BUSINESS
Corporate Background
The Company was originally incorporated on December 8, 2006, under the laws of the State of Nevada as Elan Development, Inc. On April 25, 2008, the name of the company was changed to Star Gold Corp. Star Gold Corp. is an exploration stage company engaged in the acquisition and exploration of precious metal deposit properties and advancing them toward production. The Company is engaged in the business of exploring, evaluating and acquiring mineral prospects with the potential for economic deposits of precious and base metals.
The Company currently owns the rights to acquire up to a 100% mining interest (covering a total of 50 unpatented claims) in a mineral property located in the State of Nevada known as the Excalibur Property.
The Company has completed an initial exploration program on the Excalibur Property, which included Geological Mapping, Rock Sampling and Assaying. Based on this analysis the Company has decided to move forward with the permitting of this property and associated drilling program. The permitting was completed in June 2010 and the drilling program commenced the week of June 20th, 2010. The Company is expected to commence additional drilling and exploration in August 2012.
Star Gold Corp. currently leases with an option to acquire 60 unpatented mining claims (covering approximately 490 Hectares)located in the State of Nevada and known as the Longstreet Property. The Company is currently engaged in exploration and drilling activity at the Longstreet property.
On July 7th, 2010, Star Gold Corp. acquired a 100% mining interest in a property located in the State of Nevada (approximately 300 kilometers northwest of Las Vegas) known as the Jet Property. The Company is currently engaged in preliminary exploration activities and surface testing of the Jet property.
The Company has no patents, licenses, franchises or concessions which are considered by the Company to be of importance. The business is not of a seasonal nature. Since the potential products are traded in the open market, the Company has no control over the competitive conditions in the industry.
Overview of Mineral Exploration and Current Operations
Star Gold Corp. is an exploration stage mineral company with no producing mines. Mineral exploration is essentially a research activity that does not produce a product. As such the Company acquires properties which it believes have potential to host economic concentrations of minerals, particularly gold and silver. These acquisitions have and may take the form of unpatented mining claims on federal land, or leasing claims, or private property owned by others. An unpatented mining claim is an interest that can be acquired to the mineral rights on open lands of the federal owned public domain. Claims are staked in accordance with the Mining Law of 1872, recorded with the federal government pursuant to laws and regulations established by the Bureau of Land Management The Company intends to remain in the business of exploring for mining properties that have the potential to produce gold, silver, base metals and other commodities.
Compliance With Government Regulations
If the Company decides to continue with the acquisition and exploration of mineral properties in the State of Nevada it will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the State of Nevada and the United States Federal agencies.
Mining in the State of Nevada is subject to federal, state and local law. Three types of laws are of particular importance to the Company’s U.S. mineral properties: those affecting land ownership and mining rights; those regulating mining operations; and those dealing with the environment.
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Land Ownership and Mining Rights.
On Federal Lands, mining rights are governed by the General Mining Law of 1872 (General Mining Law) as amended, 30 U.S.C. §§ 21-161 (various sections), which allows the location of mining claims on certain Federal Lands upon the discovery of a valuable mineral deposit and proper compliance with claim location requirements. A valid mining claim provides the holder with the right to conduct mining operations for the removal of locatable minerals, subject to compliance with the General Mining Law and Nevada state law governing the staking and registration of mining claims, as well as compliance with various federal, state and local operating and environmental laws, regulations and ordinances. As the owner or lessee of the unpatented mining claims, the Company has the right to conduct mining operations on the lands subject to the prior procurement of required operating permits and approvals, compliance with the terms and conditions of any applicable mining lease, and compliance with applicable federal, state, and local laws, regulations and ordinances.
Mining Operations
The exploration of mining properties and development and operation of mines is governed by both federal and state laws.
The State of Nevada likewise requires various permits and approvals before mining operations can begin, although the state and federal regulatory agencies usually cooperate to minimize duplication of permitting efforts. Among other things, a detailed reclamation plan must be prepared and approved, with bonding in the amount of projected reclamation costs. The bond is used to ensure that proper reclamation takes place, and the bond will not be released until that time. The Nevada Department of Environmental Protection, which is referred to as the NDEP, is the state agency that administers the reclamation permits, mine permits and related closure plans on the Nevada property. Local jurisdictions (such as Eureka County) may also impose permitting requirements (such as conditional use permits or zoning approvals).
