PART I – FINANCIAL INFORMATION
I
TEM 1. FINANCIAL
STATEMENTS.
LODE-STAR MINING INC.
INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND
2017
(Unaudited)
LODE-STAR MINING INC.
BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
Cash
|
$
914
|
$
818
|
|
Prepaid
fees
|
3,022
|
3,725
|
|
Total
current assets
|
3,936
|
4,543
|
|
|
|
|
|
Mineral
Property Interest, unproven
|
230,180
|
230,180
|
|
|
|
|
|
Total assets
|
$
234,116
|
$
234,723
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
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Current liabilities
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|
|
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Accounts
payable and accrued liabilities
|
$
7,653
|
$
8,048
|
|
Due
to related parties and accrued interest
|
1,195,642
|
1,036,569
|
|
Loans
payable and accrued interest
|
38,897
|
47,055
|
|
Total
current liabilities
|
1,242,192
|
1,091,672
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STOCKHOLDERS’ DEFICIENCY
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Capital Stock
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Authorized:
|
|
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480,000,000
voting common shares with a par value of $0.001 per
share
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|
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20,000,0000
preferred shares with a par value of $0.001 per share
|
|
|
|
Issued:
|
|
|
|
49,127,825
common shares at June 30, 2018 and December 31, 2017
|
1,947
|
1,947
|
|
Additional
Paid-In Capital
|
1,560,897
|
1,512,872
|
|
Accumulated
Deficit
|
(2,570,920
)
|
(2,371,768
)
|
|
Total
stockholders’ deficiency
|
(1,008,076
)
|
(856,949
)
|
|
|
|
|
|
Total liabilities and stockholders’ deficiency
|
$
234,116
|
$
234,723
|
The accompanying notes are an integral part of these unaudited
interim financial statements.
LODE-STAR MINING INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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$
-
|
$
-
|
$
-
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$
-
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|
|
|
|
|
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|
Operating Expenses
|
|
|
|
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Consulting
services
|
23,301
|
106,102
|
60,420
|
310,899
|
|
Corporate
support services
|
463
|
466
|
963
|
941
|
|
Exploration
and evaluation
|
-
|
3,190
|
-
|
3,190
|
|
Mineral
option fees
|
25,012
|
25,012
|
49,988
|
49,988
|
|
Office,
foreign exchange and sundry
|
6,916
|
2,897
|
11,200
|
3,801
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|
Professional
fees
|
7,359
|
16,812
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29,590
|
21,526
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|
|
2,093
|
3,008
|
18,527
|
17,325
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|
|
65,144
|
157,487
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170,688
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407,670
|
|
|
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|
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Operating Loss
|
(65,144
)
|
(157,487
)
|
(170,688
)
|
(407,670
)
|
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Other Expenses
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Interest,
bank and finance charges
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(14,465
)
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(11,270
)
|
(28,464
)
|
(22,045
)
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|
|
|
|
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Net Loss
|
$
(79,609
)
|
$
(168,757
)
|
$
(199,152
)
|
$
(429,715
)
|
|
|
|
|
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Basic And Diluted Net Loss Per Common Share
|
$
(0.00
)
|
$
(0.00
)
|
$
(0.00
)
|
$
(0.01
)
|
|
|
|
|
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Weighted Average Number Of Common Shares Outstanding – Basic
and Diluted
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49,127,825
|
49,127,825
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49,127,825
|
49,127,825
|
The accompanying notes are an integral part of these unaudited
interim financial statements.
LODE-STAR MINING INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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Operating Activities
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Net
loss
|
$
(199,152
)
|
$
(429,715
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
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|
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Foreign
exchange loss
|
558
|
938
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Stock
options issued for services
|
48,025
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298,844
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|
Changes
in operating assets and liabilities:
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|
|
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Prepaid
fees
|
703
|
-
|
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Accounts
payable and accrued liabilities
|
26,872
|
26,072
|
|
Due
to related parties
|
49,988
|
49,988
|
|
Accrued
interest payable
|
28,102
|
21,803
|
|
Net
cash used in operating activities
|
(44,904
)
|
(32,070
)
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|
|
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Financing Activities
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|
|
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Repayment
of loans payable
|
(10,000
)
|
(10,000
)
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Proceeds
from loans payable – related party
|
55,000
|
55,000
|
|
Net cash provided
by financing activities
|
45,000
|
45,000
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|
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Net Increase In Cash
|
96
|
12,930
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Cash, Beginning of Period
|
818
|
5,134
|
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Cash, End of Period
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$
914
|
$
18,064
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Supplemental Disclosure of Cash Flow Information
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Cash
paid during the period for:
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Interest
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$
-
|
$
-
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|
Income
taxes
|
$
-
|
$
-
|
|
|
|
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Non-cash Financing Activity
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Expenses
paid by related party on behalf of the Company
|
$
27,266
|
$
41,898
|
The accompanying notes are an integral part of these unaudited
interim financial statements.
