Lode-Star Mining Inc. - Annual Report: 2019 (Form 10-K)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019

Commission File Number: 000-53676

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES o NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:
YES o NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 past 90 days.
YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES þ NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

The aggregate market value of the registrant’s common stock held by non-affiliates at June 30, 2019, its most recently completed second fiscal quarter, was $509,088. The stock price used in this calculation was the closing price of the registrant’s stock reported on the OTCQB marketplace on June 27, 2019, the date of trading activity closest to last business day of the registrant’s most recently completed second fiscal quarter. For purposes of calculating this amount only, all executive officers, directors and beneficial owners of 5% or more of the outstanding shares of common stock have been treated as affiliates. At March 23, 2020 50,605,965 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

Cautionary Note Regarding Forward-Looking Statements.

This current report on Form 10-K (this “Report”) contains forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks and the risks set out below, any of which may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:

This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully, and readers should not place undue reliance on our forward-looking statements.

Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are issued, and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 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.

Unless the context otherwise requires, references in this Report to “LSM,” the “Company”, “we”, “us”, “our”, or “ours” refer to Lode-Star Mining Inc.

PART I.

Lode-Star Mining Inc. was incorporated in the State of Nevada on December 9, 2004 for the purpose of acquiring and exploring mineral properties. Our principal executive offices are in Reno, Nevada. We also maintain a business office in Vancouver, British Columbia, Canada.

We have no revenues, have losses since inception, and have been issued a going concern opinion by our auditor. We are relying upon loans and/or the sale of securities to fund our operations. We have no employees and expect to use outside consultants, advisors, attorneys and accountants as necessary for the next twelve months.

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, which made LSG our largest and controlling shareholder.

LSG was incorporated in the State of Nevada on March 13, 1998 for the purpose of acquiring exploration stage mineral properties. It currently has one shareholder, Lonnie Humphries, who is the spouse of Mark Walmesley, our President and Chief Financial Officer. Mr. Walmesley is also the Director of Operations and a director of LSG.

LSG’s Goldfield Bonanza property is comprised of 31 patented mineral claims owned 100% by LSG, located on approximately 460 acres in the district of Goldfield in the state of Nevada (the “Property”). The Property is clear titled, with a 1% Net Smelter Royalty (“NSR”) existing in the favor of the original property owner. LSG has rehabbed approximately 1/2 mile of drift at the 300ft level and completed 22 surface core drill holes for a total of 10,400 ft and 152 underground core drill holes for a total of 23,000ft.

LSG acquired the leases to the Property in 1997 and became the registered and beneficial owner of the Property on September 19, 2009. Since the earlier of those dates, it has conducted contract exploration work on the Property but has not determined whether it contains mineral reserves that are economically recoverable. LSG is an exploration stage company and has not generated any revenues since its inception. The Property represents its only material asset.

The Property is located in west-central Nevada, in the Goldfield Mining District at Latitude 37° 42’, and Longitude 117° 14’. The claims comprising the Property are located in surveyed sections 35 and 36, Township 2 South, Range 42 East, and in sections 1, 2, 11, and 12, Township 3 South, Range 42 East, in Esmeralda County, Nevada. The Property is accessible by traveling approximately one-half mile northeast of the community of Goldfield, along a county-maintained road that originates at U.S. Highway 95, which runs through “downtown” Goldfield. The town of Goldfield, which is the Esmeralda county seat (population 300), is approximately 200 air miles south of Reno and 180 air miles north of Las Vegas. Surface access on the Property is excellent and the relief is low, at an elevation of approximately 6,000 feet. Vegetation is sparse, consisting largely of sagebrush, rabbitbrush, Joshua trees and grasses. Water, electricity and other sundry needs such as restaurants, lodging, minor medical needs, fire station, and police are within 1 mile of the property.

All properties, claims, buildings, equipment, and supplies are owned by LSG and we have free access to utilize and manage all those items. Operations are managed from a 6,000 sq. ft. office and warehouse facility complete with showers and laundry amenities. Two residential trailer sites are immediately adjacent to this building for crew needs.

The Property has one working shaft, the February Premier, which has access to the 300 ft level, with approximately 1/2 mile of ventilated drift. Underground work has identified 2 high-grade gold-bearing zones which the company plans to further explore. The program that we envision undertaking includes the mining of approximately 10,000 tons of non-NI 43-101 compliant gold mineralization at an approximate grade of 0.9 ounces per ton. The estimated grade is based on historic drilling work done by LSG, for which the 1.5-inch core samples were consumed by assay requirements. In order to provide adequate sample weights to the assaying lab, the entire core was processed for individual samples. While we have encountered several additional high-grade drill anomalies throughout the property, it is important to note that we have no proven and/or probable reserves at the present time and therefore the program is exploratory in nature.

The Property has two operating water monitoring wells that were mandatory for us to receive a water pollution control permit. Part of the permitting application is for the allowance of the company to store its waste rock underground. The property has no milling onsite and we must rely on a third party to receive our mineralized material and tombstone our tailings.

The execution of the Subscription Agreement was one of the closing conditions of the Option Agreement, pursuant to which we acquired the sole and exclusive option to earn up to an 80% undivided interest in and to the Property. To earn the additional 60% interest in the Property, we were required to fund all expenditures on the Property and pay LSG an aggregate of $5 million in cash from the Property’s mineral production proceeds in the form of an NSR. Until we have earned the additional 60% interest, the NSR will be split 79.2% to LSG, 19.8% to us and 1% to the former Property owner.

The Option Agreement can be found as Exhibit 10.1 to our report filed on Form 8-K on October 9, 2014 and is incorporated by reference, shown as Exhibit 10.5 to this report. The Subscription Agreement can be found as Exhibit 10.7 to our report filed on Form 10-K/A on January 11, 2017 and is incorporated by reference, shown as Exhibit 10.7 to this report.

If we fail to make any cash payments to LSG within one year of October 4, 2014, we are required to pay LSG an additional $100,000, and in any subsequent years in which we fail to complete the payment of the entire $5 million described above, we 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.

Amendment to Option Agreement

On October 31, 2019, we entered into an amendment (the “Amendment”) to the Option Agreement with LSG.

Under the Amendment, the exercise of the 60% option was restructured into two separate 30% options, such that we may now earn a 30% interest in the Property (for a total of 50%) (the “Second Option”) by completing the following actions:

Following the exercise of the Second Option, we may earn an additional 30% interest in the Property (for a total of 80%) (the “Third Option”) by completing the following actions:

The primary effect of the Amendment is therefore to increase to the purchase price for the additional 60% interest in the Property from $5 million to $10 million, while at the same time separating it into tranches.

The Amendment also corrects a number of inconsistences in the Option Agreement, updates the defined terms to accommodate the creation of the Second Option and Third Option, and includes our acknowledgements regarding accrued and unpaid penalty payments and amounts owing by us to LSG as of September 30, 2019.

The foregoing description of the Amendment includes a summary of all the material provisions but is qualified in its entirety by reference to the complete text of the Amendment included as Exhibit 10.8 to this report and incorporated herein by reference.

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 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 2020.

You should carefully consider the risks described below before purchasing our common stock. The following risk factors could have a material adverse effect on our business, financial condition and results of operations.

We have a history of operating losses and there can be no assurance that we can achieve or maintain profitability.

We have a history of operating losses and may not achieve or sustain profitability. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability and our failure to do so would adversely affect our business, including our ability to raise additional funds.

Because our auditors have issued a going concern opinion, there is substantial uncertainty that we will be able to continue our operations.

Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue to operate over the next 12 months. Our 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 we cannot continue in existence. As such, if we are unable to obtain new financing to execute our business plan we may be required to cease our operations.

The Property may not contain mineral reserves that are economically recoverable and we cannot accurately predict the effect of certain factors affecting such a determination.