Environmental Law
The development, operation, closure, and reclamation of mining projects in the United States requires numerous notifications, permits, authorizations, and public agency decisions. Compliance with environmental and related laws and regulations requires us to obtain permits issued by regulatory agencies, and to file various reports and keep records of the Company’s operations. Certain of these permits require periodic renewal or review of their conditions and may be subject to a public review process during which opposition to the Company’s proposed operations may be encountered. The Company is currently operating under various permits for activities connected to mineral exploration, reclamation, and environmental considerations. Unless and until a mineral resource is proved, it is unlikely Star Gold Corp. operations will move beyond the exploration stage. If in the future the Company decides to proceed beyond exploration, there will be numerous notifications, permit applications, and other decisions to be addressed at that time.
Competition
Star Gold Corp. competes with other mineral resource exploration and development companies for financing and for the acquisition of new mineral properties and also for equipment and labor related to exploration and development of mineral properties. Many of the mineral resource exploration and development companies with whom the Company competes have greater financial and technical resources. Accordingly, competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford greater geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact Star Gold Corp.’s ability to finance further exploration and to achieve the financing necessary for the Company to develop its mineral properties.
The Company provides no assurance it will be able to compete in any of its business areas effectively with current or future competitors or that the competitive pressures faced by the Company will not have a material adverse effect on the business, financial condition and operating results.
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Office and Other Facilities
Star Gold Corp. currently maintains its administrative offices at 611 E. Sherman Avenue, Coeur d'Alene, ID 83814. The telephone number is (208) 664-5066. Star Gold Corp. subleases office space from Marlin Property Management, LLC (“Marlin”) which is a single member limited liability company owned by the spouse of the Company’s Chairman of the Board, Lindsay Gorrill. This office space consists of approximately 250 square feet, and Marlin supplies this office space to the Company at a monthly rental rate of $1,500. Star Gold Corp. does not currently own title to any real property.
Employees
The Company has no employees other than its executive officers as of the date of this Annual Report on Form 10-K. Star Gold Corp. conducts business largely through independent contractor agreements with consultants.
Research and Development Expenditures
The Company has not incurred any research expenditures since incorporation.
Reports to Security Holders
The Registrant does not issue annual or quarterly reports to security holders other than the annual Form 10-K and quarterly Forms 10-Q as electronically filed with the SEC. Electronically filed reports may be accessed at www.sec.gov. Interested parties also may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street NW, Washington, DC 20549. Information may be obtained on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.
ITEM 1A.
RISK FACTORS
The following factors, among others, could cause the actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere from time to time.
Estimates of mineralized material are forward-looking statements inherently subject to error. Although resource estimates require a high degree of assurance in the underlying data when the estimates are made, unforeseen events and uncontrollable factors can have significant adverse or positive impacts on the estimates. Actual results may inherently differ from estimates. The unforeseen and uncontrollable factors include but are not limited to: geologic uncertainties including inherent sample variability, metal price fluctuations, variations in mining and processing parameters, and adverse changes in environmental or mining laws and regulations. The timing and effects of variances from estimated values cannot be accurately predicted.
Failure to successfully address the risks and uncertainties described below would have a material adverse effect on the Company’s business, financial condition and/or results of operations, and the trading price of the Company’s common stock may decline and investors may lose all or part of their investment. Star Gold Corp. cannot assure readers that the Company will successfully address these risks or other unknown risks that may affect its business.
There is doubt about the Company’s ability to continue as a going concern.
The auditor’s report on the Company’s 2012 financial statement expresses an opinion that substantial doubt exists as to whether the Company can continue as a going concern. Because obtaining investment capital is not certain, or that the Company’s officers and directors may be unable or unwilling to loan or advance any additional capital to the Company, Star Gold Corp may not have the funds necessary to continue operations. See “April 30, 2012 Audited Financial Statements.”
Risks Related to the Company
The Company has a limited operating history on which to base an evaluation of the business and prospects
The Company has not derived any revenue from exploration of its properties. The Company’s operating history has been limited to the acquisition and exploration of its mineral properties. Such history does not provide a meaningful basis for an evaluation of its
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prospects for success if future determinations are made that mineral reserves exist and to commence construction and operation of a mine. Other than through conventional and typical exploration methods and procedures, the Company has no addition means to evaluate the likelihood of whether its mineral properties contain any mineral reserve or, if they do, that they will be operated successfully. The Company anticipates that it will continue to incur operating costs without realizing any operating revenues during the period it explores the properties.
