ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
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 periods indicated below are as follows:
|
|
Quarter Ended
|
|
|
|
$
0.04
|
$
0.01
|
|
$
0.0275
|
$
0.015
|
|
$
0.05
|
$
0.02
|
|
$
0.11
|
$
0.03
|
|
|
Quarter Ended
|
|
|
|
$
0.10
|
$
0.01
|
|
$
0.15
|
$
0.03
|
|
$
0.55
|
$
0.03
|
|
$
0.20
|
$
0.03
|
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, 2015, we had 86 shareholders of record of our common stock.
Capitalization
On November 11, 2015, our board of directors and stockholders holding a majority of our voting shares authorized the following actions:
·
Adoption of an omnibus equity incentive plan for directors, officers, and consultants;
·
Adoption of Amended and Restated Articles of Incorporation filed with the Secretary of State of Nevada to effect the following:
▪
authorize our board of directors to change our corporate name to a name selected by our directors;
▪
establish corporate codes and committees of the board of directors;
▪
increase the number of shares of capital stock we are authorized to issue; and
▪
authorize the issuance of preferred stock with preferences, limitations, and relative rights designated by our board of directors.
▪
authorize indemnification agreements with directors and senior officers; and
▪
adopt a serial board of directors and other measures that are intended to be anti-takeover provisions.
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(continued)
|
On November 24, 2015, the board of directors authorized the following changes to our capitalization:
Our authorized capital was increased from 100,000,000 shares of common stock with a par value of $0.00001 per share to 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. No shares of preferred stock have been issued
to date.
There are no present plans, understandings or agreements, and we are not engaged in any negotiations that will involve the issuance of capital stock. However, the board of directors believes it prudent to have shares of common and preferred stock available for such corporate purposes as the board of directors may from time to time deem necessary and advisable including,
without limitation, acquisitions, the raising of additional capital and assurance of flexibility of action in the future.
We believe that the Amended and Restated Articles of Incorporation will provide a greater measure of flexibility and simplicity in corporate governance and will increase the marketability of our securities. Nevada has adopted a modern code governing the formation and operation of corporations. In addition, the Nevada law provides for greater flexibility in raising capital
and other corporate transactions. Nevada imposes no franchise taxes or corporate income taxes on corporations that are incorporated in Nevada.
Securities Authorized for Issuance under Equity Compensation Plans
As part of the November 24, 2015 changes to our capitalization, we reserved 10,000,000 shares of common stock for issuance under a new 2016 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 posted on our website at www.lodestarmining.com and is available to any stockholder by request to us. To date, 1,469,825 shares of common stock and warrants to purchase 3,336,060 shares of common stock have been issued under the Equity Incentive Plan. None of those warrants have been exercised.
Immediately upon the grant of any award, the number of shares that may be issued or optioned under the plan will be increased such that the total number of shares issuable under the plan and reserved for issuance upon exercise of outstanding options, warrants or conversion of shares of preferred stock will equal 10% of the total number of issued and outstanding shares.
Such increase in the number of shares subject to the plan shall occur without the necessity of any further corporate action of any kind or character.
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.
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(continued)
|
Recent Sales of Unregistered Securities
During the year ended December 31, 2015, we had no cash subscriptions for shares of its common stock.
On November 11, 2015, we entered into a one year agreement to obtain assistance in conducting business strategy and communications planning, public financial disclosure reporting, and various matters in connection with directors and other professionals as needed by us. In consideration for the services to be provided, we granted the consultant 1,469,825 shares of common
stock. Those shares were issued on December 11, 2015 and were valued at $29,397, based on market price at the date of the agreement. In addition, the consultant was granted warrants with a five year term, commencing the date of the agreement, to purchase 3,336,060 shares of common stock at a price of $0.02 per share, including a cashless exercise option. The warrants were valued at $66,721 using the Black-Scholes option pricing model.
The shares and warrants issued to the consultant were offered and sold in a private transaction in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act. Our reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which
did not involve a public offering; (b) there was only one offeree; (c) we did not engage in any subsequent or contemporaneous public offerings of securities; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the consultant and us.
On January 9, 2015, we reached agreements in connection with the loans to us of $24,696 (CAD $28,650) and $1,767 (CAD $2,050) whereby the loan amounts were to be converted to our common shares at a price of CAD $0.05, to result in the issuance of 573,000 and 41,000 common shares respectively. Those shares were issued on April 6, 2015.
On January 9, 2015, an agreement was reached to modify the terms of a loan to us such that $26,750 of accrued interest together with a premium was to be converted to our common shares at a price of $0.05 per share, to result in the issuance of 535,000 common shares. Those shares were issued on April 6, 2015.
Other than as described above, or as disclosed in previous reports filed on Forms 10-Q, 10-K or 8-K, we have not issued any equity securities that were not registered under the Securities Act within the past three years.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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.
Plan of Operations
We anticipate that we will require approximately $2 million to pursue our plan of operations over the next 12 months, as detailed below:
Permitting
Our primary focus now is on the mine permitting process. We have retained the following specialists in underground permitting of narrow vein, high sulphide mines to assist in executing that permitting process:
·
Rubicon Environmental Consulting to act as the lead consultant
·
Hydrogeologica Inc. to consult on water and geology
·
Tierra Group International to consult on mine planning and engineering
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(continued)
|
Unique to our permitting is the proposed underground area of work named the Red Hills Stope Zone. It is 150 feet above the 450 foot deep water table, making the mine essentially a dry mine.
