ITEM 1. FINANCIAL STATEMENTS.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
INTERIM FINANCIAL STATEMENTS
(RESTATED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Unaudited)
(Stated in U.S. Dollars)
LODE-STAR MINING INC.
(formerly International Gold Corp.)
BALANCE SHEETS
(RESTATED)
(Stated in U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
|
|
|
|
Cash
|
$
374
|
$
12,456
|
|
Prepaid fees
|
3,217
|
3,217
|
|
|
3,591
|
15,673
|
|
|
|
|
|
Mineral Property Interest
|
230,180
|
230,180
|
|
|
$
233,771
|
$
245,853
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
|
|
|
|
Accounts payable and accrued liabilities
|
$
48,882
|
$
14,302
|
|
Due to related parties
|
571,327
|
495,384
|
|
Loans payable
|
67,892
|
76,180
|
|
|
688,101
|
585,866
|
|
Contractual Obligations, Commitments And Subsequent Events (Notes
4, 8 and 9)
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STOCKHOLDERS’ DEFICIENCY
|
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Capital Stock
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|
Authorized:
|
|
|
|
480,000,000 voting common shares with a par value of $0.001 per share
|
|
|
|
20,000,0000 preferred shares with a par value of $0.001 per share
|
|
|
|
Issued:
|
|
|
|
49,127,825 common shares at March 31, 2016 and December 31, 2015
|
1,947
|
1,947
|
|
|
|
|
|
Additional Paid-In Capital
|
1,070,064
|
1,070,064
|
|
Accumulated Deficit
|
(1,526,341
)
|
(1,412,024
)
|
|
|
(454,330
)
|
(340,013
)
|
|
|
$
233,771
|
$
245,853
|
The accompanying condensed notes are an integral part of these unaudited financial statements.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
STATEMENTS OF OPERATIONS
(RESTATED)
(Unaudited)
(Stated in U.S. Dollars)
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|
|
|
|
|
|
|
|
|
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Revenue
|
$
-
|
$
-
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|
|
|
|
|
Operating Expenses
|
|
|
|
Consulting services
|
$
5,702
|
$
423
|
|
Corporate support services
|
570
|
1,285
|
|
Mineral option fees
|
24,988
|
-
|
|
Office, foreign exchange and sundry
|
4,361
|
10,297
|
|
Professional fees
|
15,567
|
20,352
|
|
Transfer and filing fees
|
16,327
|
4,982
|
|
|
67,515
|
37,339
|
|
|
|
|
|
Operating Loss Before Other Income (Expense)
|
(67,515
)
|
(37,339
)
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
Interest, bank and finance charges
|
(6,576
)
|
(4,188
)
|
|
Penalties
|
(40,226
)
|
-
|
|
|
(46,802
)
|
(4,188
)
|
|
|
|
|
|
Net Loss For The Period
|
$
(114,317
)
|
$
(41,527
)
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|
|
|
|
|
Basic And Diluted Loss Per Common Share
|
$
(0.00
)
|
$
(0.00
)
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|
|
|
|
|
Weighted Average Number Of Common Shares Outstanding
|
49,127,825
|
46,509,000
|
The accompanying condensed notes are an integral part of these unaudited financial statements.
LODE-STAR MINING INC.
(formerly International Gold Corp.)