LODE-STAR MINING INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2018 AND
2017
(Unaudited)
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1.
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BASIS OF PRESENTATION AND NATURE OF OPERATIONS
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Organization
Lode-Star
Mining Inc. (“the Company”) was incorporated in the
State of Nevada, U.S.A., on December 9, 2004. The Company’s
principal executive offices are in Reno, Nevada. The Company was
originally formed to acquire exploration stage natural resource
properties. The Company acquired a mineral property interest from
Lode Star Gold Inc., a private Nevada corporation
(“LSG”) on December 11, 2014 in consideration for the
issuance of 35,000,000 common shares of the Company. As a result of
this transaction, control of the Company was acquired by
LSG.
Going Concern
The
accompanying unaudited interim financial statements have been
prepared assuming the Company will continue as a going concern. The
future of the Company is dependent upon its ability to establish a
business and to obtain new financing to execute its business plan.
As shown in the accompanying financial statements, the Company has
had no revenue and has incurred accumulated losses of $2,570,920 as
of June 30, 2018. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. To continue
as a going concern, the Company will need, among other things,
additional capital resources. The Company is significantly
dependent upon its ability and will continue to attempt to secure
additional equity and/or debt financing. There are no assurances
that the Company will be successful and without sufficient
financing, it would be unlikely for the Company to continue as a
going concern. These financial statements do not include any
adjustments relating to the recoverability and classification of
recorded assets, or the amounts of and classification of
liabilities that might be necessary in the event the Company cannot
continue in existence.
Basis of Presentation
The
unaudited interim financial information furnished herein reflects
all adjustments which, in the opinion of management, are necessary
to fairly state the Company’s financial position and the
results of its operations for the periods presented. These
financial statements should be read in conjunction with the
Company’s financial statements and notes thereto included in
the Company’s report on Form 10-K for the year ended December
31, 2017. The Company assumes that the users of the interim
financial information herein have read, or have access to, the
audited financial statements for the preceding fiscal year, and
that the adequacy of additional disclosure needed for a fair
presentation may be determined in that context. Accordingly,
footnote disclosures, which would substantially duplicate the
disclosures contained in the Company’s financial statements
for the fiscal year ended December 31, 2017, have been omitted. The
results of operations for the six months ended June 30, 2018 are
not necessarily indicative of results for the entire year ending
December 31, 2018.
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2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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The
financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States (“GAAP”). Because a precise determination
of many assets and liabilities is dependent upon future events, the
preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful
judgment. All dollar amounts are in U.S. dollars unless otherwise
noted. The financial statements have, in management’s
opinion, been properly prepared within reasonable limits of
materiality.
The
Company has implemented all applicable new accounting
pronouncements that are in effect. Those pronouncements did not
have any material impact on the financial statements unless
otherwise disclosed, and the Company does not believe that there
are any other new accounting pronouncements that have been issued
that might have a material impact on its financial position or
results of operations.
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3.
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MINERAL PROPERTY INTEREST
|
The
Company’s mineral property interest is a group of thirty-one
claims known as the “Goldfield Bonanza Project” (the
“Property”), in the State of Nevada. Pursuant to an
option agreement dated October 14, 2014 with Lode-Star Gold Inc.
(“LSG”), a private Nevada corporation, the Company
acquired an initial 20% undivided interest in and to the mineral
claims owned by LSG and an option to earn a further 60% interest in
the claims. LSG received 35,000,000 shares of the Company’s
common stock and is its controlling shareholder. Until the Company
has earned the additional 60% interest, the net smelter royalty
will be split 79.2% to LSG, 19.8% to the Company and 1% to the
former Property owner.
