Lode-Star Mining Inc. - Quarter Report: 2017 March (Form 10-Q)
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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 10-Q
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☒
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QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31,
2017
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OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission file number 000-53676
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LODE-STAR MINING INC.
(Exact name
of registrant as specified in its charter)
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NEVADA
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47-4347638
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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13529 Skinner Road, Suite N
Cypress, TX
77429-1775
(Address of principal executive offices, including zip
code.)
(832) 371-6531
(Telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. YES ☒
NO
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer, “accelerated filer,”
“non-accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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☐
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Accelerated Filer
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Non-accelerated Filer
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). YES ☐ NO
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State the number of shares outstanding of each of the
issuer’s classes of common equity, as of the latest
practicable date: 49,127,825 as
of May 10, 2017.
1
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
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Item 1. Financial
Statements
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3
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Balance Sheets as of March 31, 2017 and December 31, 2016
(unaudited)
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4
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Statements of Operations for the Three Months ended March 31, 2017
and 2016 (unaudited)
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5
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Statements of Cash Flows for the Three Months ended March 31, 2017
and 2016 (unaudited)
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6
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Notes to Financial Statements (unaudited)
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7
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Item 2. Management’s
Discussion and Analysis Of Financial Condition and Results of
Operations
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11
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Item 3. Quantitative and Qualitative
Disclosures About Market Risk
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15
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Item 4. Controls and
Procedures
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15
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PART II - OTHER INFORMATION
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Item 1A. Risk Factors
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15
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Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
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15
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Item 6. Exhibits
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16
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SIGNATURES
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17
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2
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LODE-STAR MINING INC.
INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31 2017 AND 2016
(Unaudited)
3
LODE-STAR MINING INC.
BALANCE SHEETS
(Unaudited)
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MARCH
31
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DECEMBER
31
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2017
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2016
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ASSETS
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Current assets
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Cash
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$11,501
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$5,134
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Total
current assets
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11,501
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5,134
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Mineral
Property Interest, unproved
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230,180
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230,180
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Total assets
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$241,681
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$235,314
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current liabilities
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Accounts
payable and accrued liabilities
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$15,944
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$19,016
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Due
to related parties and accrued interest
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837,586
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762,117
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Loans
payable and accrued interest
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58,668
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62,310
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Total
current liabilities
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912,198
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843,443
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STOCKHOLDERS’ DEFICIT
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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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20,000,0000
preferred shares with a par value of $0.001 per share
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Issued:
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49,127,825
common shares at March 31, 2017 and December 31, 2016
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1,947
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1,947
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Additional
Paid-In Capital
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1,268,634
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1,070,064
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Accumulated
Deficit
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(1,941,098)
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(1,680,140)
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Total
stockholders’ deficit
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(670,517)
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(608,129)
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Total liabilities and stockholders’ deficit
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$241,681
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$235,314
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The accompanying notes are an integral part of these unaudited
interim financial statements.
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LODE-STAR MINING INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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THREE
MONTHS ENDED
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MARCH
31
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2017
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2016
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Revenue
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$-
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$-
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Operating Expenses
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Consulting
services
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204,797
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5,702
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Corporate
support services
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475
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570
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Mineral
option fees
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24,976
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24,988
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Office,
foreign exchange and sundry
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904
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4,361
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Professional
fees
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4,714
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15,567
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Transfer
and filing fees
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14,317
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16,327
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Total
operating expenses
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250,183
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67,515
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Operating Loss
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(250,183)
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(67,515)
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Other Expenses
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Interest,
bank and finance charges
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(10,775)
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(6,576)
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Penalties
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-
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(40,226)
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Total
other expenses
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(10,775)
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(46,802)
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Net Loss
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$(260,958)
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$(114,317)
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Basic And Diluted Net Loss Per Common Share
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$(0.01)
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$(0.00)
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Weighted Average Number Of Common Shares Outstanding –
Basic and Diluted
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49,127,825
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49,127,825
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The accompanying notes are an integral part of these unaudited
interim financial statements.