STATEMENTS OF CASH FLOWS
(RESTATED)
(Unaudited)
(Stated in U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
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Cash Provided By (Used In)
|
|
|
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|
|
|
|
Operating Activities
|
|
|
|
Net loss for the period
|
$
(114,317
)
|
$
(41,527
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Foreign exchange loss (gain)
|
1,806
|
(2,498
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
Prepaid expenses
|
-
|
(697
)
|
|
Accounts payable and accrued liabilities
|
63,932
|
(8,429
)
|
|
Due to related party
|
24,988
|
-
|
|
Accrued interest payable
|
6,509
|
4,021
|
|
|
(17,082
)
|
(49,130
)
|
|
|
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Financing Activities
|
|
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Repayment of loans payable
|
(10,000
)
|
(4,000
)
|
|
Repayment of loans payable – related party
|
-
|
(4,000
)
|
|
Proceeds from loans payable – related party
|
15,000
|
65,000
|
|
|
5,000
|
57,000
|
|
|
|
|
|
Net Increase (Decrease) In Cash
|
(12,082
)
|
7,870
|
|
|
|
|
|
Cash, Beginning Of Period
|
12,456
|
5,372
|
|
|
|
|
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Cash, End Of Period
|
$
374
|
$
13,242
|
|
|
|
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|
Supplemental Disclosure Of Cash Flow Information
|
|
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Cash paid during the period for:
|
|
|
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Interest
|
$
-
|
$
-
|
|
Income taxes
|
$
-
|
$
-
|
|
|
|
|
|
Non-cash Financing Activity
|
|
|
|
Expenses paid by related party on behalf of the Company
|
$
29,352
|
$
8,526
|
|
Debt settlements for common shares, to be issued
|
$
-
|
$
53,213
|
The accompanying condensed notes are an integral part of these unaudited financial statements.
INTERNATIONAL GOLD CORP.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Unaudited)
(Stated in U.S. Dollars)
|
1.
|
BASIS OF PRESENTATION AND NATURE OF OPERATIONS
- Restated
|
Organization and Nature of Operations
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 a business plan. As shown in the accompanying financial statements, the Company has incurred accumulated losses of
$1,526,341
for the period from December 9, 2004 (inception) to March 31, 2016, and has had no revenue. 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.
Basis of Presentation
The unaudited financial information furnished herein reflects all adjustments which, in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its operations for the periods presented. These first quarter financial statements should be read in conjunction with the Company’s financial statements
and notes thereto included in the Company’s report on Form 10-K/A for the year ended December 31, 2015. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding fiscal year, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure which would substantially duplicate the disclosure
contained in the Company’s financial statements for the fiscal year ended December 31, 2015, has been omitted. The results of operations for the three month period ended March 31, 2016 are not necessarily indicative of results for the entire year ending December 31, 2016.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications on the interim statement of cash flows for the three months ended March 31, 2015 had no effect on the reported results of operations. Expenses paid by a related party on behalf of the Company were removed from the net amount of loan advances and from
the change in accounts payable, and are shown as a Non-cash Financing Activity. The foreign exchange gain component of the change in loan balances was removed and shown as an adjustment to reconcile net loss to net cash used in operating activities. Accrued interest that was exchanged for shares to be issued was removed from the decrease in accrued interest payable and from the net amount of loan advances. The amount is included in Non-cash Financing Activity, as part of Debt settlements for common shares, to
be issued. The remaining net amount of loan advances was separated into repayments of loans payable to related and non-related parties, and loan proceeds from related parties. These changes in classification decreased the amount previously reported as Cash Used In Operating Activities for the first quarter of 2015 from $81,908 to $49,130. Offsetting that change, the amount previously reported for the 2015 quarter as Cash Provided By Financing Activities decreased from $89,778 to $57,000.
INTERNATIONAL GOLD CORP.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Unaudited)
(Stated in U.S. Dollars)
|
2.
|
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
|
Subsequent to the original issuance of the Company’s quarterly financial statements, the Company determined that mineral option fees totaling $148,901 owing under the terms of its Mineral Option Agreement with LSG dated October 4, 2014 had not, but should have been accrued at March 31, 2016. 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.
Of the total fees that needed to be accrued in accordance with the terms of the agreement, $123,913 related to the year ended December 31, 2015 and $24,988 to the quarter ended March 31, 2016.
