Good Hemp, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Good Hemp, Inc.	Financial_Report.xls
EX-32.1 - Good Hemp, Inc.	ex32-1.htm
EX-31.1 - Good Hemp, Inc.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

x		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2013

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

		For the transition period from _________ to ___________

LONE STAR GOLD, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		333-159561		45-2578051
(State of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

6565 Americas Parkway NE

Suite 200

Albuquerque, New Mexico 87110

(Address of principal executive offices) (Zip code)

Issuer's telephone number: (505) 563-5828

N/A

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant's Common Stock, $0.001 par value per share, outstanding as of May 15, 2013 was 99,504,663.

Table of Contents

		Page
Part I -	Financial Information
	Item 1. Consolidated Financial Statements
	Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012	1
	Consolidated Statements of Operations for the three month periods ended March 31, 2013 and 2012 and from November 26, 2007 (Date of Inception) to March 31, 2013 (Unaudited)	2
	Consolidated Statements of Cash Flows for the three month periods ended March 31, 2013 and 2012 and from November 26, 2007 (Date of Inception) to March 31, 2013 (Unaudited)	3
	Consolidated Statements of Stockholders’ Equity (Deficit) for the period from November 26, 2007 (Date of Inception) to March 31, 2013 (Unaudited)	4
	Notes to the Consolidated Financial Statements (unaudited)	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	14
	Item 4. Controls and Procedures	14

Part II -	Other Information
	Item 1. Legal Proceedings	15
	Item 1A. Risk Factors	15
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
	Item 3. Defaults upon Senior Securities	15
	Item 4. Mine Safety Disclosures	15
	Item 5. Other Information	15
	Item 6. Exhibits	15
Signatures		16
Exhibit Index
Rule 13a-14(a) Certification
Section 1350 Certification

Lone Star Gold, Inc.

(An Exploration Stage Company)

Consolidated Balance Sheets

	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash	$	-		$	-
Prepaid expenses		3,152			152
Total current assets		3,152			152
Property and equipment, net		36,013			38,353
Mining assets		179,300			179,300
Total assets	$	218,465		$	217,805

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	58,431		$	90,372
Accrued liabilities		42,711			110,216
Note payable		25,000			50,000
Derivative liability		30,555			30,555
Due to related party		38,910			38,910
Total current liabilities		195,607			320,053
Total liabilities		195,607			320,053

Commitments
Shareholders’ equity (deficit):
Common stock, 150,000,000 shares authorized, $0.001 par value; 99,504,663 and 89,994,663 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		99,505			89,995
Additional paid-in capital		4,023,131			3,497,642
Deficit accumulated during the exploration stage		(4,080,924	)		(3,671,447	)
Total Lone Star Gold, Inc. Shareholders’ equity (deficit)		41,712			(83,810	)
Noncontrolling interest in subsidiary		(18,854	)		(18,438	)
Total Shareholders’ equity (deficit)		22,858			(102,248	)
Total Liabilities and shareholders’ equity (deficit)	$	218,465		$	217,805

(The Accompanying Notes are an Integral Part of These Financial Statements)

Lone Star Gold, Inc.

(An Exploration Stage Company)

Consolidated Statements of Operations

(unaudited)

	For the Three months Ended March 31,						Accumulated from November 26, 2007 (Date of Inception) to March 31,
	2013			2012			2013
Revenue	$	–		$	–		$	–
Operating Expenses
General and administrative		105,218			152,064			1,076,911
Exploration costs		24,500			356,696			1,072,893
Management fees		279,999			279,999			1,956,449
Total Operating Expenses		(409,717	)		(788,759	)		(4,106,253	)

Loss from operations		(409,717	)		(788,759	)		(4,106,253	)

Other income (expense)
Interest expense		(176	)		–			(450	)
Interest income		–			–			9,839
Change in derivative liability		–			–			(9,575	)
Gain on settlement of note receivable		–			–			5,161
Total other income (expense)		(176	)		–			4,975
Loss before income taxes		(409,893	)		(788,759	)		(4,101,278	)
Provision for income tax		–			–			–
Net Loss for the period		(409,893	)		(788,759)			(4,101,278	)
Net loss attributable to noncontrolling interest		416			925			20,354
Net loss attributable to Lone Star Gold, Inc.	$	(409,477)		$	(787,834)		$	(4,080,924	)