5
LODE-STAR MINING INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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THREE
MONTHS ENDED
MARCH
31
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2017
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2016
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Operating Activities
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Net
loss
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$(260,958)
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$(114,317)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Foreign
exchange loss
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216
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1,806
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Stock
options issued for services
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198,570
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-
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Changes
in operating assets and liabilities:
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Accounts
payable and accrued liabilities
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12,968
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63,932
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Due
to related parties
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24,976
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24,988
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Accrued
interest payable
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10,595
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6,509
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Net cash used in operating activities
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(13,633)
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(17,082)
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Financing Activities
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Repayment
of loans payable
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(5,000)
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(10,000)
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Proceeds
from loans payable – related party
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25,000
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15,000
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Net cash provided by financing activities
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20,000
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5,000
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Net Increase (Decrease) In Cash
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6,367
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(12,082)
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Cash, Beginning Of Period
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5,134
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12,456
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Cash, End Of Period
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$11,501
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$374
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Supplemental Disclosure Of Cash Flow Information
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Cash
paid during the period for:
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Interest
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$-
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$-
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Income
taxes
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$-
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$-
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Non-cash Financing Activity
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Expenses
paid by a related party on behalf of the Company
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$16,040
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$29,352
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The accompanying notes are an integral part of these unaudited
interim financial statements.
6
LODE-STAR MINING INC.
NOTES
TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(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 located in Cypress,
Texas. The Company was originally formed for the purpose
of acquiring exploration stage natural resource properties. The
Company acquired a mineral property interest from Lode Star Gold
INC., a private Nevada corporation (“LSG”) on December
11, 2014 in consideration for the issuance of 35,000,000 common
shares of the Company. As a result of this transaction,
control of the Company was acquired by LSG.
Going Concern
The
accompanying 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 $1,941,098 as
of March 31 2017.These factors raise substantial doubt about the
Company’s ability to continue as a going concern. In order to
continue as a going concern, the Company will need, among other
things, additional capital resources. The Company is significantly
dependent upon its ability, and will continue to attempt, to secure
additional equity and/or debt financing. There are no assurances
that the Company will be successful and without sufficient
financing it would be unlikely for the Company to continue as a
going concern. These financial statements do not include any
adjustments relating to the recoverability and classification of
recorded assets, or the amounts of and classification of
liabilities that might be necessary in the event the Company cannot
continue in existence.
Basis of Presentation
The
unaudited 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 first
quarter 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, 2016. 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 disclosure, which would
substantially duplicate the disclosure contained in the
Company’s financial statements for the fiscal year ended
December 31, 2016, has been omitted. The results of
operations for the three month period ended March 31, 2017 are not
necessarily indicative of results for the entire year ending
December 31, 2017.
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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.
7
LODE-STAR MINING INC.
NOTES
TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(Unaudited)
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3.
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MINERAL PROPERTY INTEREST
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On
February 17, 2017 the Company executed an agreement with Scorpio
Gold Corporation (Scorpio) for a pilot toll milling test of its
mineralized material. Upon the Company’s completion of
required permitting activities with the Nevada Division of
Environmental Protection, Bureau of Mining Regulation and
Reclamation (NDEP), the bulk sample pilot test will provide the
baselines for metallurgical recoveries and mill throughput.
Dependent on the pilot test results and completion of a cost
analysis and other operational details, negotiation of a full
scale, custom milling agreement is planned.
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
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.
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4.
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CAPITAL STOCK
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During
the three months ended March 31, 2017, the Company had no
subscriptions for shares of its common stock and 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. The options were valued at $536,750 (of
which $198,570 was included in Consulting services expense in the
current period) using the Black-Scholes option pricing model with
an average risk-free rate of 1.81%, a weighted average life of 4.25
years, volatility of 182.6% and dividend yield of 0%. The valuation
used approximately 2.5 years of weekly pricing. The Company
believes that period provided the best indicator of volatility, as
it corresponds with the current business operations and management
of the Company. Prior to the acquisition of control by LSG, the
Company was a shell. At March 31, 2017 the options had an intrinsic
value of $0 based on the exercise price of $0.06 per option and a
market price of $0.0512 per share.
A
summary of option activity in the current period and options
outstanding at March 31, 2017 is as follows:
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Options
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Issued
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Vested
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Exercise
Price
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Weighted Average
Exercise Price
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Weighted Average
Life Remaining (Years)
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Expiry
Date
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Intrinsic
Value
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Balance December
31, 2016
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-
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-
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-
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-
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-
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-
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-
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Issued
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9,500,000
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2,375,000
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$0.06
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$0.06
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5.0
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February 13,
2022
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Expired
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-
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-
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-
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-
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-
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-
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-
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Exercised
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-
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-
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-
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-
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-
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-
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-
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Balance March
31, 2017
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9,500,000
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2,375,000
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$0.06
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$0.06
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4.88
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February 13,
2022
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-
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8
LODE-STAR MINING INC.