LSG has not determined if the Property contains mineral reserves that are economically recoverable. Exploration for mineral reserves involves a high degree of risk, which even a combination of careful evaluation, experience and knowledge, may not eliminate. Few properties which are explored are ultimately developed into producing properties. Estimates of mineral reserves and any potential determination as to whether a mineral deposit will be commercially viable can be affected by such factors as deposit size; grade; unusual or unexpected geological formations and metallurgy; proximity to infrastructure; metal prices which are highly cyclical; environmental factors; unforeseen technical difficulties; work interruptions; and government regulations, including regulations relating to permitting, prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted. The long term profitability of our operations will be, in part, directly related to the cost and success of our exploration and development program. Substantial expenditures are required to establish reserves through drilling, to develop processes to extract the ore and, in the case of new properties, to develop the extraction and processing facilities and infrastructure at any site chosen for extraction. Although substantial benefits may be derived from the discovery of a major deposit, we cannot provide any assurance that any such deposit will be commercially viable or that we will be able to obtain the funds required for development on a timely basis.

If the Property is ultimately placed into production, we will encounter hazards and risks that could result in significant legal liability.

In the event that we are ultimately able to commence commercial production on the Property, our operations will be subject to all of the hazards and risks normally encountered in the exploration, development and production of gold, including unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, the mine and other producing facilities, damage to life or property, environmental damage and possible legal liability. Although we plan to take appropriate precautions to mitigate these hazards and risks by, among other things, obtaining liability insurance in an amount considered to be adequate by management, their nature is such that the liabilities might exceed policy limits, they might not be insurable, or we may not elect to insure against them due to high premium costs or other reasons, which could have a material adverse effect upon our financial condition and results of operations.

We face significant competition in the mineral resource industry that presents an ongoing threat to the success of our business.

The mining industry is intensely competitive in all of its phases, and we will be forced to compete with many companies that possess greater financial resources and technical facilities than we do. Significant competition exists for the limited number of mineral acquisition opportunities available in our sphere of operations. As a result of this competition, our ability to acquire additional attractive mining properties on terms we consider acceptable may be adversely affected.

Fluctuating mineral prices may negatively affect our ability to secure financing or our results of operations.

Our future revenues, if any, will likely be derived from the extraction and sale of base and precious metals. The price of those commodities has fluctuated widely, particularly in recent years, and is affected by numerous factors beyond our control including economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global and regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of base and precious metals, and therefore the economic viability of our business, could negatively affect our ability to secure financing or our results of operations.

We are subject to government laws and regulations particular to our operations with which we may be unable to comply.

We may not be able to comply with all current and future government environmental laws and regulations which are applicable to our business. Our operations are subject to all government regulations normally incident to conducting business: occupational safety and health acts, workmen’s compensation statutes, unemployment insurance legislation, income tax and social security laws and regulations, and most importantly, environmental laws and regulations. In addition, we are subject to laws and regulations regarding the development of mineral properties in the State of Nevada. We are also subject to governmental laws and regulations applicable to small public companies and their capital formation efforts.

We are engaged in mineral exploration and are accordingly exposed to environmental risks associated with mineral exploration and mining activity. LSG is currently in the exploration stage and has not determined whether significant site reclamation costs will be required on the Property in the future, which we will likely be responsible for as well. Although we will make every effort to comply with all applicable laws and regulations, we cannot provide any assurance that we will be able to deal with evolving environmental attitudes and regulations, nor can we predict the effect of any future changes to environmental regulations on our proposed business activities. We only plan to record liabilities for site reclamation when reasonably determinable and when such costs can be reliably quantified. Other costs of compliance with environmental regulations may also be burdensome. Our failure to comply with material regulatory requirements could have an adverse effect on our ability to conduct our business. The expenditure of substantial sums on environmental matters would have a materially negative effect on our ability to implement our business plan and could require us to cease operations.

Our business depends substantially on the continuing efforts of our officers, and our business may be severely disrupted if we lose their services.

Our future success heavily depends on the continued service of our officers. Although we plan to increase the size of our Board of Directors, appoint additional officers and engage various consultants as our business grows, if they are unable or unwilling to continue to work for us in their present capacities, we may have to spend a considerable amount of time and resources searching, recruiting and integrating one or more replacements into our operations, which would severely disrupt our business. This may also adversely affect our ability to execute our business strategy.

We may be unable to attract and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.

Our success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we become a more mature company in the future, we may find recruiting and retention efforts more challenging. If we do not succeed in attracting, hiring and integrating such personnel, or retaining and motivating existing personnel, we may be unable to grow effectively. The loss of any key employee, including members of our management team, and our inability to attract highly skilled personnel with sufficient experience in our industry could harm our business.

We may indemnify our officers and directors against liability to us and our security holders, and such indemnification could increase our operating costs.

Our Amended and Restated Articles of Incorporation allow us to indemnify our officers and directors against claims associated with carrying out the duties of their offices. Our Bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers, directors or control persons, we have been advised by the SEC that such indemnification is against public policy and is therefore unenforceable.

Since our officers and directors are aware that they may be indemnified for carrying out the duties of their offices, they may be less motivated to meet the standards required by law to properly carry out such duties, which could increase our operating costs. Further, if any of our officers or directors files a claim against us for indemnification, the associated expenses could also increase our operating costs.

Failure to comply with the Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

As a Nevada corporation, we are subject to the Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Some foreign companies, including some that may compete with us, may not be subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the countries in which we conduct our business. However, our employees or other agents may engage in conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Current global financial and economic conditions could adversely impact our operations and financial condition.

Current global financial and economic conditions remain volatile. Many industries, including the mineral resource industry, are impacted by these market conditions. Some of the key impacts of financial market turmoil include contraction in credit markets resulting in a widening of credit risk; devaluations and high volatility in global equity, commodity, foreign exchange and precious metal markets; and a lack of market liquidity. Such factors may impact our ability to obtain financing on favorable terms or at all. Additionally, global economic conditions may cause a long term decrease in asset values. If such global volatility and market turmoil were to continue, our operations and financial condition could be adversely impacted.

Risks Related to Ownership of Our Common Stock

Because there is a limited public trading market for our common stock, investors may not be able to resell their shares.

There is currently a limited public trading market for our common stock. Therefore, there is no central place, such as stock exchange or electronic trading system, to resell any shares of our common stock. If investors wish to resell their shares, they will have to locate a buyer and negotiate their own sale. As a result, they may be unable to sell their shares or may be forced to sell them at a loss.

We cannot assure investors that there will be a market in the future for our common stock. The trading of securities on the OTCQB is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock. Investors may not be able to sell shares at their purchase price or at any price at all.

LSG has voting control over matters submitted to a vote of the stockholders, and it may take actions that conflict with the interests of our other stockholders and holders of our debt securities.

We issued 35,000,000 shares of our common stock to LSG in the acquisition of our mineral property interest. LSG and its owner control approximately 72 % of the votes eligible to be cast by stockholders in the election of directors and generally. As a result, LSG has the power to control all matters requiring the approval of our stockholders, including the election of directors and the approval of mergers and other significant corporate transactions.

The sale of securities by us in any equity or debt financing could result in dilution to our existing stockholders and have a material adverse effect on our earnings.

Any sale of common stock by us in a future private placement offering could result in dilution to the existing stockholders as a direct result of our issuance of additional shares of our capital stock. In addition, our business strategy may include expansion through the acquisition of additional property interests or through business combinations with entities operating in our industry. In order to do so, or to finance the cost of our operations, we may issue additional equity securities that could dilute our stockholders’ stock ownership. We may also pursue debt financing, if and when available, and this could negatively impact our earnings and results of operations. If the board of directors issues an additional class of voting for less than fair value, the value of your interest in the company will be diluted. We have no present intention to issue any additional class of voting securities.