Net Loss Per Share – Basic and Diluted	$	(0.00)		$	(0.01)

Weighted Average Common Shares Outstanding		94,529,774			91,727,606

(The Accompanying Notes are an Integral Part of These Financial Statements)

Lone Star Gold, Inc.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(unaudited)

	For the Three months Ended March 31,						Accumulated from November 26, 2007 (Date of Inception)
	2013			2012			March 31, 2013
Operating Activities:
Net loss	$	(409,893	)	$	(788,759	)	$	(4,101,278	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		2,340			2,340			13,164
Stock based compensation expense		249,999			249,999			1,849,969
Shares issued for exploration expenses		-			-			429,250
Change in derivative liability		-			-			9,575
Gain on redemption of common stock		-			-			(5,161	)
Changes in operating assets and liabilities:
Prepaid expenses		(3,000	)		(75	)		(3,152	)
Interest receivable		-			-			(9,839	)
Accounts payable and accrued liabilities		(99,446	)		(3,686	)		101,142
Net Cash Used in Operating Activities		(260,000	)		(540,181	)		(1,716,330	)

Investing Activities:
Note receivable extended to Related Party		-			-			(585,000	)
Purchases of property and equipment		-			-			(49,177	)
Purchases of mining assets		-			(75,000	)		(100,000	)
Net Cash Used in Investing Activities		-			(75,000	)		(734,177	)

Financing Activities:
Proceeds from advances – related party		-			-			56,484
Proceeds from sale of common stock		285,000			550,000			2,369,025
Proceeds from issuance of notes payable		-			-			50,000
Repayments of notes payable		(25,000	)		-			(25,000	)
Redemption of shares		-			(2	)		(2	)
Net Cash Provided by Financing Activities		260,000			549,998			2,450,507

Net change in cash		–			(65,183	)		–
Cash - Beginning of Period		–			215,737			–
Cash - End of Period	$	–		$	150,554		$	–

Supplemental Disclosures
Interest paid	$	–		$	–		$	–
Income taxes paid	$	–		$	–		$	–
Non Cash transactions:
Exchange of notes receivable for redemption of common stock	$	–		$	–		$	600,000
Shares issued for mining assets	$	–		$	46,000		$	79,300
Forgiveness of advances - related party	$	–		$	–		$	17,574
Derivative liability of price protection feature	$	–		$	–		$	20,980
Issuance of non-controlling interest for subscription receivable	$	–		$	–		$	1,500

(The Accompanying Notes are an Integral Part of These Financial Statements)

Lone Star Gold, Inc.

(An Exploration Stage Company)

Consolidated Statements of Shareholders’ Equity (Deficit)

for the Period from November 26, 2007 (Inception) to March 31, 2013

(unaudited)

										Deficit
										Accumulated
							Additional			During the			Non-
	Common Stock						Paid-in			Exploration			controlling
	Shares			Par Value			Capital			Stage			Interests			Total
Balance – November 26, 2007 (Date of Inception)		–		$	–		$	–		$	–		$	–		$	–
Net loss for the period		–			–			–			–			–			–
Balance – December 31, 2007		–			–			–			–			–			–
Common shares issued for cash in private placement:
at $0.001 per share on January 19, 2008		60,000,000			60,000			(57,000	)		–			–			3,000
at $0.015 per share on April 28, 2008		32,699,920			32,700			(8,175	)		–			–			24,525
at $0.05 per share on December 24, 2008		22,600,000			22,600			33,900			–			–			56,500
Net loss for the year – (Restated)		–			–			–			(13,983	)		–			(13,983	)
Balance – December 31, 2008 – (Restated)		115,299,920			115,300			(31,275	)		(13,983	)		–			70,042
Net loss for the year		–			–			–			(93,034	)		–			(93,034	)
Balance – December 31, 2009		115,299,920			115,300			(31,275	)		(107,017	)		–			(22,992	)
Sale of common stock for cash and warrants		6,000,000			6,000			294,000			–			–			300,000
Forgiveness of advances – related party		–			–			17,574			–			–			17,574
Net loss for the year		–			–			–			(61,049	)		–			(61,049	)
Balance – December 31, 2010		121,299,920			121,300			280,299			(168,066	)		–			233,533
Sale of common stock for cash and warrants		6,916,148			6,916			1,093,084			–			–			1,100,000
Redemption of shares		(12,000,000	)		(12,000	)		(588,000	)		–			–			(600,000	)
Services received in connection with formation of subsidiary		–			–			–			–			1,500			1,500
Stock based compensation		150,000			150			598,324			–			–			598,474
Shares issued for exploration costs		425,000			425			428,825			–			–			429,250
Net loss for the period		–			–			–			(1,529,651	)		(18,181	)		(1,547,832	)
Balance – December 31, 2011		116,791,068			116,791			1,812,532			(1,697,717)			(16,681)			214,925
Issuance of common stock for cash		1,903,595			1,904			598,096			–			–			600,000
Stock based compensation		1,000,000			1,000			998,996			–			–			999,996
Shares issued for exploration costs		300,000			300			79,000			–			–			79,300
Derivative liability of price protection feature		–			–			(20,980	)		–			–			(20,980	)
Cancellation of shares		(30,000,000)			(30,000	)		29,998			–			–			(2	)
Net loss for the period		–			–			–			(1,973,730	)		(1,757	)		(1,975,487	)
Balance – December 31, 2012		89,994,663		$	89,995		$	3,497,642		$	(3,671,447	)	$	(18,438	)	$	(102,248)
Issuance of common stock for cash		9,510,000			9,510			275,490			–			–			285,000
Stock based compensation		–			–			249,999			–			–			249,999
Net loss for the period		–			–			–			(409,477	)		(416	)		(409,893	)
Balance – March 31, 2013		99,504,663		$	99,505		$	4,023,131		$	(4,080,924	)	$	(18,854	)	$	(22,858	)

(The Accompanying Notes are an Integral Part of These Financial Statements)

Lone Star Gold, Inc.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2013

(unaudited)

1.	Nature of Operations and Continuance of Business

Lone Star Gold, Inc. (the “Company” or “Lone Star”), formerly known as Keyser Resources, Inc. (“Keyser”), was incorporated in the State of Nevada on November 26, 2007. The Company is an Exploration Stage Company as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, Development Stage Entities.

On May 31, 2011, Metales HBG, S.A. de C.V. (“Metales”), a company organized under the laws of Mexico, was formed, with the Company owning 70% of the issued and outstanding capital stock. The remaining 30% of the issued and outstanding capital stock of Metales was issued to Homero Bustillos Gonzalez (“Gonzalez”), an individual resident of Mexico. On June 10, 2011, Gonzalez assigned to Metales eight (8) gold and silver mining concessions related to the “La Candelaria” property located in the town of Guachochi, state of Chihuahua, Mexico (the “Concessions”). The Concessions cover 800 hectares, or approximately 1,976 acres.

On January 26, 2012, the Company, acting through a newly-formed subsidiary, Amiko Kay, S. de R.L. de C.V., a company organized under the laws of Mexico (“Amiko Kay”), entered into a Joint Venture Agreement (the “JV Agreement”) with Miguel Angel Jaramillo Tapia (“Jaramillo”), a resident of Mexico. Under the JV Agreement, Amiko Kay and Jaramillo agreed to process mine tailings located in the city of Hidalgo Del Parral in the state of Chihuahua, Mexico (the “Tailings”), and, after processing, to use, market and sell any minerals extracted from the Tailings. The Company owns 99% of the issued and outstanding membership interests of Amiko Kay. The JV Agreement provides Amiko Kay the right to receive 65% of the net revenues from the sale of any materials extracted from the Tailings. The Company is accounting for the activities under the JV Agreement as a collaborative arrangement as defined by ASC 808. As a result, acquisition costs related to the JV Agreement have been capitalized and all other expenditures by the Company related to the JV Agreement have been expensed as incurred as exploration costs. This is in accordance with the Company’s Mineral Property Cost Accounting Policy. For the three months ended March 31, 2013, the Company has recognized $10,000 of costs associated with the collaborative arrangement, which are included in Exploration Costs.

