accepted. The Company has engaged Harris Exploration Drilling and Associates, Inc., a Nevada company, to commence drilling
on the Stardust Claim.
This
property lies along the northern flanks of the Gila Bend Mountains, which are underlain by Precambrian schist and granitic rocks
of probable Cretaceous age, uncomformably overlying and intruding the older rocks are Tertiary volcanic rocks.
The
geology of the Stardust claims is dominated by three types or phases of granitic rocks. The age of the intrusive rocks is probably
Cretaceous, but they could be Precambrian or mid-Tertiary; we currently believe they are most likely to be Cretaceous. Ninety-five
percent of the mapped area is encompassed by granitic rocks. The other five percent is divided evenly between Precambrian chlorite
schist and mid-Tertiary andesite dikes.
The
granitics are subdivided into three units. They may all be related to the same magma or be of different ages or a combination
of the two. All three are easily identifiable in the field bases on their megascopic characteristics. The first and most abundant
unit is leucocratic granite. It is white in color, fine to medium-grained, and does not contain mafic minerals. The presence of
chlorite is almost ubiquitous in the leuco-granite, and occurs mainly along fracture surfaces. Chlorite is probably an alteration
product associated with fracturing and/or mineralization. The second granitic unit is quartz monzonite. It forms the main portion
of South Hill (see Plate 1). It is equigranular and contains hornblende and biotite. Narrow (1-3) silicified and brecciated zones
are hosted by this unit; and are commonly anomalous in gold. The third unit is also quartz monzonite in composition, but contains
anhedral pink feldspars which distinguish it from the other two units. Alteration and mineralization are completely lacking in
this unit.
Chlorite
schist crops out at three localities which average about 50-75 feet in width and 300 feet in length. The schist unit is a roof
pendant and probably continues at depth for only a few hundred feet. The age of the chlorite schist is probably Precambrian, based
on its resemblance to other Precambrian schist units in western Arizona. Mineralization does occur within the schist, generally
near andesite dikes.
The
andesite dikes crop out as narrow (5-10 feet), sinuous bodies and crosscut the leucogranite and chlorite schist. Intrusion of
the dikes is tentatively dated as Oligocene to early-Miocene. In the north-central position of the mapped area, the andesite seems
to “blossom” into a stock-like body with minimum dimensions of 100 feet by 400 feet; see section B-B’, Plate
3 for configuration. Strike direction of the dikes varies from east-west to N70 degrees West and dips average 70 degrees to the
North. Alteration of the andesite consists of silicification, brecciation, and iron-oxides; however, some andesite is devoid of
alteration, especially in the eastern portion of mapped area.
Due
to the paucity of outcrop on the property, structures were difficult to define. In a broad sense, the entire mapped area has been
intensely fractured along an east-west structure, this fracturing is at least a ½ mile in length and 300-500 feet in width.
The zone could be much wider, but colluvium to the north covers any extension.
Gold
and silver mineralization with copper occurs along an east-west trend and is spatially related to an andesite dike. The dike is
variably silicified and iron-stained. Silicification consists of silica replacement and drusy quart crystals in open-space veins.
Hematite staining and vein fillings are commonly associated with gold.
On
November 25, 2015, Zonge International completed ground geophysics across the 400 Acre claim block owned by Tombstone in the Eagletail
Mining District, Yuma County, Arizona. Zonge has been well respected for geophysical data acquisition in the minerals industry
since 1970. They are an industry leader in methods such as IP (induced polarization) and CSEM/AMT, as well as SP, seismic,
and gravity/magnetic data acquisition.
Zonge
has performed a ground magnetic survey across the claim block to determine the extent of the Stardust Fault. Previous reports
state that the two shafts on the property were sunk along a high angled structure which trends E-NE across the area of outcrop.
This structure is thought to be the ‘feeder’ for the Gold Silver mineralization in the project area. Several
reports reference ‘free milling gold’ from drifts along this fault. Abundant dump material contains anomalous
gold and silver values as well as visible copper oxides. Due to the extensive surface disturbance in this area, performing
a ground magnetic survey will give a better understanding of the subsurface character of the fault. This method details
changes in density in the subsurface and is used to define faults, fractures, and changes in rock types. As a result, this
geophysical data will be used to better define the Phase I scope of work, which will involve detailed surface mapping, rock/soil
sampling, and delineation of drill targets.
The Stardust
property has two shafts on this property that are secured with wire fencing. We have not entered either of these shafts
at this time. There has been minimal surface disturbance on this property and we are not aware
of any trenching, mine dumps, ponds or any contaminations released by former processing or assay/testing activities.
The
encouraging results from the rock sampling program over the Stardust project indicate the presence of a high angle detachment
related precious metals vein system. The mineralization present at the Stardust project appears to be located within
detachment related veins & locally intensively chloritic and hematitic host rocks. The vein system has been sampled over a
strike of approximately 3,200 feet (975 meters). These veins appear to be a feeder system of an extensive partially eroded low
angle fault system over the Stardust.
The
results of the latest tranche of rock samples combined with field observations, and existing data, appear to fit the USGS detachment
fault model of USGS Bulletin 2004 by Long, K.R.: Preliminary Descriptive Deposit Model for Detachment-Fault-Related Mineralization.
Other productive detachment fault related precious and base metal systems occur through the Basin and Range areas of Southern
California, Western Arizona, and Southern Nevada. An example in Arizona includes the Copperstone Mine, previously mined by Cypress
which produced one half million ounces of gold by open pit methods from 1987-1993. Copperstone is currently being evaluated for
additional resources.
Quartz
veins are present in outcrop, subcrop, float, & in historical mining dumps. In addition to these strong precious metal values
found in samples, additional observations at Stardust include:
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The presence of chalcedonic
quartz veins.
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Crushed veins & and
multi-phase cemented - banded silica veins, & silicification.
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Abundant drusy textures
(boiling level and vapor phase)
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Footwall
host rocks are a metasediment matrix with strong hematite & intensive chloritic alteration + copper oxides.
The
Property is without known Reserves and the property is exploratory in nature based on prior work on this property over many years.
The
current service on this claim block has disturbances of which has been identified in our exploration plan previously filed with
the BLM. Any further surface disturbance from the result of our Exploration Work that has been filed with the Bureau of Land Management
will be required to be remediated.
Stardust
Mine Subsequent Events to the year ended December 31, 2016:
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As
announced on May 30, 2017, the Company’s Reclamation Bond was accepted on May 17,
2017, by the BLM, and prior to this, the Notice Application to conduct exploration drilling
plan was accepted. The Company has engaged Harris Exploration Drilling and Associates
Inc. (Harris Drilling), a Nevada company to commence drilling on the Stardust property
the first week of June. Harris Drilling has been in business for over fifty years and
has worked for many of the top mining and exploration companies in the world. This first
phase drilling program is designed to establish strike length and test grades over a
large enough width within the defined chlorite hematite hosted vein system. The drilling
will attempt to define structural continuity (vein continuity along strike), grade of
veins and hosting chl-hem zone, and find the width of structures. The program, as designed,
should also demonstrate grade at reasonably shallow depths. The lowest drilling angle
-45 degrees is envisioned for this program. This phase will include approximately 3000
ft of drilling. The mineralization present at the Stardust Project appears to be located
within detachment related veins hosted by intensively chloritic and hematitic host rocks.
The vein system has been sampled over a strike of approximately 3200 feet (975 meters).
These veins appear to be a feeder system of an extensive partially eroded low angle fault
system regionally present.
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As
announced on July 5, 2017, the first two holes Core(HQ) of drilling have been completed.
The first hole (SDD1) was completed at a depth of 350 ft and the second hole (SDD2) was
completed at 290ft at the 100% owned Stardust claim block located in Yuma County, Arizona.
This first drill program is expected to drill 6–8 holes totaling 3000 ft. The Stardust
drilling campaign is targeting an epithermal precious metals ( gold, silver ) system.
Harris Exploration Drilling and Associates Inc. (Harris Drilling), a Nevada company,
commenced drilling on June 10th. The core samples from the first two holes were delivered
to Skyline Assayers and Laboratories in Tucson, Arizona on July 3rd. The samples will
be crushed and pulverized with standard steel and then proceed to be fire assayed for
Gold and a 24 multi-element Geochemistry for Silver and multiple other trace elements.
This first phase drilling program is designed to establish strike length and test grades
over a large enough width within the defined chlorite hematite hosted vein system. The
drilling will attempt to define structural continuity (vein continuity along strike),
grade of veins and hosting chl-hem zone, and find the width of structures. The program,
as designed, should also demonstrate grade at reasonably shallow depths. The lowest drilling
angle -45 degrees is envisioned for this program.
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The
State of Main Mine and others as well as Section 16 of the Tombstone Mining District Copper Exploration, Cochise Count, Tombstone
Arizona
The
Property is without known Reserves and the State of Main Mine is exploratory in nature based on prior work completed on this property
over many years. There are multiple areas that were worked on the State of Maine Mine from the 1930’s, they have been described
in many reports that previous geologists have rendered that are historic in nature. Most of this work was completed
underground and access was through mine shafts and decline entrance ways. We have not completed any work in the interior
of this property. We have not encountered any previous contamination on these properties related to former processing
or assay testing activities.
The
Company holds the mineral rights to approximately 640 acres in the historical western Tombstone silver mining district. Our property
area lies within the historic Tombstone Mining District Cochise County, Arizona. The town of Tombstone, Arizona is approximately
70 miles (miles, 110 kilometers (km)) southeast of Tucson and 24 miles (40 km) northwest of Bisbee, Arizona. The San Pedro River
lies about 2 miles (3 km) west of the property’s westernmost boundary.
The
Tombstone mining district is one of 12 mining districts in Cochise County, Arizona. Copper, lead, zinc, silver, and gold were
the principal metals produced from the different mines in the County. Management has structured and positioned the Company to
capitalize on today's increasing demand and prices for precious metals and base metals such as copper, lead and zinc.
The
Tombstone property is composed of three non-contiguous parcels totaling approximately 640 acres. The parcels consist of 8 patented
lode claims totaling 145.6 acres (58.9 ha), and 1 Arizona State Land Department (ASLD) exploration permits totaling 495 acres.
The Company owns the mineral rights to the patented claims; the surface rights are owned by various individuals. The Arizona
state trust lands exploration permits grant the Company the exclusive exploration rights for up to 5 years from the date the exploration
applications were filed. Surface and mineral rights are variously owned by the U.S. federal government, the State of Arizona,
and individual persons.
In
addition to continuing to explore our current mineral rights, we will seek out and attempt to acquire new properties.
B.
Business Overview
This
business generally consists of three stages: exploration, development and production. We are a mineral resource company in the
exploration stage because we have not yet found mineral resources in commercially exploitable quantities, and are engaged in exploring
land in an effort to discover them. Mineral resource companies that have located a mineral resource in commercially exploitable
quantities and are preparing to extract that resource are in the development stage, while those engaged in the extraction of a
known mineral resource are in the production stage.
Mineral
resource exploration can consist of several stages. The earliest stage usually consists of the identification of a potential prospect
through either the discovery of a mineralized showing on that property or as the result of a property being in proximity to another
property on which exploitable resources have been identified, whether or not they are or have in the past been extracted.
After
the identification of a property as a potential prospect, the next stage would usually be the acquisition of a right to explore
the area for mineral resources. This can consist of the outright acquisition of the land or the acquisition of specific, but limited,
rights to the land (e.g., a license, lease or concession). After acquisition, exploration would probably begin with a surface
examination by a prospector or professional geologist with the aim of identifying areas of potential mineralization, followed
by detailed geological sampling and mapping of this showing with possible geophysical and geochemical grid surveys to establish
whether a known trend of mineralization continues underground, possibly trenching in these covered areas to allow sampling of
the underlying rock. Exploration also commonly includes systematic regularly spaced drilling in order to determine the extent
and grade of the mineralized system at depth and over a given area, as well as gaining underground access by ramping or shafting
in order to obtain bulk samples that would allow one to determine the ability to recover various commodities from the rock. If
minerals are found, exploration might culminate in a feasibility study to ascertain if the mining of the minerals would be economic.
A feasibility study is a study that reaches a conclusion with respect to the economics of bringing a mineral resource to the production
stage.
Operations
The
Company has conducted several drilling programs on the Tombstone property, as described in greater detail below. The company is
in the process of finalizing a drill program for the Stardust Mine on the Yuma county property for 2017, which was approved subsequent
to the year ended December 31, 2017.
2007
Drilling Program
In
early March 2007, we commenced our reverse circulation (RC) drill program. On or about March 21, 2007, we completed the first
reverse circulation drill hole (RT-1) to a depth of 500 feet and intercepted silver/gold mineralization when it hit its target
at the Tombstone property.
The
2007 Drill Program consisted of distinct drill sites that were designed to intercept extensions of the State of Maine mine, Merrimac
zone, Bonanza-Solstice mines and the Ace-in-the-Hole-Black Horse mine sub-parallel trends. These zones are north-easterly trending.
Core holes were HQ size and were drilled using triple tube core technology to assure that the most complete core recovery was
achieved. Drill hole spacing was approximately 100 meters between drill hole sites. The four mineralized zones were tested over
strike lengths ranging from 200 meters to 500 meters. All available historical data indicates that there were no historical mining
activities conducted below the water level in the areas covered by the 2007 Drill Program.
Following
the 2007 Drill Program, in January 2008, the Company received assay results for 115 samples taken from its Tombstone Project property
within T20S R22E Sections 16 and 17. It was determined that more detailed sampling would be required to further assess the Santa
Ana Mine workings.
2008
Drill Program – Phase 1
On
or about April 1, 2008, the Company began to conduct geological mapping and sampling that, combined with historical data, provided
the basis for the 2008 core drilling program.
On
May 29, 2008, the Company engaged Layne Christensen Company (NASDAQ: LAYN) of Mission Woods, Kansas to conduct its 2008 drilling
program, which commenced on June 17, 2008 and continued through September 2008.
On
October 9, 2008, the Company announced the completion of its 2008 Drill Program which consisted of 2,593 feet of core drilling
at its silver project in Tombstone. Six diamond drill holes (DDH) were drilled, TEMC 101,102,103,104,105 and 106, to test the
extension of the mineralization zones of the Bonanza and Santa Ana structures, both of which possess historical data from within
the mining district. Both structures exhibit open ends at the south and north, as well down dip.
Holes
were drilled as HQ diameter and using triple-tube technology, yielding a recovery over 90% in most instances. RQD is estimated
at 45%, average.
Five
out of the six DD holes intersected the projected targets at different levels at the south, central and north of the structures,
while DDH TEMC 101 provided a great deal of information regarding the Bonanza structure which seems to be bent in an opposite
direction in depth. This particular piece of information has been physically confirmed in the Bonanza mine workings where the
structure becoming sub-vertical at 200 feet approximately, and then switches the dip to east, rather than dipping west as observed
at the upper sectors of the shafts.
The
2008 Drill Program revealed a new mineralized structural corridor between the State of Maine and Merrimac veins at the southern
portion of the property. The corridor extends for over one mile, and locally exhibits 80-100' width with some feldspar porphyry
dikes in between.
The
results of this Phase 1 drill program have resulted in identifying a mineral zone that the Company’s management believes
is a significant precious metals and base metals discovery. The Company intends to carry out an aggressive exploration and comprehensive
drilling program.
Following
the completion of the Phase 1 Drill Program in 2008, the Company received
assay results from rock chip samples on its Tombstone
properties. Outcrop samples taken from horizontal projections of mineralized structures away from historical mine workings indicate
continuity of silver, gold, lead, zinc, copper and manganese minerals along these structural corridors through the property package.
Samples from two structures were collected and taken to Copper States Analytical Lab in Prescott, Arizona for gold, silver, lead,
zinc, copper and manganese assays.
2008
Technical Report
In
May 2008, we filed our initial Technical Report regarding the Tombstone property. SRK Consulting (“SRK”) of Tucson,
Arizona completed the Technical Report. SRK is an independent, international consulting group, employing leading specialists in
environmental science and mineral engineering. Its seamless integration of services, and global base, has made the company a significant
international practice in due diligence, feasibility studies and confidential internal reviews. SRK's global experience and reputation
for excellence is widely recognized among the major financial institutions and are repeatedly called upon to advise on and evaluate
projects for all types of market transactions. Formed in 1974, SRK employs more than 600 professionals internationally in 31 permanent
offices on 6 continents.
SRK
made the following recommendations:
An
extended program of vertical and inclined core drilling was recommended for the Tombstone Property. Drilling would be aimed at
determining mineralization grades and fissure vein characteristics such as horizontal and vertical extent, relationships to other
veins, widths and depths below the water table. It would also provide geotechnical information, samples for bulk density measurements,
and samples for preliminary metallurgical testing. It is difficult to say how many drill holes would be indicated. A program is
suggested that would include a minimum of five 1000-foot core holes along existing mineralized structural zones to define depth
potential below the water table. A program of twenty 500-ft drill holes (RC) can be used to explore along strike of mapped extensions
to known structures.
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Conduct additional inclined and vertical
drilling for the following purposes:
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Evaluate the width of structural targets
such as dikes, fissures, and veins;
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Confirm silver mineralization across
the targets;
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Evaluate potential mineralization below
the water table in the target areas;
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Provide fresh samples for mineralogical
and metallurgical testing; and,
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Conduct in-fill and/or extension drilling
where necessary.
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Any
additional drilling should be by the core drilling methods with HQ size core. The drilling should include some oriented drillcore,
targeting the northeast-trending fissures, to intercept the greatest possible thickness and depth of mineralized rock. Additional
drilling should be directed toward evaluating mineralization below the water table.
The
recommended drilling will provide additional structural and assay information to allow for possible delineation of mineralized
zones, and will provide additional geotechnical information. Closer spaced drillhole definition of higher grade and thicker mineralization
should be the goal.
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Conduct down-hole surveys to measure
drill-hole deviation, particularly for drill holes in excess of 100 m.
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Devise a suitable numerical drill log
that will allow inclusion of detailed lithology, alteration and mineralization information, in numeric form, in addition to
assay data, to allow for digital drill logs.
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Convert historical hard copy drill
logs to digital format logs.
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2009/2010
Drill Program - Phase II
In
February 2009, the Company extracted six additional samples from the Tombstone property which were sent to Copper State Analytical
for assay for gold, silver, manganese, copper, lead and zinc. Three of the samples were taken from the State of Maine Mine and
three from Randolph Mine, both located on the Tombstone property. The Company suspended the 2009 Drill Program due to general
economic factors leading to difficulty in obtaining the requisite financing to fund the program.
In
April 2010, the Company resumed the 2009 Drill Program, with the two targets drilled and both having intersected mineralized zones.
The Company utilized a portable x-ray diffraction (XRF) machine to get on-site reading of metal levels in the drill cuttings.
The results helped the exploration team manage the drilling program. Tombstone's property is underlain by Uncle Sam porphyry and
units of the Bisbee Group. Mineralized fissures strike consistently northeast, and many of the fissures exhibit consistent orientation
for hundreds of feet along strike. Many fissures have parallel orientations, forming fissure sets. The main mines in this area
occur along these northeast-striking fissures. The State of Maine mine occurs in fissures that cut both Bisbee sediments and Uncle
Sam porphyry. These structural mineralized fissures are the primary focus of the current exploration program.
As
of June 30, 2010, 4,080 feet of drilling had been completed. Also during this period, additional geologist investigation was undertaken
to further assess the potential for porphyry copper exploration targets on the Tombstone property. The Company has been in contact
with geophysical contractors to develop a plan, budget and timeline for this phase of the project. Planning is ongoing and work
may include geochemical surveys as well.
The
Company has not conducted further drilling on the Tombstone Property since June 2010. The State of Main mine is without known
Reserves and the property is exploratory in nature based on prior work on this property over many years.
2010
Report on a Helicopter-Borne Z-Axis Tipper Electromagnetic (ZTEM) and Aero Magnetic Geophysical Survey
From
June 29, 2010 to July 4, 2010, Geotech Ltd. carried out a helicopter-borne geophysical survey for the Company over the Tombstone
project area. Principal geophysical sensors included a Z-Axis Tipper electromagnetic (ZTEM) system, and a caesium magnetometer.
Ancillary equipment included a GPS navigation system and a radar altimeter. ZTEM was selected for its ability to achieve unparalleled
resolution and depth of investigation. The system is well suited to imaging buried porphyry deposits and is capable of gathering
data over 6,000 feet (1.25 miles) below ground surface.
The
airborne ZTEM survey covered over 200 line miles and most of the Tombstone Mining District. A total of 373.5 line kilometers of
geophysical data were acquired during the survey. In a ZTEM survey, a single vertical-dipole air-core receiver coil is flown over
the survey area in a grid pattern, similar to regional airborne EM surveys. Two orthogonal, air-core horizontal axis coils are
placed close to the survey site to measure the horizontal EM reference fields. Data from the three coils are used to obtain the
Z/X and Z/Y Tipper (Vozoff, 1972) components at six frequencies in the 30 to 720 Hz band. The ZTEM was used to map geology using
resistivity contrasts and magnetometer data were also collected to help map geology using magnetic susceptibility contrasts.
The
crew was based in Tombstone, Arizona for the acquisition phase of the survey. Survey flying started on June 29, 2010 and was completed
on July 4, 2010. Data quality control and quality assurance, and preliminary data processing were carried out on a daily basis
during the acquisition phase of the project. Final reporting, data presentation and archiving were completed from the Aurora office
of Geotech Ltd. in October, 2010. A quality control step consisted of re-examining all data in order to validate the preliminary
data processing and to allow for final adjustments to the data. Attitude corrections were re-evaluated, and re-applied, on component
by component, flight by flight, and frequency by frequency bases. Any remaining line to line system noise was removed by applying
a mild additional levelling correction.
As
a result of the survey, Geotech identified a number of conductive structures across the property that resemble known porphyry
deposits and reported that the magnetic results also contained worthwhile information in support of exploration targets of interest.
Based on the geophysical results obtained, Geotech recommended a more detailed interpretation of the available geophysical data,
including Versatile Time-Domain Electromagnetic survey (VTEM), in conjunction with the geology, prior to ground follow up and
drill testing.
In
November 2010, upon review of the ZTEM data, at least four to five porphyry targets were identified on the Company's Tombstone
property, and there is still a very large land position to review. Of the targets that have been identified so far, two have precious
metal (gold and silver) occurrences as "halos" around the properties, which are significant characteristics of porphyry
systems. One identified structure has been compared by Geotech to the Mount Milligan deposits that were sold and have total measured
and indicated resources of 417.1 million tons grading 0.21% copper, 0.41 g/t gold for 1,934 million pounds copper and 5.5 million
ounces gold. Three of the identified targets have coincident magnetic and resistivity high which are very promising geophysical
signatures. One target is adjacent to a porphyry system that was drilled by a major international mining company. As of the date
of this Report, the Company is continuing to work with the geophysical data acquired from the ZTEM survey of the Tombstone Project.
2012
Technical Report
In
January 2012, SRK completed a Technical Report on the Tombstone property.
SRK
made the following conclusions in the Report:
The
Tombstone property represents a beginning exploration project with a limited amount of historical and current data. The data are
insufficient to take the property to resource classification by current industry standards at this time.
The
historic silver deposits in the central mining district are well documented through various reports in the literature and several
master- and doctoral-level theses. Although west of the largest historical ore deposits, the Tombstone West Area property nonetheless
represents an opportunity to target a resource by current methodologies of mapping, drilling, and geophysical surveys that may
be successfully extracted with present-day mining techniques. In light of silver commodity price increases in recent years, the
recent emphasis on potential porphyry copper and gold targets in the Tombstone area, and recent gold and copper commodity prices,
the Tombstone Project warrants a current evaluation.
SRK
made the following recommendations in the Report:
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Compile and analyze all
available district-wide data and use that analysis to define and prioritize future targets.
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Convert historical and current drill
logs to digital format logs, re-logging holes that have incomplete logs.
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Digitize all geochemical data.
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Use industry-standard software for
mapping and record-keeping.
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Conduct surface geophysical surveys
over targets identified by the ZTEM airborne survey.
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Compile all data in a GIS database,
and analyze coincident anomalies to define drill targets.
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Define a drill
program and budget.
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Summary
of Exploration Activities
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SUMMARY
OF EXPLORATION HISTORY AND FUTURE EXPLORATION PLANS FOR TOMBSTONE PROPERTY
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Year
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Expenditures
/ Budget
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Source
of Funding
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Exploration
Activities
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Persons
Conducting Exploration and Qualifications
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2007
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$1.4
million
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Private
Placement Agreement with Eurogas, Inc. and other private investors
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Geological
prospecting
R/C
Drilling Program
Completed
5000 feet of R/C drilling
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Dennis
Dalton
Chief
Geologist
Mr.
Dalton received a B.S. in Geology from the University of California Long Beach and a M.S. in Mining Engineering from McKay
School of Mines at the University of Nevada. Dating back to 1976, Mr. Dalton has widespread experience in mining geology.
Mr. Dalton was an environmental engineer prior.
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2008
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$1.2
million
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Private
Placement with Haywood Securities, Cannacord Capital and other private investors
|
Geological
prospecting
Assaying
and evaluation of information
Core
Drill Program
Completed
5000 feet of core drilling
|
Francisco
P. Montecinos
Former
VP of Exploration
Francisco
has worked as an exploration geologist for over 40 years in some 20 countries. Of these, the last 25 years has been spent
throughout North and Central America as project manager and regional exploration manager for a number of multi-national
mining companies. He has degrees from and has also completed studies at numerous universities including Harvard, University
of Chile, California-Berkeley and Colorado School of Mines.
|
|
2009
|
$500,000
|
Private
Placements with private investors
|
Mapping
of historical zones
Reviewing
core samples from prior years
Reviewing
historical data and drillings from prior years
|
Lane
A. Griffin
Mr.
Griffin has more than 30 years experience as a geological consultant exploring for precious metals and uranium.
He spent 4 years in the Army as an officer in the Corps of Engineers. He is currently the President of Diversified
Development Company, the operator of the Lone Jack Gold Mine in Bellingham, Washington. He received a B.S. in Geology
from Washington State University as well as a B.A. in Zoology and D.D.S. from the University of Washington.
|
|
2010
|
$500,000
|
Private
Placement Agreement with Eurogas, Inc. and other private investors
|
Mapping
of historical zones
Reviewing
core samples from prior years
Reviewing
historical data and drillings from prior years
ZTem
Geophysical Program conducted and completed by Geotech Inc.
|
Steve
Radvak, P.E.
Mr.
Radvak, P.E., P.Eng., has a B.A.Sc. in Mining and Mineral Processing Engineering from the University of British Columbia.
He is a Director and the Vice President of Exploration of the Company. He has been the President, Chief Executive Officer,
and Director of Compliance Management Inc., an environmental service company, since its inception in 1998. Mr. Radvak
is also a managing member of RM Fencing, LLC (“RM Fencing”), a company that offers professional installation
of fences, gates and other products throughout Arizona. Mr. Radvak has extensive experience in managing mineral exploration
projects in the United States, Canada, Africa and Europe and will be a valuable asset to the Company.
|
|
2011
|
$700,000
|
Private
Placement Agreements with private investors.
|
Began
exploration activities in April 2011 and continued such activities until December 2011
including:
Geophysical
and gravity survey
Review
of core samples from prior years
Review
of historical data and drillings from prior years
Review
and follow-up of ZTEM Geophysical Program conducted and completed by Geotech Inc.
Execute
core drilling program
Update
SRK Technical Report
|
Various
Professional Engineers and Geologists from the State of Arizona
|
|
2012/13
|
$2,000,000
|
Private
Placement Agreements with private investors.
|
Continue
review of geophysical data and ZTEM Report.
Compile
and analyze all available district-wide data and use that analysis to define and prioritize future targets.
Convert
historical and current drill logs to digital format logs, re-logging holes that have incomplete logs.
Digitize
all geochemical data.
Use
industry-standard software for mapping and record-keeping.
Conduct
surface geophysical surveys over targets identified by the ZTEM airborne survey.
Compile
all data in a GIS database, and analyze coincident anomalies to define drill
Define
a drill program and budget.
|
Steve
Radvak, P.E. (see qualifications above)
Various
Professional Engineers and Geologists from the State of Arizona
|
|
2014/15
|
$2,000,000
(1)(3)
|
Private
Placement Agreement with Eurogas AG, Asher Enterprises, and other private investors (2)
|
Continue
review of geophysical data and ZTEM Report.
Compile
and analyze all available district-wide data and use that analysis to define and prioritize future targets.
Convert
historical and current drill logs to digital format logs, re-logging holes that have incomplete logs.
Digitize
all geochemical data.
Use
industry-standard software for mapping and record-keeping.
Zonge
International conducted surface geophysical surveys over targets.
Compile
all data in a GIS database, and analyze coincident anomalies to define drill
Define
a drill program and budget.
|
Steve
Radvak, P.E. (see qualifications above)
Various
Professional Engineers and Geologists from the State of Arizona
|
|
2016-17
|
$1,425,000
(1)(3)
|
Private
Placement/
Private
Investors
|
Staking
of Mining Claims at Stardust Mine
Geophysical
Mapping & Sampling
Additional
Sampling and Trenching of
properties
Drilling
Assays
|
Professional
Geologists sampling of Stardust
Various
Professional Engineers and Geologists from the State of Arizona
|
|
2017-18
|
$1,425,000
(1)(3)
|
Private
Placement/
Private
Investors
|
Staking
of Mining Claims at Stardust Mine; drilling and bond reclamation
Geophysical
Mapping & Sampling
Additional
Sampling and Trenching of
properties
Drilling
Assays
|
Professional
Geologists sampling of Stardust
Various
Professional Engineers and Geologists from the State of Arizona
Harris
Exploration Drilling and Associates, Inc. (Drilling on Stardust Property May 2017)
|
|
|
(1)
|
Our budget for 2017-2018 consists of
the following expenses for a total of $1,425,000:
|
|
|
•
|
Direct Drilling Expense: $625,000;
|
|
|
•
|
Road Building and Reclamation: $50,000;
|
|
|
•
|
Updated Geological Report and property
mapping: $75,000;
|
|
|
•
|
Additional Sampling and Trenching:
$60,000;
|
|
|
•
|
Management, Office and Employee Expenses: $300,000;
|
|
|
•
|
Office, Travel, Misc. Expenses: $100,000;
|
|
|
•
|
Professional Service Expenses: Legal, Accounting, Audits: $100,000;
|
|
|
•
|
BLM Claims and Permit Expenses: $80,000
|
|
|
(2)
|
On December 10, 2013, the Company announced
a Strategic Corporate and Financing Investment that includes the acquisition of a 26% interest in EuroGas AG of Zurich, Switzerland,
an international Natural Resources Holding Company with European assets in industrial minerals, oil and gas interests as well
as base metal and precious metal assets located in the USA. Under the Strategic Corporate and Financing Investment in EuroGas
AG, the Company will also receive from EuroGas Inc., a US company, a committed financing in the amount of $5 million USD for
extensive drilling of the Tombstone property. On January 14, 2014, the Company announced the receipt of an entitlement of
a 20% direct interest in EuroGas Inc.’s potential award from its pending damage lawsuit against the Slovak Republic.
This is in addition to the 26% direct interest in EuroGas AG.
|
|
|
(3)
|
We raised $150,000
as of December 31, 2016 to cover the operating expenses of the Company and require an additional $700,000 for our proposed
2017 activities
.
To date in 2017, we have raised $300,000_ to fund our operations.
|
Revenues
To
date we have not generated any revenues from the Tombstone Property.
Principal
Market
We
do not currently have any market, as we have not yet identified any mineral resource on the Tombstone Property that is of a commercially
exploitable quantity. If we succeed in identifying a mineral resource in commercially exploitable quantities, our principal markets
should consist of metal refineries and base metal traders and dealers.
Seasonality
of our Business
Our
mineral exploration activities are not subject to extreme seasonal variation since the Tombstone Property is located in Arizona.
Field work, however, is best carried out in temperatures averaging 10 to 15 degrees Celsius. Our other operations, such as metallurgical
review and analysis of geochemical survey results, can be carried out all year round.
Local
Resources
Tombstone,
Arizona is the nearest town to the Tombstone Project. Services at Tombstone are marginally adequate to support the requirements
of a mining exploration and development project, but other nearby towns (Wilcox, Benson, Bisbee, and Sierra Vista) have services
such as drilling contractors, equipment rental and services, engineering services, and a labor force that are more able to support
our drilling program. Sierra Vista is about 18 miles from the project area. The nearest large city, Tucson—located 70 miles
northwest of Tombstone along Interstate 10—has a population of more than 526,116 (2013 U.S. Census Bureau estimate) and
has company, service, and contractor resources that may not be available locally. Other cities at a greater distance (Phoenix,
Arizona; Las Cruces and Albuquerque, New Mexico) also are able to provide services to support exploration and mining in the area.
Surface
water is scarce and groundwater supplies are somewhat limited. Walnut Gulch to the north is an ephemeral stream, as is the San
Pedro River to the west. In 1882 a pipeline was constructed to bring drinking water to Tombstone from the Huachuca Mountains,
27 miles to the west. The town has municipal wells that supply the needs of the town population. Ranchers in outlying areas obtain
domestic and stock water from private wells. Water supplies for development and mining would come from groundwater sources in
the area. Arizona Department of Water Resources (ADWR) well records for the area indicate the water table is generally shallow,
200 to 400 feet below ground surface.
Telephone
and electric power are available to the area, providing service to local ranchers and small service companies located outside
of the town. Telephone service is provided by Qwest. Internet and television services also are available locally. Electric power
is supplied through Sulphur Springs Valley Electric Cooperative, with 440V, three-phase lines nearby. One-ten and 220 power lines
cross the property. Postal services are available by post office boxes and ground delivery. UPS, DHL, and Federal Express also
are available locally.
Gas
and diesel stations are 2 miles from the property, and major fuel supply stations are 15 miles away in Sierra Vista. El Paso Gas
has a gas line that crosses the northeast corner of Sec. 7, T20S-R22E. Section 7 is held by Arizona State Exploration Permit 08-111864.
The Southern Pacific railroad line parallels the San Pedro River.
Patents
and Licenses; Industrial, Commercial and Financial Contracts; and New Manufacturing Processes
In
conducting our business operations, we are not dependent on any patented or licensed processes, technology, industrial, commercial
or financial contract or new manufacturing processes.
Competitive
Conditions
We
compete with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition
of mineral interests, as well as for the recruitment and retention of qualified employees.
The
mineral property exploration business, in general, is intensely competitive and there is not any assurance that even if commercial
quantities of ore are discovered, a ready market will exist for sale of the same. Numerous factors beyond our control may affect
the marketability of any substances discovered. These factors include market fluctuations; the proximity and capacity of natural
resource markets and processing equipment; and government regulations, including regulations relating to prices, taxes, royalties,
land tenure, land use, importing and exporting of mineral and environmental protection. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may make it difficult for us to receive an adequate return on investment.
We
compete with many companies possessing greater financial resources and technical facilities for the acquisition of mineral concessions,
claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees. Low metal prices
and an instable market, even among competition, leads us to assume that we will not face any difficulties retaining geologists
or other consultants compared to our competition.
Competition
in the usual context, and as experienced by manufacturers of automobiles, durable goods, clothing, electronics, and the providers
of most services simply is not a factor in the minerals market. The demand for minerals always exceeds supply, and historically
prices have consistently risen. The only major factor for competition is the cost of production.
Although
competition over cost of production exists, there is little competition in the marketplace for the Company’s products. The
market absorbs all precious metals and most base metals produced at prevailing prices. Larger producers can hedge future production
to enable easier management of expected revenue in times of price fluctuation, whereas junior companies usually sell at market
prices. In today’s market larger producers have pulled back from hedging.
The
primary competition in the precious metals market is for talent in the workforce. As prices have risen many new companies have
started operations or are in the midst of exploration and proving of reserves. It is in this area that competition exists for
experienced geologists, project managers, and mining executives. In many areas there also is a shortage of mining labor.
The
Company believes it can overcome this competition due to its location in a historical mining area, year-round working conditions
and nearness to major population centers of Tucson and Phoenix, Arizona. Additionally, experienced mining professionals have assisted
in developing the corporation and have many contacts in the industry.
Environmental
Regulations
Mineral
property exploration in Arizona is governed by the State of Arizona Office of Mine Inspector as well as Title 30 of the Code of
Federal Regulations, both seek to regulate and promote the development of safe and environmentally conscious mining operations.
To date, our compliance with these regulations has had no material effect on our operations, capital, earnings, or competitive
position, and the cost of such compliance has not been material. We are unable to assess or predict at this time what effect additional
regulations or legislation could have on our activities.
Governmental
Regulations
Mining
operations are subject to a wide range of government regulations such as restrictions on production, price controls, tax increases,
expropriation of property, environmental protection, protection of agricultural territory or changes in conditions under which
minerals may be marketed. Mining operations may also be affected by claims of native peoples, any of which could have the effect
of reducing or preventing us from exploiting any of our properties. We will be required to comply with all regulations, rules
and directives of governmental authorities and agencies applicable to the exploration of minerals in the State of Arizona and
in the United States generally. Our mineral claims entitle our Company to continue exploration activities on our properties, subject
to our compliance with various United States federal and state laws governing land use, the protection of the environment and
related matters.
To
maintain state mineral exploration permits in good standing, the permit holder must renew each permit annually (up to four times,
for 5 years total) for a fee of $500.00 per application for renewal. A maximum of 640 acres or one whole section is allowed per
application. Additionally, an initial rental
fee
of $2.00 per acre is due within thirty days upon notification of the intent to issue the permit. The $2.00 rental fee is for the
first and second year of the permit. However, although the rent is prepaid for the second year, the permit must still be renewed
for that year. Rental fees for years three thru five are $10.00 per acre per year and due annually when the permit is renewed.
A bond (typically in the amount of $3,000 for a single permit or a blanket bond of $15,000 for five or more permits held by an
individual or company) is also due within thirty days upon notification of the intent to issue the permit. Bond amounts may be
increased during the life of the permit as determined by the Arizona State Land Department (“ASLD”) upon review of
the proposed exploration activities as detailed in the Exploration Plan of Operation that must be submitted and approved by the
ASLD prior to the startup of any exploration activities.
The
state lands are covered by Arizona State Mineral Exploration Permits, which are administered by the ASLD. Permits to conduct drilling
in Arizona are administered by the Arizona Department of Water Resources (ADWR). Permits to conduct exploration drilling on BLM
lands require either a Notice of Intent or a Plan of Operations, depending upon the amount of new surface disturbance that is
planned. A Notice of Intent is for planned surface activities that anticipate less than 5.0 acres of surface disturbance, and
usually can be obtained within a 30 to 60 day time period. A Plan of Operations will be required if there is greater than 5.0
acres of new surface disturbance involved with the planned exploration work. A Plan of Operations can take several months to be
approved, depending on the nature of the intended work, the level of reclamation bonding required, the need for archeological
surveys, and other factors as may be determined by the BLM. No other permits are required for exploration drilling.
The
Company has a Notice of Intent – Mineral Exploration Drilling AZA33591 to conduct drilling on BLM claims in Secs. 9 and
10, T20S-R22E.
The
permitted drilling was partially completed in 2007 with the drilling of holes TEM 1, TEM 2, and TEM 3. The Company also has received
conditional approval, upon completion of archaeological and cultural resource surveys, to drill in Sec. 16, T20SR22E under Arizona
State Exploration Permit 08-111868.
Quality
Control Procedures (QA/QC)
Bagged
and sealed sample splits from the RC drill holes are transported to a secure storage shed at the office site by Company employees.
The dry samples are further reduced by crushing them to 3/4 inch-minus with a “chipmunk” jaw crusher and splitting
the crushed sample with a riffle splitter. The crusher and the splitter are then both cleaned with a brush and compressed air
after preparation of each sample. The sample splits for the laboratory are reduced to approximately 10 lbs or less prior to submission
to the laboratory. The prepared samples are bagged, labeled, and sealed and taken to the analytical laboratory, Mountains States
R&D International, Inc. (MSRDI), an Arizona certified assay laboratory, in Vail, Arizona for analyses by fire assay (gold
and silver) and by atomic absorption (AA) (all other analyses). The splits that are not shipped for assay are reduced to approximately
1 lb to be retained for reference at the project site and they are stored in a secure steel shipping storage container.
Laboratory
rejects are discarded during the process of reducing sample splits to approximately 1 lb samples for retention. The retained sample
splits are derived from the original samples and kept in storage while another split is sent for analysis. The pulps are retained
and stored in a locked onsite office building.
Samples
collected from other locations in the project area (surface outcrops, mine dumps, trenches, and underground workings) are collected,
bagged, labeled, sealed, logged, and transported. The samples are prepared for storage or for shipment to the analytical laboratory
in the following manner: Dry samples are reduced by first crushing them to 3/4 inch-minus with a “chipmunk” jaw crusher
and then splitting the crushed sample using a riffle splitter. The crusher and splitter are then both cleaned with a brush and
compressed air after preparation of each sample. Wet samples are dried and then processed in the same manner. The prepared samples
are bagged, labeled, and sealed and taken to MSRDI for analysis. The splits that are not shipped for assay are retained for reference
at the project site in a secure storage container.
All
sampling and sample preparation of coarse crushed (3/4 inch-minus) are conducted by the Company’s employees. Sample pulp
preparation is conducted at MSRDI. All samples are shipped to MSRDI. All gold and silver analyses are obtained by fire assay.
All other analyses (Cu, Pb, and Zn) are obtained by atomic absorption (AA) with standard digestion.
Samples
collected from surface sites, trenches, underground workings, and the 2007 drilling program (prior to November 2007) did not include
blanks, duplicates, reference standards, or other industry standard QA/QC procedures.
Quality
control procedures began at the Tombstone Project approximately November 2007. Ten samples collected underground from the Santa
Ana mine (NE¼ NE¼ Sec. 16, T20S-R22E) on October 30, 2007 were submitted to the laboratory (MSRDI) with blanks and
reference standards. The reference samples were obtained from Minerals Exploration and Environmental Chemistry, Reno, Nevada.
Blanks were prepared by crushing and bagging cinder blocks. Results received for these samples are used to assess the accuracy
of the MSRDI analyses. Check samples on the order of 5 to 10 percent of the number of samples were sent to ALS Chemex, Reno, Nevada
and from there were forwarded to their laboratory in Canada for analysis. The pulps that were returned from the primary laboratory
were used as the check-sample materials.
Samples
are stored at the Company office site in a secure storage container or in the Company laboratory, which is locked during nonworking
hours.
As
of the date of our Technical Report, April 18, 2008, SRK concluded that the sampling procedures were acceptable and within industry
standards with the exception of initial sample preparation by the Company. Coarse crushed sample preparation onsite by the property
owner is not common industry standard practice unless logistics and distance from the labs are a major factor. It may be acceptable
going forward, if the newly implemented QA/QC procedures incorporate sufficient checks to demonstrate that the initial sample
preparation imparts no contamination or bias.
C.
Organizational Structure
We
have one wholly owned subsidiary, Tombstone Exploration and Mining Corporation, a Nevada corporation (“TEMC”) that
is qualified to do business in the State of Arizona. All of our operations are conducted through TEMC.
D.
Property, Plants and Equipment
Our
principal executive office is located at 6529 E. Friess Drive, Scottsdale, AZ 85254. Additionally, we share this space with our
wholly owned subsidiary, TEMC. Prusuant to our lease executed January 1, 2016, we rent both office and storage space for $1,000
per month for a 5 year term. We believe that this existing space is adequate for our current needs. Should we require additional
space, we believe that such space can be secured on commercially reasonable terms.
The
Company has the mineral rights to approximately 640 acres of historical mining land in areas around Tombstone, Arizona. The Tombstone
Project is located on patented mining claims, unpatented mining claims and state lands administered by the ASLD.
Our
Properties
|
SUMMARY
OF THE COMPANY’S MINING CLAIMS
|
|
Number
/ Type of Claims
|
Ownership
/ Interest in Property
|
Duration
of Interest
|
Location
|
Acreage
|
Agreements
/ Royalties
|
Annual
Fees / Maintenance / Permits
|
|
8
Patented Lode Claims
|
Undivided
100 percent mineral interest in the claims as both the record mineral owner and the assessed
mineral owner
No
surface rights
|
Claims
are valid as long as the Company continues to hold title.
|
Private
Land
|
145.58
acres
|
1.5%
net smelter revenue royalty, payable upon production.
|
None
|
|
1
State of Arizona Mineral Exploration Permits
|
Exclusive
right to explore for and develop minerals on the lands.
State
of Arizona is the record surface and mineral owner of land.
Company
is the record permittee of the state lands.
|
These
permits are valid and each must be renewed every three years.
|
Arizona
state lands
|
495
acres
|
State
mineral exploration permits, if converted to mining leases, will have royalties assigned to them by the State of Arizona.
|
Must
be renewed each year, for up to 5 years, for a fee of $500.00 / permit. Additionally, an initial rental fee of $2.00 / acre
is due within 30 days upon notification of the intent to issue the permit, for the 1st and 2nd year. Rental fees
for the 3rd thru 5th years are $10.00/acre/year and due annually when the permit is renewed. A bond (typically $3,000 for
a single permit or a blanket bond of $15,000 for 5 or more permits) is due within 30 days upon notification of the intent
to issue the permit.
|
|
20
Unpatented Lode Claims
|
Fully
controlled by the Company.
Company
has the right to enter for exploration purposes.
No
surface rights.
|
These
claims are valid and each must be renewed each year.
|
U.S.
federal lands administered by U.S. Bureau of Land Management (BLM).
|
400
acres
|
No
royalty agreements on federal mining claims.
|
Annual
maintenance fees for the claims, as follows: $196/ claim annual maintenance fee to the BLM, in lieu of annual assessment
work.
|
|
THE
COMPANY’S PATENTED MINING CLAIMS
|
|
CLAIM
NAME
|
MINERAL
SURVEY NO.
|
CLAIM
ACREAGE
|
|
Maine
|
M.S.
# 579
|
18.33
|
|
Merrimac
|
M.S.
# 175
|
20.61
|
|
Clipper
|
M.S.
# 273
|
13.41
|
|
Triple
X
|
M.S.
# 577
|
15.27
|
|
Brother
Jonathan
|
M.S.
# 578
|
17.28
|
|
Lowell
|
M.S.
# 797
|
20.59
|
|
May
|
M.S.
# 317
|
19.43
|
|
Red
Top
|
M.S.
# 190
|
20.66
|
|
TOTAL
ACREAGE OF PATENTED MINING CLAIMS:
|
145.58
|
Industry
of Interest
The
precious metals and base metals industry produces over $100B in metal production per year. The industry is essentially two sectors:
the major producers and the junior exploration and mining companies.
The
major producers such as Freeport McMoran, Rio Tinto, and BHP Billiton produce the majority of precious and base metals from large
scale, geologically scattered operations. Property expansion by the majors typically comes from joint venture, consolidation or
acquisition with junior exploration and mining companies. This occurs usually because a junior finds it difficult to initiate
full scale operations due to the significant front end development costs. The majors can absorb and develop the newly discovered
fields with little impact to overhead operations and can fund direct operations through forward sale of metals.
Juniors
typically spend the majority of their money locating new potential areas, proving up a portion of reserves through geological
studies, analyses and drilling, and then initialing small scale operations. During that period most successful juniors draw the
attention of and team up in some way with a major producer.
Cost
of operations/production is the driver in the industry. All product produced, particularly in the precious metals industry, is
absorbed by the market. Demand exceeds supply. The most profitable companies have the lowest per ounce/pound cost of production.
The highest return to investors, however, comes from junior companies, when successful, where per share prices are lower until
a viable project is proven. Risk, though, is often higher with junior companies, unless and until they locate and acquire viable
projects and adequate funding.
The
prime customers for the precious metals sector of the industry are the refiners such as Englehart, Johnson Maffey, etc. These
companies serve as the distributor of product between the producers and the consumers. The majority of precious metals produced
are utilized by the industrial and electronics industry, the automotive industry, the jewelry industry and the investment community.
As
metal prices have risen, so too has the interest in new areas for exploration and eventual production. The past two decades have
seen a significant expansion of interest into Central and South America, as well as developing third world countries. Today’s
price levels combined with the political uncertainties of many foreign projects, and the inability for year-round operations in
portions of Alaska and northern Canada, have produced a resurgence of junior companies in the mainland United States. However,
many juniors target only one or two categories of metals. This model of operation limits their chance of success for production
or buyout.
The
keys to success for today’s junior exploration and mining companies are four: 1. Property holdings and potential; 2. location;
3. metal diversity; and 4. cost of development and operation.
The
Tombstone Property
Most
of the historic mines in the Tombstone Mining District were polymetallic, with the principal ores produced being silver from bonanza
grade deposits. However, anomalous copper, lead, zinc, manganese, and gold have been identified, and some of these metals have
been produced from different mines in Cochise County (i.e., copper from Bisbee, lead from the Charleston Mining District, and
silver and manganese from the Tombstone Mining District).
The
principal exploration concept pursued by the Company since 2010 is for low-grade, large tonnage porphyry copper mineralization,
largely buried beneath basin fill. The concept is based upon the regional geology that includes the Tombstone caldera complex
with related intrusives and complex fault systems; porphyry copper mineralization intersected at depths greater than 3,000 ft
by Asarco and other major mining companies that drilled the area in the 1970s, 1980s, and 1990s; and geochemically anomalous values
and zoning patterns of Cu, Ag, Pb, and Zn ratios in rock chip samples from mine dumps in the western part of the district that
broadly coincide with the Lowell and Guilbert (1970) porphyry copper model.
Silver
mineralization also is an exploration target, in particular in the western area of the Company’s landholdings. The silver
exploration concept is seeking to tie together the northeast-striking mineralized fissures into silver deposits that are projected
to connect historic deposits and prospects along strike and to extend the depths of mineralization to perhaps hundreds of feet
beneath the water table; the exploration potential below the water table was minimally explored and/or mined in the past. The
horizontal and vertical extensions of the fissure veins are expected to be more definable by current exploration methods and would
be amenable to underground or open pit mining methods.
Gold
exploration is a concept based upon historic geochemical and geophysical exploration, shallow drilling, and reported gold grades
in the Stardust area from the 1900s intermittently through the 1990s.
Stratigraphy
Rocks
in the Tombstone area range from Precambrian to Quaternary in age. The oldest rock is fine- grained, grayish Precambrian Pinal
schist, intruded by Precambrian granitic and porphyritic rocks, and unconformably overlain by a thick sequence of Paleozoic sedimentary
rocks that change from mainly limestone to mainly sandstone and shale. The uppermost unit, the Naco limestone is an erosion surface
unconformably overlain by the Mesozoic Bisbee group, a series of conglomerate, sandstone, quartzite, shale, and limestone with
two or three lenses of soft, bluish-gray limestone.
The
deposition of the Mesozoic sedimentary rocks was followed by a period of deformation and igneous activity. Late Cretaceous time
was marked by eruptive and intrusive activity associated with the Tombstone volcanic center that probably formed within a continental-margin
arc. The Tombstone volcanic center erupted the Uncle Sam Tuff at 73.5 +/- 2.8 Ma, and an irregularly shaped caldera formed as
a consequence of collapse into the evacuated magma chamber. These event were accompanied by emplacement of the Schieffelin granodiorite,
diorite stocks and plugs, and andesite dikes. Silver mineralization is directly associated with the folding, faulting, igneous
intrusions, and fissuring of this period: north-south (dike) fissures, faults, anticlines and rolls, and—in the western
area in particular—with the north-south trending dikes and cross-cutting northeast-trending fissures. Most of the silver
deposits are associated with at least two structural features, often at their intersection. Rocks of the Tombstone volcanic center
postdate Laramide thrust faulting and are little deformed.
The
Basin and Range province was formed during the Cenozoic Era when east-west crustal extension resulted in vertical movement on
generally north-south trending faults. Extension gave rise to the emplacement of extensive granitic stocks and batholiths with
associated volcanic activity. Locally steep tilting and minor normal faulting occurred during Basin and Range block faulting.
Bromeyerite
is the main supergene silver mineral; the main hypogene silver-bearing minerals are hessite, tetrahedrite, and galena. Base metal
mineralization, often oxidized, occurs in fault and fracture zones in Laramide volcanics and the Uncle Sam tuff. The most common
base minerals are sphalerite, galena, and chalcopyrite. Chalcopyrite is widespread, most commonly as exsolution blebs in sphalerite.
Manganese mineralization is widespread throughout the Tombstone district and has occurred in various amounts with most of the
oxidized silver-lead mineralization. The manganiferous mineralization exists as replacements in limestone.
Development
Strategy & Plan of Operations for the Next Twelve Months
The
Company’s development strategy is to focus on the fundamental keys to success for a junior exploration and mining concern.
These keys were identified in the Industry discussion.
Property
holdings and potential.
Plan:
Continue geological analyses including mapping, and identification of drill targets. Focus on these targets for drilling, sampling
and identifying potential reserves. Expand target areas as drilling progresses and studies expand knowledge of properties.
Plan:
The Company’s Tombstone property is located in a known metal and mineral area with easy access, historical production, mining
friendly community and ease of permitting puts the Company in a position for success. The Company will continue to identify areas
on the properties for mill site operation, improve off-road access and work closely with the community at large to offer employment
opportunities. The Company will also interface with the state level in Arizona to establish itself as a significant contributor
to the state economy.
Plan:
A significant number of metals and minerals have already been identified on the Tombstone property including silver and gold.
The Company, with the help of consulting organizations, will further explore the range of metals and minerals, and the ability
to extract/produce product for market. In the non-precious metals areas, the Company will likely seek joint venture partners who
will add to the success and financial returns for our shareholders.
|
|
3.
|
Cost of development and operation
|
Plan:
The Company may establish a small production operation, subject to permitting, financing and sufficient resources, to begin silver
and gold production with material from existing known sites. As drill targets identify key areas for drilling, the operation will
be expanded to two large scale mill sites. The Company firmly believes from the sampling and historical production in the area,
that a low cost / high profit operation will be developed.
ITEM
4A. Unresolved Staff Comments
Not
required.
ITEM
5. Operating and Financial Review and Prospects
The
following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31,
2014 to December 31, 2016 should be read in conjunction with our financial statements and related notes included in this Report.
Our financial statements included in this Report were prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP”).
A.
Operating Results
Our
results of operations have been, and may continue to be, affected by many factors of a global nature, including economic and market
conditions, the availability of capital, the level and volatility of prices and interest rates, currency values, commodities prices
and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments.
Factors of a local nature, which include the political, social, financial and economic stability, the availability of capital,
technology, workers, engineers and management, geological factors and weather conditions, also affect our results of operations.
See “Key Information – Risk Factors”. As a result of the economic and competitive factors discussed above, our
results of operations may vary significantly from period to period.
Year
Ended December 31, 2016 Compared to Year Ended December 31, 2015 and December 31, 2014
For
the years ended December 31, 2016, 2015 and 2014
,
we did not receive any revenue from various
mining claims and properties.
During the year ended December
31, 2016, we had a net loss of $1,169,425 and a loss per share of $0.00 per share compared to the year ended December 31, 2015,
we had a net loss of $716,943 and a loss per share of $0.00 per share compared to a net loss of $808,710 and a loss per share of
$0.00 per share for the year ended December 31, 2014. The net loss for the year ended December 31, 2016 was attributed to $60,600
of general and administrative expenses, $774,625 of management and directors fees, $64,373 of professional fees, $55,756 of consulting
service fees, $5,419 of mineral property exploration costs, offset by a gain/loss on forgiveness of debt of $2,754. Furthermore,
the Company recorded a $2,754 gain on forgiveness of debt, $129,918 loss on the fair value of the derivative liabilities and accretion
and interest expense of $81,488. The net loss for the year ended December 31, 2015 was attributed to $53,686 of general and administrative
expenses, $135,000 of management and directors fees, $77,495 of professional fees, $70,849 of consulting service fees, $10,987
of mineral property exploration costs, offset by a gain/loss on forgiveness of debt of $0. Furthermore, the Company recorded a
$0 gain/loss on conversion of debt, $202,193 loss on the fair value of the derivative liabilities and accretion and interest expense
of $166,733. The Company’s net loss decreased compared to the prior year as the Company incurred less consulting fees, professional
fees, and accretion expense offset by an increase in the loss on fair value of derivative liabilities.
B.
Liquidity and Capital Resources
Since
our incorporation, we have financed our operations almost exclusively through the sale of our common shares to investors and issuance
of convertible notes payable. As we are now focusing on mining exploration with no producing resource properties, we do not generate
operating income or cash flow from our business operations. Until a significant body of ore is found, our working capital requirements
are not significant, and we expect to continue to finance operations through the sale of equity in fiscal 2017. There is no guarantee
that we will be successful in arranging financing on acceptable terms.
To
a significant extent, our ability to raise capital is affected by trends and uncertainties beyond our control. These include the
market prices for base and precious metals and results from our exploration programs. Our ability to attain our business objectives
may be significantly impaired if prices for metals such as gold and uranium fall or if results from our intended exploration programs
on our properties are unsuccessful.
At December 31, 2016, we
had cash on hand of $17,063 as compared to December 31, 2015, we had cash on hand of $164,808. Total liabilities consisted of accounts
payable, accrued liabilities, and amounts due to related parties, convertible debentures, and derivative liabilities totaling $244,257
(2015- $438,658). The overall decrease in liabilities is due to a much tighter budget being maintained during the year.
Application
of Critical Accounting Policies
The
preparation of financial statements in conformity with applicable generally accepted accounting principles requires our management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.
Our
management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of
variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even
more subjective and complex. Our significant accounting policies are disclosed in the Notes to our financial statements included
in this Report.
C.
Research and Development, Patents and Licenses, etc.
We
do not currently, and did not previously, have research and development policies in place. Over the past five fiscal years, we
have not expended any material amounts on research or development.
D.
Trend Information
Our
business is the exploration for and development of mineral deposits. The market price of precious metals and other minerals is
volatile and has fluctuated widely, particularly in recent years. The prices of various metals are affected by numerous factors
beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations,
interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining
and production methods. The commodity price of precious metals has a direct impact on our revenue prospects and our ability to
raise capital. Although there is no assurance that this trend will continue, management is optimistic that the current price level
will continue for the foreseeable future.
E.
Off-Balance Sheet Arrangements
We
do not have any 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 resource that is material to investors.
F.
Tabular Disclosure of Contractual Obligations
We
do not have any contractual obligations and commitments as of December 31, 2016 that will require significant cash outlays in
the future.
G.
Safe Harbor
Forward
Looking Statements
This
annual report contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking
statements can be identified by words or phrases such as “shall,” “may,” “will,” “expect,”
“should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,”
“believe,” “is/are likely to” or other similar expressions. These forward looking statements include,
among other things, statements relating to our goals and strategies, our competitive strengths, our expectations and targets for
our results of operations, our business prospects and our expansion strategy. Those statements appear in a number of places and
include statements regarding our intent, belief or current expectations with respect to:
|
|
•
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our direction and future
operation;
|
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|
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|
•
|
the implementation of our principal
operating strategies, including our potential participation in acquisition, divestiture or joint venture transactions or other
investment opportunities;
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|
•
|
the implementation of our financing
strategy and capital expenditure plans;
|
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|
•
|
the exploration of mineral reserves
and development of mining facilities;
|
|
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|
•
|
trends in commodity prices and demand
for commodities;
|
|
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|
|
|
|
•
|
the future impact of competition and
regulation;
|
|
|
|
|
|
|
•
|
the payment of dividends or interest
on shareholders' equity;
|
|
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|
|
|
•
|
industry trends, including the direction
of prices and expected levels of supply and demand; and
|
|
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|
•
|
other factors
or trends affecting our financial condition or results of operations.
|
We
have based these forward looking statements largely on current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although
we believe that we have a reasonable basis for each forward looking statement contained in this annual report, we caution shareholders
that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties
and other factors that may cause our actual results to differ materially from those in the forward looking statements.
The
forward looking statements included in the annual report are subject to risks, uncertainties and assumptions about our company.
Our actual results of operations may differ materially from the forward looking statements as a result of risk factors described
under “Risk Factors” and elsewhere in this annual report. These risks are not exhaustive. It is not possible for our
management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any
factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward looking
statement. An investor in our Company should not rely upon forward looking statements as predictions of future events. Unless
required by law, we undertake no obligation to update or revise any forward looking statements to reflect new information or future
events or otherwise.
ITEM
6. Directors, Senior Management and Employees
A.
Directors and Senior Management
The
following table sets forth the names, business experience and function/areas of expertise of each of our directors and officers
as of the date of this report:
|
Name,
Office Held,
Age
|
Area
of Experience and Functions in Our Company
|
|
Alan
M. Brown
CEO,
CFO,
Director
& President
Age
49
|
As
President, Chief Executive Officer, Chief Financial Officer, and a Director, Mr. Brown is responsible for the development
of our strategic direction and the management and supervision of our overall business.
|
|
Daniel
A. Cistone
(1)
Director
Age
68
|
Independent
director of the Company,
|
|
|
(1)
|
Mr. Cistone was appointed as a
member of the Board of Directors on January 7, 2016.
|
Alan
M. Brown
- Mr. Brown has invested many years in the development and success of the Company.
Mr.
Brown is to be accredited with steering the Company to being the Key man involved with the staking and starting the exploration
program on the Stardust Gold Projects as well as maintaining the key land position in the Tombstone Mining District
and is now focused on developing their huge resource potential
.
His extensive background in financial accounting is credited for the success of the Company. Mr. Brown is very experienced in
corporate mergers & acquisitions, real estate acquisitions and real estate development. Prior to working for the Company,
Mr. Brown was the controller of a real estate development company involving multi-million dollar projects. Mr. Brown spent many
years with a chartered accounting firm on Vancouver Island preparing year end reports and tax planning for a range of companies.
Mr. Brown has a great understanding of the Tombstone Mining District area and geography.
Mr.
Cistone-
Mr. Cistone is currently the President of Daniel A. Cistone Consulting LLC and sits as a Director on several
corporate and local boards Including Can-Do National Tape, Zenith Adhesive Components (Ireland), Upper Southampton Pension Advisory
Board and the Catholic Foundation of Greater Philadelphia Development Committee. While his background is in finance his expertise
includes acquisitions and startups both domestically and abroad as well as the management of those companies and their properties.
Previously he spent 40 years with M&C Specialties Co. a global fabrication company as CFO and COO and was the Liaison Officer
when it was acquired by Illinois Tool Works. Mr. Cistone is a founding director for Affinity Insurance Company, a Cayman based
captive, and served on their Board for 15 years. HMr. Cistone received his BSBA in Accounting from Villanova University, Villanova,
PA.
Additional
Information
There
are no familial relationships between our officers and directors.
The
above listed officers and directors were not selected as directors or members of senior management pursuant to any arrangement
or understanding with major shareholders, customers, suppliers or others.
B.
Compensation
During
the fiscal year ended December 31, 2016, the aggregate remuneration paid to directors in their capacity as directors of our Company
was $Nil. Management fees totaling $774,625 was paid to directors and officers.
Executive
Compensation
The
following table provides a summary of compensation paid by us during the fiscal years ended December 31, 2016 and 2015 to our
executive officers who received a salary:
|
SUMMARY
COMPENSATION TABLE
|
|
Name
and Principal
Position
|
Year
|
Annual
Compensation
|
Long
Term Compensation
|
All
other
Compensation
|
|
Salary
|
Bonus
|
Other
Annual
Compen-sation
|
Securities
Under
Options/
SARs
Granted
|
Shares or units
subject to
resale restrictions
|
|
Alan
M. Brown
(1)
President,
CEO, CFO and Director
|
2015
|
$135,000
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
2016
|
$180,000
|
NIL
|
NIL
|
NIL
|
15
M Common Stock
|
NIL
|
|
Steve
Radvak
(2)
Vice
President of Exploration
and
Director
|
2015
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
2016
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
Barry
N. Klein
(3)
Director
|
2015
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
2016
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
Anthony
C. Schnur
(4)
Director
|
2015
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
2016
|
NIL
|
NIL
|
NIL
|
NIL
|
5
M Common Stock
|
NIL
|
|
Daniel
A. Cistone
Director
|
2015
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
2016
|
NIL
|
NIL
|
NIL
|
NIL
|
5
M Common Stock
|
NIL
|
|
Robert
M. Hughe
s
Director
|
2015
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
NIL
|
|
2016
|
NIL
|
NIL
|
NIL
|
NIL
|
5
M Common Stock
|
NIL
|
(1)
On November 15, 2013, the Company entered into an Employment Agreement (the “Agreement”) with Alan Brown, which
amends and supersedes the January 1, 2009 Employment Agreement between the Company and Mr. Brown. Pursuant to the Agreement, Mr.