We are subject to penny stock regulations and restrictions and investors may have difficulty selling shares of our common stock.

Our common stock is subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the “penny stock rules”. Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. We are subject to the SEC’s penny stock rules.

Since our common stock is deemed to be penny stock, trading in the shares of our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited investors” are generally persons with assets in excess of $1,000,000 (excluding the value of such person’s primary residence) or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information to the limited market in penny stocks.

Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in our common stock and may affect the ability of our stockholders to sell their shares of common stock.

There can be no assurance that our common stock will qualify for exemption from the penny stock rules. In any event, even if our common stock was exempt from the penny stock rules, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest.

We do not expect to pay dividends for the foreseeable future.

We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, our stockholders will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all.

Investors may face significant restrictions on the resale of their shares due to state “blue sky” laws.

Each state has its own securities laws, commonly known as “blue sky” laws, which (1) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (2) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or it must be exempt from registration. The applicable broker-dealer must also be registered in that state.

We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those broker-dealers, if any, who agree to serve as market makers for our common stock. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. Investors should therefore consider the resale market for our common stock to be limited, as they may be unable to resell their shares without the significant expense of state registration or qualification.

None.

Our Property is located in west-central Nevada (Figure 1), 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.

Figure 1: Property Location Map

The Property is wholly owned by LSG, the company’s largest shareholder and is clear titled. The 31 patented claims cover an area of approximately 460 acres, or 186 hectares. The claims are owned as private land by LSG, and only annual property taxes must be paid.

We have mineral rights to all the claims listed below. We have surface rights on all claims except for a portion of five claims that exist within the town boundary of Goldfield. The claims include any and all contracts, easements, leases and rights-of-way affecting or appurtenant thereto. The fees and maintenance of the claims are currently being paid by the LSG. The annual fee for maintaining all the claims is under $1,500. A map of the claims is shown below in Figure 2.

Patented Claims

Notes:

Figure 2: Claim Map

Current Infrastructure and recent developments:

All properties, claims, buildings, equipment, and supplies are owned by our largest shareholder, LSG. We have free access to utilize and manage all the above noted items.

The property is immediately adjacent to the historic gold producing town of Goldfield, NV, which is the county seat for Esmeralda County. Water, electricity and other sundry needs such as restaurants, lodging, minor medical needs, fire station, and police are within 1 mile of the property.

Operations are managed from a 6,000 sq. ft. office and warehouse facility complete with showers and laundry amenities. Two residential trailer sites are immediately adjacent to this building for crew needs.

The property has one working shaft, the February Premier, which has access to the 300 ft level, with approximately 1/2 mile of ventilated drift. Underground work has identified 2 high-grade gold-bearing zones which the company plans to further explore. The program that we envision undertaking includes the mining of approximately 10,000 tons of non-NI 43-101 compliant gold mineralization at an approximate grade of 0.9 ounces per ton. The estimated grade is based on historic drilling work done by LSG, for which the 1.5-inch core samples were consumed by assay requirements. In order to provide adequate sample weights to the assaying lab, the entire core was processed for individual samples. While we have encountered several additional high-grade drill anomalies throughout the property, it is important to note that we have no proven and/or probable reserves at the present time and therefore the program is exploratory in nature.

The property has two operating water monitoring wells that were mandatory for us to receive a water pollution control permit. Part of the permitting application is for the allowance of the company to store its waste rock underground. The property has no milling on site and we must rely on a third party to receive our mineralized material and tombstone our tailings.

The Company has been issued Water Pollution Control Permit NEV2017109 from the Nevada Department of Environmental Protection (NDEP) regarding production at the property, as at November 20, 2018. 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. In accordance with MSHA guidelines, we are in the process of re-occupying the Property’s underground workings.

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.

On January 22, 2020 we executed a toll milling agreement (the “Agreement”) with Scorpio’s affiliate, Goldwedge LLC. The Agreement will allow for the processing of ore delivered from our Property to the 400 ton per day Goldwedge milling facility located in Manhattan, Nevada.

Based on previous metallurgical testing, our ore requires gravity combined with flotation for optimal recoveries of contained precious metals. The Goldwedge milling circuit is currently configured with a gravity recovery circuit. Under the terms of the Agreement, we will advance funds required for the design, engineering, permitting and modifications to the Goldwedge facility to include the addition of a flotation circuit, supporting reagent tanks/silos, secondary lining of process containment ponds, leak detection and monitoring wells associated with fluid containments.

The Agreement provides for us to recoup the advanced funds through a reduction in toll milling rates until all advanced funds have been repaid. Following repayment, the toll charges will revert to standard rates.

We are not a party to any pending legal proceeding which management believes is likely to result in a material liability and no such action has been threatened against us, or, to the best of our knowledge, is contemplated.

Not applicable.

PART II

Our stock is quoted under the symbol “LSMG” on the OTCQB marketplace of the OTC Markets Group. OTCQB companies must verify via an annual OTCQB Certification, signed by the company CEO or CFO, that their company information is current, including information about a company’s reporting status, company profile, information on management and boards, major shareholders, law firms, transfer agents, and IR / PR firms.

The high and low bid quotations of our common stock for the 2019 and 2018 quarters are as follows:

These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.

The market for our common stock has been sporadic and there have been significant periods during which there were few, if any, transactions in the common stock and no reported quotations. Accordingly, reliance should not be placed on the quotes listed above, as the trades and depth of the market may be limited, and therefore, such quotes may not be a true indication of the current market value of the Company’s common stock.

On December 31, 2019, we had 69 shareholders of record of our common stock.

We competed our NI 43-101 report as of January 15, 2020.

Capitalization

Shares

Our authorized capital 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 par value per share.

At December 31, 2019 and to date 50,605,965 (2018: 50,605,965) shares of common stock have been issued. No shares of preferred stock have been issued to date.

Stock Options

On November 20, 2018, we granted 500,000 non-qualified stock options pursuant to the 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 our common stock at a price of $0.06 per share, for a term of five years. None of the options have been exercised to date.

On February 14, 2017, we granted 9,500,000 non-qualified stock options 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 our common stock at a price of US$0.06 per share, equal to the closing price of the common stock on the grant date, for a term of five years. None of the options have been exercised to date.

Warrants

In connection with a 2015 consulting agreement, there are warrants outstanding to November 10, 2020 to purchase 3,336,060 shares of common stock at a price of $0.02 per share, including a cashless exercise option.

Securities Authorized for Issuance under Equity Compensation Plans

We reserved 10,000,000 shares of common stock for issuance under our 2015 Omnibus Equity Incentive Plan. The purpose of the Plan is to maintain our ability to attract and retain highly qualified and experienced directors, officers and consultants and to give such directors, officers and consultants a continued proprietary interest in our success. The Plan is available to any stockholder on request.

Dividends

We have not declared any cash dividends, nor do we have any plans to do so. Management anticipates that, for the foreseeable future, all available cash will be needed to fund our operations.

Penny Stock

Our common stock is subject to the provisions of Section 15(g) of the Exchange Act and Rule 15g-9 thereunder, commonly referred to as the “penny stock rule”. Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. We are subject to the SEC’s penny stock rules.

Since our common stock is deemed to be penny stock, trading in the shares of our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited investors” are generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of securities and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document prepared by the SEC relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for penny stocks held in an account and information to the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our common stock and may affect the ability of our stockholders to sell their shares.

Recent Sales of Unregistered Securities

During the years ended December 31, 2019 and 2018, we had no subscriptions for shares of our common stock.

On December 3, 2018, the Company issued 1,478,140 common shares in exchange for debt totaling $48,778 owed to a related party, comprised of $40,205 in loans and $8,573 in accrued interest.