LODE-STAR MINING INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2018 AND
2017
(Unaudited
|
3.
|
MINERAL PROPERTY INTEREST
(Continued)
|
To
earn the additional 60% interest, the Company is required to fund
all expenditures on the Property and pay LSG an aggregate of $5
million in cash in the form of a net smelter royalty, commencing
after December 11, 2014. If the Company fails to make any cash
payments to LSG within one year of the date of the option
agreement, it is required to pay LSG an additional $100,000, and in
any subsequent years in which the Company fails to complete the
payment of the entire $5 million, it must make quarterly cash
payments to LSG of $25,000.
Given
that permitting for operations on the Property is still to be
completed, on January 11, 2017 LSG agreed to defer payment of all
amounts due in accordance with the mineral option agreement until
further notice. On January 17, 2017, the Company and LSG agreed
that as of January 1, 2017, all outstanding balances shall carry a
compound interest rate of 5% per annum. It was further agreed that
the ongoing payment deferral shall apply to both interest and
principal. The total amount of such fees due at June 30, 2018 was
$373,901 (December 31, 2017: $323,913), with total interest due in
the amount of $21,841 (December 31, 2017: $11,196).
The
Company has agreed with LSG that upon the successful completion of
a toll milling agreement after permitting is achieved, it will have
the basis to form a joint management committee to outline work
programs and budgets, as contemplated in the option agreement, and
for the Company to act as the operator of the
property.
The
Company assessed its mineral property interest to the date of issue
of these financial statements and concluded that facts and
circumstances do not suggest that the mineral property
interest’s carrying value exceeds its recoverable amount and
therefore no impairment is required.
During
the six months ended June 30, 2018, the Company did not issue any
shares of its common stock.
Capitalization
The
authorized capital of the Company is 500,000,000 shares of capital
stock, divided into 480,000,000 shares of common stock with a par
value of $0.001 per share, and 20,000,000 shares of preferred stock
with a par value of $0.001 per share. The Company reserved
10,000,000 shares of common stock for issuance under its 2016
Omnibus Equity Incentive Plan. No preferred shares have been
issued.
Options
On
February 14, 2017, the Company granted 9,500,000 non-qualified
stock options pursuant to the Equity Incentive Plan, to key
corporate officers and outside consultants, with 25% vesting
immediately and a further 25% vesting every six months thereafter
for eighteen months. Each option is exercisable into one share of
the Company’s common stock at a price of $0.06 per share,
equal to the closing price of the common stock on the grant date,
for a term of five years. At the date they were granted, the
options had an estimated fair value of $536,750. For the six-month
period ended June 30, 2018, $48,025 has been included in Consulting
services expense based on fair value estimates determined using the
Black-Scholes option pricing model, with an average risk-free rate
of 2.00%, a weighted average life of 4.844 years, volatility of
190.49% and dividend yield of 0%. The valuation used average weekly
pricing. At June 30, 2018, the options had an intrinsic value of $0
based on the exercise price of $0.06 per option and a market price
of $0.025 per share.
A
summary of option activity in the current six-month period and
options outstanding at June 30, 2018 is as follows:
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Weighted Average
Exercise Price
|
Weighted Average Life
Remaining (Years)
|
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|
|
Balance December
31, 2017
|
9,500,000
|
4,750,000
|
$
0.06
|
$
0.06
|
4.12
|
|
-
|
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Vested
|
-
|
2,375,000
|
$
0.06
|
$
0.06
|
-
|
|
-
|
|
Balance
June 30, 2018
|
9,500,000
|
7,125,000
|
$
0.06
|
$
0.06
|
3.63
|
|
-
|
LODE-STAR MINING INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2018 AND
2017
(Unaudited)
|
4.
|
CAPITAL STOCK
(Continued)
|
Warrants
During
the six months ended June 30, 2018, no warrants to purchase shares
of common stock were issued, exercised or expired. At June 30,
2018, warrants issued in 2015 had an intrinsic value of $16,680,
based on the exercise price of $0.02 per warrant and a market price
of $0.025 per share.
A
summary of warrant activity in the current six-month period and
warrants outstanding at June 30, 2018 is as follows:
|
|
|
|
Weighted Average
Exercise Price
|
Weighted Average Life
Remaining (Years)
|
|
|
|
Balance December
31, 2017
|
3,336,060
|
$
0.02
|
$
0.02
|
2.88
|
|
$
40,033
|
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance
outstanding and exercisable at June 30, 2018
|
3,336,060
|
$
0.02
|
$
0.02
|
2.39
|
|
$
16,680
|
At
June 30, 2018, the Company had the following loans
payable:
i.