NOTES
TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(Unaudited)
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4.
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CAPITAL STOCK (Continued)
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Warrants
During
the three months ended March 31, 2017, no warrants to purchase
shares of common stock were issued and no warrants were exercised.
At March 31, 2017 the warrants had an intrinsic value of $104,085
based on the exercise price of $0.02 per warrant and a market price
of $0.0512 per share.
A
summary of warrant activity in the current period and warrants
outstanding at March 31, 2017 is as follows:
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Number of
Warrants
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Exercise
Price
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Weighted Average
Exercise Price
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Weighted Average Life
Remaining (Years)
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Expiry
Date
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Intrinsic
Value
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Balance December
31, 2016
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3,336,060
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$0.02
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$0.02
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3.86
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November 19,
2020
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$66,721
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Issued
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-
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-
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-
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-
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-
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-
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Expired
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-
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-
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-
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-
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-
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-
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Exercised
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-
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-
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-
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-
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-
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-
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Balance outstanding
and exercisable at March 31, 2017
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3,336,060
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$0.02
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$0.02
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3.61
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November 19,
2020
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$104,085
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5.
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LOANS PAYABLE
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At
March 31, 2017, the Company had the following loans
payable:
i.
$1,000
(December 31, 2016 - $1,000): unsecured; interest at 15% per annum;
originally due on April 20, 2012. Accrued interest payable on the
loan at March 31, 2017 was $3,255 (December 31, 2016:$3,218).
During the first quarter of 2017, the Company repaid $0 (2016: $0)
on this loan.
ii.
$40,000
(December 31, 2016 - $45,000): unsecured; interest at 10% per annum
from January 10, 2015.
●
The
balance of the outstanding principal of $27,500, and any accrued
interest was due and payable on written demand in full (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
balance of the outstanding principal of $12,500, and any accrued
interest was due and payable on written demand in full (not
received to date) on January 9, 2016; and
●
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.
●
The
above-said notes are currently in default; there are no changes to
the terms due to the notes being in default.
●
Accrued
interest payable on the loan at March 31, 2017 was $14,413
(December 31, 2016:$13,091). During the first quarter of 2017, the
Company repaid $5,000 (2016: $10,000) on this loan.
At
March 31, 2017, total interest accrued on the above loans was
$17,668 (December 31, 2016: $16,309).
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6.
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RELATED PARTY TRANSACTIONS
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At
March 31, 2017, the Company had the following amounts due to
related parties:
i.
$39,964
(December 31, 2016 - $39,777): 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 March 31, 2017 was
$5,170 (December 31, 2016:$4,655). The Company repaid $0 (2016:$0)
and borrowed $0 (2016:$0) from the President. The change in value
during the current quarter is entirely due to fluctuation in
foreign exchange rates.
ii.
$370,000
(December 31, 2016 - $345,000): 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, 2017 was $30,016 (December 31,
2016:$25,551). During the quarter ended March 31, 2017, the Company
borrowed $25,000 (2016: $15,000) from LSG.
9
LODE-STAR MINING INC.
NOTES
TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(Unaudited)
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6.
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RELATED PARTY TRANSACTIONS (Continued)
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iii.
$130,728
(December 31, 2016 - $114,688): 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, 2017 was $6,306 (December 31, 2016:$4,810).
During the quarter ended March 31, 2017, LSG paid expenses directly
on behalf of the Company totaling $16,040
(2016:$29,352).
iv.
$3,753
(December 31, 2016 - $3,724): unsecured; non-interest bearing; with
no specific terms of repayment, due to the controlling shareholder
of LSG. The change in value during the current quarter is entirely
due to fluctuation in foreign exchange rates.
At
March 31, 2017, total interest accrued on the above related party
loans was $41,492 (December 31, 2016: $35,016).
During
the quarter ended March 31, 2017, there was a $216 foreign exchange
loss (2016:$1,806) due to related party loan amounts in non-US
currency.