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated any revenue since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders and other investors, the ability of the Company to obtain any necessary financing to continue operations, and the attainment of profitable operations. As at March 31, 2013, the Company has accumulated losses of $4,101,278 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The unaudited financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012, and for the period November 26, 2007 (inception) to March 31, 2013 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March 31, 2013 and the results of operations and cash flows for the periods ended March 31, 2013 and 2012, and for the period November 26, 2007 (inception) to March 31, 2013. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three month period ended March 31, 2013 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2013.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2012 as included in our Form 10-K filed with the Securities and Exchange Commission.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Lone Star Gold, Inc.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2013

(unaudited)

2.	Related Party Transactions

All related party transactions are recorded at the exchange amount which is the value established and agreed to by the related party.

An advance from Maurice Bideaux, former chief executive officer and director, in the amount of $38,910, remains unpaid.

As of March 31, 2013, the Company’s two largest shareholders, Dan Ferris and John G. Rhoden, own 8,500,000 and 22,500,000 shares of Common Stock, representing 8.54% and 22.61%, respectively, of the issued and outstanding shares of Common Stock.

On January 13, 2012, the Company agreed to redeem certain shares of the common stock, $0.001 par value, of the Company (the “Common Stock”) held by two of its principal shareholders. The Company redeemed 7,500,000 shares of Common Stock owned by Mr. Ferris, for total consideration of $1.00. Mr. Ferris is the sole officer and director of the Company. In addition, the Company redeemed 22,500,000 shares of Common Stock held by Mr. Rhoden, for total consideration of $1.00. The redemption of the stock formerly owned by Mr. Ferris has been reflected on the books and records of the Company’s stock transfer agent. The stock transfer agent has not yet recorded the redemption of the stock formerly owned by Mr. Rhoden due to a delay caused by his inability to locate and deliver one of his stock certificates. However, the number of issued and outstanding shares reported by the Company in this Quarterly Report gives effect to this redemption.

Debt

In June 2012 the Company entered into a secured note agreement with Fairhills Capital Offshore Ltd., a Cayman Islands exempted company (“Fairhills”), in the principal amount of $50,000 at an annual interest rate of 2% (the "Note"). Principal and accrued and unpaid interest was due on December 24, 2012, which was verbally extended until December 24, 2013. The Note is secured by 3,750,000 shares of Common Stock owned by Dan Ferris, our President and sole director. On November 12, 2012, Fairhills transferred all rights and obligations under the Note to Deer Valley Management, LLC ("Deer Valley"). In March 2013, the Company paid $25,000 to Fairhills to pay down the outstanding balance on its loan.

Equity

On five occasions in January, February and March 2013, the Company exercised its right pursuant to the Investment Agreement with Deer Valley to require Deer Valley to purchase additional shares of the Company’s Common Stock, per the Company’s filing on Form S-1 in December 2012. The total amount of these puts is $270,000. There was an additional put exercised in December 2012, the amount of which is $15,000 whose shares were not issued and proceeds were not received until 2013 as well. The total of these six put shares issuances resulted in 9,510,000 shares being issued in 2013 for proceeds of $285,000. Of the 9,510,000 shares of common stock issued, 1,500,000 shares were issued for which additional proceeds of $50,000 were not received until April 2013.

A summary of warrant activity for the three months ended March 31, 2013 is presented below:

					Weighted
			Weighted		average
			average		remaining		Aggregate
			exercise		contractual		Intrinsic
	Warrants		price		life (years)		Value
Outstanding December 31, 2012		200,000	$	1.20
Granted		-		-
Exercised		-		-
Forfeited or cancelled		-		-
Expired		-		-
Outstanding March 31, 2013		200,000	$	1.20		1.33	$	59,467

Lone Star Gold, Inc.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2013

(unaudited)

5.	Commitments

On October 31, 2011, the Company entered into an agreement with a consultant to perform consulting services as requested by the Company. The contract calls for the consultant to receive $15,000 upon execution of the agreement, $5,000 per month through the term of the agreement, and a one-time grant of 150,000 restricted shares of the Company's $0.001 par value common stock. The fair market value of the common stock on the date of grant was $124,500. The term of the agreement was for one year and was renewed on a month to month basis at the end of the original contract.

La Candelaria Property

On May 31, 2011, Metales was formed, with the Company owning 70% of the issued and outstanding shares of capital stock. The remaining 30% of the issued and outstanding capital stock of Metales was issued to Gonzalez. On June 10, 2011, Gonzalez assigned the Concessions to Metales. The Concessions cover 800 hectares, or approximately 1,976 acres.

