PART I – FINANCIAL INFORMATION
I
TEM 1. FINANCIAL
STATEMENTS.
LODE-STAR MINING INC.
INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
LODE-STAR MINING INC.
BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
Cash
|
$
8,090
|
$
6,508
|
|
Prepaid
fees
|
2,019
|
1,979
|
|
Total
current assets
|
10,109
|
8,487
|
|
|
|
|
|
Mineral
Property Interest, unproven
|
230,180
|
230,180
|
|
|
|
|
|
Total assets
|
$
240,289
|
$
238,667
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
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Current liabilities
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|
|
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Accounts
payable and accrued liabilities
|
$
13,703
|
$
5,254
|
|
Due
to related parties and accrued interest
|
1,373,562
|
1,286,011
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Loans
payable and accrued interest
|
25,374
|
30,267
|
|
Total
current liabilities
|
1,412,639
|
1,321,532
|
|
|
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STOCKHOLDERS’ DEFICIENCY
|
|
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Capital Stock
|
|
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|
Authorized:
|
|
|
|
480,000,000
voting common shares with a par value of $0.001 per
share
|
|
|
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20,000,0000
preferred shares with a par value of $0.001 per share
|
|
|
|
Issued:
|
|
|
|
50,605,965
common shares and no preferred shares at March 31, 2019
and
December 31, 2018
|
3,425
|
3,425
|
|
Additional
Paid-In Capital
|
1,620,558
|
1,618,084
|
|
Accumulated
Deficit
|
(2,796,333
)
|
(2,704,374
)
|
|
Total
stockholders’ deficiency
|
(1,172,350
)
|
(1,082,865
)
|
|
|
|
|
|
Total liabilities and stockholders’ deficiency
|
$
240,289
|
$
238,667
|
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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Revenue
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$
-
|
$
-
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|
|
|
|
|
Operating Expenses
|
|
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|
Consulting
services
|
14,399
|
37,119
|
|
Corporate
support services
|
458
|
500
|
|
Mineral
option fees
|
24,976
|
24,976
|
|
Office,
foreign exchange and sundry
|
5,827
|
4,284
|
|
Professional
fees
|
14,625
|
22,231
|
|
Transfer
and filing fees
|
16,396
|
16,434
|
|
Total
operating expenses
|
76,681
|
105,544
|
|
|
|
|
|
Operating Loss
|
(76,681
)
|
(105,544
)
|
|
|
|
|
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Other Expenses
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|
|
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Interest,
bank and finance charges
|
(15,278
)
|
(13,999
)
|
|
|
|
|
|
Net Loss For The Period
|
$
(91,959
)
|
$
(119,543
)
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|
|
|
|
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Basic And Diluted Net Loss Per Common Share
|
$
(0.00
)
|
$
(0.00
)
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|
|
|
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Weighted Average Number of Common Shares Outstanding –
Basic and Diluted
|
50,605,965
|
49,127,825
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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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|
|
|
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|
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|
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Operating Activities
|
|
|
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Net
loss
|
$
(91,959
)
|
$
(119,543
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Foreign
exchange loss
|
75
|
1,861
|
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Stock
options issued for services
|
2,474
|
30,819
|
|
Changes
in operating assets and liabilities:
|
|
|
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Prepaid
fees
|
(40
)
|
564
|
|
Accounts
payable and accrued liabilities
|
25,961
|
28,448
|
|
Due
to related parties
|
24,976
|
24,976
|
|
Accrued
interest payable
|
15,095
|
14,085
|
|
Net
cash used in operating activities
|
(23,418
)
|
(18,790
)
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|
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Financing Activities
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|
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Repayment
of loans payable
|
(5,000
)
|
(5,000
)
|
|
Proceeds
from loans payable – related party
|
30,000
|
25,000
|
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Net cash provided
by financing activities
|
25,000
|
20,000
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|
|
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Net Increase In Cash
|
1,582
|
1,210
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Cash, Beginning of Period
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6,508
|
818
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|
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|
|
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Cash, End of Period
|
$
8,090
|
$
2,028
|
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|
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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
|
$
-
|
$
-
|
|
Income
taxes
|
$
-
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$
-
|
|
|
|
|
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Non-cash Financing Activity
|
|
|
|
Expenses
paid by related party on behalf of the Company
|
$
17,512
|
$
17,019
|
The accompanying notes are an integral part of these unaudited
interim financial statements.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(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 $2,796,333 as
of March 31, 2019. 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, 2018. 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,
certain footnote disclosures, which would substantially duplicate
the disclosures contained in the Company’s financial
statements for the fiscal year ended December 31, 2018 have been
omitted. The results of operations for the three months
ended March 31, 2019 are not necessarily indicative of results for
the entire year ending December 31, 2019.