The mine’s 300 foot level workings has pockets of unused volume where our potentially acid generating waste rock can be stored. This means no waste rock will come to the surface and LSM will avoid, for the short-term, the expense of having to build and maintain a surface storage facility.
We are hopeful that the two aforementioned mitigating circumstances will make our permitting process more rapid and therefore, the costs of execution and infrastructure improvements will be kept at a minimum.
Permitting costs are anticipated as follows:
Rubicon
|
$40,000
|
Hydrogeologica
|
$135,000
|
Tierra
|
$75,000
|
State / NDEP
|
|
Total
|
$250,000
|
Site and Equipment Preparation
Funds required for development and output from the Red Hills Vein Zone are as follows:
Surface Infrastructure, Mine Support & Personnel Accommodation
Office/Shop Building (existing)
|
$0
|
Trailer Accommodations
|
$60,000
|
Contingency
|
$40,000
|
Total
|
$100,000
|
Equipment and Mining Material
Pneumatic Jacklegs (6)
|
$24,000
|
Pneumatic Slusher/with bucket (used) (4)
|
$80,000
|
Pneumatic Tugger (used) (2)
|
$10,000
|
1-Yard Scoop (used)
|
$208,000
|
Stopers/Buzzies (4)
|
$8,000
|
Schwing Pump
|
$10,000
|
Compressor
|
$60,000
|
Hoist Rehab & Retrofitting
|
$100,000
|
Total
|
$500,000
|
Underground Rehab & Preliminary Mine Development
Labor - 3.75 man crew x 10 hrs/day x 1 month
|
$31,428
|
Equipment Maintenance
|
$38,212
|
Ground Support
|
$20,000
|
Consumables – small hand tools
|
$1,000
|
Utilities
|
$19,600
|
Total
|
$110,240
|
Ore Grade Control
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(continued)
|
Red Hills Vein Zone Mining
Labor – 3.75 man crew x 10 hrs/day x 5 months
|
$145,620
|
Timber
|
$13,200
|
Equipment Maintenance
|
$28,320
|
Ground Support
|
$13,400
|
Explosives
|
$10,665
|
Backfill Material
|
$46,454
|
Consumables - small hand tools
|
$5,000
|
Utilities
|
$4,835
|
Total
|
$267,494
|
General Corporate and Administration Fees
Personnel
|
$320,000
|
Regulatory
|
$120,000
|
General
|
$280,000
|
Total
|
$720,000
|
Toll Milling
We have no facilities to process ore and are negotiating with local mill operators to have our ore processed.
Funding
We do not currently have sufficient funds to carry out our entire plan of operations, so we intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private placements. Currently we are active in contacting broker/dealers regarding possible financing arrangements; however,
we do not currently have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings.
If we are unsuccessful in obtaining sufficient funds through our capital raising efforts, we may review other financing options, although we cannot provide any assurance that any such options will be available to us or on terms reasonably acceptable to us. Further, if we are unable to secure any additional financing then we plan to reduce the amount that we spend
on our operations, including our management-related consulting fees and other general expenses, so as not to exceed the capital resources available to us. Regardless, our current cash reserves and working capital will not be sufficient for us to sustain our business for the next 12 months, even if we decide to scale back our operations.
Going Concern
Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our expenses. This is because we have not generated any revenues to date and we cannot currently estimate the timing of any possible future revenues. Our only source
for cash at this time is investments by others in our common stock, or loans.
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, Mark Walmesley, receives no compensation for his services. We expect to continue to use outside consultants, advisors, attorneys and accountants as necessary.
Robert Baker, our former Corporate Secretary and Director, resigned from his positions with us effective April 17, 2015. Mr. Baker was previously our President and CEO.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(continued)
|
On January 19, 2015, Thomas Temkin was appointed as Chief Operating Officer and to the Board of Directors. Mr. Temkin is a Certified Professional Geologist and a Qualified Person under National Instrument (NI) 43101, with more than 38 years of experience in the mining industry, primarily in exploration in the Western United States. He is currently a consulting geologist
working with LSG. Mr. Temkin has been associated with LSG and the Property for over 15 years and has been instrumental through its entire exploration program to date.
On April 22, 2015, Pam Walters was appointed as our Corporate Secretary to replace Robert Baker. Ms. Walters has been associated with the mining industry for over 25 years and has managed the corporate finance and business operations of LSG and its owners.
Other than our three officers, who currently receive no compensation from us, we have no employees. We plan to rely on the efforts of our officers and directors, as well as a number of independent consultants, to manage our operations. However, we may hire workers on a contract basis from time to time as the need arises.
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 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.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(continued)
|
Results of Operations
The following summary of our results of operations should be read in conjunction with our
restated audited financial statements for the year ended December 31, 2015 which are included with this Report. 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.
Revenues
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
-
|
Operating Expenses
|
390,796
|
169,665
|
221,131
|
130
%
|
Operating Loss Before Other Income (Expense)
|
(390,796
)
|
(169,665
)
|
(221,131
)
|
130
%
|
Other Income (Expense)
|
(20,525
)
|
51,248
|
(71,773
)
|
(140
%)
|
Net Loss
|
$
(411,321
)
|
$
(118,417
)
|
$
(292,904
)
|
247
%
|
We recorded a net loss of $
411,321
for the year ended December 31, 2015, have an accumulated deficit of $
1,412,024
and have had no operating revenues since our inception on December
9, 2004. The possibility and timing of revenue being generated from our mineral property interest is uncertain.