The following financial statement items were affected by the restatement:
Balance Sheet
|
|
|
|
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|
|
|
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Due to related parties
|
$
422,426
|
$
148,901
|
$
571,327
|
|
Current liabilities
|
$
539,200
|
$
148,901
|
$
688,101
|
|
Accumulated Deficit
|
$
(1,377,440
)
|
$
(148,901
)
|
$
(1,526,341
)
|
|
Stockholders’ Deficiency
|
$
(305,429
)
|
$
(148,901
)
|
$
(454,330
)
|
Statement of Operations
|
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
Mineral option fees
|
$
-
|
$
24,988
|
$
24,988
|
|
Operating Loss Before Other Income (Expense)
|
$
(42,527
)
|
$
(24,988
)
|
$
(67,515
)
|
|
Net Loss For The Period
|
$
(89,329
)
|
$
(24,988
)
|
$
(114,317
)
|
Statement of Cash Flows
|
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
Net loss for the period
|
$
(89,329
)
|
$
(24,988
)
|
$
(114,317
)
|
|
Due to related party
|
$
-
|
$
24,988
|
$
24,988
|
|
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.
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.
INTERNATIONAL GOLD CORP.
CONDENSED NOTES TO FINANCIAL STATEMENTS (RESTATED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Unaudited)
(Stated in U.S. Dollars)
|
4.
|
MINERAL PROPERTY INTEREST
- Restated
|
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 terms necessary to acquire the additional 60% interest in the property, including the payment of an aggregate $5 million, it must make quarterly cash payments
to LSG of $25,000. At March 31, 2016, $148,901 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 11, 2016. A further deferment, to January 18, 2017, was granted by LSG on June 15, 2016.
The Company assessed its mineral property interest at March 31, 2016 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 quarter ended March 31, 2016 and the year ended December 31, 2015, the Company did not receive any cash subscriptions for shares of its common stock.
No preferred shares have been issued to the date of issue of these financial statements.
Summary of warrant activity and warrants outstanding at March 31, 2016:
|
|
|
Number of Warrants
|
|
|
Exercise Price
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Life Remaining
(Years)
|
|
Expiry Date
|
Balance, December 31, 2015
|
|
|
3,336,060
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
4.86
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
3,333,060
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
4.61
|
|
|
INTERNATIONAL GOLD CORP.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(RESTATED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(Unaudited)
(Stated in U.S. Dollars)
At March 31, 2016, the Company had the following loans payable:
i)
$1,000 (December 31, 2015 - $1,000): unsecured; interest at 15% per annum; originally due on April 20, 2012.
ii)
$55,000 (December 31, 2015 - $65,000): 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, now $27,500, 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)
$42,353 (December 31, 2015 - $40,789): unsecured; interest at 5% per annum; with no specific terms of repayment, due to a related party, the president of the Company.
iv)
$305,000 (December 31, 2015 - $290,000): 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)
$53,318 (December 31, 2015 - $23,966): unsecured; interest at 5% per annum; with no specific terms of repayment, due to a related party, LSG, the Company’s majority shareholder.
vi)
$3,855 (December 31, 2015 - $3,613): unsecured; non-interest bearing; with no specific terms of repayment, due to a related party, the controlling shareholder of LSG.
As of March 31, 2016, interest totaling $29,792 (December 31, 2015 - $23,283) 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.
During the three months ended March 31, 2016, the majority shareholder of the Company paid a total of $29,352 to various vendors on behalf of the Company. That amount is included in the $53,318 loan balance detailed in Note
6 above.
At March 31, 2016, accrued interest was due to related parties in connection with loans detailed above in Note
6, as follows:
Loan iii)
$3,253 (December 31, 2015 - $2,609) to the president of the Company.
Loan iv)
$13,864 (December 31, 2015 - $10,157) to the majority shareholder of the Company.
Loan v)
$783 (December 31, 2015 - $336) to the majority shareholder of the Company.
During the three months ended March 31, 2016, the Company incurred $24,988 (2014 - $Nil) in mineral option fees payable to LSG, which have been accrued as of that date. $123,913 was accrued at December 31, 2015 (2014 - $Nil).
|
8.
|
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
|
See Note
4 for details about the Company’s obligations and commitments regarding its Mineral Property Interest.
On April 5, 2016, a further loan advance of $15,000 was received from LSG, the Company’s majority shareholder, on terms identical to those for the $305,000 balance outstanding at March 31, 2016.