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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.
|
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 ENDED MARCH 31, 2019 AND 2018
(Unaudited)
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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 failed 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.
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 March 31, 2019 was $448,889
(December 31, 2018: $423,913), with total interest due in the
amount of $37,856 (December 31, 2018: $32,220).
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.
Capitalization
The
authorized capital of the Company is 500,000,000 shares of capital
stock, divided into 480,000,000 shares of common stock with a par
value of $0.001 per share, and 20,000,000 shares of preferred stock
with a par value of $0.001 per share. The Company reserved
10,000,000 shares of common stock for issuance under its 2016
Omnibus Equity Incentive Plan. The Company has issued 50,605,965
common shares and no preferred shares. During the three months
ended March 31, 2019, the Company did not issue any shares of its
common stock.
Options
A
total of 10,000,000 options are issued and
outstanding.
On
November 20, 2018, the Company granted 500,000 non-qualified stock
options pursuant to its Equity Incentive Plan, to key outside
consultants, with 50% vesting after one year and 50% vesting after
two years. Each option is exercisable into one share of the
Company’s common stock at a price of $0.06 per share, for a
term of five years. The options had an estimated grant date fair
value of $10,408. For the quarter ended March 31, 2019, $2,474
(December 31, 2018 - $1,340) was included in consulting services
expense, based on fair value estimates determined using the
Black-Scholes option pricing model with an average risk-free rate
of 2.51%, a weighted average life of 4.89 years, volatility of
190.47%, and dividend yield of 0%. At March 31, 2019, the options
had an intrinsic value of $0 (December 31, 2018: $0) based on the
exercise price of $0.06 per option and a market price of $0.06 per
share on the closest trading date.
On
February 14, 2017, the Company granted 9,500,000 non-qualified
stock options pursuant to its Equity Incentive Plan, to key
corporate officers and outside consultants, with 25% vesting
immediately and a further 25% vesting every six months thereafter
for eighteen months. Each option is exercisable into one share of
the Company’s common stock at a price of $0.06 per share,
equal to the closing price of the common stock on the grant date,
for a term of five years. The options had an estimated grant date
fair value of $536,750. The options were fully expensed by the end
of the third quarter of 2018, based on fair value estimates
determined using the Black-Scholes option pricing model. Therefore,
no related expense was incurred in the current period. For the
three-month period ended March 31, 2018, $30,819 was included in
Consulting services expense. At March 31, 2019, the options had an
intrinsic value of $0 (December 31, 2018: $0) based on the exercise
price of $0.06 per option and a market price of $0.06 per share on
the closest trading date.
LODE-STAR MINING INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
|
4.
|
CAPITAL STOCK
(Continued)
|
Summary
of option activity in the current three-month period and options
outstanding at March 31, 2019:
|
|
Options
|
Exercise
Price
|
Weighted Average
Exercise Price
|
Weighted Average
Life Remaining (Years)
|
Expiry
Date
|
Intrinsic
Value
|
|
Issued
|
Vested
|
|
|
9,500,000
|
9,500,000
|
$0.06
|
|
|
February 14,
2022
|
|
|
|
500,000
|
-
|
$0.06
|
|
|
November 20,
2023
|
|
|
Balance December
31, 2018
|
10,000,000
|
9,500,000
|
|
$0.06
|
3.21
|
|
-
|
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Vested
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance March 31, 2019
|
10,000,000
|
9,500,000
|
|
$0.06
|
2.96
|
|
-
|
Warrants
During
the three months ended March 31, 2019, no warrants to purchase
shares of common stock were issued, exercised or expired. At March
31, 2019, warrants issued in 2015 had an intrinsic value of
$133,442 (December 31, 2018: $6,672), based on the exercise price
of $0.02 per warrant and a market price of $0.06 per share on the
closest trading date.