Expenses
Our expenses for the years ended December 31, 2015 and 2014 are outlined below:
|
|
|
|
|
|
|
|
Consulting services
|
$
121,409
|
$
60,653
|
$
60,756
|
100
%
|
Corporate support services
|
12,759
|
2,594
|
10,165
|
392
%
|
Interest, bank and finance charges
|
20,525
|
10,015
|
10,510
|
105
%
|
Mineral option fees
|
123,913
|
-
|
123,913
|
-
|
Office, foreign exchange and sundry
|
10,136
|
(913
)
|
11,049
|
1,210
%
|
Professional fees
|
94,783
|
92,861
|
1,922
|
2
%
|
Transfer and filing fees
|
27,796
|
14,470
|
13,326
|
92
%
|
Total Operating and Other Expenses
|
$
411,321
|
$
179,680
|
$
231,641
|
129
%
|
Consulting services
Approximately $25,000 was incurred in 2015 for consulting services to maintain a solid corporate and marketing presence in Vancouver, Canada. This was required as Vancouver is a major Canadian centre for the mining industry, the majority of our shareholders (other than LSG) are located in Canada, and our CEO is now located in Houston, Texas. In addition, a consulting
agreement was entered into in 2015 for a range of business development services, accounting for approximately a further $96,000 in consulting services costs. The 2014 consulting expense was comprised of amounts paid to our former President and CEO under the terms of a consulting agreement which was terminated after July, 2014.
Corporate support services
Approximately $5,000 was incurred with our provider of corporate support services in Vancouver, compared to approximately $3,000 in 2014, with the increase being due to a higher level of activity related to regulatory filings and share issuances in 2015. In addition, $8,000 was incurred for services from the Depository Trust Company in 2015, with no equivalent in the
prior year.
Interest, bank and finance charges
The increase in interest expense in 2015 was due to a net increase of approximately $206,000 in interest-bearing loans during the year.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(continued)
|
Mineral option fees
Approximately $124,000 of mineral option fees were payable at December 31, 2015 under the terms of our Mineral Option Agreement with LSG. No such fees were due under the terms of that agreement at December 31, 2014.
Office, foreign exchange and sundry
Key items that resulted in the year over year increase in this expense category were approximately $2,000 for licenses and permits to the State of Nevada ($Nil in 2014) in connection with our activities related to our mineral property interest located there, and approximately $8,000 related to tradeshows, including accommodation and travel ($Nil in 2014).
Transfer and filing fees
Transfer agent fees increased approximately $3,000 in 2015 compared to the prior year, due mainly to there being four separate share issuances in 2015 versus one issuance in 2014. In addition, a $10,000 fee was required to be paid to OTC Markets Group in order to have our stock continue to be designated as trading on the OTCQB marketplace and to subscribe to certain OTC
Markets Groups’ services. This is now an annual requirement, but there was no equivalent in 2014.
Assets and Liabilities
Balance Sheet items with notable year over year differences are as follows:
|
|
|
|
|
|
|
|
Cash
|
$
12,456
|
$
5,372
|
$
7,084
|
132
%
|
Prepaid fees
|
$
3,217
|
$
-
|
$
3,217
|
-
|
Accounts payable and accrued liabilities
|
$
14,302
|
$
38,397
|
$
(24,095
)
|
(63
%)
|
Due to related parties
|
$
495,384
|
$
139,353
|
$
356,031
|
255
%
|
Loans payable
|
$
76,180
|
$
135,825
|
$
(59,645
)
|
(44
%)
|
Additional Paid-In Capital
|
$
1,070,064
|
$
922,215
|
$
147,849
|
16
%
|
·
Cash
increased due to the amount of cash provided by loans being approximately $7,000 higher than the amount of cash used by operating activities.
·
Prepaid fees
increased due to a $20,000 retainer for legal services being paid in 2015, of which approximately $17,000 was expensed and included in accrued liabilities for services incurred during the year.
·
Accounts payable and accrued liabilities
decreased mainly due to the following items:
°
Legal fees payable increased approximately $3,000, primarily due to advice required in 2015 with respect to filing of US tax returns
°
Accounting and audit fees payable decreased approximately $6,000, primarily as a result of 2014 balances of approximately $12,000 due to our previous auditors being paid off, offset by 2015 accruals of $4,000 for our new auditors and approximately $2,000 for an accounting consultant
°
Fees due to our former president and CEO of approximately $15,000 were paid off in 2015
°
A total of approximately $6,000 in 2014 payables, comprised of IT consulting services, Corporate support services, and miscellaneous expenses due to our current CEO were paid off in 2015.
·
Due to related parties
increased due to the following:
°
the accrual of mineral option fees due to LSG totaling approximately $124,000;
°
net cash loan advances from related parties of approximately $167,000;
°
accrued loan interest of approximately $12,000, and
°
expenses (net of foreign exchange) paid by a related party on our behalf of approximately $52,000
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(continued)
|
·
Loans payable
decreased due to the following:
°
accrued interest of approximately $7,000, offset by
°
shares issued for debt totaling approximately $26,000;
°
shares issued for accrued loan interest totaling approximately $27,000; and
°
repayment of loan principal totaling approximately $14,000,
·
Additional Paid-In Capital
increased by:
°
approximately $53,000, which was the accounting value of shares issued in three debt settlements, less their par value of $12, and
°
approximately $95,000, which was the total accounting value of shares issued and warrants granted as compensation for consulting services, less their par value of $1,470
Liquidity and Capital Resources
Our financial condition for the years ended December 31, 2015 and 2014 and the changes between those periods for the respective items are summarized below:
As of December 31, 2015, our total assets were $245,853 (2014 - $235,552) and our total liabilities were $
585,866
(2014 - $313,575). At December 31, 2015, we had cash of $12,456 (2014 - $5,372) and negative working capital of $570,193 (2014 - $308,203).