On April 22, 2016, notice was received from the IRS advising that penalties and related interest totaling $40,226 were due in connection with the failure to file Forms 5472 by the due date of the Company’s income tax returns for the years 2012 and 2013. The Company is appealing this assessment on the basis that it had reasonable cause. The outcome of the appeal
is not determinable as of the date of these financial statements. The assessed amount has therefore been accrued in full at March 31, 2015 and recorded as Other Expense in the current period.
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.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report. In addition to historical financial information, the following discussion includes a number of forward-looking statements that reflect our plans,
estimates and our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. Except as required by applicable law, including the securities laws of the United States, we do not intend
to update any of the forward-looking statements to conform these statements to actual results
History – Mineral Property Interest
On August 29, 2014, we entered into a Letter of Intent (the “LSG LOI”) with Lode-Star Gold, Inc. (“LSG"), a private Nevada corporation, pursuant to which we agreed to issue shares of our common stock and make certain payments to LSG in consideration for the acquisition of an interest in LSG's Nevada Goldfield Bonanza property (the “Property”).
As a result of the intended transaction, control of us would be acquired by LSG.
On October 4, 2014
(the “Effective Date”),
we entered into a definitive mineral option agreement (the "Option Agreement") which superseded the LSG LOI. Pursuant to the Option Agreement, we were to issue LSG 35,000,000 shares of our common stock in exchange for a 20% undivided interest in the Property (the “Acquisition”). In order to earn an additional 60% undivided interest in the Property (for a total of 80%),
we are required to fund all expenditures on the Property and pay LSG an aggregate of $5 million in cash in the form of a net smelter returns ("NSR") royalty,
each beginning on the closing date of a subscription agreement for the shares (the “Closing Date”).
Until such time as
we have earned the additional 60% interest, the NSR royalty will be split as to 79.2% to LSG, 19.8% to
us and 1% to the former Property owner.
On December 5, 2014, we entered into a subscription agreement (the “Subscription Agreement”) with LSG pursuant to which we agreed to issue the 35,000,000 shares.
On the Closing Date of December 11, 2014, we satisfied all the closing conditions in the Subscription Agreement and issued the 35,000,000 shares of our
common stock to LSG, thereby completing the Acquisition. As a result of the Acquisition, LSG became our controlling stockholder.
If we fail to make any cash payments to LSG within one year of the
Effective Date, we are required to pay LSG an additional $100,000, and in any subsequent years in which we fail to complete the payment of the entire $5 million described above, we must make quarterly cash payments to LSG of $25,000 until such time as we have earned the additional 60% interest in the Property.
The Property is located in west-central Nevada, in the Goldfield Mining District at Latitude 37° 42’, and Longitude 117° 14’. The claims comprising the Property are located in surveyed sections 35 and 36, Township 2 South, Range 42 East, and in sections 1, 2, 11, and 12, Township 3 South, Range 42
East, in Esmeralda County, Nevada. The Property is accessible by traveling approximately one-half mile northeast of the community of Goldfield, along a county-maintained road that originates at U.S. Highway 95, which runs through “downtown” Goldfield. The town of Goldfield, which is the Esmeralda county seat (population 300), is approximately 200 air miles south of Reno and 180 air miles north of Las Vegas.
The Property consists of 31 patented claims and 1 unpatented millsite claim, covering a total of approximately 460 acres, or 186 hectares. Only the single unpatented claim is administered by the United States Bureau of Land Management, and annual assessment filings and payments are due on it. The patented claims
are owned as private land by LSG, and only annual property taxes must be paid.