Summary
of warrant activity in the current three-month period and warrants
outstanding at March 31, 2019:
|
|
Number of
Warrants
|
Exercise
Price
|
Weighted Average
Exercise Price
|
Weighted Average
Life Remaining (Years)
|
Expiry
Date
|
Intrinsic
Value
|
|
Balance December
31, 2018
|
3,336,060
|
$0.02
|
$0.02
|
1.88
|
November 19,
2020
|
$6,672
|
|
Issued
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance outstanding and exercisable at March 31, 2019
|
3,336,060
|
$0.02
|
$0.02
|
1.64
|
November 19, 2020
|
$133,442
|
At
March 31, 2019, the Company had the following loans
payable:
i.
$
1,000 (December 31, 2018 - $1,000): unsecured;
interest at 15% per annum; originally due on April 20, 2012.
Accrued interest payable on the loan at March 31, 2019 was $3,555
(December 31, 2018: $3,518). During the first three months of 2019,
the Company repaid $0 (2018: $0) on this loan.
ii.
$0
(December 31, 2018 - $5,000): 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 March 31, 2019 was $20,819
(December 31, 2018: $20,748). During the first three months of
2019, the Company repaid $5,000 (2018: $5,000) which was the
remaining principal balance due on this loan.
Total
interest accrued on the above loans at March 31, 2019 was $24,374
(December 31, 2018: $24,267).
LODE-STAR MINING INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
|
6.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE
|
At
March 31, 2019, the Company had the following amounts due to
related parties:
i.
$555,000
(December 31, 2018 - $525,000): unsecured; interest at 5% per annum
from January 1, 2015; with no specific terms of repayment, due to
LSG, the Company’s majority shareholder. Accrued interest
payable on the loan at March 31, 2019 was $75,724 (December 31,
2018: $69,034). During the three months ended March 31, 2019, the
Company borrowed $30,000 (2018: $25,000) from LSG.
ii.
$228,915
(December 31, 2018 - $211,403): unsecured; interest at 5% per
annum; with no specific terms of repayment, due to LSG, the
Company’s majority shareholder. Accrued interest payable on
the loan at March 31, 2019 was $23,437 (December 31, 2018:
$20,776). During the three months ended March 31, 2019, LSG paid
expenses directly on behalf of the Company totaling $17,512 (2018:
$17,019).
iii.
$3,740
(December 31, 2018 - $3,665): unsecured; non-interest bearing; with
no specific terms of repayment, due to the controlling shareholder
of LSG. The change in value was due solely to fluctuation in
foreign exchange rates.
Total
interest accrued on the above related party loans at March 31, 2019
was $99,161 (December 31, 2018: $89,810).
During
the period ended March 31, 2019, there was a $75 foreign exchange
loss (Q1 2018: $1,861) resulting from related party loan amounts in
non-US currency. Stock-based compensation to related parties was $0
(Q1 2018: $31,363) during the period ended March 31,
2019.
During
the three months ended March 31, 2019, the Company incurred $24,976
(Q1 2018: $24,976) in mineral option fees and $5,636 (Q1 2018:
$6,067) in interest payable to LSG, which were accrued as of that
date. The total amount of such fees due at March 31, 2019 was
$448,889 (December 31, 2018: $423,913), with total interest due in
the amount of $37,856 (December 31, 2018: $32,220).
At
March 31, 2019, the total due to related parties of $1,373,562
(December 31, 2018: $1,286,011) was comprised of the
following:
■
Loans
and accrued interest - $886,817 (December 31, 2018:
$829,878)
■
Mineral
option fees payable and accrued interest - $486,745 (December 31,
2018: $456,133)
During
the period ended March 31, 2019, $6,000 (2018: $0) in consulting
fees for strategic development was paid to the Company’s
President. An additional $1,936 (December 31, 2018: $966) owing to
the President for expenses was outstanding in accounts payable as
at March 31, 2019.
|
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
Further to a Mineral Option Agreement (the “Option
Agreement”) dated October 4, 2014, on December 5, 2014, we
entered into a subscription agreement (the “Subscription
Agreement”) with Lode-Star Gold INC., a private Nevada
corporation (“LSG”) in which we agreed to issue
35,000,000 shares of our common stock, valued at $230,180, to LSG
in exchange for an initial 20% undivided beneficial interest in and
to LSG’s Goldfield property (the “Acquisition”),
which made LSG our largest and controlling
shareholder.