Working Capital
|
|
|
|
|
|
|
|
Current Assets
|
$
15,673
|
$
5,372
|
$
10,301
|
192
%
|
Current Liabilities
|
585,866
|
313,575
|
272,291
|
87
%
|
Working Capital (Deficiency)
|
$
(570,193
)
|
$
(308,203
)
|
$
(261,990
)
|
85
%
|
The decrease in our working capital from December 31, 2014 to December 31, 2015 was due to increases in cash of approximately $7,000 and prepaid fees of approximately $3,000, together with a decrease in accounts payable and accrued liabilities of approximately $24,000
and in loans payable of approximately $60,000, all offset by accrued mineral option fees of approximately $124,000 and a net increase in loans, accrued interest, and expenses paid on our behalf by related parties totaling approximately $231,000.
Cash Flows
|
|
|
|
|
|
|
|
Cash Flows Provided By (Used In):
|
|
|
|
|
|
$
(146,316
)
|
$
(148,962
)
|
$
2,646
|
2
%
|
|
|
|
|
|
|
153,400
|
154,313
|
(913
)
|
1
%
|
|
|
|
|
|
|
$
7,084
|
$
5,351
|
$
1,733
|
32
%
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
|
Cash Used In Operating Activities:
Cash used in operating activities remained static year over year. The year over year change in net loss of approximately
$293,000
was largely offset by the net year over year differences in the changes in: payables and accrued liabilities of approximately $12,000; prepaid expenses of approximately
($3,000); accrued interest payable of approximately $10,000; gain on debt forgiveness of approximately $61,000
; accrued mineral option fees of approximately $124,000,
stock and warrants issued for consulting services of approximately $96,000; and foreign exchange gain of approximately ($5,000).
Cash Provided By Financing Activities:
Cash provided by financing activities also remained essentially flat year over year, with related parties providing approximately a net $167,000 to fund operating cash requirements of approximately $146,000 and repayment of non-related party loans of $14,000, leaving an increase of approximately $7,000 for the year.
As of the date of this report, we have yet to generate any revenues from our business operations. Our ability to generate adequate amounts of cash to meet our needs is entirely dependent on the issuance of shares or receipt of loans.
Our principal sources of working capital have been loans and funds received as subscriptions for our common stock. For the foreseeable future, we will have to continue to rely on those sources for funding. We have no assurance that we can successfully engage in any further private sales of our securities or that we can obtain any additional loans.
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, 2015 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.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
|
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:
·
monetary items at the exchange rate prevailing at the balance sheet date;
·
non-monetary items at the historical exchange rate; and
·
revenue and expense items at the rate in effect of the date of transactions.
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.
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
LODE-STAR MINING INC.
(formerly International Gold Corp.)
FINANCIAL STATEMENTS (RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
Report of
Independent Registered Public Accounting Firm
|
F-1
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
F-3
|
|
|
Restated Statements of Operations
|
F-4
|
|
|
Restated Statements of Cash Flows
|
F-5
|
|
|
Restated Statements of Stockholders’ Deficiency
|
F-6
|
|
|
Restated Notes to Financial Statements
|
F-7
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Lode-Star Mining, Inc.
Cypress, TX
We have audited the accompanying balance sheet of Lode-Star Mining, Inc. (the “Company”) as of December 31, 2015, and the related statement of operations, shareholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lode-Star Mining, Inc. as of December 31, 2015, and the results its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has had no revenue and has incurred accumulated losses since inception. These conditions raise significant doubt about the Company’s ability to continue as a going concern. Management’s
plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 2, the financial statements for the year ended December 31, 2015 have been restated to include the accrual of mineral option fees.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
March 29, 2016
, except for the effects of the restatement discussed in Note 2 as to which the date is August 10, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors and Stockholders of
Lode-Star Mining Inc. (formerly International Gold Corp.)
We have audited the accompanying balance sheet of Lode-Star Mining Inc. (formerly International Gold Corp.) (the “Company”) as of December 31, 2014, and the related statements of operations, cash flows and stockholders’ deficiency for year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has negative operating cash flows, has a stockholders’ deficiency and is dependent upon obtaining adequate financing to fulfill its business activities. These
factors raise substantial doubt about its 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.
Vancouver, Canada
|
|
|
|
March 28, 2016
|
Chartered Professional Accountants
|
LODE-STAR MINING INC.
(formerly International Gold Corp.)