The Option Agreement provides that we will act as the operator on the Property and that
a management committee will be formed, comprised of representatives from us and LSG, with voting based on each party’s proportionate interest, to supervise exploration of the Property and approve work programs and budgets. As
the operator, we are also
obliged to perform a number of functions, including the following:
▪
Consider, develop and submit work programs to the management committee for consideration and approval, and to implement work programs when approved;
▪
Carry out operations in a prudent and workmanlike manner and in accordance with all applicable laws and regulations, and all agreements, permits and licenses relating to the Property and LSG;
▪
Pay and discharge all wages and accounts for material and services and all other costs and expenses that may be incurred by us in connection with our operations on the property;
▪
Maintain and keep in force and, upon request by LSG provide reasonable documentary verification of, levels of insurance as are reasonable in respect of our activities in connection with the Property;
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
▪
Maintain true and correct books, accounts and records of expenditures; and
▪
Deliver to the management committee quarterly and annual progress reports.
To the issuance date of this report, no work programs have been approved and LSG has borne all costs in connection with operations on the Property. We expect the first work program, entailing Property-related costs for which we will be responsible, to be approved later this year.
Recent Developments
Given that permitting for operations on the Property is still to be completed, at the request of our management, LSG granted, by a letter of agreement dated November 10, 2015, deferment to June 11, 2016 of the payment otherwise due within one year of the
Effective
Date (i.e. on December 11, 2015) if we fail to make any cash payments to LSG.
On April 21, 2016, we announced the completion of two water monitoring holes required by the Nevada Department of Environmental Protection (NDEP). The two wells have been sampled, with another set of samples due to be completed in mid-July of this year. Once these samples are analyzed, we can submit our production permit request.
During the week of water well drilling, we had the Nevada Department of Minerals evaluate a number of the property's abandoned mine shafts we wish to utilize as future waste storage. As anticipated, none of the shafts reviewed had any presence of water or wildlife that could hinder plans to execute sub-surface storage.
Our management believes that having the water monitoring wells in place provides a good benchmark with NDEP as we prepare our long-term working relationship and that it puts the most logistically challenging and costly part of the permitting process behind us. Costs for the water well drilling were borne by LSG and did not create any financial liability for us.
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.
Our Chief Operating Officer, Thomas Temkin, who is also a director, is a Certified Professional Geologist and a Qualified Person under National Instrument (NI) 43101, with more than 38 years of experience in the mining industry, primarily in exploration in the Western United States. He is currently a consulting geologist working with LSG. Mr. Temkin has been associated
with LSG and the Property for over 15 years and has been instrumental through its entire exploration program to date.
Our Corporate Secretary, Pam Walters, has been associated with the mining industry for over 25 years and has managed the corporate finance and business operations of LSG and its owners.
LSG’s History
LSG was incorporated in the State of Nevada on March 13, 1998 for the purpose of acquiring exploration stage mineral properties. It currently has one shareholder, Lonnie Humphries, who is the spouse of Mark Walmesley, our Chief Financial Officer, Treasurer and director prior to the completion of the Acquisition, and now our President and Chief Executive Officer
as well. Mr. Walmesley is also the Director of Operations and a director of LSG.
LSG is an exploration stage company and has not generated any revenues since its inception. The Property represents its only material asset. LSG acquired the leases to the Property in 1997 and became the registered and beneficial owner of the Property on September 19, 2009. Since the earlier of those dates, it has conducted contract exploration work
on the Property resulting in the identification of several high grade gold zones. This gold mineralization has not been determined to be resource NI 43-101 compliant.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
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 is currently 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
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
|
$0
|
|
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 Accomodation
|
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
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
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
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.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
Going Concern
Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our expenses. This is because we have not generated any revenues to date and we cannot currently estimate the timing of any possible future revenues. Our only source
for cash at this time is investments by others in our common stock, or loans.
Results of Operations
To March 31, 2016
The following summary of our results of operations should be read in conjunction with our
restated financial statements for the period ended March 31, 2016 which are included with this Report.
|
|
Three Months
Ended March 31
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
-
|
|
Operating Expenses
|
67,515
|
37,339
|
30,176
|
81
%
|
|
Loss from Operations
|
(67,515
)
|
(37,339
)
|
(30,176
)
|
81
%
|
|
Other Income (Expense)
|
(46,802
)
|
(4,188
)
|
(42,614
)
|
1,018
%
|
|
Net Loss For The Period
|
$
(114,317
)
|
$
(41,527
)
|
$
(72,790
)
|
175
%
|
Revenues
We have had no operating revenues since our inception on December 9, 2004. We recorded a net loss of $114,317 for the three month period ended March 31, 2016 and have an accumulated deficit of $1,526,341. The possibility and timing of revenue being generated from our mineral property interest is uncertain.
Expenses – Three months ended March 31, 2016 and 2015
Notable period over period differences are as follows:
|
|
Three Months Ended March 31
|
|
|
|
|
|
|
|
|
|
$
5,702
|
$
423
|
$
5,279
|
1,248
%
|
|
Mineral option fees
|
$
24,988
|
$
-
|
$
24,988
|
-
|
Office, foreign exchange and sundry
|
$
4,361
|
$
10,297
|
$
(5,936
)
|
(58
%)
|
|
|
$
15,567
|
$
20,352
|
$
(4,785
)
|
(24
%)
|
|
|
$
16,327
|
$
4,982
|
$
11,345
|
228
%
|
Interest, bank and finance charges
|
$
6,576
|
$
4,188
|
$
2,388
|
57
%
|
|
|
$
40,226
|
$
-
|
$
40,226
|
-
|
●
Consulting services
- A consultant was retained, starting in Q2 of 2015, to maintain a corporate and marketing presence in Vancouver, Canada. The majority of our shareholders, other than LSG, are located in Canada
and Vancouver is a major Canadian mining center. With our management now located in Texas, a consultant was needed to provide that presence. There were no costs for the consultant in Q1 of 2015, resulting in the higher costs in Q1 of 2016.
●
Mineral option fees
of $24,988 were incurred in the current quarter under the terms of our Mineral Option Agreement with LSM, while no similar fees were incurred in Q1 of 2015.
●
Office, foreign exchange and sundry
was lower in 2016 primarily due to a decrease in IT expenses, resulting from one-time requirements in 2015.
●
Professional fees were lower in 2016 primarily due to differences in the timing and amounts for the 2015 and 2014 audit fees, expensed in Q1 2016 and Q1 2015 respectively. Also, legal fees decreased nominally.
●
Transfer and filing fees
were higher in 2016 primarily due to a $10,000 annual fee for the OTCQB marketplace that was first charged in April, 2015, resulting in no expense in the first quarter of that year. In 2016,
the fee was charged in Q1.
●
Interest, bank and finance charge
s were higher in 2016 mainly due to increased loan amounts. The average interest-bearing principal balance outstanding was approximately $259,000 in Q1 2015 compared to approximately
$438,000 in Q1 2016.
●
Penalties
consist of amounts charged by the IRS for 2012 and 2013 for failure to file Forms 5472 by the due date of our income tax returns for those years. We are appealing those penalties and requesting that they be waived or abated on the
grounds that we had reasonable cause. The outcome of our appeal is not determinable at this time.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
Balance Sheet at March 31, 2016 and December 31, 2015
Items with notable period-end differences are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
374
|
$
12,456
|
$
(12,082
)
|
(97
%)
|
|
Accounts payable and accrued liabilities
|
$
48,882
|
$
14,302
|
$
34,580
|
242
%
|
|
Due to related parties
|
$
571,327
|
$
495,384
|
$
75,943
|
15
%
|
|
Loans payable
|
$
67,892
|
$
76,180
|
$
(8,288
)
|
(11
%)
|
▪
Cash
decreased primarily due to the settlement of certain Accounts payable and accrued liabilities.
▪
Accounts payable and accrued liabilities
increased primarily due to penalties from the IRS of approximately $40,000, offset somewhat by the payment of approximately $7,000 for non-recurring 2015 legal fees.
▪
Due to related parties
increased primarily as a result of new loan amounts totaling $15,000 and new accrued interest of approximately $5,000, together with expenses paid by related parties on our behalf totaling approximately 29,000
and mineral option fees of approximately
$25,000 due to LSG being incurred.
▪
Loans payable
decreased due to a loan repayment of $10,000, offset by new accrued interest of approximately $2,000.
Liquidity and Capital Resources
As of March 31, 2016, our total assets were $233,771, and our total liabilities were $
688,101
. Our working capital as at March 31, 2016 and December 31, 2015 and the changes between those dates are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
$
3,591
|
$
15,673
|
$
(12,082
)
|
(77
%)
|
|
Current Liabilities
|
688,101
|
585,866
|
102,235
|
17
%
|
|
Working Capital (Deficiency)
|
$
(684,510
)
|
$
(570,193
)
|
$
(114,317
)
|
20
%
|
The decrease in our working capital from December 31, 2015 to March 31, 2016 was primarily due to the increase in amounts due to related parties of approximately $
76,000 (of which approximately $25,000 was accrued mineral option fees due to LSG),
offset by the decrease
in loans payable of approximately $8,000, plus the accrual of approximately $44,000 for IRS penalties.
Cash Flows
|
|
Three Months Ended March 31
|
|
|
|
|
|
|
|
Cash Provided By (Used In):
|
|
|
|
|
|
|
$
(17,082
)
|
$
(49,130
)
|
$
32,048
|
(65
%)
|
|
|
5,000
|
57,000
|
(52,000
)
|
(91
%)
|
Net increase (decrease) in cash
|
$
(12,082
)
|
$
7,870
|
$
(19,952
)
|
(254
%)
|
Cash Used In Operating Activities
The period over period decrease in cash used in operating activities of approximately $32,000 is mainly due to the following:
Operating and Other expenses were higher by approximately $
73
,000 (comprised primarily of the differences explained above under Expenses) in Q1 2016 than in Q1, 2015; offset by:
1.
an approximate $4,000 swing from a foreign exchange gain in Q1 2015 to a loss in Q1 2016
2.
an approximate $72,000 swing in the change in accounts payable and accrued liabilities
3.
an approximate $3,000 swing in the change in accrued interest
4.
an approximate $1,000 swing in the change in prepaid expenses
5.
an accrual in the current quarter of approximately $25,000 in Mineral option fees
Cash Provided By Financing Activities
The decrease in cash provided by financing activities was due to related party loan advances in Q1, 2016 of $15,000, compared to net related party loan advances of $61,000 in Q1, 2015, along with repayment of loans payable of $10,000 in Q1 2016 compared to $4,000 in Q1 2015.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
As of the date of this quarterly report, we have yet to generate any revenues from our business operations. Our ability to generate adequate amounts of cash to meet our needs is entirely dependent on the issuance of shares or loans.
Our principal source of working capital has been in the form of loans and subscriptions for our common stock. For the foreseeable future, we will have to continue to rely on those sources for funding. We have no assurance that we can successfully engage in any further private sales of our securities or that we can obtain any additional loans.
|
ITEM 4.
|
CONTROLS AND PROCEDURES.
|
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation,
when our report on Form 10-Q was first filed on May 11, 2016, our Principal Executive Officer and Principal Financial Officer
had concluded that our Disclosure Controls were effective as of the end of the period covered by this report.
Subsequent to that date, we determined that certain fees due for the quarter ended March 31, 2016 under the terms of an agreement with our majority shareholder had not been accrued. On review, we concluded that the error was material, that a restatement of the financial statements for that quarter was required, and therefore that our disclosure controls and procedures over financial reporting were not adequate as of March 31, 2016.
In order to address the weakness in Disclosure Controls and Procedures, the Company has adopted, with immediate effect, a procedure to list and review all contract obligations at the end of each reporting period, specifically with regard to possible liabilities to be accrued, with a formal sign-off on the conclusions of the review being required by our Chief Executive Officer and Chief Financial Officer, and the Company’s
primary accounting personnel.
Changes in Internal Control
over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The procedure described above that has been implemented by the Company starting in August, 2016 in order to address the weakness in disclosure controls and procedures existing at the time of filing the initial report on Form 10-Q for the period ended March 31, 2016 will impact on all financial reports to be filed going forward.