LSG’s Goldfield Bonanza property is comprised of 31 patented
mineral claims owned 100% by LSG, located on approximately 460
acres in the district of Goldfield in the state of Nevada (the
“Property”). The Property is clear titled, with a 1%
Net Smelter Royalty (“NSR”) existing in the favor of
the original property owner. LSG has spent over $7 million to rehab
approximately 1/2 mile of drift at the 300ft sub-surface level and
to complete 22 surface core drill holes for a total of 10,400ft and
152 underground core drill holes for a total of
23,000ft.
The execution of the Subscription Agreement was one of the closing
conditions of the Option Agreement, pursuant to which we acquired
the sole and exclusive option to earn up to an 80% undivided
interest in and to the Property. To earn the additional 60%
interest in the Property, we are required to fund all expenditures
on the Property and pay LSG an aggregate of $5 million in cash from
the Property’s mineral production proceeds in the form of an
NSR. Until we have earned the additional 60% interest, the NSR will
be split 79.2% to LSG, 19.8% to us and 1% to the former Property
owner.
The Property is located in west-central Nevada, in the Goldfield
Mining District at Latitude 37° 42’, and Longitude
117° 14’. The claims comprising the Property
are located in surveyed sections 35 and 36, Township 2 South, Range
42 East, and in sections 1, 2, 11, and 12, Township 3 South, Range
42 East, in Esmeralda County, Nevada. The Property is accessible by
traveling approximately one-half mile northeast of the community of
Goldfield, along a county-maintained road that originates at U.S.
Highway 95, which runs through “downtown” Goldfield.
The town of Goldfield, which is the Esmeralda county seat
(population 300), is approximately 200 air miles south of Reno and
180 air miles north of Las Vegas. Surface access on the Property is
excellent and the relief is low, at an elevation of approximately
6,000 feet. Vegetation is sparse, consisting largely of
sagebrush, rabbitbrush, Joshua trees and grasses.
Water, electricity and other sundry
needs such as restaurants, lodging, minor medical needs, fire
station, and police are within 1 mile of the
property.
LSG, our controlling shareholder, was incorporated in the State of
Nevada on March 13, 1998 for the purpose of acquiring exploration
stage mineral properties. It currently has one
shareholder, Lonnie Humphries, who is the spouse of Mark Walmesley,
our President and Chief Financial Officer. Mr. Walmesley is also
the CFO, Treasurer and a director of LSG.
LSG acquired the leases to the Property in 1997 and became the
registered and beneficial owner of the Property on September 19,
2009. Since the earlier of those dates, it has conducted contract
exploration work on the Property but has not determined whether it
contains mineral reserves that are economically recoverable. LSG is
an exploration stage company and has not generated any revenues
since its inception. The Property represents its only material
asset.
The Company did not make any cash payments to LSG within one year
of October 4, 2014, and as a consequence were required to pay LSG
an additional $100,000. Any subsequent years in which we fail to
complete the payment of the entire $5 million described above, we
must make quarterly cash payments to LSG of $25,000 until we have
earned the additional 60% interest in the Property.
LSG granted us a series of deferrals of the payments, with the most
recent being granted on January 11, 2017. LSG agreed on that date
to defer payment of all amounts due in accordance with the Option
Agreement until further notice. On January 17, 2017, the Company
and LSG agreed that as of January 1, 2017, all outstanding balances
shall carry a compound interest rate of 5% per annum. It was
further agreed that the ongoing payment deferral shall apply to
interest and principal.
All properties, claims, buildings, equipment, and supplies are
owned by LSG and we have free access to utilize and manage all
those items.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Operations are managed from a 6,000 sq. ft. office and warehouse
facility complete with showers and laundry amenities. Two
residential trailer sites are immediately adjacent to this building
for crew needs.
The property has one working shaft, the February Premier, which has
access to the 300 ft level, with approximately 1/2 mile of
ventilated drift. Underground work has identified 2 high-grade
gold-bearing zones which the company plans to further explore. The
program that we envision undertaking includes the mining of
approximately 10,000 tons of non-NI 43-101 compliant gold
mineralization at an approximate grade of 0.9 ounces per ton. The
estimated grade is based on historic drilling work done by LSG, for
which the 1.5-inch core samples were consumed by assay
requirements. In order to provide adequate sample weights to the
assaying lab, the entire core was processed for individual samples.