Other than as disclosed above, we have not issued any equity securities that were not registered under the Securities Act within the past three years.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this 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. See “Cautionary Note Regarding Forward Looking Statements” above for a discussion of forward-looking statements and the significance of such statements in the context of this Report. It is important to note, while we have encountered several high-grade drill anomalies throughout the property, we have no proven and/or probable reserves at the present time.

Property - Previous Exploration Work, Mineralization and State of Exploration

The Property is wholly owned by LSG, our largest shareholder, and is clear titled. A 1% net smelter royalty exists in the favor of the original property owner. The property consists of 31 patented claims on approximately 460 acres. LSG, over the past 15 years and continuing, has spent over $7 million on underground rehab of approximately 1/4 mile of drift at the 300ft sub-surface level. LSG also executed 22 surface core drill holes for a total of 10,400ft and 152 underground core drill holes for a total of 23,000ft.

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.

Underground work has identified 2 high-grade gold-bearing zones (see the small yellow stars in Fig. 1. and see Fig. 2.) that can support mine development utilizing our current infrastructure. The property is now permitted for production and should be mine ready by the end of Q2, 2020. 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.

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 within both the Red Hills and Church Zones.

NI 43-101 Update Status

We filed an independent Technical Report written in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects (NI 43-101) on our property located in Goldfield, Nevada. Although not required for OTC listing, we had this report prepared under NI 43-101 guidelines to provide a summary of the Goldfield Bonanza Project. This NI 43-101 is required documentation for future possible business transactions and listings on Canadian exchanges. The Technical Report titled “Technical Report on the Goldfield Bonanza Project Esmeralda County Nevada U.S.A.” dated January 15, 2020 has been prepared by Mr. Robert M. Hatch, SME Registered Geologist.

The report is available for review on EDGAR (https://www.sec.gov/edgar/searchedgar/companysearch.html) and SEDAR (https://www.sedar.com/) under Lode-Star Mining’s issuer profile.

The white stars below show the historic zones where roughly 1 million ounces per star were produced during the period 1904-1918 (See Figure 1a. below): Last year of production by Goldfield Consolidated, (Source: Albers and Stewart, 1972). The large yellow stars indicate areas we need to explore to possibly repeat the past high-grade production intercepts. The yellow lines are known geophysical interpreted structures. The small yellow stars are the immediate production zones targeted by us for development.

Fig. 1. - The red vein zones contained in the aerial photo below depict the historic mined veins

HISTORIC PRODUCTION

Figure 1a. - Production from Goldfield Mining District

SOURCE: Albers and Stewart, 1972

Geologic Structure

The geologic model that made Goldfield successful still exists today. Fig. 1b. shows the formation of the Goldfield high-grade gold zones which leads to our conclusion that more multi-million-ounce intercepts are possible.

Fig. 1b. Geologic Structural Model

Fig. 2. - Church and Red Hills Vein Zones are the two high-grade gold-bearing
zones that we expect to yield high-grade gold concentrations.

Red Hills Vein System - Priority 1.

Two major vein zones exist in the Red Hills area, including the Stope veins and the Decline vein (see Fig. 4 on the following page). The respective names refer to the nature of brief mining conducted previously in these areas. As further defined through LSG’s drilling to date, the area referred to as the Stope Veins is comprised of two intersecting vein-filled faults, including the West vein zone and the East vein zone (Fig. 3 below). The average width of each of these vein zones is approximately three feet. Drilling to date suggests the West vein zone to be essentially vertical and near parallel to the East vein zone. The Decline vein zone is also shown on Fig. 3, as a north-northwest trending zone. Drilling on the Decline vein zone indicates a generally westerly dipping feature with an average width of several feet. To date, drilling has yielded very encouraging gold values within each of the vein zones described above. As shown on Figures 4 and 5 on the following page, several high-grade intercepts have been encountered with values up to 75.0 oz/ton gold (East vein zone). Drilling indicates each of these vein zones to be open along strike and at depth.

A 3-D depiction, (Fig. 3 below), of the three identified vein zones within the Red Hills shows the complex nature of their intersecting relationship. This complex intersection of the three vein components provides several locations where high-grade gold concentrations are identified. Two readily obvious targets where high-grade gold in excess of 1.0 ounce of gold per ton has been intersected is shown on Figure 3 with dashed outlines. The drill holes and actual values have been omitted for sake of clarity. Additionally, each of these vein zones appear to be open to the north, to the south, and to depth.

Fig. 3. - 3D Section of the Red Hills Vein Zones

Fig. 4. - Red Hills Vein Zones Composite Cross Section

Fig. 5 - Red Hills Vein Zones Plan View

Red Hills Zone Summary

The drilling of this resource area was performed by LSG from 2000 to 2006 and assaying was performed by ALS Chemex. All activity was performed prior to the company’s need to have the drilling be resource NI 43-101 compliant. We assume the zone contains 10,000 ounces of AU (This assumption is non-NI 43-101 compliant). Historic underground mining was executed by chasing veins that yielded pockets of high-grade gold production. It is LSM’s intention to follow the same method and chase its known high-grade gold-bearing veins. LSM’S initial mining stage in the Red Hills area will extract mineralized material from the currently exposed Stope Vein Zone, and the Decline Vein Zone on the 300-foot mine level. Mining dimensions in the Stope Zone are expected to be an average of 4 to 10 feet wide, approximately 80 feet upwards and 100 feet along strike. The mining in the Decline will achieve mineralized material extraction while developing access to lower levels. Eventually the gold mineralization below the 300-foot level in both the Stope and Decline Vein Zones will be removed through the development of a downward spiral ramping approach, ultimately accessing mining depths to approximately the 450-foot mine level. Mine Development Associates has audited LSG’s drilling data base and concluded analyses of drill-sample pulps compared well with the original database gold analyses at grades relevant to the potential underground mining scenario at Red Hills.

Church Vein Zone - Priority 2.

Based on the success and encouragement realized through drilling conducted by Trafalgar in 1982 and Westley in 1985, and further success through follow-up drilling by LSG and ICN to date, a vein zone measuring up to 40 feet in width and trending at least 600 feet north-northeasterly, exists immediately west of the Church shaft (fig. 6 below).

As shown on fig. 6, our interpretation of drilling to date indicates this vein zone, which is comprised of numerous individual veins up to several inches in width each, to be a steeply westerly-dipping feature, with several intercepts of high-grade gold exceeding 1.0 ounce of gold per ton. Areas highlighted in red on figures 6 and 7 display interpreted orientation of repeated vein sets based on drill intercepts. Figure 6 also shows the high priority drill targets that we expect to yield additional high-grade gold concentrations in the Church Vein zone. The nearly 200-foot vertical interval between the 100-level gold mineralization and the 300-level gold mineralization is a high priority target, as are the extensions to the north and south, and down-dip from the 300-level workings.

Fig. 6 - Church Vein Zones and Decline Vein Zone

Figure 7 - Cross Section of Church Vein Zone at Section 3555

ICN Resources Drilling

ICN Resources acquired control of the property in March 2011. During that year ICN drilled 26 core holes for a total of 5,795 ft (1,767 m) and an additional 63 RC holes for a total of 27,470 ft (8,375 m). The core holes (hole ID prefixed with “ICN-” ) were drilled largely in the Church Zone and the RC holes (hole ID prefixed with “ICR-”) were utilized to test other exploration targets throughout the property.