During
the quarter ended March 31, 2017, the Company incurred $24,976
(March 31, 2016 - $24,988) in mineral option fees and $2,760 (March
31, 2016: $0) in interest payable to LSG, which have been accrued
as of that date. The total amount of such fees due at March 31,
2017 was $248,889 (December 31, 2016: $223,913), with total
interest due in the amount of $2,760 (December 31, 2016:
$0).
At
March 31, 2017, the $837,586 (December 31, 2016: $762,117) total
due to related parties is comprised of the following:
■
Loans
and accrued interest - $585,937 (December 31, 2016:
$538,204)
■
Mineral
option fees payable and accrued interest - $251,649 (December 31,
2016: $223,913)
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7.
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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
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Under
the terms of the Mineral Option Agreement between the Company and
LSG, its majority shareholder, payments are due from the Company to
LSG as follows:
If
the Company fails to make any option cash payments for a period of
one year from the Effective Date of the agreement (October 4, 2014)
the Company shall pay an additional $100,000 on the first
anniversary of the Effective Date and in any subsequent year in
which the Company has failed to exercise its option to acquire a
further 60% interest in the property and the agreement remains in
effect, the Company shall make quarterly cash payments of $25,000,
payable on the last day of the applicable quarter, until such time
as the option to acquire the additional 60% interest has been
exercised. Interest at 5%, compounded annually, is due on
outstanding amounts commencing January 1, 2017.
No
option payments have been made by the Company to date and amounts
totaling $251,649 were included in accrued liabilities at March 31,
2017 (December 31, 2016: $223,913). See Note 6.
10
|
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”). As a
result of the intended transaction, control of us would be acquired
by LSG.
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 were to issue 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 such time as we have earned the additional
60% interest, the NSR royalty will be split as to 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 and 1 unpatented
millsite claim, covering a total of approximately 460 acres, or 186
hectares. Only the single unpatented claim is administered by the
United States Bureau of Land Management, and annual assessment
filings and payments are due on it. The patented claims are owned
as private land by LSG, and only annual property taxes must be
paid.
Recent Developments
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, we agree with LSG 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.
On February 17, 2017 we executed an agreement with Scorpio Gold
Corporation (Scorpio) for a pilot toll milling test of our
mineralized material. Upon completion of our required permitting
activities with the Nevada Division of Environmental Protection,
Bureau of Mining Regulation and Reclamation (NDEP), the bulk sample
pilot test will provide the baselines for metallurgical recoveries
and mill throughput. Dependent on the pilot test results and
completion of a cost analysis and other operational details,
negotiation of a full scale, custom milling agreement is
planned.
We filed our permit application with NDEP on April 5, 2017. On
April 12, 2017 we received permission to proceed with the pilot
toll milling test of mineralized material as described above.
Additional activities for this quarter included ongoing general
cleanup and housekeeping of the surface facilities in anticipation
of submitting Notification of Commencement to both State of Nevada
and MSHA agencies, in order to reoccupy our mine
workings.
We have agreed with LSG that upon the successful completion of the
pilot test and subsequently, a toll milling agreement with Scorpio,
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.
11
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
|
Personnel
We have no employees. Our president and CEO, Mark Walmesley,
currently 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
Our primary objective remains the completion of our mine permitting
process. 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. As detailed above, on February 17, 2017 we
executed an agreement with Scorpio Gold Corporation for a pilot
toll milling test of our mineralized material. Dependent on the
pilot test results and completion of a cost analysis and other
operational details, negotiation of a full scale, custom milling
agreement is planned.
We have retained the following specialists in underground
permitting of narrow vein, high sulphide mines to assist in
executing that permitting process:
· Rubicon
Environmental Consulting to act as the lead
consultant
· Hydrogeologica Inc. to consult on water and
geology
· Tierra
Group International to consult on mine planning and
engineering
Permitting costs are anticipated to be as follows:
|
Rubicon
|
$40,000
|
|
Hydrogeologica
|
$135,000
|
|
Tierra
|
$75,000
|
|
State
/ NDEP
|
$0
|
|
Total
|
$250,000
|
In addition to the permitting costs we expect our 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
Hills Vein Zone Work
|
$270,000
|
|
General
Corporate and Administration Fees
|
$720,000
|
Funding
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.