While we have encountered several additional high-grade drill
anomalies throughout the property, it is important to note that we
have no proven and/or probable reserves at the present time and
therefore the program is exploratory in nature.
The property has two operating water monitoring wells (completed
April 15, 2016) that are mandatory for us to receive a water
pollution control permit. Part of the permitting application is for
the allowance of the company to store its waste rock underground.
The property has no milling on site and we must rely on a third
party to receive our mineralized material and tombstone our
tailings.
On February 17, 2017, we executed an agreement with Scorpio Gold
Corporation (Scorpio) for a pilot toll milling test.
We completed the first test in May
2017 and both companies have determined that further testing needs
to be completed to determine a definitive cost analysis and other
operational details.
The sample processed
was historic material stockpiled on the property surface and
therefore of limited metallurgical value, but indicative of
material that will be run through the mill. Milling throughput did
identify specific equipment configuration details that need to be
considered for future runs.
Both parties agree that
additional milling circuitry is needed for the most optimum gold
yield. We expect to provide material from our targeted underground
zone for more comprehensive milling results when we are permitted
to do so. To date, the Company is still working with Scorpio to
facilitate its milling needs.
We agreed with LSG that upon the successful completion of a toll
milling agreement after permitting is achieved, there will be a
basis to form a joint management committee to outline work programs
and budgets, as contemplated in the Option Agreement and for us to
act as the operator of the Property. To the date of this report, no
work programs have been approved and LSG has borne all costs in
connection with operations on the Property. We expect the first
work program, entailing Property-related costs for which we will be
responsible, to be approved in 2019.
Underground work has identified 2 high-grade gold-bearing zones
that can support mine development utilizing our current
infrastructure. The property is now permitted for production and
should be mine ready during 2019. It is our intention to then start
mining the property. Much of the property remains under-explored
and it is our belief that the district's high-grade, million-ounce
ore zones repeat themselves. Further surface and underground
exploration work need to be executed. We plan to explore through
production and chase our known, high-grade vein zones.
It is important to note the following sample preparation and
quality controls used by LSG and by ICN, a previous operator of the
Property:
Lode-Star Gold drill hole core sampling and analytical
protocol
All drill core samples were prepared and delivered to ALS Minerals
in Reno by Tom Temkin, our COO. Individual sampled intervals varied
from one to five-foot lengths, based on geologic parameters, and
included 100% of core intervals. No core splitting was conducted.
No duplicate samples or standards were introduced other than those
inserted and utilized by ALS for their internal quality control.
Lab preparation of individual samples included crushing and
grinding to minus 200 mesh, followed by a 1-ton assay for gold. All
samples that initially assayed over 1.0 opt Au were systematically
re-assayed.
ICN drill hole core and Rotary RC sampling and analytical
protocol
All drill core samples were prepared by ICN personnel and either
delivered to the assay lab or were picked up on-site by lab
personnel. Rotary RC chip drilling samples were collected on-site
and transported to Reno by the respective labs. The labs used
included ALS Minerals and American Assay Lab. Core was sawn by ALS
Minerals and/or ICN personnel. Individual core sampled intervals
varied from one to five-foot lengths, based on geologic parameters,
and included one-half of the original core material. Rotary RC
samples were taken at five-foot intervals entirely. Quality control
for all samples included a protocol of inserting duplicate samples,
blanks, and known standards, at repeating intervals to maintain
.08% check sampling. Lab preparation of Individual samples included
crushing and grinding to minus 200 mesh, followed by a 1-ton assay
for gold. All samples that initially assayed over 1.0 opt Au were
systematically re-assayed.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Third Party Assay Data Audit
Mine Development Associates (MDA Reno), a highly regarded third
party NI 43-101 service provider, has audited our drill hole
database and performed a comparative QA/QC check assay analysis on
selected drilling and determined no inconsistencies to exist and
assays were repeatable.
NI 43-101 Update Status
The Company's most recent NI 43-101 report was completed on July
12, 2014 by Dana Durgan, QP and AIPG Certified Professional
Geologist #10364. This report was a revision of an earlier report
Dana prepared for ICN Resources for the property on August 1, 2012.