Gonzalez transferred the Concessions to Metales pursuant to an agreement with American Gold. On August 17, 2011, in connection with its investment in Metales and the exploration and development of the Concessions, the Company, American Gold, and Gonzalez executed an Assignment Agreement (the “Assignment Agreement”) pursuant to which (a) American Gold assigned all of its right and interest in and to a Letter of Intent between American Gold and Gonzalez, and an Option to Purchase Agreement between American Gold and Gonzalez dated January 11, 2011 (the “Option Agreement”), (b) the Company accepted the assignment of all of the rights and interest of American Gold in and to the Letter of Intent and the Option Agreement, and (c) the Company assumed all of the duties and obligations of American Gold under the Letter of Intent and the Option Agreement with Gonzalez. Pursuant to the Assignment Agreement (which has an effective date of June 10, 2011), the Company has taken or will take the following actions in connection with transfer of the Concessions from Gonzalez to Metales:

The Company issued 125,000 shares of its $0.001 par value common stock to North American as repayment of the $125,000 that American Gold paid Gonzalez in connection with Option Agreement (the “American Gold Shares”) on August 17, 2011.

	2.	The Company issued 300,000 shares of its $0.001 par value common stock, with a fair value of $303,000, to Gonzalez on September 16, 2011.
	3.	The Company, either alone or through Metales, is obligated to fund $150,000 per year of development costs for three years, for a total of $450,000 (the “Work Plan”). The Company has funded $14,500 and $60,195 during the Work Plan years ended January 11, 2014 and 2013, respectively.
	4.	For the three months ended March 31, 2013, the Company has not paid Gonzalez any additional funds, in accordance with its oral agreement with him reached in January 2013.

The American Gold Shares were issued in the name of North American, with the agreement of American Gold.

Gonzalez retains a 2% Net Smelter Returns Royalty on the Concessions. Metales is obligated to undertake work necessary to bring the existing geological survey on the Property up to NJ 43-101 standards. The Company has granted anti-dilution rights to Gonzalez, such that the Company must allow Gonzalez the opportunity to maintain his percentage stock ownership in the Company until the date on which the Company has complied fully with its obligations under the Option Agreement or January 11, 2014, whichever comes first. Gonzalez has waived the exercise of his anti-dilution rights with respect to issuances of Common Stock to North American under the Investment Agreement. In addition, the Company is obligated to issue 1,000,000 shares of its Common Stock to Gonzalez upon the discovery of a 1 million-ounce equivalent gold deposit, as defined by industry standards as set forth by a recognized exchange in North America. Finally, if the Company fails to comply with all its obligations under the Option Agreement before January 11, 2014, the Option Agreement will terminate and the Company will be obligated to return the Concessions to Gonzalez. In January 2013, the Company and Gonzalez verbally agreed to place the work commitments on hold. Per the verbal agreement between the Company and Gonzalez the payment has been put on hold until such time as the Company has sufficient capital to continue the project.

Lone Star Gold, Inc.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2013

(unaudited)

Employment Agreement

On July 12, 2011, the Company entered into an Employment Agreement with Dan M. Ferris regarding his position as President of the Company. The Employment Agreement has an initial term of three years, and after the initial term will automatically renew for successive one-year periods until terminated in accordance with the Agreement (the “Term”). Mr. Ferris will be paid a base salary of $120,000 per year during the Term. Mr. Ferris will also be entitled to receive 3,000,000 shares of Common Stock, which will be issued in three equal increments of 1,000,000 shares over the first 3 years of the Term. The shares of Common Stock will not be registered under the Securities Act, and will be subject to restrictions on transfer. Therefore, Mr. Ferris will receive 1,000,000 shares of Common Stock on July 12 of each of the years 2012, 2013, and 2014. The Employment Agreement may be terminated voluntarily by either party upon 30 days written notice, upon Mr. Ferris’ death or disability, by mutual agreement at the end of the Term, or at any time for “cause” by the Company. If Mr. Ferris’ employment is terminated for “cause”, or if he voluntarily resigns, then he would not be entitled to receive any shares of Common Stock that have not been issued as of the date of resignation or termination. If Mr. Ferris’ employment is terminated for any other reason, he would receive the full 3,000,000 shares of Common Stock. The Employment Agreement defines “cause” as the willful and continued failure by Ferris to perform his duties under the Employment Agreement, conviction of a felony, or engaging in conduct that is contrary to the best interests of the Company or adversely affects the Company’s reputation. The fair market value of the stock grant on the date of the Employment Agreement was $3,000,000 based on the fair market value at the time of the agreement. The Company recognized $249,999 in expense related to the stock grant during the period ended March 31, 2013.