12
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
|
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
Three months ended March 31, 2017 versus March 31,
2016
The following summary of our results of operations should be read
in conjunction with our financial statements for the period ended
March 31, 2017 which are included above in Part 1, Item
1.
|
|
Three Months Ended March 31
|
Increase/(Decrease)
|
||
|
|
2017
|
2016
|
Amount
|
Percentage
|
|
Revenue
|
$-
|
$-
|
$-
|
-
|
|
Operating Expenses
|
250,183
|
67,515
|
182,668
|
271%
|
|
Operating Loss
|
(250,183)
|
(67,515)
|
(182,668)
|
271%
|
|
Other Income (Expense)
|
(10,775)
|
(46,802)
|
36,027
|
(77%)
|
|
Net Loss
|
$(260,958)
|
$(114,317)
|
$(146,641)
|
128%
|
Revenues
We have had no operating revenues during the three months March 31,
2017 and March 31, 2016. We recorded a net loss of $260,958 for the
quarter ended March 31, 2017 and have an accumulated deficit of
$1,941,098. The possibility and timing of revenue being generated
from our mineral property interest remains uncertain.
Expenses – Three months ended March 31, 2017 and
2016
Notable period over period differences in expenses are as
follows:
|
|
Three
Months Ended March 31
|
Increase/(Decrease)
|
||
|
|
2017
|
2016
|
Amount
|
Percentage
|
|
Consulting
services
|
$204,797
|
$5,702
|
$199,095
|
3,506%
|
|
Office,
foreign exchange and sundry
|
904
|
4,361
|
(3,457)
|
(79%)
|
|
Professional
fees
|
4,714
|
15,567
|
(10,853)
|
(70%)
|
|
Interest,
bank and finance charges
|
10,775
|
6,576
|
4,199
|
64%
|
|
Penalties
|
-
|
40,226
|
(40,226)
|
(100%)
|
■
Consulting
services expense in the current quarter included approximately
$199,000 related to options granted, while no options were granted
in 2016.
■
Office,
foreign exchange & sundry expenses were lower in Q1 of 2017
mainly due to lower foreign exchange costs and less travel related
to site visits and business development activity.
■
Professional
fees were lower in Q1 of 2017 due to a reduced billing rate from an
accounting consultant (approximately $7,000) and differences in
timing of invoices for accounting services (approximately
$5,000).
■
Interest,
bank and finance charges were higher in Q1 of 2017 primarily due to
an increase in interest-bearing loan balances ($581,691 at March
31, 2017 compared to $456,671 at March 31, 2016) plus approximately
$3,000 in interest charged in 2017 for the first time on accrued
mineral option fees due to LSG.
■
There
were no penalties from the IRS in the current quarter, such as
occurred in Q1 of 2016.
13
|
ITEM
2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
|
Balance Sheets at March 31, 2017 and December 31, 2016
Items with notable period-end differences are as
follows:
|
|
|
Change
|
||
|
|
March
31, 2017
|
December
31, 2016
|
Amount
|
Percentage
|
|
Cash
|
$11,501
|
$5,134
|
$6,367
|
124%
|
|
Accounts
payable and accrued liabilities
|
15,944
|
19,016
|
(3,072)
|
(16%)
|
|
Due
to related parties
|
837,586
|
762,117
|
75,469
|
10%
|
|
Loans
payable
|
58,668
|
62,310
|
(3,642)
|
(6%)
|
|
Additional
paid-in capital
|
1,268,634
|
1,070,064
|
198,570
|
19%
|
■
Cash
increased as a result of the cash used in operating activities
being approximately $6,000 less than the cash provided by related
party loans net of loan payable repayments.
■
Accounts
payable and accrued liabilities decreased mainly due to payments in
the current quarter of December 31, 2016 payables for legal and
audit fees totaling approximately $8,000 and an IRS penalty in
connection with our 2013 income tax filing of $5,000 (after an
abatement of $15,000), offset by the accrual of our annual OTC
listing fee of $10,000.
■
The
change in Due to related parties was a result of increased related
party loans and accrued interest in the current quarter of
approximately $48,000, together with the accrual of fees and
interest due under the terms of our mineral option agreement with
LSG of approximately $28,000.
■
Loans payable decreased
due to repayment of $5,000 in loan principal, partially offset by
the accrual of interest totaling approximately
$1,000.
■
Additional
paid-in capital increased approximately $199,000 due to the current
quarter’s portion of the value of the 9.5 million stock
options issued on February 14, 2017, calculated using the
Black-Scholes option pricing model.
Liquidity and Capital Resources
As of March 31, 2017, our total assets were $241,681, and our total
liabilities were $912,198. Our working capital as at March 31, 2017
and December 31, 2016 and the changes between those dates are
summarized as follows:
|
|
|
Increase/(Decrease)
|
||
|
|
March
31,
2017
|
December
31, 2016
|
Amount
|
Percentage
|
|
Current
Assets
|
$11,501
|
$5,134
|
$6,367
|
124%
|
|
Current
Liabilities
|
912,198
|
843,443
|
68,755
|
8%
|
|
Working
Capital (Deficiency)
|
$(900,697)
|
$(838,309)
|
$(62,388)
|
7%
|
The increase in our working capital deficit from December 31, 2016
to March 31, 2017 was primarily due to the increase in amounts due
to related parties of approximately $75,000, partially offset by
the increase in cash (approximately $6,000) and the decreases in
accounts payable and accrued liabilities (approximately $3,000) and
loans payable (approximately $4,000), all of which are explained
above.
Cash Flows
|
|
Three
Months Ended March 31
|
Increase/(Decrease)
|
||
|
|
2017
|
2016
|
Amount
|
Percentage
|
|
Cash
Flows Provided By (Used In):
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
|
$(13,633)
|
$(17,082)
|
$3,449
|
(20%)
|
|
|
|
|
|
|
|
Financing
Activities
|
20,000
|
5,000
|
15,000
|
300%
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
$6,367
|
$(12,082)
|
$18,449
|
(153%)
|
The slight decrease (approximately $3,000) in cash used in
operating activities in Q1 2017 compared to Q1 2016, together with
$15,000 more in net cash from loans in the 2017 quarter resulted in
the increase of approximately $6,000 in cash in 2017 compared to a
decrease of approximately $12,000 in the equivalent 2016
period.
14
|
ITEM
2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
|
As of the date of this quarterly report, we have yet to generate
any revenues from our business operations. Our ability to generate
adequate amounts of cash to meet our needs is entirely dependent on
the issuance of shares or loans.
Our principal sources of working capital have been loans and
subscriptions for our common stock. 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, 2017, our disclosure controls and procedures
were not effective, due to the size and nature of the existing
business operation. Given the size of our current operation and
existing personnel, the opportunity to implement disclosure control
procedures is limited. Until such time as the organization can
increase sufficiently in size to warrant an increase in personnel
required to effectively execute and monitor formal disclosure
control procedures, those formal procedures will not be
implemented. As a result of the current size of the organization,
there are not significant levels of supervision, review,
independent directors or a formal audit
committee.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended March 31, 2017 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER INFORMATION
|
ITEM 1A.
|
RISK FACTORS
|
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
information under this item. Our business is subject to
risks inherent in the establishment of a new business enterprise,
including, without limitation, the items listed in Item 1A RISK
FACTORS in our report filed on Form 10-K for the period ended
December 31, 2016.
|
ITEM
2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
|
We had no unregistered sales of securities during the three months
ended March 31 2017 or subsequently, to the date of this
report.
Other than as disclosed in previous reports filed with the SEC, we
have not issued any equity securities that were not registered
under the Securities Act within the past three years.
15
|
ITEM 6.
|
EXHIBITS.
|
The following documents are included herein:
|
Exhibit No.
|
Document Description
|
|
|
|
|
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on this 10th
day of May, 2017
|
|
LODE-STAR MINING INC.
|
|
|
|
|
|
|
|
|
|
BY:
|
“Mark Walmesley”
|
|
|
|
|
Mark Walmesley
|
|
|
|
|
President, Principal Executive Officer, Treasurer, Principal
Financial Officer, and Principal Accounting Officer
|
|
|
|
|
|
|
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ Mark Walmesley
|
Director, President, Chief Executive Officer and Chief Financial
Officer
|
May 10, 2017
|
|
Mark Walmesley
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Thomas
Temkin
|
Director and Chief Operating Officer
|
May 10, 2017
|
|
Thomas Temkin
|
|
|
17
EXHIBIT INDEX
|
Exhibit No.
|
Document Description
|
|
|
|
|
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
18