The third core hole, ICN-003, returned a weighted-average intercept of 9.5 ft (2.90 m) that assayed 40.8 oz/ton (1.4 kg/t) gold. Eleven holes were then drilled around the ICN-003 discovery hole within a 100 meter by 150-meter area. Additional extraordinary high-grade intercepts included 4.5 ft (1.37 m) in ICN-013 that assayed 51.46 oz/ton (1.76 kg) gold, and a weighted average of 9.5 ft (2.9 m) in ICN-014 that averaged 26.8 oz/ton (918.0 g/t) gold. The next highest-grade intervals are 4 ft (1.22 m) in ICN-023 that averaged 1.46 oz/ton (50 g/t) and 3 ft (.91 m) in ICN-024 that assayed .802 oz/ton (27.5 g/t). All of these high-grade intercepts lie along the same north-northeast structural trend, which also falls in the broader NE corridor of mineralization. See the table below for drill hole intercepts greater or equal to 0.5 oz/ton (17.14 g/t).

ICN’s core drilling showed that the Church Zone is covered by as little as 55 ft (16.9 m) of post-mineral cover. The zone remains open along strike and down-dip and falls within the NE Corridor as defined by mineralization and geophysics.

The RC drilling program was designed to test four areas. Most of the work was focused on the 600-foot (183 m) strike length of the NE Corridor between the Church Zone and the Combination Pit. Six holes were drilled to test the January area, immediately west of the Combination Pit. An additional 19 holes were drilled to test mineralized zones noted by prior exploration programs in the northeastern portion of the claim block, including the Sheets-Ish Silver Pick and Phelan Shaft areas. Five holes were located in the Newmont Lode area to test extensions of known mineralization.

Drilling in the NE Corridor (away from the Church Zone) showed that the structure and alteration persist throughout, and that attractive gold mineralization is present. Numerous lower grade intercepts were encountered, which contained shorter high-grade intervals. The degree of silicification, quartz veining and fracturing in these intercepts indicates that the lower grade intercepts may represent halos to higher grade mineralization. Additional drilling will be required to better delineate these mineralized zones.

ICN Resources Drill Intercepts Greater or Equal To 0.5 oz/ton (17.14 g/t)
Intervals greater than 1.0 oz/ton (34.29 g/t) are in bold.

ICN Resources Drill Intercepts Greater or Equal To 0.5 oz/ton (17.14 g/t) (Continued)

Intervals greater than 1.0 oz/ton (34.29 g/t) are in bold.

GOLD MINERALIZATION and ALTERATION

Goldfield is one of the most prominent North American examples of the epithermal subclass classification known as high-sulfidation (or alunite-gold) deposits. This type of deposit is characterized by intense pyritization and low-pH, acid-sulfate hydrothermal alteration of the volcanic host rocks. Gold mineralization occurs in brecciated, quartz-alunite vein-filled faults and fractures. Individual veined zones are typically one to three feet in total width and are characterized by a clustering of several smaller veins up to three inches in width each. Gold deposition has been dated (using isotopes) as occurring 22 to 18 million years ago (Silberman, 1985). Fluid inclusion and oxygen isotope data from several locations within the district indicate an ore deposition temperature ranging from 200 to 2900 degrees C.

Host rocks surrounding the brecciated quartz-alunite-filled faults and fractures typically display a near-symmetrical pattern of three successive hydrothermal alteration zones. The gold-bearing veined zones containing predominantly quartz, alunite and pyrite, invariably are surrounded by strongly developed silicification (silica replacement of host rock). An advanced argillic zone enveloping the silicification is characterized by the presence of alunite, kaolinite, pyrite, quartz and montmorillonite, which further grades into a more regional propylitic alteration zone containing calcite, chlorite, and pyrite. Widespread intense hydrothermal alteration often makes it difficult to trace individual volcanic units.

HIGH-GRADE GOLD OCCURRENCES

The Goldfield mining district has recorded production of more than 4.2 million ounces of gold and 1.5 million ounces of silver. Production in the district generally has been limited to an area about one mile (east-west) by about one and one-half mile (north-south).

High-grade gold ores (>1.0 oz/ton) typically occur as breccia-matrix and open-space vug fillings within a series of banded quartz-alunite veins, surrounded by pervasively silicified zones that often contain lower-grade gold (>0.05 oz/ton). From 1903 to 1925, about fifteen individual high-grade ore bodies averaging 100,000 tons and yielding 100,000 to 500,000 ounces of gold each were mined from the veins in the immediate vicinity of the Apex of the Main Vein at the Combination pit. Typical dimensions of these ore bodies are approximately 200 feet along strike, 300 feet on dip, and up to 20 feet in width. Of the total tonnage, high-grade ores accounted for 51% mined. The average grade of total gold produced during this period was 1.13 ounces per ton; 96% of total gold produced had an average grade greater than 1 ounce per ton, while 39% of total gold produced had an average grade of 2.9 ounces per ton. The cutoff grade in the district was 0.25 ounces of gold per ton. The majority (75% to 80%) of the district’s gold production occurred from depths of 600 feet or less. The deepest ores mined at Goldfield were 1,900 feet below the surface and approximately 2,500 feet downdip from the apex of the lode.

Unoxidized ore, formed as cavity fillings in brecciated veins, consists of varying proportions of native gold and gold tellurides including calaverite and goldfieldite, as well as sulfosalt minerals including bismuthinite and famatinite, each of which are associated with high-grade gold.

Geophysics

CSAMT

In 2008, Lode-Star Gold contracted Zonge Geophysics to carry out an orientation CSAMT (controlled source, audio-frequency magneto-telluric) survey. The objective was to determine the effectiveness of this technique in detecting resistivity variations that correlate with known gold-bearing quartz vein zones. Five east-west lines were run across the Church-Red Hills-Newmont Zone area for a total of 1.7 line miles (2.7km) of coverage. The results clearly defined several pronounced resistivity gradients with patterns associated with aforementioned areas of known gold mineralization.

In February 2012, ICN contracted Zonge Geophysics to carry out a similar CSAMT survey which covered nearly all of the Goldfield Bonanza property. It included 32 lines for a total of 10.6 line-miles (17 line-kilometers). The survey data was acquired using 30-meter (100 ft) receiver dipoles in spreads of six down-line electric field dipoles with two magnetic field measurements taken per spread in the broadside mode of operation. The signal source was a Zonge GGT-30 constant current transmitter. Survey control was maintained using a Trimble PRO-XRS GPS receiver.

Figure 8 below displays the results of the property-wide survey. Overlain on the CSAMT is drilling in the Northeast Corridor with drill hole assays presented as calculated grade X thickness (GxT) values. There is a clear association of CSAMT resistivity highs with high gold assays from these drill holes, occurring in highly silicified areas. Also shown on figure 8, the biogeochemical survey anomalies are overlain on the CSAMT results, indicating close correlation with high resistivity values. The biogeochemistry patterns are discussed further in the Biogeochemistry section below.

The main NE Corridor is defined by a major break in the CSAMT data. This break is directly indicative of significant northwest and northeast oriented structures at depth, some of which have been observed in underground exposures and interpreted through drilling. The potential significance of the CSAMT break is demonstrated by the drill holes in and around the Newmont Lode in the southern portion of the grid.

Holes in this area are weakly to strongly gold mineralized, suggesting that further drill testing southwest along this break is warranted.

In addition, the mineralization trending northwesterly in the Sheets-Ish, Silver Pick, Phelan area is shown to hug the sharp Northwest break in the CSAMT response. Thus, the better gold grades seem to follow the margins of the CSAMT highs. The principal conclusion was that the general exploration model was verified – “Main District style” high-grade gold mineralization is, in fact, localized beneath the post-mineral cover below the Lode-Star Gold claim block.