BALANCE SHEETS (RESTATED)
(Stated in U.S. Dollars)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
|
|
|
Cash
|
$
12,456
|
$
5,372
|
Prepaid fees
|
3,217
|
-
|
|
15,673
|
5,372
|
|
|
|
Mineral Property Interest
|
230,180
|
230,180
|
|
$
245,853
|
$
235,552
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current
|
|
|
Accounts payable and accrued liabilities
|
$
14,302
|
$
38,397
|
Due to related parties
|
495,384
|
139,353
|
Loans payable
|
76,180
|
135,825
|
|
585,866
|
313,575
|
Contractual Obligations, Commitments And Subsequent Events (Notes
4, 8 and 10)
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
Capital Stock
|
|
|
Authorized:
|
|
|
480,000,000 voting common shares with a par value of $0.001 per share
|
|
|
20,000,0000 preferred shares with a par value of $0.001 per share
|
|
|
Issued:
|
|
|
49,127,825 common shares at December 31, 2015 (46,509,000 common
shares at December 31, 2014)
|
1,947
|
465
|
|
|
|
Additional Paid-In Capital
|
1,070,064
|
922,215
|
Accumulated Deficit
|
(1,412,024
)
|
(1,000,703
)
|
|
(340,013
)
|
(78,023
)
|
|
|
|
|
$
245,853
|
$
235,552
|
The accompanying notes are an integral part of these financial statements.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
STATEMENTS OF OPERATIONS
(RESTATED)
(Stated in U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
|
|
|
Operating Expenses
|
|
|
Consulting services
|
121,409
|
60,653
|
Corporate support services
|
12,759
|
2,594
|
Mineral option fees
|
123,913
|
-
|
Office, foreign exchange and sundry
|
10,136
|
(913
)
|
Professional fees
|
94,783
|
92,861
|
Transfer and filing fees
|
27,796
|
14,470
|
|
390,796
|
169,665
|
|
|
|
Operating Loss Before Other Income (Expense)
|
(390,796
)
|
(169,665
)
|
|
|
|
Other Income (Expense)
|
|
|
Gain on debt forgiveness
|
-
|
61,263
|
Interest, bank and finance charges
|
(20,525
)
|
(10,015
)
|
|
(20,525
)
|
51,248
|
|
|
|
Net Loss For The Year
|
$
(411,321
)
|
$
(118,417
)
|
|
|
|
Basic And Diluted Loss Per Common Share
|
$
(0.01
)
|
$
(0.01
)
|
|
|
|
Weighted Average Number Of Common Shares Outstanding
|
47,436,336
|
13,426,808
|
The accompanying notes are an integral part of these financial statements.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
STATEMENTS OF CASH FLOWS
(RESTATED)
(Stated in U.S. Dollars)
|
|
|
|
|
|
|
|
Cash Provided By (Used In)
|
|
|
|
|
|
Operating Activities
|
|
|
Net loss for the year
|
$
(411,321
)
|
$
(118,417
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
Foreign exchange (gain)
|
(4,791
)
|
-
|
Stock issued for services
|
29,397
|
-
|
Warrants issued for services
|
66,721
|
-
|
Gain on debt forgiveness
|
-
|
(61,263
)
|
Changes in operating assets and liabilities:
|
|
|
Prepaid expenses
|
(3,217
)
|
-
|
Accounts payable and accrued liabilities
|
33,194
|
21,584
|
Due to related party
|
123,913
|
-
|
Accrued interest payable
|
19,788
|
9,134
|
|
(146,316
)
|
(148,962
)
|
|
|
|
Financing Activities
|
|
|
Repayment of loans payable
|
(14,000
)
|
-
|
Repayment of loans payable – related party
|
(5,000
)
|
-
|
Proceeds from loans payable
|
-
|
17,484
|
Proceeds from loans payable – related party
|
172,400
|
136,829
|
|
153,400
|
154,313
|
|
|
|
Net Increase In Cash
|
7,084
|
5,351
|
|
|
|
Cash, Beginning Of Year
|
5,372
|
21
|
|
|
|
Cash, End Of Year
|
$
12,456
|
$
5,372
|
|
|
|
Supplemental Disclosure Of Cash Flow Information
|
|
|
Cash paid during the year for:
|
|
|
Interest
|
$
-
|
$
-
|
Income taxes
|
$
-
|
$
-
|
|
|
|
Non-cash Financing Activity
|
|
|
Expenses paid by related party on behalf of the Company
|
$
57,289
|
-
|
Common shares issued for debt settlements
|
$
53,213
|
$
-
|
Common shares issued for mineral property interest
|
$
-
|
$
230,180
|
The accompanying notes are an integral part of these financial statements.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
11,509,000
|
$
115
|
$
692,385
|
$
(882,286
)
|
$
(189,786
)
|
|
|
|
|
|
|
Shares issued for mineral property interest
|
35,000,000
|
350
|
229,830
|
-
|
230,180
|
|
|
|
|
|
|
|
-
|
-
|
-
|
(118,417
)
|
(118,417
)
|
|
|
|
|
|
|
Balance, December 31, 2014
|
46,509,000
|
465
|
922,215
|
(1,000,703
)
|
(78,023
)
|
|
|
|
|
|
|
|
1,149,000
|
12
|
53,201
|
-
|
53,213
|
Shares issued for consulting services
|
1,469,825
|
1,470
|
27,927
|
-
|
29,397
|
Warrants issued for consulting services
|
-
|
-
|
66,721
|
-
|
66,721
|
|
-
|
-
|
-
|
(411,321
)
|
(
411,321
)
|
|
|
|
|
|
|
Balance, December 31, 2015
|
49,127,825
|
$
1,947
|
$
1,070,064
|
$
(
1,412,024
)
|
$
(
340,013
)
|
The accompanying notes are an integral part of these financial statements.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
1.
|
BASIS OF PRESENTATION AND NATURE OF OPERATIONS - Restated
|
Organization
Lode-Star Mining Inc. (formerly International Gold Corp.) (“the Company”) was incorporated in the State of Nevada, U.S.A., on December 9, 2004. The Company’s principal executive offices are located in Cypress, Texas. The Company was originally formed for the purpose of acquiring exploration stage natural resource properties. The Company acquired a mineral property
interest from Lode Star Gold Inc., a private Nevada corporation (“LSG”) on December 11, 2014 (See Note
4) 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.