During the fiscal year ended April 30, 2012, the Company had losses of $314,071 in connection with the maintenance and exploration of its mineral properties and the operation of the exploration business. The Company therefore expects to continue to incur significant losses into the foreseeable future. The Company recognizes that if it is unable to generate significant revenues from mining operations and dispositions of its properties, the Company will not be able to earn profits or continue operations. At this early stage of operations, the Company expects to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the development stage of their business. The Company cannot ensure it will be successful in addressing these risks and uncertainties and the failure to do so could have a materially adverse effect on its financial condition. There is no history upon which to base any assumption as to the likelihood that the Company will prove successful and the Company can provide investors no assurance that we will generate any operating revenue or ever achieve profitable operations.
Investors’ interests in the Company will be diluted and investors may suffer dilution in their net book value per share if the Company issues additional employee/director/consultant options or if the Company sells additional shares to finance its operation.
The Company has not generated any operational revenues from the exploration of its properties. In order to further expand the Company’s business and meet its objectives, including but not limited to, raising funds to explore the Longstreet and Excalibur properties, additional capital funding may need to be obtained through the sale and issuance of additional debt and/or equity securities. Furthermore, to finance any acquisition activity, growth and/or additional exploration programs, should those activities be properly approved, and depending on the outcome of its exploration programs, the Company may also need to issue additional shares. The Company may also in the future grant to some or all of its directors, officers, insiders and key employee/consultants options, or other rights to acquire common or preferred shares in the Company as non-cash incentives. The issuance of any equity securities could cause then-existing stockholders to experience dilution of their ownership interests.
Should the Company issue additional shares in order to finance its business activities , investors’ interests in the Company may be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. As of the date of the filing of this report there are outstanding 7,370,002 common share purchase warrants exercisable into 7,370,002 shares of common stock, 965,702 options granted that are exercisable into 965,702 shares of common stock and 833,333 convertible debentures convertible into 833,333 shares of common stock. If all of these are exercised or converted, these would represent approximately 29.2% of the Company’s issued and outstanding shares. If all of the warrants and options are exercised and the underlying shares issued, such issuance would cause a reduction in the proportionate ownership and voting power of all other stockholders. The dilution may result in a decline in the market price of the Company’s shares.
Conflicts of interest
Certain of the Company’s officers and directors may be or become associated with other businesses, including natural resource companies that acquire interests in properties. Such associations may give rise to conflicts of interests from time to time. The Company’s directors are required by law to act honestly and in good faith with a view to the Company’s best interests and to disclose any interest, which they may have in any of the Company’s projects or opportunities. In general, if a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter or, if he does vote, his vote will not be counted.
Dependence on Key Management Personnel
The Company’s ability to continue exploration and development activities and to develop a competitive edge in the marketplace depends, in large part, on its ability to attract and maintain qualified key management personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be able to attract and retain such personnel. The Company’s development now and in the future will depend on the effort of key management figures such as Lindsay Gorrill, Kelly Stopher David Segelov and Scott Jenkins. The loss of any of these key people could have a material adverse effect on the Company’s business. In addition, the Company has expanded the provisions of its stock option plan so the Company can provide incentive for the key personnel.
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Failure to obtain additional financing
The Company’s only continuing source of funds is through sales of equity positions received from investors which may not be sufficient to sustain operations. Any additional funds required would have to come from the issuance of debt or the sale of common stock. There is no guarantee that funds will be available from either source. If Star Gold Corp. is unsuccessful in raising additional funds, the Company will not be able to develop its properties and may be unable to continue as a going concern.
Company Chairman, Lindsay Gorrill, and Company President David Segelov own 50.8% of the Company’s outstanding common stock which may cause corporate decisions controlled by Mr. Gorrill and Mr. Segelov to appear to be inconsistent with the interests of other stockholders.