$1,000
(December 31, 2017 - $1,000): unsecured; interest at 15% per annum;
originally due on April 20, 2012. Accrued interest payable on the
loan at June 30, 2018 was $3,443 (December 31, 2017: $3,368).
During the first six months of 2018, the Company repaid $0 (2017:
$0) on this loan.
ii.
$15,000
(December 31, 2017 - $25,000): unsecured; interest at 10% per annum
from January 10, 2015.
●
The
outstanding principal, and any accrued interest was due and payable
in full on written demand (not received to date) on the earlier of
June 9, 2015 or the date on which the Company completes one or more
debt or equity financings that generate aggregate gross proceeds of
at least $250,000;
●
The
Company has the right to repay all or any part of the Principal and
any accrued interest to the lender at any time and from time to
time, without any premium.
●
There
are no changes to the terms due to the loan being in
default.
●
Accrued
interest payable on the loan at June 30, 2018 was $19,454 (December
31, 2017: $17,687). During the first six months of 2018, the
Company repaid $10,000 (2017: $10,000) on this loan.
Total
interest accrued on the above loans at June 30, 2018 was $22,897
(December 31, 2017: $21,055).
|
6.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE
|
At
June 30, 2018, the Company had the following amounts due to related
parties:
i.
$40,267
(December 31, 2017 - $39,783): unsecured; interest at 5% per annum;
with no specific terms of repayment, due to the President of the
Company. Accrued interest payable on the loan at June 30, 2018 was
$7,722 (December 31, 2017: $6,641). During the current six-month
period, the Company made no repayments to or borrowed any
additional amounts from the President. The change in value was
entirely due to fluctuation in foreign exchange rates.
ii.
$475,000
(December 31, 2017 - $420,000): unsecured; interest at 5% per annum
from January 1, 2015; with no specific terms of repayment, due to
LSG, the Company’s majority shareholder. Accrued interest
payable on the loan at June 30, 2018 was $56,357 (December 31,
2017: $45,047). During the six months ended June 30, 2018, the
Company borrowed $55,000 (2017: $55,000) from LSG.
iii.
$201,196
(December 31, 2017 - $173,930): unsecured; interest at 5% per
annum; with no specific terms of repayment, due to LSG, the
Company’s majority shareholder. Accrued interest payable on
the loan at June 30, 2018 was $15,559 (December 31, 2017: $12,334).
During the six months ended June 30, 2018, LSG paid expenses
directly on behalf of the Company totaling $27,266 (2017:
$41,898).
iv.
$3,800
(December 31, 2017 - $3,725): unsecured; non-interest bearing; with
no specific terms of repayment, due to the controlling shareholder
of LSG. The change in value was entirely due to fluctuation in
foreign exchange rates.
LODE-STAR MINING INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2018 AND
2017
(Unaudited)
|
6.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE
(Continued)
|
Total
interest accrued on the above related party loans at June 30, 2018
was $79,637 (December 31, 2017: $64,022).
During
the period ended June 30, 2018, there was a $558 foreign exchange
loss (2017: $938) resulting from related party loan amounts in
non-US currency. Stock-based compensation to related parties of
$49,286 (2017: $255,403) was also incurred during the period ended
June 30, 2018.
During
the period ended June 30, 2018, the Company incurred $49,988 (2017:
$49,988) in mineral option fees and $10,645 (2017: $5,552) in
interest payable to LSG, which were accrued as of that date. The
total amount of such fees due at June 30, 2018 was $373,901
(December 31, 2017: $323,913), with total interest due in the
amount of $21,841 (December 31, 2017: $11,196).