Since then, Dana has passed away and the Company has hired Mr. Doug
Wood, P. Geo, a Qualified Person in accordance with the Canadian
regulatory requirements as set out within the National Instrument
43-101, to revise the July 12, 2014 report. Mr. Wood is completing
an updated 43-101 with the assistance of MDA Reno.
Metallurgy Reports
To date the Company has had three metallurgy reports prepared. In
order they are: Kappes Cassady & Associates located in Reno, NV
dated July 10,2006, Newmont Mining located in Carlin, NV dated May
27, 2010, and McClelland Laboratories, Inc. located in Reno, NV
dated January 26, 2016. Indications are that the Company can expect
at a minimum, an 85% AU recovery from floatation milling. Better
recovery is achieved by Agitated Leach processing, which show
results closer to +90%. The best recovery results, +95%, due to the
high sulphide content of the ore, is achieved through roasting. An
additional lab report has been generated by Kappes Cassady &
Associates to determine ore compatibility for processing at Scorpio
Gold's milling circuit.
Recent Developments
On November 20, 2018 the Company was issued Water Pollution Control
Permit NEV2017109 from the Nevada Department of Environmental
Protection (NDEP) regarding production at the property. This Permit
authorizes the construction, operation, and closure of approved
mining facilities in Esmeralda County, Nevada. The Permit is
effective for 5 years until November 20, 2023 and authorizes the
processing of 10,000 tons of ore per year from Lode-Star's
underground operations. 100% of the permitting cost has been borne
by our largest shareholder, Lode-Star Gold INC.
Unique to the Company's production permit, the Nevada Department of
Environmental Protection has endorsed the Company's intensions to
temporarily store waste rock underground. Once stockpiled, waste
rock is brought to the surface to backfill and remediate our
historic abandoned mine shafts. This will save the Company the
significant time and expense of having to permit and build a
surface waste containment facility.
Presently, the Company is under application review by ATF to
receive its blasting permit. Further, fulfillment of blasting
related materials is underway to meet a Q2 mine operational
deadline. 90% of our underground workings are rehabbed. We
anticipate being mine-ready by Q3 of 2019.
Mine Design and Utilization of Equipment
The mine will be designed through the interpretation of detailed
drilling data in cross sections and the use of conventional
software. Currently there are two areas, the Red Hills and the
Church, containing high-grade gold mineralization identified that
are to be incorporated into the mine plan. Currently the mine is
equipped with a 1-yard scoop-tram loader. Mining activity will be
conducted with the utilization of this loader, pneumatic equipment
and by an existing conveyor system providing for the transfer of
ore to the surface.
Production Mining Method
We intend to maximize profitability through a disciplined approach
involving the separation of high-grade gold ore from waste rock
during the mining stage, thus avoiding the additional cost of
pre-shipment concentration. In order to maintain the highest grade
of ore production the blast holes will be sampled during drilling,
then assayed to determine ore boundaries prior to blasting. The
current plan is to ship ore directly from the mine to an offsite
mill employing a toll-milling arrangement.
Mine Development - Drilling the Northeast Corridor
The Company is currently structuring a drill program, targeting
expansion of its known gold zones. The Company's immediate drill
program is to define its existing and mineable gold mineralization
within the property’s northeast corridor, specifically the
Church, Red Hills and Newmont Zones. Current drill budgeting is
US$800,000 plus US$200,000 in analytical fees, for a combined total
cost of US$1,000,000.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
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. Now that
we have received our production permit, financing instruments can
include a gold streaming or royalty financing alternative.
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.
Personnel
We have no employees. Apart from a consulting fee paid in the
current quarter, 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.
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.
Results of Operations
The following summary of our results of operations should be read
in conjunction with our financial statements for the period ended
March 31, 2019 which are included above in Part I, Item
1.