Brown shall continue to be employed as President, Chief Executive Officer and Chief Financial Officer of the Company and to continue
to perform any and all duties relevant to such positions. The initial term of the Agreement is for five (5) years (the “Term”)
which shall continue thereafter until terminated. In exchange for his services, Mr. Brown shall receive a base salary of $10,000
per month during the first two (2) years of the Term and $15,000 per month for the remaining three (3) years of the Term and each
additional year after the Term until the Agreement is terminated. Under the Agreement, Mr. Brown may also receive additional compensation
of five million (5,000,000) shares of the Company’s common stock per year during the Term and thereafter until the Agreement
is terminated. A true and correct copy of the Agreement was filed as Exhibit 4.04 to the Company’s Form 20-F for Fiscal
year ended December 31, 2013 as filed with the commission on May 16, 2014, and is incorporated herein by reference.
(2)
Mr. Radvak resigned from his positions as Vice President of Exploration and a member of the board of directors on August
13, 2015.
(3)
Mr. Klein resigned from his position as a member of the Board of Directors on June 1, 2015.
(4)
Mr. Schnur was appointed as a member of the Board of Directors on August 1, 2015. Mr. Schnur is no longer a director of
the Company as the board elected to forego the renewal of his agreement to provide services as of August 2016.
(5)
Mr. Cistone was appointed as a member of the Board of Directors on January 7, 2016.
(6)
Mr. Hughes was appointed as a member of the Board of Directors on February 1, 2016 and resigned on March 2, 2017
C.
Board Practices
All
of the directors of the Company are elected annually by the shareholders and hold office until the next annual meeting of shareholders
or until their successors are duly elected and qualified, unless they sooner resign or cease to be directors in accordance with
our Certificate of Incorporation and Bylaws. Our incumbent directors continue their service, in their current capacity, until
they either resign or are removed and until their successors are elected. The Company's last annual regular general meeting was
held on September 6, 2001, at which time Alan Brown was elected as a Director. Mr. Brown has continued in his office as Director
since his election in 2001. Director vacancies may be filled by a majority of the remaining directors or by a sole remaining director.
On January 28, 2010, Steven Radvak was elected to serve as a member of the Board of Directors by the sole remaining director,
Alan Brown. Mr. Radvak resigned from all positions on August 13, 2015. On May 18, 2011, Laird Cagan was elected as a Director
to the Company. On December 31, 2012, Laird Cagan resigned as a Director of the Company. On August 22, 2014, Mr. Barry Klein was
appointed to serve as a member of the Board of Director and served until June 1, 2015 when he resigned. On August 1, 2015 Mr.
Schnur was appointed as a member of the Board of Directors. On January 7, 2016, Mr. Cistone was appointed as a member of the Board
of Directors February 1, 2016 on January 7, 2016, Mr. Hughes was appointed as a member of the Board of Directors. On August 1,
2016, the Company elected not to renew Mr. Schnur’s agreement to provide services and he was terminated as a director of
the company. On March 2, 2017 Mr. Hughes resigned as a member of the board of directors.
Members
of the Board of Directors are elected by the holders of the Company's shares to represent the interests of all shareholders. The
Board of Directors meets periodically to review significant developments affecting the Company and to act on matters requiring
Board approval. Although the Board of Directors delegates many matters to others, it reserves certain powers and functions to
itself. The only standing committee of the Board of Directors of the Company is the Audit Committee. The Audit Committee of the
Company's Board of Directors currently consists of Alan Brown. This committee is directed to review the scope, cost and results
of the independent audit of the Company's books and records, the results of the annual audit with management and the adequacy
of the Company's accounting, financial and operating controls; to recommend annually to the Board of Directors the selection of
the independent auditors; to consider proposals made by the Company's independent auditors for consulting work; and to report
to the Board of Directors, when so requested, on any accounting or financial matters. The Company does not have an Executive Committee.
The
Company's executive officers are appointed by and serve at the pleasure of the Board of Directors.
D.
Employees
As
of December 31, 2016, we had 1
employee,
Alan Brown. The Company engages various consultants as independent contractors to assist the Company with its drilling programs.
The Company has no relationship with any labor/trade unions.
E.
Share Ownership
There
were 405,206,356 common shares issued and outstanding as of June 14, 2017. Of the shares issued and outstanding, our directors
and officers owned the following common shares:
|
Name
and Position
|
Number
of Common Shares
Beneficially Owned as of
June 14, 2017
(1)
|
Percentage
|
|
Alan
M. Brown
President,
CEO, CFO and Director
|
22,479,885
(2)
|
5.55%
|
|
Daniel
A. Cistone
Director
|
18,333,333
|
4.52%
|
|
Aggregate
owned by Officers and Directors
|
40,813,218
|
10.07%
|
|
Former
Officers/Directors
Steve
Radvak
Former
Vice President of Exploration
and
Director
|
0
|
0.00%
|
|
Barry
Klein
Former
Director
|
0
|
0.00%
|
|
Anthony
C. Schnur
Former
Director
|
5,000,000
|
1.23%
|
|
Robert
Hughes
Former
Director
|
10,000,000
|
2.47%
|
(1)
The
voting rights attached to the common shares owned by our officers and directors do not differ from those voting rights attached
to shares owned by people who are not officers or directors of our Company.
(2)
The beneficial ownership of Alan Brown includes shares directly held by Mr. Brown and 22,051 common shares owned by his
wife.
ITEM
7. Major Shareholders and Related Party Transactions
A.
Major Shareholders
As
of June 14, 2017, there are no beneficial owners of more than five (5%) of our common shares other than Mr. Brown as set forth
in the table above.
B.
Related Party Transactions
As
at December 31, 2016, the Company owed $89,468 (2015- $4,408) (2014 - $3,950) to the President of the Company for management fees
and financing of day-to-day operations. The amounts owing are unsecured, non-interest bearing, and due on demand. During the year
ended December 31, 2016, the Company incurred $180,000 (2015 - $135,000) (2014 - $120,000) to the President of the Company for
management fees.
C.
Interests of Experts and Counsel
Not
required.
ITEM
8. FINANCIAL INFORMATION
A.
Financial Statements And Other Financial Information
The
Company's financial statements, included as an exhibit to this Report, are incorporated into this Report by reference.
Legal
Proceedings
On
August 21, 2014, the Company filed a lawsuit in the United States District Court for the District of Utah against EuroGas Utah,
EuroGas, A.G., a Swiss stock corporation (“EuroGas Swiss”), ZB Capital, A,G., a Swiss corporation and Riata Minerals,
Inc.,
et al.
(collectively, the “Defendants”) for breaches of various agreements, including the Stock-for-Stock
Exchange Agreement dated December 10, 2013 and Defendants financing commitment to the Company. The Company engaged in settlement
negotiations to resolve the matter. In November 2014, the lawsuit against EuroGas Swiss was dismissed as a result of the parties’
agreement to certain terms for EuroGas, Inc. to continue with its financing commitment. Subsequently, in March 2015, the Company
refiled the lawsuit as a result of non-performance by the defendants. The litigation against Eurogas is on going and the parties
have exchanged discovery and discussed an extension to conduct further discovery. No Evaluation presently can be made as
to the final outcome of this case or likelihood or range of potential recovery or loss. This lawsuit and counter lawsuit is in
discovery stage and premature to evaluate potential outcomes.
Other
than the foregoing, we know of no material, existing or pending legal proceedings against our Company, nor are we involved as
a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates,
or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Dividends
The
Company has not and does not currently intend to pay any dividends on any of its shares. The Company intends to follow a policy
of retained earnings to finance the growth of the business. Any future determination to pay dividends will be at the discretion
of the Board of Directors of the basis of earnings, financial requirements and other relevant factors.
B.
Significant Changes
Except
as otherwise disclosed in this annual report or in the reports filed on Form 6-K filed to date, no significant changes have occurred
since December 31, 2016.
ITEM
9. The Offer and Listing
The
following table lists the high and low closing sale prices for the Company's common stock for the periods indicated as reported
by the Over the Counter Markets:
|
YEAR/PERIOD
|
HIGH
|
LOW
|
|
Q1
2012
|
.055
|
.027
|
|
Q2
2012
|
.05
|
.023
|
|
Q3
2012
|
.04
|
.023
|
|
Q4
2012
|
.03
|
.017
|
|
Q1
2013
|
.04
|
.011
|
|
Q2
2013
|
.09
|
.01
|
|
Q3
2013
|
.05
|
.01
|
|
Q4
2013
|
.05
|
.021
|
|
Q1
2014
|
.07
|
.027
|
|
Q2
2014
|
.06
|
.027
|
|
Q3
2014
|
.056
|
.018
|
|
Q4
2014
|
.035
|
.014
|
|
Q1
2015
|
.0193
|
.0086
|
|
Q2
2015
|
.035
|
.002
|
|
Q3
2015
|
.024
|
.0102
|
|
Q4
2015
|
.020
|
.0055
|
|
Q1
2016
|
.0159
|
.007
|
|
Q2
2016
|
.015
|
.007
|
|
Q3
2016
|
.017
|
.0072
|
|
Q4 2016
|
.0125
|
.0052
|
The
shares of the Company commenced trading on the Over the Counter Bulletin Board on July 14, 1999.
Markets
The
Company's common shares are listed for trading on the Over the Counter Markets (PK).
ITEM
10. Additional Information
A.
Share Capital
Not
Applicable.
B.
Articles of Incorporation & By-Laws
Directors
A
director who is, in any way, directly or indirectly interested in a proposed contract or transaction, shall disclose the nature
and extent of his interest at a meeting of the directors in accordance with the provisions of the Canada Business Corporations
Act (“CBCA”). A director shall not vote in respect of any contract or transaction with our Company in which he is
interested, and any such proposed contract or transaction shall be referred to the Board of Directors or shareholders for approval
even if such contract or transaction is one that the ordinary course of the Company's business would not require approval by the
Board of Directors or shareholders.
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(1)
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Subject
to the provisions of any unanimous shareholder agreement, the remuneration of the directors may from time to time be determined
by the directors themselves, and such remuneration may be in addition to any reimbursement for travel and other expenses.
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(2)
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The directors
may, at their discretion and subject to the provisions of any unanimous shareholder agreement or By-Laws or the CBCA, authorize
the Company to borrow any sum of money or incur indebtedness for the purpose of the Company and may raise or secure the repayment
of such sum of money in such manner and upon such terms and conditions as the directors think fit.
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(3)
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There are no
provisions with respect to the retirement of a director or the non-retirement of a director under an age requirement.
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(4)
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A director is
not required to hold a share in the capital of our Company as qualification for his office.
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With
respect to the above noted matters, there are generally no significant differences between Canadian and U.S. law.
Objects
and Purposes of the Company
Our
Certificate of Incorporation places no restrictions upon our objects and purposes.
Rights,
Preference and Restrictions
Common
Shares
All
of the authorized common shares of the Company, once issued, rank equally as to dividends, voting powers, and participation in
assets. Holders of common shares are entitled to one vote for each common share held of record on all matters to be acted upon
by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the
board of directors, in its discretion, out of funds legally available therefore. The Company's By-Laws do not provide for cumulative
voting.
Upon
liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata our assets, if
any, remaining after payments of all debts and liabilities. No common shares have been issued subject to call or assessment. There
are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or
purchase funds. There are no restrictions on the repurchase or redemption of common shares by our Company while there is any arrearage
in the payment of dividends or sinking fund installments.
With
respect to the rights, preferences and restrictions attaching to the Company's common shares, there are generally no significant
differences between Canadian and United States law as the board of directors, or the applicable corporate statute, will determine
the rights, preferences and restrictions attaching to each class of a Company's shares.
Changes
to Common Shares
Provisions
as to the modification, amendment or variation of the rights attaching to the common shares are contained in the CBCA. The CBCA
requires approval by a special resolution (i.e. approved by at least two-thirds of the votes cast at a meeting of the shareholders
of our Company or consented to in writing by each of our shareholders) of our Company's shareholders in order to effect any of
the following changes:
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(1)
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change
any maximum number of shares that the Company is authorized to issue;
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(2)
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create new classes
of shares;
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(3)
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reduce or increase
its stated capital, if its stated capital is set out in the articles;
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(4)
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change the designation
of all or any of its shares and add, change or remove any rights, privileges, restrictions and conditions, including rights
to accrued dividends, in respect of all or any of its shares, whether issued or unissued;
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(5)
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change
the shares of any class or series, whether issued or unissued, into a different number of shares of the same class or series
or into the same or a different number of shares of other classes or series;
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(6)
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divide a class
of shares, whether issued or unissued, into series and fix the number of shares in each series and the rights, privileges,
restrictions and conditions thereof;
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(7)
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authorize the
directors to divide any class of unissued shares into series and fix the number of shares in each series and the rights, privileges,
restrictions and conditions thereof;
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(8)
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authorize the
directors to change the rights, privileges, restrictions and conditions attached to unissued shares of any series;
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(9)
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revoke, diminish
or enlarge any authority conferred under paragraphs (7) and (8); and,
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(10)
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add, change or
remove restrictions on the issue, transfer or ownership of shares.