At
June 30, 2018, the total due to related parties of $1,195,642
(December 31, 2017: $1,036,569) was comprised of the
following:
■
Loans
and accrued interest - $799,900 (December 31, 2017:
$701,460)
■
Mineral
option fees payable and accrued interest - $395,742 (December 31,
2017: $335,109)
An
additional $3,261 (December 31, 2017: $Nil) owing to the
Company’s President was outstanding in accounts payable as at
June 30, 2018. The President provides a full spectrum of senior
management services, functioning also as the Company’s CEO
and CFO, at no cost to the Company.
|
7.
|
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
|
See
Note 3 for details about the Company’s obligations and
commitments regarding its Mineral Property Interest.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
unaudited financial statements and related notes appearing
elsewhere in this Quarterly Report. In addition to historical
financial information, the following discussion includes a number
of forward-looking statements that reflect our plans, estimates and
our current views with respect to future events and financial
performance. Forward-looking statements are often identified by
words like: believe, expect, estimate, anticipate, intend, project
and similar expressions, or words which, by their nature, refer to
future events. You should not place undue certainty on these
forward-looking statements, which apply only as of the date of this
report. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements
to actual results
Mineral Property Interest
On August 29, 2014, we entered into a Letter of Intent (the
“LSG LOI”) with Lode-Star Gold, Inc. (“LSG"), a
private Nevada corporation, pursuant to which we agreed to issue
shares of our common stock and make certain payments to LSG in
consideration for the acquisition of an interest in LSG's Nevada
Goldfield Bonanza property (the “Property”). LSG would
acquire control of us as a result of the intended
transaction.
On October 4, 2014, we entered into a definitive mineral option
agreement (the "Option Agreement") which superseded the LSG LOI.
Pursuant to the Option Agreement, we issued LSG 35,000,000 shares
of our common stock in exchange for a 20% undivided interest in the
Property (the “Acquisition”). In order to earn an
additional 60% undivided interest in the Property (for a total of
80%), we are required to fund all expenditures on the Property and
pay LSG an aggregate of $5 million in cash in the form of a net
smelter returns ("NSR") royalty,
each beginning on the
closing date of a subscription agreement for the shares (the
“Closing Date”).
Until we have earned the additional 60% interest,
the NSR royalty will be split with 79.2% to LSG, 19.8% to and 1% to
the former Property owner.
The Property is located in west-central Nevada, in the Goldfield
Mining District at Latitude 37° 42’, and Longitude
117° 14’. The claims comprising the Property are located
in surveyed sections 35 and 36, Township 2 South, Range 42 East,
and in sections 1, 2, 11, and 12, Township 3 South, Range 42 East,
in Esmeralda County, Nevada. The Property is accessible by
traveling approximately one-half mile northeast of the community of
Goldfield, along a county-maintained road that originates at U.S.
Highway 95, which runs through “downtown” Goldfield.
The town of Goldfield, which is the Esmeralda county seat
(population 300), is approximately 200 air miles south of Reno and
180 air miles north of Las Vegas.
The Property consists of 31 patented claims covering a total of
approximately 460 acres, or 186 hectares. The claims are owned as
private land by LSG, and only annual property taxes must be paid.
Operations are managed from a 6,000 sq. ft. office and warehouse
facility complete with showers and laundry amenities. Two
residential trailer sites are immediately adjacent to this building
for crew needs. All properties, claims, buildings, equipment, and
supplies are owned by LSG and we have free access to utilize and
manage all the above-noted items.
The Property has one working shaft, the February Premier, which has
access to the 300 ft level, with approximately 1/2 mile of
ventilated drift. Underground work has identified 2 high-grade
gold-bearing zones which the company plans to further explore.
Given that the most prudent exploration must take place
underground, we are applying through LSG for a "Surface Separation
Facility” through the Nevada Department of Environmental
Protection (NDEP). The program that we envision undertaking
includes the mining of approximately 10,000 tons of non-NI 43-101
compliant gold mineralization at an approximate grade of 0.9 ounces
per ton. The estimated grade is based on historic drilling work
done by LSG, for which the 1.5-inch core samples were consumed by
assay requirements. In order to provide adequate sample weights to
the assaying lab, the entire core was processed for individual
samples. While we have encountered several additional high-grade
drill anomalies throughout the property, it is important to note
that we have no proven and/or probable reserves at the present time
and therefore the program is exploratory in nature.
The Property has two operating water monitoring wells (completed
April 15, 2016) that are mandatory for us to receive a water
pollution control permit. Part of the permitting application is for
the allowance of the company to store its waste rock underground.
The property has no milling on site and we must rely on a third
party to receive our mineralized material and tombstone our
tailings.