On May 12, 2015, International Gold Corp. completed a merger with its wholly owned subsidiary, Lode-Star Mining Inc., and formally assumed the subsidiary’s name by filing Articles of Merger with the Nevada Secretary of State (the “Name Change”). The subsidiary was incorporated entirely for the purpose of effecting the Name Change and the merger did not affect the Company’s
corporate structure in any other way.
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
restated accumulated losses of $1,412,024for the period from December 9, 2004 (inception) to December 31 2015. There is no assurance that management’s plans to seek additional capital through private placements of its common stock will be realized, and these factors cast substantial doubt upon the use of the going concern assumption. 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.
2.
|
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
|
Subsequent to the original issuance of the Company’s annual financial statements, the Company determined that mineral option fees totaling $123,913 owing under the terms of its Mineral Option Agreement with LSG dated October 4, 2014 had not, but should have been accrued at December 31, 2015. While a deferral of the actual payment to June 18, 2016 had been granted by LSG in November, 2015, the fees still needed to be accrued as long as they remained
unpaid. A second deferral was later granted by LSG on June 15, 2016, extending the repayment date to January 18, 2017. On review, the Company determined that the amount was material and a restatement was required.
No fees were required to be accrued at December 31, 2014 in accordance with the terms of the agreement.
The following financial statement items were affected by the restatement:
Balance Sheet
|
|
|
|
|
|
Due to related parties
|
$
371,471
|
$
123,913
|
$
495,384
|
Current liabilities
|
$
461,953
|
$
123,913
|
$
585,866
|
Accumulated Deficit
|
$
(1,288,111
)
|
$
(123,913
)
|
$
(1,412,024
)
|
Stockholders’ Deficiency
|
$
(216,100
)
|
$
(123,913
)
|
$
(340,013
)
|
Statement of Operations
|
Year Ended December 31, 2015
|
|
|
|
|
Mineral option fees
|
$
-
|
$
123,913
|
$
123,913
|
Operating Loss Before Other Income (Expense)
|
$
(266,883
)
|
$
(123,913
)
|
$
(390,796
)
|
Net Loss For The Year
|
$
(287,408
)
|
$
(123,913
)
|
$
(411,321
)
|
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS (RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
2.
|
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
(Continued)
|
Statement of Cash Flows
|
Year Ended December 31, 2015
|
|
|
|
|
Net loss for the year
|
$
(287,408
)
|
$
(123,913
)
|
$
(411,321
)
|
Due to related party
|
$
-
|
$
123,913
|
$
123,913
|
Statement of Stockholders’ Deficiency
|
Year Ended December 31, 2015
|
|
|
|
|
Net loss for the year
|
$
(287,408
)
|
$
(123,913
)
|
$
(411,321
)
|
Balance, December 31, 2015
|
$
(216,100
)
|
$
(123,913
)
|
$
(340,013
)
|
3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
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.
|
b)
|
Cash and Cash Equivalents
|
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, 2015 and 2014, the Company had no cash equivalents.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued
)
|
|
c)
|
Foreign Currency Accounting
|
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:
i)
monetary items at the exchange rate prevailing at the balance sheet date;
ii)
non-monetary items at the historical exchange rate; and
iii)
revenue and expense items at the rate in effect of the date of transactions.
Gains and losses arising on the settlement of foreign currency denominated transactions or balances are recorded in the statements of operations.
|
d)
|
Fair Value of Financial Instruments
|
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:
▪
Level 1 – defined as observable inputs such as quoted prices in active markets;
▪
Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
▪
Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s financial instruments consist of cash, accounts payable and accrued liabilities, 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.
|
e)
|
Asset Retirement Obligations
|
The Company has no asset retirement obligations, including environmental rehabilitation expenditures, which relate to an existing condition caused by past operations.
|
f)
|
Use of Estimates and Assumptions
|
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.
|
g)
|
Basic and Diluted Earnings Per Share
|
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. Diluted earnings per share is computed similarly, except that the
common stock number is increased to include the any potential additional common shares, for example from the exercise of options or warrants. As the Company generated net losses in the periods presented, the additional impact of including potential shares from outstanding warrants would be anti-dilutive and is therefore not part of the earnings per share calculation.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued
)
|
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.
|
i)
|
Stock-Based Compensation
|
Stock-based compensation is accounted for in accordance with ASC 718 whereby a compensation charge based on the fair value of the award 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 recorded on the basis of the fair value of the service received or the fair value of the equity instruments issued, whichever is more readily measurable at the date of issuance. The expense is recognized over the vesting period of the award.
|
j)
|
Mineral Property Interest and Impairment
|
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.
|
k)
|
Recent Accounting Pronouncements
|
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.
4.
|
MINERAL PROPERTY INTEREST - Restated
|
On December 5, 2014, the Company entered into a subscription agreement (the “Subscription Agreements”) with Lode Star Gold Inc. (“LSG”), a private Nevada corporation controlled by the spouse of the Company’s current President, pursuant to which the Company agreed to issue 35,000,000 shares of its common stock, valued at $230,180, to
LSG in exchange for a 20% undivided interest in and to the mineral claims owned by LSG. The mineral claims, known as the “Goldfield Bonanza Project” (the “Property”), are located in the State of Nevada.
The execution of the Subscription Agreement was one of the closing conditions of an Option Agreement dated October 4, 2014, pursuant to which the Company acquired the sole and exclusive option to earn up to an 80% undivided interest in and to the Property. In order to earn the additional 60% interest in the Property, the Company is required to fund all expenditures
on the Property and pay LSG an aggregate of $5 million in cash in the form of a net smelter royalty, each beginning on the Closing Date, which was December 11, 2014. Until such time as 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.
If the Company fails to make any cash payments to LSG within one year of the Effective Date of the Mineral Option Agreement with LSG dated October 4, 2014, 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 described above, it must make quarterly cash payments to LSG of $25,000 until such time as the Company has earned the additional
60% interest in the Property. At December 31, 2015 $123,913 in fees payable to LSG has been accrued.
Given that permitting for operations on the Property is still to be completed, at the request of the Company’s management, LSG granted, by a letter of agreement dated November 10, 2015, a deferment of the payment to June 18, 2016. A further deferment, to January 18, 2017, was granted by LSG on June 15, 2016.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
4.
|
MINERAL PROPERTY INTEREST
- Restated
(Continued)
|
In addition, the Option Agreement provides that the Company will act as the operator on the Property and that a management committee will be formed, comprised of representatives from the Company and LSG, with voting based on each party’s proportionate interest, to supervise exploration of the Property and approve work programs and budgets. To December
31, 2015, no work programs had been approved.
The Company assessed its mineral property interest at December 31, 2015 and to the date of these financial statements and concluded that facts and circumstances do not suggest that the mineral property interest’s carrying value exceeds its recoverable amount and therefore no impairment is required.
During the year ended December 31, 2015, the Company had no cash subscriptions for shares of its common stock.
On November 11, 2015, the Company entered into a one year agreement to obtain assistance in conducting business strategy and communications planning, public financial disclosure reporting, and various matters in connection with directors and other professionals as needed by the Company. In consideration for the services to be provided, the Company granted the consultant
1,469,825 shares of common stock. Those shares were issued on December 11, 2015 and were valued at $29,397, based on market price at the date of the agreement. In addition, the consultant was granted warrants with a five year term, commencing the date of the agreement, to purchase 3,336,060 shares of common stock at a price of $0.02
per share, including a cashless exercise option. The warrants were valued at $66,721 using the Black-Scholes option
pricing model with an average risk-free rate of 1.68%, estimated life of 5 years, volatility of 208.7% and dividend yield of 0%.
On January 9, 2015, agreements were reached in connection with the loans of $24,696 (CAD $28,650) and $1,767 (CAD $2,050) whereby the loan amounts were to be converted to Company shares at a price of CAD $0.05, to result in the issuance of 573,000 and 41,000 common shares respectively. Those shares were issued on April 6, 2015.
On January 9, 2015, an agreement was reached to modify the terms of a loan such that $26,750 of accrued interest together with a premium was to be converted to Company shares at a price of $0.05 per share, to result in the issuance of 535,000 common shares. Those shares were issued on April 6, 2015.
During the year ended December 31, 2014, the Company received no cash subscriptions for shares of its common stock, however, on December 11, 2014, the Company issued 35,000,000 shares, valued at $230,180, in exchange for the mineral property interest described in Note
4.
Capitalization
On November 24, 2015, the board of directors authorized the following changes to the capitalization of the Company:
The authorized capital was increased from 100,000,000 shares of common stock with a par value of $0.00001 per share to 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 new 2016 Omnibus Equity Incentive Plan. To date, warrants to purchase 3,336,060 shares of common stock have been issued under the Equity Incentive Plan and none of those warrants have been exercised.
No preferred shares have been issued to the date of issue of these financial statements.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
5.
|
CAPITAL STOCK
(Continued)
|
Warrants
Summary of warrant activity and warrants outstanding at December 31, 2015:
|
|
Number of Warrants
|
|
|
Exercise Price
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Life Remaining
(Years)
|
|
|
Expiry Date
|
|
Balance, December 31, 2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
3,336,060
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
3,336,060
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
4.86
|
|
|
November 10, 2020
|
|
At December 31, 2015, the Company had the following loans payable:
i)
$1,000 (December 31, 2014 - $5,000): unsecured; interest at 15% per annum; originally due on April 20, 2012.
·
On March 19, 2015, $4,000 was paid by the Company in partial settlement of the December 31, 2014 principal balance.
ii)
$65,000 (December 31, 2014 - $75,000): unsecured; interest at 10% per annum from January 10, 2015.