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Generally,
there are no significant differences between Canadian and United States law with respect to changing the rights of shareholders
as most state corporation statutes require shareholder approval (usually a majority) for any such changes that affect the rights
of shareholders.
Annual
General Meetings and Extraordinary General Meetings
Annual
General Meetings (an “AGM”) must be held once every fiscal year, within 15 months of the previous AGM. If the Company
fails to hold an AGM, the Supreme Court of British Columbia may, on the application of a director or shareholder of the Company,
call or direct an AGM. Under the CBCA, we must give our shareholders written notice of an AGM not less than 21 days before the
AGM is to be held.
Our
directors may, whenever they think fit, convene an Extraordinary General Meeting (an “EGM”).
An
AGM or EGM may also be requisitioned by one or more shareholders of our Company so long as such shareholders own not less than
5% of the issued and outstanding shares at the date such shareholders requisition an EGM. After receiving such requisition, our
directors must within 21 days call the meeting.
All
shareholders entitled to attend and vote at an AGM or an EGM will be admitted to the meeting.
Most
state corporation statutes require a public company to hold an annual meeting for the election of directors and for the consideration
of other appropriate matters. The state statutes also include general provisions relating to shareholder voting and meetings.
Apart from the timing of when an AGM must be held and the percentage of shareholders required to call a AGM or EGM, there are
generally no material differences between Canadian and United States law respecting AGMs and EGMs.
Rights
to Own Securities
There
are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights.
Except
as provided in the Investment Canada Act, there are no limitations under the applicable laws of Canada or by the Company's charter
or other constituent documents of the Company on the right of foreigners to hold or vote common shares or other securities of
the Company.
The
Investment Canada Act will prohibit implementation, or if necessary, require divestiture of an investment deemed “reviewable”
under the Investment Canada Act by an investor that is not a “Canadian” as defined in the Investment Canada Act (a
“non-Canadian”), unless after review the Minister responsible for the Investment Canada Act (“the Minister”)
is satisfied that the “reviewable” investment is likely to be of net benefit to Canada. An investment in our common
shares by a non-Canadian would be reviewable under the Investment Canada Act if it was an investment to acquire control of our
Company and the value of our assets was $5 million or more. A non-Canadian would be deemed to acquire control of our Company for
the purposes of the Investment Canada Act if the non-Canadian acquired a majority of our outstanding common shares (or less than
a majority but controlled our Company in fact through the ownership of one-third or more of our outstanding common shares) unless
it could be established that, on the acquisition, our Company was not controlled in fact by the acquirer through the ownership
of such common shares. Certain transactions in relation to our common shares would be exempt from review under the Investment
Canada Act, including, among others, the following:
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(1)
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acquisition of common shares by a person
in the ordinary course of that person's business as a trader or dealer in securities;
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(2)
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acquisition
of control of our Company in connection with the realization of security granted for a loan or other financial assistance
and not for any purpose related to the provisions of the Investment Canada Act; and
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(3)
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acquisition of control of our Company
by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect
control of our Company, through the ownership of voting interests, remains unchanged.
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The
Investment Canada Act was amended with the World Trade Organization Agreement to provide for special review thresholds for “WTO
Investors” of countries belonging to the World Trade Organization, among others, nationals and permanent residents (including
“WTO Investor controlled entities” as defined in the Investment Canada Act). Under the Investment Canada Act, as amended,
an investment in our common shares by WTO Investors would be reviewable only if it was an investment to acquire control of our
Company and the value of our assets was equal to or greater than a specified amount (the “Review Threshold”), which
published by the Minister after its determination for any particular year. The Review Threshold for Private sector WTO investments
as of 2015 is $600 million in enterprise value. Beginning April 24, 2017, the review threshold will be $800 million in enterprise
value.
Change
in Control
There
are no provisions in the Company's By-Laws that would have the effect of delaying, deferring or preventing a change in control
of our Company, and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company.
The
CBCA does not contain any provisions that would have the effect of delaying, deferring or preventing a change of control of the
Company. Generally, there are no significant differences between Canadian and United States law in this regard, as many state
corporation statutes also do not contain such provisions and only empower a company's board of directors to adopt such provisions.
Ownership
Threshold
There
are no provisions in our Certificate of Incorporation or Bylaws or in the CBCA governing the threshold above which shareholder
ownership must be disclosed. The Securities Act (British Columbia) requires that the Company disclose, in its annual general meeting
proxy statement, holders who beneficially own more than 10% of the Company's issued and outstanding shares. Most state corporation
statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed. United States
federal securities laws require a company to disclose, in its Annual Report on Form 20-F, holders who own more than 5% of a company's
issued and outstanding shares.
Changes
in the Capital of our Company
There
are no conditions imposed by our By-Laws which are more stringent than those required by the CBCA.
C.
Material Contracts
With
the exception of the contracts listed below, or those described elsewhere in this Form 20-F or in the Company’s Form 6-K
filings, we have not entered into any material contracts during the last twenty-four months other than those in the ordinary course
of business.
On
November 15, 2013, the Company entered into an Employment Agreement (the “Agreement”) with Alan Brown, which amends
and supersedes the January 1, 2009 Employment Agreement between the Company and Mr. Brown. Pursuant to the Agreement, Mr. Brown
shall continue to be employed as President, Chief Executive Officer and Chief Financial Officer of the Company and to continue
to perform any and all duties relevant to such positions. The initial term of the Agreement is for five (5) years (the “Term”)
which shall continue thereafter until terminated. In exchange for his services, Mr. Brown shall receive a base salary of $10,000
per month during the first two (2) years of the Term and $15,000 per month for the remaining three (3) years of the Term and each
additional year after the Term until the Agreement is terminated. Under the Agreement, Mr. Brown may also receive additional compensation
of five million (5,000,000) shares of the Company’s common stock per year during the Term and thereafter until the Agreement
is terminated. A true and correct copy of the Agreement was filed as Exhibit 4.04 to the Company’s Form 20-F for Fiscal
year ended December 31, 2013 as filed with the commission on May 16, 2014, and is incorporated herein by reference.
On
December 10, 2013, the Company entered into a Stock-for-Stock Exchange Agreement (the “Agreement”) with EuroGas, Inc.,
a Utah corporation (“EuroGas Utah”), and EuroGas AG, a Swiss stock corporation (“EuroGas Swiss”). Pursuant
to the Agreement, EuroGas Utah shall exchange two hundred forty million (240,000,000) shares of EuroGas Swiss’ common stock
representing approximately twenty six percent (26%) of EuroGas Swiss’ total issued and outstanding shares of common stock,
in exchange for three hundred forty eight million (348,000,000) shares of Tombstone’s common stock. Additionally,
EuroGas Utah shall finance Tombstone’s exploration efforts in the USA in the amount of five million dollars ($5,000,000)
over a nine (9) month period. The Agreement was filed as Exhibit 4.1 to our Current Report on Form 6-K with the SEC on December
16, 2013 and is incorporated herein by reference.
On
January 13, 2014, the Company entered into a First Amendment to the Stock-for-Stock Exchange Agreement (the “Amendment”)
with EuroGas Utah and EuroGas Swiss, which is retroactively made effective as of December 10, 2013, the date of the original Agreement.
Pursuant to the Amendment, EuroGas Utah shall exchange two hundred forty million (240,000,000) shares of EuroGas Swiss’
common stock representing approximately twenty six percent (26%) of EuroGas Swiss’ total issued and outstanding shares of
common stock, in exchange for three hundred forty eight million (348,000,000) shares of Tombstone’s common stock. Additionally,
EuroGas Utah shall finance Tombstone’s exploration efforts in the USA in the amount of five million dollars ($5,000,000)
over a nine (9) month period. Further, EuroGas Utah shall grant to the Company twenty percent (20%) of any award granted to EuroGas
Utah or EuroGas Swiss relating to that certain lawsuit filed by EuroGas Swiss and EuroGas Utah against the Slovak Republic. A
true and correct copy of the First Amendment was filed with the SEC as Exhibit 4.06 to our Annual Report on May 16, 2014 and is
incorporated herein by reference.
On
May 13, 2014, the Company entered into a Second Amendment to the Stock-for-Stock Exchange Agreement (the “Second Amendment”)
with EuroGas, Inc. and EuroGas AG, which is retroactively made effective as of December 10, 2013, the date of the original Agreement.
Pursuant to the Second Amendment, the Company shall receive $100,000 from EuroGas, Inc. in exchange for the issuance of
69,000,000 common shares of the Company. The 69,000,000 common shares of the Company were issued on May 13, 2014. Additionally,
pursuant to the Second Amendment, on or before June 13, 2014, the Company shall receive $400,000 and 240,000,000 common shares
of EuroGas AG from EuroGas, Inc. in exchange for 279,000,000 common shares of the Company. EuroGas, Inc. shall make further
payments to the Company of $500,000 on or before August 30, 2014, and a final payment of $4,000,000 on or before October 31, 2014.
Further, EuroGas, Inc. shall grant to the Company twenty percent (20%) of any award granted to EuroGas, Inc. or EuroGas
AG relating to that certain lawsuit filed by EuroGas AG and EuroGas, Inc. against the Slovak Republic. A true and correct copy
of the Second Amendment was filed with the SEC as Exhibit 4.01 to our Current Report on Form 6-K on May 30, 2014 and is incorporated
herein by reference.
On
August 21, 2014, the Company filed a lawsuit against EuroGas, Inc., EuroGas AG and ZB Capital, AG as well as an injunction against
these parties, their agents, or anyone associated from redeeming the share certificate and trading, selling, transferring or pledging
the common shares issued. As a result of the lawsuit, on November 19, 2014, the parties entered into an Extension Agreement whereby
the Company would dismiss the lawsuit and release the share certificate to ZB Capital AG within ten days of the Effective Date
and EuroGas, Inc. and EuroGas AG would remit a single payment of $400,000 to the Company on or before January 2, 2015. The parties
also agreed to revise the payment date for the remaining $4,500,000 financing to a date on or before 120 for the Effective Date
of the agreement and that all other terms and conditions of the original agreement and the amendments would remain the same. On
signing the agreement the Company recorded a receivable for the $400,000 amount owing and a corresponding gain on settlement of
debt. As the Company has yet to receive the $400,000 pursuant to the Extension Agreement, the Company recorded an allowance against
the receivable as well as a corresponding loss on settlement of debt as at December 31, 2014. Subsequent to year end the Company
refiled its lawsuit against EuroGas, Inc., EuroGas AG, and ZB Capital AG, which is currently pending.
Per the Proof of Claim
filed on November 30, 2016, EuroGas, Inc. was to pay $5,000,000 to the Company and transfer 240,000,000 shares of EuroGas AG,
of which EuroGas, Inc. claimed an interest, to the Company. EuroGas, Inc. has failed to pay the $5,000,000 or transfer the shares
of EuroGas AG to the Company. In addition, EuroGas, Inc. has fraudulently transferred the Company’s shares to other third
parties. Accordingly, the Company’s claim is for $5,000,000 and a transfer of EuroGas, Inc’s interest in the EuroGas
AG shares. In addition, pursuant to the First Amendment, the Debtor and EuroGas AG agreed to grant Tombstone a twenty (20%) interest
in any award granted to the Debtor and/or EuroGas AG related to a lawsuit that the Debtor filed against the Slovak Republic. In
addition, pursuant to the First Amendment, the Debtor was to deliver 178 BLM Mining claims back to Tombstone which were lost as
a result of the Debtor’s actions, which are also part of this claim.
D.
Exchange Controls
Except
as discussed in Item E below, the Company is not aware of any Canadian federal or provincial laws, decrees, or regulations that
restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest
or other payments to non-Canadian holders of common shares. The Company is not aware of any limitations on the right of non-Canadian
owners to hold or vote common shares imposed by Canadian federal or provincial law or by the Company.
The
Investment Canada Act
(the “Act”) governs acquisitions of Canadian business by a non-Canadian person or entity.
The Act provides, among other things, for a review of an investment in the event of acquisition of control in certain Canadian
businesses in the following circumstances:
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(1)
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if the investor is a non-Canadian and
is not a resident of a World Trade Organization (“WTO”) country, any direct acquisition having an asset value
exceeding $5,000,000 and any indirect acquisition having an asset value exceeding $50,000,000;
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(2)
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if the investor is a non-Canadian and
is a resident of a WTO member, any direct acquisition having an asset value exceeding $344,000,000, unless the business is
involved in uranium production, financial services, transportation services or a cultural business.
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An
indirect acquisition of control by an investor who is a resident of a WTO country is not reviewable unless the value of the assets
of the business located in Canada represents more than 50% of the asset value of the transaction, or the business is involved
in uranium production, financial services, transportation services or a cultural business. The United States has been a member
of the WTO since January 1, 1995.
The
Act provides that a non-Canadian investor can hold up to 1/3 of the issued and outstanding capital of a Canadian corporation without
being deemed a “control person”, and that a non-Canadian investor holding greater than 1/3 but less than 2 of the
issued and outstanding capital of a Canadian corporation is deemed to be a control person subject to a reputable presumption to
the contrary (i.e. providing evidence of another control person or control group holding a greater number of shares).
The
Act requires notification where a non-Canadian acquires control, directly or indirectly, of a Canadian business with assets under
the thresholds for reviewable transaction. The notification process consists of filing a notification within 30 days following
the implementation of an investment.
E.
Taxation
Canadian
Federal Income Taxation
We
consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder
of our common shares who at all material times deals at arm’s length with our Company, who holds all common shares as capital
property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed
to use or hold, his common shares of our Company in connection with carrying on a business in Canada (a “non-resident holder”).
It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes
of the
Income Tax Act
(Canada) (the “ITA”) and regulations thereunder. Investors should be aware that the Canadian
federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed
on a prescribed stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own
tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we
cease to be listed on a prescribed stock exchange.
This
summary is based upon the current provisions of the ITA, the regulations thereunder, the Canada-United States Tax Convention as
amended by the Protocols thereto (the “Treaty”) as at the date of this Report and the currently publicly announced
administrative and assessing policies of the Canada Customs and Revenue Agency (the “CCRA”). This summary does not
take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal
income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental
or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations thereunder,
publicly announced by the Government of Canada to the date hereof.
This
summary does not address potential tax effects relevant to our Company or those tax considerations that depend upon circumstances
specific to each investor. Accordingly, holders and prospective holders of our common shares should consult with their own tax
advisors with respect to the income tax consequences to them of purchasing, owning and disposing of common shares in our Company.
Dividends
The
ITA provides that dividends and other distributions deemed to be dividends paid or deemed to be paid by a Canadian resident corporation
(such as our Company) to a non-resident of Canada shall be subject to a non-resident withholding tax equal to 25% of the gross
amount of the dividend of deemed dividend. Provisions in the ITA relating to dividend and deemed dividend payments to and gains
realized by non-residents of Canada, who are residents of the United States, are subject to the Treaty. The Treaty may reduce
the withholding tax rate on dividends as discussed below.
Article
X of the Treaty as amended by the US-Canada Protocol ratified on November 9, 1995 provides a 5% withholding tax on gross dividends
or deemed dividends paid to a United States corporation which beneficially owns at least 10% of the voting stock of the company
paying the dividend. In cases where dividends or deemed dividends are paid to a United States resident (other than a corporation)
or a United States corporation which beneficially owns less than 10% of the voting stock of a company, a withholding tax of 15%
is imposed on the gross amount of the dividend or deemed dividend paid. We would be required to withhold any such tax from the
dividend and remit the tax directly to CCRA for the account of the investor.
The
reduction in withholding tax from 25%, pursuant to the Treaty, will not be available:
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(a)
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if the shares in respect of which the
dividends are paid formed part of the business property or were otherwise effectively connected with a permanent establishment
or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or
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(b)
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the holder is a U.S. LLC which is not
subject to tax in the U.S.
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The
Treaty generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable
organization or to an organization exclusively administering a pension, retirement or employee benefit fund or plan, if the organization
is resident in the U.S. and is exempt from income tax under the laws of the U.S.
Capital
Gains
A
non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of one of our
shares unless the share represents “taxable Canadian property” to the holder thereof. Our common shares will be considered
taxable Canadian property to a non-resident holder only if:
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(a)
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the non-resident holder;
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(b)
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persons with whom the non-resident
holder did not deal at arm’s length; or
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(c)
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the non-resident holder and persons
with whom he did not deal at arm’s length,
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owned
not less than 25% of the issued shares of any class or series of our Company at any time during the five year period preceding
the disposition. In the case of a non-resident holder to whom shares of our Company represent taxable Canadian property and who
is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason
of the Treaty unless:
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(a)
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the value of such shares is derived
principally from real property (including resource property) situated in Canada,
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(b)
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the
holder was resident in Canada for 120 months during any period of 20 consecutive years preceding,
and at any time during the 10 years immediately preceding, the disposition and the shares
were owned by him when he ceased to be a resident of Canada,
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(c)
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they formed part of the business property
or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or bad in Canada
within the 12 months preceding the disposition, or
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(d)
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the holder is a U.S. LLC which is not
subject to tax in the U.S.
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If
subject to Canadian tax on such a disposition, the taxpayer’s capital gain (or capital loss) from a disposition is the amount
by which the taxpayer’s proceeds of disposition exceed (or are exceeded by) the aggregate of the taxpayer’s adjusted
cost base of the shares and reasonable expenses of disposition. For Canadian income tax purposes, the “taxable capital gain”
is equal to one-half of the capital gain.
United
States Federal Income Taxation
The
following is a discussion of the material United States Federal income tax consequences, under current law, applicable to a U.S.
Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all potentially
relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of
Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion
does not cover any state, local, or foreign tax consequences. (See “Canadian Federal Income Tax Consequences” above.)
The
following discussion is based on the Internal Revenue Code (the “Code”), Treasury Regulations, published Internal
Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently
applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition,
this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which,
if enacted, could be applied, possibly on a retroactive basis, at any time.
The
discussion below does not address potential tax effects relevant to our Company or those tax considerations that depend upon circumstances
specific to each investor. In addition, this discussion does not address the tax consequences that may be relevant to particular
investors subject to special treatment under certain U.S. Federal income tax laws, such as, dealers in securities, tax-exempt
entities, banks, insurance companies and non-U.S. Holders. Purchasers of the common stock should therefore satisfy themselves
as to the overall tax consequences of their ownership of the common stock, including the State, local and foreign tax consequences
thereof (which are not reviewed herein), and should consult their own tax advisors with respect to their particular circumstances.
U.S.
Holders
As
used herein, a “U.S. Holder” includes a beneficial holder of common shares of our Company who is a citizen or resident
of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political
subdivision thereof, any trust if a US court is able to exercise primary supervision over the administration of the trust and
one or more US persons have the authority to control all substantial decisions of the trust, any entity created or organized in
the United States which is taxable as a corporation for U.S. tax purposes and any other person or entity whose ownership of common
shares of our Company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does
not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement
plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with
the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee
stock options or otherwise as compensation.
Dividend
Distribution on Shares of our Company
U.S.
Holders receiving dividend distributions (including constructive dividends) with respect to the common shares of our Company are
required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the
extent that we have current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be deducted or may be credited against actual tax payable, subject to certain limitations
and other complex rules, against the U.S. Holder’s United States Federal taxable income. See “Foreign Tax Credit”
below. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as
a return of capital to the extent of the shareholder’s basis in the common shares of our Company and thereafter as gain
from the sale or exchange of the common shares of our Company. Preferential tax rates for net long term capital gains may be applicable
to a U.S. Holder which is an individual, estate or trust.
In
general, dividends paid on our common shares will not be eligible for the dividends received deduction provided to corporations
receiving dividends from certain United States corporations.
Foreign
Tax Credit
A
U.S. Holder who pays (or who has had withheld from distributions) Canadian income tax with respect to the ownership of our common
shares may be entitled, at the election of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or
withheld. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld
from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is
the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax
liability that the U.S. Holder’s foreign source income bears to his or its world-wide taxable income. In determining the
application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources.
Complex rules govern income such as “passive income”, “high withholding tax interest”, “financial
services income”, “shipping income” and certain other classifications of income. A U.S. Holder who is treated
as a domestic U.S. corporation owning 10% or more of our voting stock is also entitled to a deemed paid foreign tax credit in
certain circumstances for the underlying foreign tax of our Company related to dividends received or Subpart F income received
from us. (See the discussion below of Controlled Foreign Corporations). The availability of the foreign tax credit and the application
of the limitations on the foreign tax credit are fact specific and holders and prospective holders of our common shares should
consult their own tax advisors regarding their individual circumstances.
Disposition
of Common Shares
If
a “U.S. Holder” is holding shares as a capital asset, a gain or loss realized on a sale of our common shares will
generally be a capital gain or loss, and will be long-term if the shareholder has a holding period of more than one year. However,
gains realized upon sale of our common shares may, under certain circumstances, be treated as ordinary income, if we were determined
to be a “collapsible corporation” within the meaning of Code Section 341 based on the facts in existence on the date
of the sale (See below for definition of “collapsible corporation”). The amount of gain or loss recognized by a selling
U.S. Holder will be measured by the difference between (i) the amount realized on the sale and (ii) his tax basis in our common
shares. Capital losses are deductible only to the extent of capital gains. However, in the case of taxpayers other than corporations
(U.S.) $3,000 ($1,500 for married individuals filing separately) of capital losses are deductible against ordinary income annually.
Losses in excess of this limit can be carried forward to later years to reduce capital gains or ordinary income until the balance
of these losses is used up. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently
deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible
are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss
year.
A
“collapsible corporation” is a corporation that is formed or availed principally to manufacture, construct, produce,
or purchase prescribed types of property that the corporation holds for less than three years and that generally would produce
ordinary income on its disposition, with a view to the stockholders selling or exchanging their stock and thus realizing gain
before the corporation realizes two thirds of the taxable income to be derived from prescribed property. Prescribed property includes:
stock in trade and inventory; property held primarily for sale to customers in the ordinary course of business; unrealized receivables
or fees, consisting of rights to payment for noncapital assets delivered or to be delivered, or services rendered or to be rendered
to the extent not previously included in income, but excluding receivables from selling property that is not prescribed; and property
gain on the sale of which is subject to the capital gain/ordinary loss rule. Generally, a shareholder who owns directly or indirectly
5 percent or less of the outstanding stock of the corporation may treat gain on the sale of his shares as capital gain.
Other
Considerations for U.S. Holders
In
the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences
resulting from the holding and disposition of common shares of the Company. Our management is of the opinion that there is little,
if not, any likelihood that we will be deemed a “Foreign Personal Holding Company”, a “Foreign Investment Company”
or a “Controlled Foreign Corporation” (each as defined below) under current and anticipated conditions.
Foreign
Personal Holding Company
If
at any time during a taxable year more than 50% of the total combined voting power or the total value of our outstanding shares
is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60%
or more of our gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries),
we would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares in
our capital would be required to include in income for such year their allocable portion of our passive income which would have
been treated as a dividend had that passive income actually been distributed.
Foreign
Investment Company
If
50% or more of the combined voting power or total value of our outstanding shares are held, actually or constructively, by citizens
or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign
estates or trusts (as defined by the Code Section 7701(a)(31)), and we are found to be engaged primarily in the business of investing,
reinvesting, or trading in securities, commodities, or any interest therein, it is possible that we might be treated as a “foreign
investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling
or exchanging our common shares to be treated as ordinary income rather than capital gains.
Controlled
Foreign Corporation Status
If
more than 50% of the voting power of all classes of stock or the total value of the stock of our Company is owned, directly or
indirectly, by U.S. Holders, each of whom own after applying rules of attribution 10% or more of the total combined voting power
of all classes of stock of our Company, we would be treated as a “controlled foreign corporation” or “CFC”
under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion
by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of our
Company and our earnings invested in “U.S. property” (as defined by Section 956 of the Code). In addition, under Section
1248 of the Code if we are considered a CFC at any time during the five year period ending with the sale or exchange of its stock,
gain from the sale or exchange of common shares of our Company by such a 10% U.S. Holder of our common stock at any time during
the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and
profits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because we may never be a CFC,
a more detailed review of these rules is beyond of the scope of this discussion.
ALL
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING
THE COMMON SHARES OF OUR COMPANY.
F.
Dividends and Paying Agents
Not
required.
G.
Statement By Experts
The
financial statements of our Company as of December 31, 2016, 2015 and 2014 included in this report has been audited by Anton &
Chia LLP, as stated in the reports appearing in this filing and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
H.
Documents on Display
We
are subject to the informational requirements of the
Securities Exchange Act of 1934
, as amended, and, as such, we file
reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies
upon payment of prescribed fees from, the Public Reference Room maintained by the SEC located at 100 F Street, N.E., Washington,
DC 20549. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We
will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a copy
of any or all documents referred to above which have been or may be incorporated by reference in this report (not including exhibits
to such incorporated information that are not specifically incorporated by reference into such information). Requests for such
copies should be directed to us in writing at our address.
I.
Subsidiary Information
We
conduct all operations through our wholly owned subsidiary, Tombstone Exploration and Mining Corporation, a Nevada corporation.
Item
11. Quantitative and Qualitative Disclosures About Market Risk
Our
Tombstone property is located within the United States, currently at the exploration stage and our operations are limited to exploring
this property. Therefore, our market risks are minimal. We may, however, have future property exploration requirements due in
currencies other than United States dollars. As a Canadian company, our cash balances are kept in Canadian funds, and then converted
to United States funds for accounting purposes. Therefore, we may become exposed to some interest rate risks. We consider the
amount of risk to be manageable and do not currently, nor will we likely in the foreseeable future, conduct hedging to reduce
our market risks.
Furthermore,
changes in the regulatory environment in the U.S. may affect the costs of operating, mineral exploration and other factors having
a material impact upon the business. The Company works diligently and in good faith to meet or exceed all applicable permitting
requirements, reclamation obligations, and other regulations, but is subject to the authoritative changes.
Item
12. Description of Securities Other Than Equity Securities
Not
Applicable.