Our primary objective remains the completion of our Surface
Separation Facility permit, to allow processing of material
extracted from our targeted underground zones. This entails having
a toll milling agreement with an existing milling operation to
handle processing of our mineralized material, as well as the
tomb-stoning of the tailings from that mineralized material. On
February 17, 2017, we executed an agreement with Scorpio Gold
Corporation for a pilot toll milling test.
We completed the first
test in May 2017 and both companies have determined that further
testing needs to be completed to determine a definitive cost
analysis and other operational details. The sample processed was
historic material stockpiled on the property surface and therefore
of limited metallurgical value, but indicative of material that
will be run through the mill. Milling throughput did identify
specific equipment configuration details that need to be considered
for future runs.
The Company expects to
provide material from its targeted underground zone for more
comprehensive milling results when we are permitted to do
so.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Recent Developments
For Q2 2018, all work and processes as described below are
continuing. No material, additional developments have occurred
since December 31, 2017.
Permitting for operations on the Property has not been completed.
We filed our permit application with NDEP on April 5, 2017. NDEP
has completed its Administrative Review of the application and is
underway with its Technical Review. We received NDEP’s
response letter on October 20, 2017 requesting additional
information on a small number of engineering and hydrology
concerns, as well as recommendations on some additional matters.
Correspondence with NDEP is ongoing. Following review by NDEP of
our latest tests, the permit should be put out for public review
for a period expected to be no longer than 60 days.
The Company has re-occupied its underground workings on the 300 ft
level and has access to the ore zone we wish to extract. We are
waiting on the NDEP permit to begin mining endeavors.
We have agreed with LSG that upon the successful completion of a
toll milling agreement, we will have the basis to form a joint
management committee to outline work programs and budgets, as
contemplated in our Option agreement dated October 4, 2014, and for
us to act as the operator of the property.
Personnel
We have no employees. Our president and CEO, Mark Walmesley,
receives no compensation for his services. We expect to continue to
use outside consultants, advisors, attorneys and accountants as
necessary.
Our Chief Operating Officer, Thomas Temkin, who is also a director,
is a Certified Professional Geologist and a Qualified Person under
National Instrument (NI) 43101, with more than 38 years of
experience in the mining industry, primarily in exploration in the
Western United States. He is currently a consulting geologist
working with LSG. Mr. Temkin has been associated with LSG and the
Property for over 15 years and has been instrumental through its
entire exploration program to date.
Our Corporate Secretary, Pam Walters, has been associated with the
mining industry for over 25 years and has managed the corporate
finance and business operations of LSG and its owners.
Plan of Operations
As noted above, our primary objective remains the completion of our
Surface Separation Facility permit, to allow processing of material
extracted from our targeted underground zones. This entails having
a toll milling agreement with an existing milling operation to
handle processing of our mineralized material, as well as the
tomb-stoning of the tailings from that mineralized
material
The following specialists in underground permitting of narrow vein,
high sulfide mines are charged with executing the permitting
process:
·
Rubicon
Environmental Consulting is the lead consultant
·
Hydrogeologica Inc. consults on water and
geology
·
Tierra
Group International consults on mine planning and
engineering
Unique to our permitting is the proposed underground area of work
named the Red Hills Stope Zone. It is 150 feet above the
450-foot-deep water table, making the mine essentially a dry
mine.
The mine’s 300-foot level workings has pockets of unused
volume where our potentially acid-generating waste rock can be
stored. This means no waste rock will come to the surface and LSM
will avoid, for the short-term, the expense of having to build and
maintain a surface storage facility.
We are hopeful that these two mitigating circumstances will make
our permitting process more rapid and therefore, the costs of
execution and infrastructure improvements will be kept at a
minimum.
Permitting costs to date are approximately $240,000 and are
anticipated to total $250,000, as follows:
|
Rubicon
|
$
40,000
|
|
Hydrogeologica
|
$
135,000
|
|
Tierra
|
$
75,000
|
|
State
/ NDEP
|
$
0
|
|
Total
|
$
250,000
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
In addition to the permitting costs, we expect 1-year development
costs to come in as follows:
|
Site
and Surface Preparation
|
$
100,000
|
|
Equipment
and Mining Materials
|
$
500,000
|
|
Underground
Rehab & Preliminary Mine Development
|
$
110,000
|
|
Ore
Grade Control
|
$
50,000
|
|
Red
Hill's Vein Zone Work
|
$
270,000
|
|
General
Corporate and Administration Fees
|
$
720,000
|
Exploration
The Company is currently structuring a drill program, targeting
expansion of its known gold zones as soon as permitting is
achieved.
Funding
The Property continues to be advanced by work executed by LSG. This
interim advancement will continue for the foreseeable
future.
We do not currently have sufficient funds to carry out our entire
plan of operations, so we intend to meet the balance of our cash
requirements for the next 12 months through a combination of debt
financing and equity financing through private placements.
Currently we are active in contacting broker/dealers regarding
possible financing arrangements; however, we do not currently have
any arrangements in place to complete any private placement
financings and there is no assurance that we will be successful in
completing any such financings.
If we are unsuccessful in obtaining sufficient funds through our
capital raising efforts, we may review other financing options,
although we cannot provide any assurance that any such options will
be available to us or on terms reasonably acceptable to us.
Further, if we are unable to secure any additional financing then
we plan to reduce the amount that we spend on our operations,
including our management-related consulting fees and other general
expenses, so as not to exceed the capital resources available to
us. Regardless, our current cash reserves and working capital will
not be sufficient for us to sustain our business for the next 12
months, even if we decide to scale back our
operations.
Going Concern
Our auditors have issued a going concern opinion. This means that
there is substantial doubt that we can continue as an on-going
business for the next twelve months unless we obtain additional
capital to pay our expenses. This is because we have not generated
any revenues to date and we cannot currently estimate the timing of
any possible future revenues. Our only source for cash at this time
is investments by others in our common stock, or loans. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the
amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue in
existence.
Results of Operations
The following summary of our results of operations for the three
months and six months ended June 30, 2018 and 2017 should be read
in conjunction with our financial statements for the period ended
June 30, 2018 which are included above in Part I, Item
1.
|
|
Three Months Ended June 30
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
Revenue
|
-
|
-
|
-
|
-
|
|
Operating
Expenses
|
65,144
|
157,487
|
(92,343
)
|
(59
%)
|
|
Operating
Loss
|
(65,144
)
|
(157,487
)
|
92,343
|
(59
%)
|
|
Other
Income (Expense)
|
(14,465
)
|
(11,270
)
|
(3,195
)
|
28
%
|
|
Net
Loss
|
(79,609
)
|
(168,757
)
|
89,148
|
(53
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
Revenue
|
-
|
-
|
-
|
-
|
|
Operating
Expenses
|
170,688
|
407,670
|
(236,982
)
|
(58
%)
|
|
Operating
Loss
|
(170,688
)
|
(407,670
)
|
236,982
|
(58
%)
|
|
Other
Income (Expense)
|
(28,464
)
|
(22,045
)
|
(6,419
)
|
29
%
|
|
Net
Loss
|
(199,152
)
|
(429,715
)
|
230,563
|
(54
%)
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Revenues
We had no operating revenues during the three-month and six month
periods ended June 30, 2018 and 2017. We recorded a net loss of
$79,609 for the current quarter (2017: $168,757) and $199,152 for
the six months ended June 30, 2018 (2017: $429,715) and have an
accumulated deficit of $2,570,920. The possibility and timing of
revenue being generated from our mineral property interest remains
uncertain.
Expenses
Notable year over year differences in expenses for the second
quarter were as follows:
|
|
Three Months Ended June 30
|
|
|
|
|
|
|
|
|
Consulting
services
|
$
23,301
|
$
106,102
|
$
(82,801
)
|
(78
%)
|
|
Exploration
and evaluation
|
$
-
|
$
3,190
|
$
(3,190
)
|
(100
%)
|
|
Office,
foreign exchange and sundry
|
$
6,916
|
$
2,897
|
$
4,019
|
139
%
|
|
Professional
fees
|
$
7,359
|
$
16,812
|
$
(9,453
)
|
(56
%)
|
|
Interest,
bank and finance charges
|
$
14,465
|
$
11,270
|
$
3,195
|
28
%
|
Consulting services
expense in
the second quarter of 2018 included approximately $17,000 related
to options granted during the first quarter of 2017. In the second
quarter of 2017, consulting expense include approximately $100,000
related to the same options, which accounts for the year over year
decrease of approximately $83,000 for the second
quarter.
Exploration and evaluation expense
in the second quarter of 2017 was due to the pilot
toll milling test of our mineralized material. There was no
equivalent cost in the current year’s second
quarter
Office, foreign exchange and sundry
expenses were higher in Q2 of 2018 primarily due
to increased travel costs necessitated by mine site visits and
business development.
Professional fees
were lower in
the Q2 of 2018 primarily due to differences in timing of the
accruals for audit services for the two year ends, (approximately
$5,000), plus tax and securities legal work required in Q2 of 2017
with no equivalent need in Q2 of 2018 (approximately
$$4,000).
Interest, bank and finance charges
were higher primarily due to increases in Q2 of
2018 versus 2017 of approximately $2,000 in interest on accrued
mineral option fees due to LSG, plus an increase in interest
accrued on loans of approximately $1,000, resulting from increases
in the amount of both loans and accrued mineral option fees
due.
Balance Sheets at June 30, 2018 and December 31, 2017
Balance Sheet items with notable period-end differences are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Due
to related parties and accrued interest
|
$
1,195,642
|
$
1,036,569
|
$
159,073
|
15
%
|
|
Loans
payable and accrued interest
|
$
38,897
|
$
47,055
|
$
(8,158
)
|
(17
%)
|
|
Additional
paid-in capital
|
$
1,560,897
|
$
1,512,872
|
$
48,025
|
3
%
|
Due to related parties
increased as
a result of increased related party loans and
accrued interest in the current period of approximately $98,000,
together with the accrual of fees and interest due under the terms
of our mineral option agreement with LSG of approximately
$61,000.
Loans payable
decreased due to
a repayment of $10,000 in loan principal, partially offset by the
accrual of interest totaling approximately
$2,000.
Additional paid-in capital
increased as a result of the current period
expense of a portion of the value assigned to the 9.5 million stock
options issued on February 14, 2017, calculated using the
Black-Scholes option pricing model.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Liquidity and Capital Resources
At June 30, 2018, our total assets were $234,116 and our total
liabilities were $1,242,192. Our working capital deficiency at June
30, 2018 and December 31, 2017 and the changes between those dates
were as follows:
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
$
3,936
|
$
4,543
|
$
(607
)
|
(13
%)
|
|
Current
Liabilities
|
$
1,242,192
|
$
1,091,672
|
$
150,520
|
14
%
|
|
Working
Capital Deficiency
|
$
(1,238,256
)
|
$
(1,087,129
)
|
$
(151,127
)
|
14
%
|
The increase in our working capital deficiency from December 31,
2017 to June 30, 2018 was primarily due to the increases in amounts
Due to related parties and accrued interest of approximately
$159,000, offset by the decrease of approximately $8,000 in Loans
payable and accrued interest, each of which are explained
above.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows Provided By (Used In):
|
|
|
|
|
|
Operating
Activities
|
$
(44,904
)
|
$
(32,070
)
|
$
(12,834
)
|
40
%
|
|
Financing
Activities
|
$
45,000
|
$
45,000
|
-
|
-
|
|
Net
increase in cash
|
$
96
|
$
12,930
|
$
(12,834
)
|
(99
%)
|
The Net increase in cash was lower in the first six months of 2018
than in 2017 due to the approximately $12,000 increase in cash used
in operating activities and no change in the first six months of
each year in cash provided by financing activities.
We have yet to generate any revenues from our business operation
and our ability to generate adequate amounts of cash to meet our
needs is entirely dependent on the issuance of shares or loans,
which have been our principal sources of working capital so far.
For the foreseeable future, we will have to continue to rely on
those sources for funding. We have no assurance that we can
successfully engage in any further private sales of our securities
or that we can obtain any additional loans.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the
information under this item.
|
ITEM 4.
|
CONTROLS AND PROCEDURES.
|
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. The
term “disclosure controls and procedures,” as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company in
the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules
and forms. Disclosure controls and procedures also include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its
principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded
that, as of June 30, 2018, our disclosure controls and procedures
were not effective, due to the size and nature of the existing
business operation. Given the size of our current operation and
existing personnel, the opportunity to implement disclosure control
procedures is limited. Until the organization can increase
sufficiently in size to warrant an increase in personnel required
to effectively execute and monitor formal disclosure control
procedures, those formal procedures will not be implemented. Given
the current size of the organization, there are not significant
levels of supervision, review, independent directors or a formal
audit committee.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended June 30, 2018 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.