Company Chairman Lindsay Gorrill (41.3%) and Company President David Segelov (9.5.%) control a combined 50.8% of issued and outstanding shares of the Company’s common stock. Accordingly, in accordance with Star Gold Corp.’s Articles of Incorporation and Bylaws, Mr. Gorrill and Mr. Segelov are able to control who is elected to the board of directors. Since Mr. Gorrill and Mr. Segelov are not simply a passive investors but is also two of the Company’s active executives, their interests as executives may, at times, be adverse to those of passive investors. Where those conflicts exist, stockholders will be dependent upon Mr. Gorrill and Mr. Segelov exercising their fiduciary duties as members of the Board of Directors and/or an officer. Also, due to their stock ownership position, Mr. Gorrill and Mr. Segelov will have: (i) the ability to control the outcome of most corporate actions requiring stockholder approval, including amendments to the Company’s Articles of Incorporation; and (ii) the ability to control corporate combinations or similar transactions that might benefit minority stockholders which may be rejected by Mr. Gorrill and Mr. Segelov to their detriment.
There is substantial risk that no commercially viable mineral deposits will be found due to speculative nature of mineral exploration,
Exploration for commercially viable mineral deposits is a speculative venture involving substantial risk. Star Gold cannot provide investors with assurance that its mining claim contains commercially viable mineral deposits. The exploration program that the Company will conduct on its claim may not result in the discovery of commercial viable mineral deposits. Problems such as unusual and unexpected rock formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. In such a case, the Company may be unable to complete its business plan and investors could lose their entire investment.
Due to the inherent dangers involved in mineral exploration, there is a risk that the Company may incur liability or damages as it conducts its business.
The search for minerals involves numerous hazards. As a result, Star Gold Corp. may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which the Company cannot insure or against which we may elect not to insure. Star Gold Corp. currently has no such insurance nor does the Company expect to acquire such insurance for the foreseeable future. If a hazard were to occur, the costs of rectifying the hazard may exceed the Company’s asset value and cause management to liquidate all of the Company’s assets resulting in the loss of a stockholder’s entire investment.
Exploration efforts may be adversely affected by metals price volatility causing the Company to cease exploration efforts.
The company has no earnings. However, the success of any exploration effort is derived from the price of metal prices that are affected by numerous factors including: 1) expectations for inflation; 2) investor speculative activities: 3) relative exchange rate of the U.S. dollar to other currencies; 4) global and regional demand and production; 5) global and regional political and economic conditions; and 6) production costs in major producing regions. These factors are beyond the Company’s control and are impossible for the Company to accurately predict.
There is no guarantee that current favorable prices for metals and other commodities will be sustained. If the market prices for these commodities fall the Company may temporarily suspend or cease exploration efforts.
Governmental regulation and environmental risks
The Company’s business is subject to extensive federal, state and local laws and regulations governing mining exploration, development, production, labor standards, occupational health, waste disposal, use of toxic substances, environmental regulations,
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mine safety and other matters. New legislation and regulations may be adopted at any time that results in additional operating expense, capital expenditures or restrictions and delays in the exploration, mining, production or development of its properties.
Internal control, fraud detection and financial reporting
Should the Company fail to maintain an effective system of internal controls, it may not be able to detect fraud or report financial results accurately, which could harm the business and could be subject to regulatory scrutiny.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), the Company is required to perform an evaluation of its internal controls over financial reporting. The Company is required to have an independent registered public accounting firm test and evaluate the design and operating effectiveness of such internal controls and publicly attest to such evaluation. Continuing compliance with the requirements of Section 4040 is expected to be expensive and time-consuming. If the independent registered public accounting firm cannot attest to management’s evaluation, the Company could be subject to regulatory scrutiny and a loss of public confidence in the Company’s internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause the Company to fail to meet its reporting obligations.
Risks Associated with the Company’s Common Stock
Star Gold Corp. stock is a penny stock; stockholders will be more limited in their ability to sell their stock.
The shares of Star Gold Corp. common stock constitute “penny stocks” under the Exchange Act. The shares will remain classified as a penny stock for the foreseeable future. The classification as a penny stock makes it more difficult for a broker/dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his or her investment. Any broker/dealer engaged by the purchaser for the purpose of selling his or her shares will be subject to rules 15g-1 through 15g-10 of the Exchange Act. Rather than having to comply with these rules, some broker-dealers will refuse to attempt to sell a penny stock.
The "penny stock" rules adopted by the SEC under the Exchange Act subjects the sale of the shares of the Company’s common stock to certain regulations which impose sales practice requirements on broker/dealers. For example, brokers/dealers selling such securities must, prior to effecting the transaction, provide their customers with a document that discloses the risks of investing in such securities.
Legal remedies, which may be available to an investor in "penny stocks,” are as follows: