NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
NOTE
1 – NATURE OF OPERATIONS
Star
Gold Corp. (the Company) was initially incorporated as Elan Development, Inc., in the State of Nevada on December
8, 2006. The Company was originally organized to explore mineral properties in British Columbia, Canada but the Company is currently
focusing on gold, silver and other base metal-bearing properties in Nevada.
The
Companys core business consists of assembling and/or acquiring land packages and mining claims the Company believes have
potential mining reserves, and expending capital to explore these claims by drilling, and performing geophysical work or other
exploration work deemed necessary. The business is a high-risk business as there is no guarantee that the Companys exploration
work will ultimately discover or produce any economically viable minerals.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
This
summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements
and notes are representations of the Companys management, which is responsible for their integrity and objectivity. The
accompanying unaudited financial statements have been prepared by the Company in accordance with accounting principles generally
accepted in the United States of America for interim financial information, as well as the instructions to Form 10-Q. Accordingly,
the financial statements do not include all of the information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements.
In
the opinion of the Companys management, all adjustments, consisting of only normal recurring adjustments, considered necessary
for a fair statement of the interim financial statements have been included. The balance sheet at July 31, 2021 was derived from
audited annual financial statements but does not contain all the footnote disclosures from the annual financial statements. All
amounts presented are in U.S. dollars. Operating results for the three-month period ended July 31, 2021 are not necessarily indicative
of the results that may be expected for the full fiscal year ending April 30, 2022.
For
further information, refer to the financial statements and footnotes thereto in the Companys Annual Report on Form 10-K
for the year ended April 30, 2021.
Going
Concern
As
shown in the accompanying financial statements, the Company has incurred operating losses since inception. As of July 31, 2021,
the Company has limited financial resources with which to achieve the objectives and obtain profitability and positive cash flows,
which raises substantial doubt about the Companys ability to continue as a going concern. As shown in the accompanying
balance sheets of July 31, 2021, the Company has an accumulated deficit of $11,967,177. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities
that might be necessary in the event the Company cannot continue in existence. Achievement of the Companys objectives will
be dependent upon the ability to obtain additional financing, to locate profitable mining properties and generate revenue from
current and planned business operations, and control costs. The Company plans to fund its future operations by joint venturing
or obtaining additional financing from investors and/or lenders.
Use
of Estimates
The
preparation of financial statements in accordance with accounting principles generally accepted in the United States of America
requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use
of management assumptions and estimates relate to long-lived asset impairments and stock-based compensation valuation. Actual
results could differ from these estimates and assumptions and could have a material effect on the Companys reported financial
position and results of operations.
STAR
GOLD CORP.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
Risks
and Uncertainties
The
Companys operations are subject to significant risks and uncertainties, including financial, operational, technological
and other risks associated with operating an emerging exploration mining business, including the potential risk of business failure.
Cash
and Cash Equivalents
For
the purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three
months or less when acquired to be cash equivalents.
Reclamation
bond
The
Reclamation bond constitutes cash held as collateral for the faithful performance of the bond securing exploration permits and
are accounted for on a cost basis.
Financial
Instruments
The
Companys financial instruments include cash and cash equivalents and reclamation bond. All instruments are accounted for
on a cost basis, which, due to the short maturity of these financial instruments, approximates fair value at July 31, 2021.
Fair
Value Measures
When
required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the
fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets
or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount
of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or
losses relating to those assets and liabilities still held at the reporting date.
At
July 31, 2021 and April 30, 2021, the Company had no assets or liabilities accounted for at fair value on a recurring basis.
Mining
Interests and Mineral Exploration Expenditures
Exploration
costs are expensed in the period in which they occur. The Company capitalizes costs for acquiring and leasing mining properties
and expenses costs to maintain mineral rights as incurred. Should a property reach the production stage, capitalized costs would
be amortized using the units-of-production method based on periodic estimates of ore reserves. Mining interests are periodically
assessed for impairment of value, and any subsequent losses are charged to operations at the time of impairment. If a property
is abandoned or sold, its capitalized costs are charged to operations.
Pre-development
Expenditures
Pre-development
activities involve costs incurred in the exploration stage that may ultimately benefit production which are expensed
due to the lack of evidence of economic development which is necessary to demonstrate future recoverability of these costs.
Equipment
Equipment
is stated at cost. Significant improvements are capitalized and depreciated. Depreciation of equipment is calculated using the
straight-line method over the estimated useful lives of the assets, which range from three to seven years. Maintenance and repairs
are charged to operations as incurred. Gains or losses on disposition or retirement of property and equipment are recognized in
operating expenses.
STAR
GOLD CORP.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
Reclamation
and Remediation
The
Companys operations are subject to standards for mine reclamation that have been established by various governmental agencies.
In the period in which the Company incurs a contractual obligation for the retirement of tangible long-lived assets, the Company
will record the fair value of an asset retirement obligation as a liability. A corresponding asset will also be recorded and depreciated
over the life of the asset. After the initial measurement of an asset retirement obligation, the liability will be adjusted at
the end of each reporting period to reflect changes in the estimated future cash flows underlying the obligation. To date, the
Company has not incurred any contractual obligation requiring recording either a liability or associated asset.
Impairment of
Long-lived Assets
The
Company periodically reviews its long-lived assets to determine if any events or changes in circumstances have transpired which
indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the undiscounted
net future cash flows estimated to be generated by its assets to their respective carrying amounts. If impairment is deemed to
exist, the assets will be written down to fair value.
Share-based
Compensation
The
Company estimates the fair value of options to purchase Common Stock using the Black-Scholes model, which requires the input of
some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock
options before exercising them (expected life), the estimated volatility of the Companys Common Stock price
over the expected term (volatility), employee forfeiture rate, the risk-free interest rate and the dividend yield.
Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation. Options granted
have a ten-year maximum term and varying vesting periods as determined by the Board of Directors. The value of shares of Common
Stock awards is determined based on the closing price of the Companys stock on the date of the award.
Income
Taxes
The
Company accounts for income taxes using the liability method. The liability method requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of (i) temporary differences between financial statement carrying amounts
of assets and liabilities and their basis for tax purposes and (ii) operating loss and tax credit carryforwards for tax purposes.
Deferred tax assets are reduced by a valuation allowance when management concludes that it is more likely than not that a portion
of the deferred tax assets will not be realized in a future period.
The
Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation
of the facts, circumstances and information available at the reporting date. For those tax positions where there is a greater
than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more
likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will
be recognized in the financial statements.
Reclassifications
Certain
reclassifications have been made to the 2020 financial statements in order to conform to the 2021 presentation. These reclassifications
have no effect on net loss, total assets or accumulated deficit as previously reported.
New
Accounting Pronouncements
In
August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure
Requirements for Fair Value Measurement. The update removes, modifies and makes additions to the disclosure requirements on fair
value measurements. The Company adopted ASU No. 2108-13 on May 1, 2020. There is no impact on the effect of this update on fair
value measurement disclosures for the period ended July 31, 2021.
STAR
GOLD CORP.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE
3 – EARNINGS PER SHARE
Basic
Earnings Per Share (EPS) is computed as net income (loss) available to common stockholders divided by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options and warrants.
The
outstanding securities at July 31, 2021 and 2020 that could have a dilutive effect are as follows:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
For
the years ended July 31, 2021 and 2020, respectively, the effect of the Companys outstanding stock options and warrants
would have been anti-dilutive and so are excluded in the calculation of diluted EPS.
NOTE
4 – EQUIPMENT AND MINING INTEREST
The
following is a summary of the Companys equipment and mining interest at July 31, 2021 and 2020.
Pursuant
to the Longstreet Property Option Agreement with Great Basin Resources, Inc. (Great Basin), as amended, which was
originally entered into by the Company on or about January 15, 2010 (the Longstreet Agreement), the Company leased,
with an option to acquire, unpatented mining claims located in the State of Nevada known as the Longstreet Property. Through August
12, 2019, the Company was required to make minimal lease payments in the form of cash and options to purchase shares of the Companys
common stock.
On
September 1, 2019, the Company executed a consulting agreement with Great Basin for a term of 18 months (the Consulting
Agreement). Under the Consulting Agreement, the Company will pay Great Basin $7,500 per month for the term of the Consulting
Agreement.
On
August 24, 2020, the Company executed an amendment to the Consulting Agreement which accelerated the payments to Great Basin to
include a $22,500 lump sum payment and three subsequent monthly payments of $7,500 in consideration of the execution and recording
of a quit claim deed on the Longstreet claims for benefit of the Company. For the year ended April 30, 2021, the Company paid
Great Basin a total of $67,500 which is included in pre-development expense. As of July 31, 2021, no amount is due to Great Basin
under the consulting agreement.
The
August 24, 2020 Amendment also grants the Company the option, to be exercised no later than six (6) months following the first
receipt of proceeds from the sale of ore from the Longstreet Property, to purchase one-half of Great Basins 3.0% Net Smelter
Royalty on the Longstreet Project for a payment of $1,750,000.
STAR
GOLD CORP.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
In
addition, the Company is obligated, pursuant to the Longstreet Agreement, as amended, to pay an annual advance royalty payment
of $12,000 related to the Clifford claims. For the three-months ended July 31, 2021 and 2020, respectively, the Company paid the
annual $12,000 advance royalty for additional mining interest on the Longstreet Property.
The
Company has paid $89,400 to the United States Department of Agriculture-Forest Service to increase the Reclamation Bond as collateral
on the Longstreet Property. The bond is collateral on reclamation of planned drilling activities on the Longstreet Property and
is refundable subject to the Company completing defined reclamation actions upon completion of drilling.
NOTE
5 – OTHER CURRENT ASSETS
On
December 31, 2016, the Company entered into an Option and Lease of Water Rights with Stone Cabin Company, LLC (the Stone
Cabin Water Rights Agreement). In exchange for a one-time payment of $20,000, the Stone Cabin Water Rights Agreement granted
the Company a three-year option to commence a ten-year lease of certain water rights in Nevada. The water rights are for use in
conjunction with the Companys Longstreet Project. Lease payments for the water rights do not commence unless the Company
exercises the option to lease. The Stone Cabin Water Rights Agreement also granted the Company the ability to extend, upon additional
annual payments, the option to lease for up to an additional three years and the ability to extend the water rights lease (if
exercised) for an additional ten-year period. The Company has exercised its first and second options to extend the Stone Cabin
Water Rights Agreement on December 31, 2019 and 2020 respectively.
As
of July 31, 2021, the unamortized portion of the Stone Cabin Water Rights Agreement and subsequent exercise of its second option
is $8,384.
On
August 21, 2017, the Company entered into an Option and Lease of Water Rights, with High Test Hay, LLC (the High Test Water
Rights Agreement). In exchange for a one-time payment of $25,000, the High Test Water Rights Agreement grants the Company
a three-year option to commence a ten-year lease on certain water rights in Nevada. The water rights are for use in conjunction
with the Companys Longstreet Project. Lease payments for the water rights do not commence unless and until the Company
exercises the option to lease. The High Test Water Rights Agreement also grants the Company the ability to extend, upon additional
option payments, the option to lease for up to an additional three years and the ability to extend the water rights lease (if
exercised) for up to an additional twenty years. The
initial $25,000 payment has been deferred and was amortized on a straight-line basis over the three-year option period.
On
August 21, 2020, the Company exercised its first option to extend the High Test Hay Water Rights agreement for an additional twelve
months and made a $25,000 payment to be amortized over twelve months. As of July 31, 2021, the unamortized portion of the High
Test Water Rights Agreement is $2,067.
The
following is a summary of the Companys Other Current Assets at July 31, 2021 and April 30, 2021:
On
August 21, 2021, the Company exercised its second option to extend the High Test Hay Water Rights agreement for an additional
twelve months and made a $25,000 payment to be amortized over twelve months (Note 11).
NOTE
7 – RELATED PARTY TRANSACTIONS
Effective
September 1, 2019, the Board authorized the Company to accrue for a period of six months a monthly total of $18,000 to reward,
compensate and incentivize for the Chairman of the Board, two other respective members of the Board, and the Companys Chief
Financial Officer. During the year ended April 30, 2021, the accrued balance of $89,000 was paid to the respective officers and
directors. As of April 30, 2021, there were no further payments due under this board action.
STAR
GOLD CORP.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
On
March 10, 2020 and June 25, 2020, the Company entered into promissory notes with the Companys Chairman of the Board of
Directors in the amount of $50,000 and $30,000, respectively. The notes had maturity dates of March 10, 2022 and June 27, 2022,
respectively and accrued interest at 6% per annum.
During
the year ended April 30, 2021, the total outstanding balance of the respective promissory notes of $80,000 and accrued interest
of $1,786 was paid to the Companys Chairman of the Board.
On
May 1, 2021 the Company entered into consulting agreements with four members of the Companys management team. The Company
entered into an Agreement each with the Chairman of the Board, the President, the Chief Financial Officer and the Vice President
of Finance.
Each
Agreement is for a two-year period, automatically renewable annually thereafter, and pays each executive $6,000 per month. Each
executive is eligible to receive a bonus payable upon a change in control event equal to eighteen (18) months compensation.
The Consulting Agreements supersede any previous agreements or resolutions. For the three months ended July 31, 2021, the Company
recognized $72,000 in management and administrative expense under the Consulting Agreements.
NOTE
8 – STOCKHOLDERS EQUITY
For
the three months ended July 31, 2020, the Company issued a total of 816,000 shares of Common Stock upon exercise of warrants at
$0.045 per share by a warrant holder for aggregate proceeds of $36,720.
For
the three months ended July 31, 2021, the Company did not issue any shares of its Common Stock.
NOTE
9 – WARRANTS
On
June 8, 2020, Star Gold notified all of its warrant holders that the Company was re-pricing, for a limited time, all issued and
outstanding Common Stock Warrants, of the Company, to an Exercise Price of $0.045 per share.
During
the period beginning on June 8, 2020 and ending on August 31, 2020, each outstanding warrant to purchase Star Gold Common Stock
could be exercised, in whole or in part, at the per share price of $0.045 per share regardless of the exercise price set forth
in the warrant being exercised.
After
August 31, 2020 each remaining outstanding and unexercised common stock warrant would then revert to its original exercise price
as set forth in each respective warrant.
On
August 31, 2020, the Board approved extending the expiration of the repricing, of all issued and outstanding warrants, to September
11, 2020. On September 11, 2020, the Board approved extending the expiration of the repricing, of all issued and outstanding warrants,
to September 30, 2020. After 5 pm PDT on September 30, 2020, all warrants outstanding reverted to their original exercise price
as set forth in each respective warrant.
On
July 6, 2020, an accredited investor exercised 816,000 Warrants to Purchase Common Shares of the Companys stock at $0.045
per shares for cash proceeds of $36,720.
The
following is a summary of the Companys warrants to purchase shares of Common Stock activity:
STAR
GOLD CORP.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
The
composition of the Companys warrants outstanding at July 31, 2021 is as follows:
NOTE
10 – STOCK OPTIONS
Options
issued for mining interest
In
consideration for its mining interest (see Note 4), the Company was obligated to issue stock options to purchase shares of the
Companys Common Stock based on fair market price which for financial statement purposes is considered to
be the closing price of the Companys Common Stock on the issue dates. Those costs are capitalized as Mining Interest.
Options
outstanding for mining interest totaled 935,000 at July 31, 2021 and April 30, 2021 and are fully vested. As of July 31, 2021,
the remaining weighted average term of the option grants for mining interest was 3.09 years. As of July 31, 2021, the weighted
average exercise price of the option grants for mining interest was $0.04 per share.
Options
issued under the 2011 Stock Option/Restricted Stock Plan
The
Company established the 2011 Stock Option/Restricted Stock Plan (the 2011 Plan). The 2011 Plan is administered by
the Board of Directors and provides for the grant of stock options to eligible individual including directors, executive officers
and advisors that have furnished bona fide services to the Company not related to the sale of securities in a capital-raising
transaction.
On
April 30, 2021, the Board of Directors authorized the grant of 2,700,000 options to purchase shares of Common Stock of the Company
to various directors and officers. The options have an exercise price of $0.06 based on the closing price of the Companys
Common Stock on the date of grant and vest immediately. The expiration date of the options is April 30, 2026.
The
Company estimated the fair value of the April 30, 2021 option grants using the Black-Scholes model with the following information
and range of assumptions:
No
options were issued under the Stock Option Plan during the three months ended July 31, 2021 or 2020.
STAR
GOLD CORP.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
JULY
31, 2021
The
total value of stock option awards is expensed ratably over the vesting period of the employees receiving the awards. As of July
31 and April 30, 2021, respectively, there was no unrecognized compensation cost related to stock-based options and awards.
The
following table summarizes additional information about the options under the Companys Stock Option Plan as of April 30,
2021:
Summary:
The
following is a summary of the Companys stock options outstanding and exercisable:
The
aggregate intrinsic value of all options vested and exercisable at July 31, 2021, was $14,025 based on the Companys closing
price of $0.055 per common share at July 31, 2021. The Companys current policy is to issue new shares to satisfy option
exercises.
NOTE
11 – SUBSEQUENT EVENT
On
August 21, 2021, the Company exercised its second option to extend the High Test Hay Water Rights agreement for an additional
twelve months and made a $25,000 payment to be amortized over twelve months.