Figure 8 - Geophysics & Biochemistry Anomalies w/ GxT Drill Assays

Biogeochemistry   Conventional surface sampling of outcrops and soils on the Lode-Star claims is not useful due to poor exposures and contamination by waste dumps and tailings. However, biogeochemical sampling has been shown to be effective in indicating areas of anomalous gold and other gold-related trace metal values below the Seibert gravels.   In August 2011, ICN personnel sampled rabbit brush in an area measuring approximately 4000 feet (1200 m) by 2000 feet (600 m) in the northern and central portions of the property, including in the Silver Pick shaft area and in the NE Corridor target area. The program was designed, and the data interpreted by Shea Clark Smith of Minerals Exploration & Environmental Geochemistry (Smith, 2012). Large areas that are defined by gold concentrations from 2 – 60 ppb are significant and attest to the volume (and possibly grade) of mineralized rock in contact with groundwater in these areas. Smith states that metal uptake in rabbit brush is not overwhelmed by mineralized dust that might have masked the metal concentrations in plant tissues of less well endowed (by gold) areas.   The Figure to the right displays the gold-mineralized areas indicated by the biogeochemical data. The anomalies cluster in areas of historically mined mineralization near the Phelan, Sheets-Ish and Silver Pick shafts. Most importantly multiple clusters occur in the Northeast Corridor area, which includes the Newmont Lode and especially the Church Zone. Of particular note is the cluster of anomalies that exist to the northwest of the NE Corridor, correlating closely with interpreted northwest-trending structures. Thus, the biogeochemical data confirms the conclusions from drilling and underground geologic work as shown on Figure 8 above. Overall the biogeochemical anomalies were found in four areas of the property that have had no drilling, as follows:

Figure 9 Biogeochemical Interpretive Map

Seismic Survey

In 1980 Trafalgar Mines contracted Cooksley Geophysics to conduct a refraction seismic survey over a small area in the Church zone. This survey delineated several shallow silica ledges which were confirmed by drilling to be gold bearing. Westley Mines leased the property during 1985. They contracted Dr. McWilliams, a professor at Stanford, to conduct a more extensive refraction seismic survey. Thirteen east-west lines were run at approximately a 400-foot (122m) spacing covering an area from about 600 feet (183m) south of the Silver Pick shaft to 2000 feet (610m) south of the January-Whiterock shaft. This work delineated silicified zones and ledges which are interpreted to have horizontal thicknesses of up to 200 feet (61 m) and varying lengths. See Fig. 10 below.

Figure 10 - Seismic Survey Anomalies

Mine Development - Drilling the Northeast Corridor

The Company’s immediate drill program is to define its existing and mineable Gold mineralization within the northeast corridor. See Fig. 11. Specifically, the Church, Red Hills/Decline and Newmont Zones, referred to as the CRN Area. Current drill budget is US$1,800,000 plus $200,000 in analytical fees. Combined total cost: US$2,000,000.

Fig. 11 Immediate Drill Program Area

Red Hills, Decline Zone:   The Company is planning for 6,000 combined feet of deep core drilling for the Red Hills and Decline Zone.   Anticipated Cost $400,000. See Table 11a.   Church Zone:   The Company is planning for 6,400 combined feet of drilling for the Church Zone.   Anticipated Cost $400,000 See Table 11b.   Newmont Zone:   Future planning for an initial 22,200 combined feet of surface drilling in the Newmont Zone.   Anticipated Cost (Surface) $1,000,000 See Table 11c.

Phase 1

Table 11a. - Red Hills / Decline Zone Drilling Budget

Sample Prep., Assays, CSAMT interpretation and third-party verification of the drilling results are expected to add a cost of approximately $100,000.

Table 11b. - Church Zone Drilling Budget

Sample Prep., Assays, CSAMT interpretation and third-party verification of the drilling results are expected to add a cost of approximately $100,000.

Phase 2

Table 11c. - Newmont Zone Surface Drilling Budget (Planned)

Sample Prep., Assays, CSAMT interpretation and third-party verification of the drilling results are expected to add a cost of approximately $200,000.

Total for Phase 1 planned step-out drilling – Red Hills/Decline Zone and Church Zone

 Future Exploration Targets

Permitting and Production

On November 20, 2018 we were 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 our production permit, the Nevada Department of Environmental Protection has endorsed our 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 us the significant time and expense of having to permit and build a surface waste containment facility.

We have received our blasting permit from the ATF.

Metallurgy Reports

To date we have 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.

Milling

On January 22, 2020 we executed a toll milling agreement (the “Agreement”) with Scorpio Gold Corporation’s affiliate, Goldwedge LLC. The Agreement will allow for the processing of ore delivered from our Property to the 400 ton per day Goldwedge milling facility located in Manhattan, Nevada.

Based on previous metallurgical testing, our ore requires gravity combined with flotation for optimal recoveries of contained precious metals. The Goldwedge milling circuit is currently configured with a gravity recovery circuit. Under the terms of the Agreement, we will advance funds required for the design, engineering, permitting and modifications to the Goldwedge facility to include the addition of a flotation circuit, supporting reagent tanks/silos, secondary lining of process containment ponds, leak detection and monitoring wells associated with fluid containments.

The Agreement provides for us to recoup the advanced funds through a reduction in toll milling rates until all advanced funds have been repaid. Following repayment, the toll charges will revert to standard rates.

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. A summary of the mining methodology is as follows:

Figure M1. - A typical blast pattern to extract the ore from waste using two detonations.

Timbered Raise Summary

The design accommodates the ease of installation of the timber using pre-cut timbers. Caps, and Gerts are jointed on each end so that each fits on another, with a place for each corner post. The timbers are designed to be carried by a pneumatic tugger hoist and set by a crew of two men. A man-way is provided with landings every 4 sets vertically. A utility compartment is provided with accommodation for air and water lines as well as ventilation tubing. The raise timbering is designed to accommodate chute lagging on each end of the raise, with a timber slide along the footwall. Each set is to be blocked to the sides and ends of the raise using similar size timber and wedges. The timbering in this design is intended for temporary vertical access for mining operations and is not intended for permanent long-term ground support. (Fig. M2 below).

Cut & Fill/Resuing Stope Summary

Access is provided by first constructing an internal ramp system, or by timbered raise. RESUING (Shrink Stoping): A method that reduces dilution when the vein is narrower than the heading. Historically a drift round was taken in two passes. First pass was to extract the gold vein, and the second pass was to extract the waste. CUT & FILL: Access is provided by first taking a sill cut, then taking down the back in successive slices. After mucking, the stope is backfilled, but enough space is left to mine the next slice.

Fig. M2 - A typical timber raise and a spiral ramp. The arrow indicates where the raise will be constructed.

Plan of Operations

Drilling and Mine Development:

The Company’s underground workings are 100% rehabbed and ready to mine. We anticipate being fully mine-ready by Q2 of 2020.

The capital requirement to achieve our next phase of project development is estimated at US$5,000,000.

Application of Funds

The estimates above are for discussion purposes only. No information contained herein should be considered an official corporate offering. All costing of the application of funds is an estimate and may not exactly match the actual future costs.

The following tables shows the estimated, detailed application of the $5.0 million Total above, by Category, required for step-out property development and gold output from the Red Hills Vein Zone.

Funding

All of our ongoing operations, since the inception of our Mineral Option Agreement on October 4, 2014, have been funded by monies advanced to us by Lode-Star Gold INC. (LSG) our largest shareholder. We do not currently have enough funds to carry out our entire plan of operations, so we intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private placements. There is no assurance that we will be successful in completing any such financings.

If we are unsuccessful in obtaining sufficient funds through our capital raising efforts, we may review other financing options, although we cannot provide any assurance that any such options will be available to us or on terms reasonably acceptable to us. Further, if we are unable to secure any additional financing then we plan to reduce the amount that we spend on our operations, including our management-related consulting fees and other general expenses, so as not to exceed the capital resources available to us. Regardless, our current cash reserves and working capital will not be sufficient for us to sustain our business for the next 12 months, even if we decide to scale back our operations.

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 currently is loans or investments by others in our common stock.

Intellectual Property

We do not own any intellectual property and we have not filed for any protection of our trademark.

Personnel

We have no employees. Our president and CEO, our COO and our Corporate Secretary received no compensation in the years ended December 31, 2019 and 2018 for their services, other than stock options issued in 2017, as detailed in Item 11 and $12,000 in consulting fees paid to our CEO in 2019. We expect to continue to use outside consultants, advisors, attorneys and accountants as necessary. See Item 10 for information regarding our officers and directors.

Government Regulations

We plan to engage in mineral exploration and are accordingly exposed to environmental risks associated with mineral exploration activity. LSG is currently in the exploration stage on the Property and, pursuant to the Option Agreement, once formal work plans are mutually agreed between us and LSG, we will be the operator.

In general, in Nevada, no government permits are required on mining claims for exploration activities which do not involve the use of powered equipment. Any disturbance of existing land and vegetation by powered means will generally require a permit which will specify that after work is completed land be re-contoured to the original surface and be seeded with native plant species. On unpatented claims with federally owned surface, a “Notice of Intent” must be filed with the BLM for all activities involving the disturbance of five acres (two hectares) or less of the surface. A Notice of Intent will include details on the company submitting the notice, maps of the proposed disturbance, equipment to be utilized, the general schedule of operations, a calculation of the total disturbance anticipated, and a detailed reclamation plan and budget. A bond will be required to ensure reclamation and the amount will be determined by the calculated acreage being disturbed. The notice does not have an approval process associated with it but the bond calculation does have to be approved with a letter from the BLM before work can proceed. It is not necessary to file a Notice of Intent prior to work on land with privately owned surface.

Measurement of land disturbance is cumulative, and once five acres total has been disturbed on one project, a “Plan of Operations” must be filed and approved by the BLM before additional work can take place. This too requires a cash bond along with a reclamation plan.

LSG is not required to file a Notice of Intent for the Property with the BLM; instead, it is required to file one with the Department of Environmental Protection of the State of Nevada (NDEP), since the only portion of the Property that has publicly-owned surface rights is that which overlaps the Goldfield town limits. This form of notice includes the same information as the BLM Notice of Intent except that a detailed reclamation plan, budget and bond are not required. The notice also has a very informal approval process associated with it.

LSG is currently operating under a Notice of Intent filed with the NDEP and dated January 2011. This is an open-ended permit that does not require bonding for reclamation and allows for a total of five acres of disturbance. We do not have any additional pending Notices of Intent.

To the best of our knowledge, there are no existing environmental liabilities on the Property. A detailed environmental investigation has not been conducted.

Results of Operations

The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended December 31, 2019 which are included with this Report. See the “Cautionary Note Regarding Forward Looking Statements” above for a discussion of forward-looking statements and the significance of such statements in the context of this Report.

We recorded a net loss of $296,887 for the year ended December 31, 2019, have an accumulated deficit of $3,001,261 and have had no operating revenues. The possibility and timing of revenue being generated from our mineral property interest is uncertain.

Revenues and Net Loss

Expenses

Our expenses for the years ended December 31, 2019 and 2018 are shown below:

Consulting services

We granted stock options to key corporate officers and outside consultants in 2017 and 2018. The related Consulting services expense for the year ended December 31, 2019 based on a Black-Scholes calculation was $10,562, compared to $57,912 in 2018, lower by approximately $47,000. That decrease was partially offset by $12,000 in consulting fees paid to our CEO in 2019, compared to $0 in 2018. The net of those two changes accounted for the majority of the total year over year decrease.

Interest, bank and finance charges

The increase in interest expense in 2019 was mainly due to a net increase of approximately $140,000 in interest-bearing loans and approximately $125,000 in interest-bearing amounts due to LSG for mineral option fees and accrued interest.

Professional fees

The majority of the decrease in Professional fees was the result of no equivalent in 2019 to a fee in 2018 from our previous auditors for reissuance of their 2016 audit report in connection with the comparative figures on our 2017 financial statements.

Assets and Liabilities

Balance Sheet items with notable year over year differences are as follows:

Cash increased due to the amount of cash provided by loans being approximately $4,000 more than the amount of cash used in operating activities.

Due to related parties and accrued interest increased due to the following:

Loans payable and accrued interest decreased due to repayment of loan principal totaling $6,000 and accrued interest of approximately $18,000.

Additional Paid-In Capital increased as a result of the current year expense of a portion of the value assigned to 0.5 million stock options issued November 20, 2018, calculated using the Black-Scholes option pricing model. The expense was charged to Consulting services.

Liquidity and Capital Resources

Our financial condition at December 31, 2019 and 2018 and the changes between those dates are summarized below:

Working Capital

Our working capital decreased, as expected, from December 31, 2018 to December 31, 2019, primarily due to ongoing funding from LSG, increasing our current liabilities. In current assets, the majority of the change was due to the increase in cash of approximately $4,000. In current liabilities, majority of the change was due to the increase in amounts due to related parties, comprised of accrued mineral option fees, related party loans, accrued interest, and expenses paid on our behalf by related parties, totaling approximately $312,000, partially offset by the decrease in non-related party loans and accrued interest of approximately $24,000. The changes in assets and liabilities noted here are explained in the Assets and Liabilities section above.

Cash Flows

As of the date of this report, we have yet to generate any revenues from our business operations. Our principal sources of working capital have been related party loans and funds received as subscriptions for our common stock. For the foreseeable future, we will continue to rely on those sources for funding. We have no assurance that we can successfully engage in any private sales of our securities or that we can obtain any additional loans.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Commitments

We do not have any commitments as of December 31, 2019 which are required to be disclosed in tabular form.

Critical Accounting Policies

Our critical accounting policies are mainly those subject to significant judgments and uncertainties which could potentially result in materially different results under different conditions and assumptions. We believe the following critical accounting policies reflect our most significant estimates, judgments and assumptions used in the preparation of our financial statements:

Use of Estimates and Assumptions

The preparation of financial statements, in conformity with US GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant areas requiring management’s estimates and assumptions are determining the fair value of transactions involving related parties and common stock. Actual results may differ from the estimates.

Foreign Currency Accounting

Our functional currency is the U.S. dollar. Branch office activities are generally in Canadian dollars. Transactions in Canadian currency are translated into U.S. dollars as follows:

Gains and losses arising on the settlement of foreign currency denominated transactions or balances are recorded in the statements of operations.

Income Taxes

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes. This standard requires the use of an asset and liability approach for financial accounting and reporting on income taxes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

In addition, and as a result of completing the Acquisition, we anticipate that the following critical accounting policies of LSG will also become our critical accounting policies:

Mineral Property

Mineral property interests are capitalized and recorded at fair value. The property interests are periodically assessed for impairment of value when facts and circumstances suggest that the carrying amount of the property interest may exceed its recoverable amount. Costs of exploration, evaluation and retaining mineral property interests are expensed as incurred. Once we have identified proven and probable reserves in our investigation of our property interests and upon development of a plan for operating a mine, we would enter the development stage and capitalize future costs until production is established. When a property reaches the production stage, the related capital costs will be amortized, using the units-of-production method over proven and probable reserves.

Reclamation Liabilities and Asset Retirement Obligations

Minimum standards for site reclamation and closure have been established by various government agencies that affect our operations. We calculate estimates of reclamation liabilities based on current laws and regulations. US GAAP requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. It further requires the recording of a liability for the present value of estimated environmental remediation costs and the related asset when a recoverable asset (long-lived asset) can be realized. To date, no asset retirement obligation exists due to the early stage of exploration. Accordingly, no liability has been recorded.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (“FASB”) or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial statements upon adoption.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

LODE-STAR MINING INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of
Lode-Star Mining Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Lode-Star Mining Inc. (the "Company") as at December 31, 2019 and 2018, the related statements of operations, cash flows, and changes in stockholders’ deficiency, for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

The accompanying financial statements referred to above have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred losses from operations since inception, has not attained profitable operations and is dependent upon obtaining adequate financing to fulfill its operating activities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We served as the Company's auditor from 2004 to 2014, and commencing again in 2017.

PO Box 10007, 1630 – 609 Granville Street, Vancouver, British Columbia, Canada V7Y 1A1 Tel: (604) 687 – 5841             Fax: (604) 687 – 0075             www.morgancollp.com

LODE-STAR MINING INC.
BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.

LODE-STAR MINING INC.
STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

LODE-STAR MINING INC.
STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

LODE-STAR MINING INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

The accompanying notes are an integral part of these financial statements.

LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

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 Reno, Nevada. 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 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 $3,001,261 as of December 31, 2019. 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.

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 and within the framework of the significant accounting policies summarized below:

The Company’s financial statements have been prepared using the accrual method of accounting. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.

Cash consists of cash on deposit with high quality, major financial institutions. For purposes of the balance sheets and statements of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of 90 days or less to be cash equivalents. At December 31, 2019 and 2018, the Company had no cash equivalents.

The Company’s functional currency is the U.S. dollar. Branch office activities are generally in Canadian dollars. Transactions in Canadian currency are translated into U.S. dollars as follows:

Gains and losses arising on the settlement of foreign currency denominated transactions or balances are recorded in the statements of operations.

LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

ASC Topic 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. These tiers include:

The Company’s financial instruments consist of cash, accounts payable and accrued liabilities, due to related parties, and loans payable. The Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. Accounts payable and accrued liabilities and loans payable are measured using “Level 2” inputs as there are no quoted prices in active markets for identical instruments. The carrying values of cash, accounts payable and accrued liabilities, and loans payable approximate their fair values due to the immediate or short term maturity of these financial instruments.

The Company has no asset retirement obligations, including environmental rehabilitation expenditures, which relate to an existing condition caused by past operations.

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions are determining the fair value of transactions involving related parties and common stock. Actual results may differ from the estimates.

The Company reports basic earnings or loss per share in accordance with ASC Topic 260, “Earnings Per Share”. Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during the period. As the Company generated net losses in the periods presented, the impact of including potential shares from outstanding warrants would be anti-dilutive and is therefore not part of the net loss per share calculation.

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes. This standard requires the use of an asset and liability approach for financial accounting and reporting on income taxes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

i)       Stock-Based Compensation

Stock-based compensation of employees is accounted for in accordance with ASC 718 whereby a compensation charge based on the fair value of the equity instruments issued, measured at the grant date, is recorded against earnings over the period during which the employee is required to perform the services in exchange for the award (generally the vesting period).

For transactions with non-employees in which services are performed in exchange for the Company’s common stock or other equity instruments, the transactions are accounted for in accordance with ASC 505-50, whereby the compensation charge is recorded on the basis of the fair value of the goods or services received or the fair value of the equity instruments granted, whichever is more reliably measurable at the earlier of the date at which a commitment for performance is reached or the date at which the performance is complete. The expense is recognized in the same manner as if the Company had paid cash for the goods or services.

Mineral property interests are capitalized and recorded at fair value. The property interests are periodically assessed for impairment of value when facts and circumstances suggest that the carrying amount of the property interest may exceed its recoverable amount. Costs of exploration, evaluation and retaining mineral property interests are expensed as incurred. Once the Company has identified proven and probable reserves in its investigation of its property interests and upon development of a plan for operating a mine, it would enter the development stage and capitalize future costs until production is established. When a property reaches the production stage, the related capital costs will be amortized, using the units-of-production method over proven and probable reserves.

In accordance with ASC 850, the Company discloses: the nature of the related party relationship(s) involved; a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

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.

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.

To earn the additional 60% interest, the Company was required to fund all expenditures on the Property and pay LSG an aggregate of $5 million in cash in the form of a net smelter royalty, commencing after December 11, 2014. If the Company fails to make any cash payments to LSG within one year of the date of the option agreement, it is required to pay LSG an additional $100,000, and in any subsequent years in which the Company fails to complete the payment of the entire $5 million, it must make quarterly cash payments to LSG of $25,000.

LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

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 December 31, 2019 was $523,913 (2018: $423,913), with total interest due in the amount of $57,413 (2018: $32,220).

On October 31, 2019, the Company and LSG executed an amendment (the “Amendment”) to their mineral option agreement dated October 4, 2014 (the “Option Agreement”). According to the terms of the Option Agreement 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.

Under the Amendment, the exercise of the 60% option was restructured into two separate 30% options, such that the Company may now earn a 30% interest in the Property (for a total of 50%) (the “Second Option”) by completing the following actions:

Following the exercise of the Second Option, the Company may earn an additional 30% interest in the Property (for a total of 80%) (the “Third Option”) by completing the following actions:

The primary effect of the Amendment is therefore to increase to the purchase price for the additional 60% interest in the Property from $5 million to $10 million, while at the same time separating it into tranches.

The Amendment also corrects a number of inconsistences in the Option Agreement, updates the defined terms to accommodate the creation of the Second Option and Third Option, and includes acknowledgements of the Company regarding accrued and unpaid penalty payments and amounts owing by the Company to LSG as of September 30, 2019.

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.

See Subsequent Events Note 9.

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.

No shares were issued during the year ended December 31, 2019. During the year ended December 31, 2018, the Company issued 1,478,140 common shares in exchange for debt totaling $48,778 owed to a related party, comprised of $40,205 in loans and $8,573 in accrued interest.

LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

Options

A total of 10,000,000 options are issued and outstanding, of which 9,750,000 were vested at December 31, 2019.

On November 20, 2018, the Company granted 500,000 non-qualified stock options pursuant to the Equity Incentive Plan, to keyoutside 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 year ended December 31, 2019, $10,562 (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 2.88%, a weighted average life of 5.00years, volatility of 195.37%, and dividend yield of 0%. The valuation used average weekly pricing. At December 31, 2019, the options had an intrinsic value of $7,000 ($2018 - $0) based on the exercise price of $0.06 per option and a market price of $0.074 per share.

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 had an estimated grant date fair value of $536,750. The options were fully amortized by the end of 2018 so for the year ended December 31, 2019, $0 (2018 - $56,572) 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 1.98%, a weighted average life of 4.837 years, volatility of 189.07%, and dividend yield of 0%. The valuation used average weekly pricing. At December 31, 2019, the options had an intrinsic value of $133,000 ($2018 - $0) based on the exercise price of $0.06 per option and a market price of $0.074 per share.

A summary of option activity in the current year and options outstanding at December 31, 2019 is as follows:

Warrants

During the years ended December 31, 2019 and 2018, no warrants to purchase shares of common stock were issued and no warrants were exercised. At December 31, 2019, warrants issued in 2015 had an intrinsic value of $180,147 (2018 - $6,672) based on the exercise price of $0.02 per warrant and a market price of $0.074 per share.

A summary of warrant activity in the current year and warrants outstanding at December 31, 2019 is as follows:

LODE-STAR MINING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

At December 31, 2019, the Company had the following loans payable:

At December 31, 2019, the Company had the following amounts due to related parties:

At December 31, 2019, total interest accrued on the above related party loans was $130,878 (2018: $89,810).

During the year ended December 31, 2019, there was a $185 foreign exchange loss (2018: $362) due to related party loan amounts in non-US currency. No stock-based compensation to related parties was incurred during the year ended December 31, 2019 (2018: $58,246).

During the year ended December 31, 2019, the Company incurred $100,000 (2018: $100,000) in mineral option fees payable to LSG, which have been accrued as of that date. The total amount of such fees due at December 31, 2019 was $523,913 (2018: $423,913), with total interest due in the amount of $57,414 (2018: $32,220).