·
$27,500, and any accrued interest was due and payable on written demand in full (not received to date) on the earlier of June 9, 2015 or the date on which the Company completes one or more debt or equity financings that generate aggregate gross proceeds of at least $250,000;
·
The balance of the outstanding principal, or $37,500, and any accrued interest was due and payable on written demand in full (not received to date) on January 9, 2016; and
·
The Company shall have the right to repay all or any part of the Principal and any accrued interest to the Lender at any time and from time to time, without any premium.
iii)
$40,789 (December 31, 2014 - $34,160): unsecured; interest at 5% per annum; with no specific terms of repayment, due to a related party, the president of the Company.
iv)
$290,000 (December 31, 2014 - $100,000): unsecured; interest at 5% per annum from January 1, 2015; with no specific terms of repayment, due to a related party, LSG, the Company’s majority shareholder.
v)
$23,966 (December 31, 2014 - $Nil): unsecured; interest at 5% per annum; with no specific terms of repayment, due to a related party, LSG, the Company’s majority shareholder.
vi)
$3,613 (December 31, 2014 - $4,310): unsecured; non-interest bearing; with no specific terms of repayment, due to a related party, the controlling shareholder of LSG.
vii)
$Nil (December 31, 2014 - $24,696): unsecured; non-interest bearing; with no specific terms of repayment (converted on January 9, 2015 to 573,000 common shares that were issued on April 6, 2015).
viii)
$Nil (December 31, 2014 - $1,767): unsecured; non-interest bearing; with no specific terms of repayment (converted on January 9, 2015 to 41,000 common shares that were issued on April 6, 2015).
As of December 31, 2015, interest totaling $23,283 (December 31, 2014 - $30,244) was accrued on the above loan amounts.
7.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE - Restated
|
Transactions with related parties were in the normal course of operations and have been valued in these financial statements at the exchange amount, which is the amount of consideration agreed to and established by the related parties.
At December 31, 2015, $Nil (December 31, 2014 - $15,300) included in accounts payable was due to a company controlled by a former director and president of the Company.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
7.
|
RELATED PARTY TRANSACTIONS AND AMOUNTS DUE
- Restated
(Continued)
|
At December 31, 2015, accrued interest was due to related parties in connection with loans detailed above in Note
6, as follows:
iii)
$2,609 (December 31, 2014 - $883) to the president of the Company.
iv)
$10,157 (December 31, 2014 - $Nil) to the majority shareholder of the Company.
v)
$336 (December 31, 2014 - $Nil) to the majority shareholder of the Company.
During the year ended December 31, 2015, the Company incurred $123,913 (2014 - $Nil) in mineral option fees payable to LSG, which have been accrued as of that date.
During the year ended December 31, 2015, the Company incurred $Nil (2014 - $60,653) in consulting fees and expenses to a former director and president of the Company. See Note
8.
8.
|
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
|
See Note
4for details about the Company’s obligations and commitments regarding its Mineral Property Interest.
Effective July 1, 2012, the Company entered into a consulting agreement whereby the former sole director and officer of the Company was to provide services as the Company’s CEO, COO, CFO and Corporate Secretary. The consulting agreement, which would otherwise have extended to June 2016, was terminated with immediate effect in accordance with a settlement agreement
dated December 5, 2014.
·
Under the terms of that settlement agreement, the Company agreed to pay an aggregate of $34,000 CAD.
·
Of that amount, $Nil was outstanding and included in accounts payable at December 31, 2015 (December 31, 2014: $15,300 ($17,500 CAD).
9.
|
INCOME TAXES
- Restated
|
In December, 2014, the Company underwent a change in control which subjected it to limitations under Internal Revenue Code Section 382. That section restricts post-change annual net operating loss utilization, based on applying an IRS- prescribed rate to the purchase price of the stock acquired in the change in control. The Company accordingly revised its estimates of
net operating loss carry forwards, resulting in a reduction in the estimate of losses available for utilization in the amount of approximately $872,000.
A reconciliation of income tax benefit to the amount computed at the statutory rate of 34% (2014 – 34%) is as follows:
|
|
|
|
|
|
Expected income tax recovery
|
$
(139,800
)
|
$
(40,000
)
|
Adjustment for non-deductible stock compensation
|
32,700
|
-
|
Estimated decrease in expected tax recovery resulting from Section 382 net operating loss limitations after change in control
|
296,400
|
-
|
Increase (decrease) in valuation allowance
|
(189,300
)
|
40,000
|
|
$
-
|
$
-
|
Significant components of deferred income tax assets are as follows:
|
|
|
Deferred income tax assets
|
|
|
Net operating losses carried forward
|
$
151,000
|
$
340,000
|
|
(151,000
)
|
(340,000
)
|
|
|
|
|
$
-
|
$
-
|
LODE-STAR MINING INC.
(formerly International Gold Corp.)
NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Stated in U.S. Dollars)
9.
|
INCOME TAXES
- Restated
(Continued)
|
The Company has approximately $444,000 (2014 - $1,000,700) in net operating losses carried forward which will expire by 2035 if not utilized. Future tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements, and have been offset by a valuation allowance.
The Company’s net operating losses carried forward for United States income tax purposes will expire, if not utilized, as follows:
|
|
$
|
10,000
|
|
|
|
|
7,600
|
|
|
|
|
6,000
|
|
|
|
|
10,900
|
|
|
|
|
53,200
|
|
|
|
|
8,975
|
|
|
|
|
6,445
|
|
|
|
|
6,445
|
|
|
|
|
6,445
|
|
|
|
|
6,445
|
|
|
|
|
6,445
|
|
|
|
|
315,200
|
|
|
|
$
|
444,100
|
|
Realization of the above losses carried forward is dependent on the Company filing the applicable tax returns with the tax authorities, generating sufficient taxable income prior to expiration of the losses carried forward and continuing use of the acquired historic business or a significant portion of the acquired assets for two years after the change of control transaction.
If this
continuity of business enterprise
requirement is not met, the annual net operating loss limitation on pre-change losses is zero.
Management has evaluated subsequent events and the impact on the reported results and disclosures and has concluded that no other significant events require disclosure as of the date these financial statements were issued.