|
|
Three Months Ended March 31
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
Revenue
|
-
|
-
|
-
|
-
|
|
Operating
Expenses
|
76,681
|
105,544
|
(28,863
)
|
(27
%)
|
|
Operating
Loss
|
(76,681
)
|
(105,544
)
|
28,863
|
(27
%)
|
|
Other
Income (Expense)
|
(15,278
)
|
(13,999
)
|
(1,279
)
|
9
%
|
|
Net
Loss
|
(91,959
)
|
(119,543
)
|
27,584
|
(23
%)
|
Revenues
We had no operating revenues during the three-months ended March
31, 2019 and 2018. We recorded a net loss of $91,959 for the
current quarter and have an accumulated deficit of $2,796,333. The
possibility and timing of revenue being generated from our mineral
property interest remains uncertain.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Expenses
Notable year over year differences in expenses for the first
quarter are as follows:
|
|
Three Months Ended March 31
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
Consulting
services
|
14,399
|
37,119
|
(22,720
)
|
(61
%)
|
|
Professional
fees
|
14,625
|
22,231
|
(7,606
)
|
(34
%)
|
|
Interest,
bank and finance charges
|
15,278
|
13,999
|
1,279
|
9
%
|
Consulting services expense in Q1 of 2018 included approximately
$31,000 related to options granted during the first quarter of
2017. In Q1 of 2019, consulting expense included approximately
$2,000 related to options granted in the third quarter of 2018.
That net decrease of approximately $29,000 was partially offset by
a one-time consulting fee of $6,000 in Q1 of 2019 for strategic
development.
Professional fees were lower in the first quarter of 2019 primarily
due to a combination of two items:
●
A
charge from our previous auditor of $3,000 was incurred in Q1 of
2018 for re-issuance of their 2016 audit report as part of our 2017
year-end audited financial statements. No equivalent item was
needed in connection with our 2018 audited financial statements, so
no related expense was incurred in Q1 of 2019.
●
Accounting
services of approximately $4,000 for the 2017 year end were
invoiced in Q1 of 2018, while the equivalent services for the 2018
year end were invoiced in Q2 of 2019, rather than in
Q1.
Interest, bank and finance charges
were higher primarily due to the ongoing increase
in loans from LSG.
Balance Sheets at March 31, 2019 and December 31, 2018
Items with notable period-end differences are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
Accounts
payable and accrued liabilities
|
13,703
|
5,254
|
8,449
|
161
%
|
|
Due
to related parties and accrued interest
|
1,373,562
|
1,286,011
|
87,551
|
7
%
|
|
Loans
payable and accrued interest
|
25,374
|
30,267
|
(4,893
)
|
(16
%)
|
Accounts payable
increased
principally due to the accrual of year end accounting and audit
services incurred in Q1, 2019.
The increase in Due to related parties
resulted from increased related party loans and
accrued interest in the current period of approximately $57,000,
together with the accrual of fees and interest due under the terms
of our mineral option agreement with LSG of approximately
$31,000.
Loans payable
decreased
primarily due to a repayment of $5,000 in loan principal, slightly
offset by a minor accrual of interest.
Liquidity and Capital Resources
At March 31, 2019, our total assets were $240,289 and our total
liabilities were $1,412,639. Our working capital deficiency at
March 31, 2019 and December 31, 2018 and the changes between those
dates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
Current
Assets
|
10,109
|
8,487
|
1,622
|
19
%
|
|
Current
Liabilities
|
1,412,639
|
1,321,532
|
91,107
|
7
%
|
|
Working
Capital Deficiency
|
(1,402,530
)
|
(1,313,045
)
|
(89,485
)
|
7
%
|
The increase in our working capital deficiency from December 31,
2018 to March 31, 2019 was primarily due to the increases in
Accounts payable of approximately $8,000 and in Due to related
parties of approximately $88,000, partially offset by the decrease
of approximately $5,000 in Loans payable and accrued interest, each
of which are explained above.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Cash Flows
|
|
Three Months Ended March 31
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
Cash
Flows Provided By (Used In):
|
|
|
|
|
|
Operating
Activities
|
(23,418
)
|
(18,790
)
|
(4,628
)
|
(25
%)
|
|
Financing
Activities
|
25,000
|
20,000
|
5,000
|
25
%
|
|
Net
increase in cash
|
1,582
|
1,210
|
372
|
31
%
|
There was no significant difference in the net increase in cash in
Q1 of 2019 and Q1 of 2018, which was minor in both periods. The
increased use of cash in Q1 2019 operating activities was offset by
the increased cash provided by Q1 2019 financing activities, as LSG
ensured that enough funds were made available for our
operations.
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 March 31, 2019, our disclosure controls and procedures
were not effective, due to the size and nature of the existing
business operation. Given the size of our current operation and
existing personnel, the opportunity to implement disclosure control
procedures is limited. Until 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 March 31, 2019 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.