Tailings Project

On January 26, 2012, the Company, acting through a newly-formed subsidiary, entered into a Joint Venture Agreement (the “JV Agreement”) with Miguel Angel Jaramillo Tapia (“Jaramillo”), a resident of Mexico. Under the JV Agreement, Amiko Kay, S. de R.L. de C.V., a company organized under the laws of Mexico (“Amiko Kay”), and Jaramillo formed a joint venture to process 1,200,000 tons of mine tailings located in the city of Hidalgo Del Parral in the state of Chihuahua, Mexico (the “Tailings”), and, after processing, to use, market and sell any minerals extracted from the Tailings. The Company owns 99% of the issued and outstanding membership interests of Amiko Kay.

The Tailings consist of approximately 1.2 million tons of mine tailings from previous mining activity in the Chihuahua area over the last 100 years or more. Mine tailings represent the refuse remaining after ore has been processed. The JV Agreement between Amiko Kay and Jaramillo has been formed to re-process the mine tailings heap to extract minerals that were not extracted during the initial processing, and to market and sell any minerals extracted from the Tailings.

As consideration for Jaramillo’s contribution of the right to process the Tailings to the Joint Venture, the Company paid Jaramillo $25,000 when it signed a letter of intent for a proposed acquisition of an interest in the Tailings on December 5, 2011, and another $75,000 when it signed the JV Agreement. The Company agreed to pay Jaramillo an additional $200,000 no later than January 26, 2013. In January 2013, the Company and Jaramillo entered into a verbal agreement to delay the payment, and as of the date of this filing the payment has not been made.

In addition, the Company or Amiko Kay will fund an amount up to $1,000,000 (the “Work Commitment”) for the benefit of the JV Agreement over its first two years, as follows:

(a) $250,000 within the first year of the JV Agreement for the purchase of used heavy equipment, miscellaneous equipment and materials for processing the Tailings, and taxes, permits, and general operating expenses.

(b) $750,000 within the second year of the JV Agreement for the construction of a heap leach system and floatation plant on the Property.

The Company may make an additional $250,000 available to the JV Agreement, if additional processing equipment is justified and required to maximize the liberation of precious metals in the Tailings material.

As further consideration, the Company is obligated to issue 600,000 shares of the Common Stock to Jaramillo as follows:

(a) 100,000 shares of Common Stock, which have been issued to Jaramillo.

Lone Star Gold, Inc.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2013

(unaudited)

(b) 200,000 shares of Common Stock within 6 months of signing the JV Agreement, which was issued in June 2012.

The shares of Common Stock will be restricted shares and carry current and appropriate legends to that effect.

Jaramillo will manage the day-to-day affairs associated with processing the Tailings, selling the minerals extracted from the Tailings (“Extracted Minerals”), and other activities of the JV Agreement. Jaramillo will pay all expenses associated with the processing of the Tailings, the sale of any Extracted Minerals from the Tailings, and other obligations of the JV Agreement from the funds received under the Work Commitment and, eventually, from revenues from operations. All net revenues from the sale of any Extracted Minerals or other sources, after deducting expenses, will be distributed and paid monthly, with 65% of the net revenues paid to Amiko Kay and 35% of the net revenues paid to Jaramillo. It is anticipated that the portion to be paid to Amiko Kay will be paid directly to the Company. Jaramillo will provide a monthly accounting of all revenues and expenses associated with the operations of the JV Agreement.

Title to the Property and the Tailings will remain in Jaramillo’s name. Jaramillo will be responsible for obtaining all permits, approvals and authorizations associated with the processing of the Tailings. He is also responsible for causing the project to comply with all applicable laws, rules and regulations, and to maintain insurance on the Property. Amiko Kay will have access to the Property and the Tailings at all times during the term of the JV Agreement.

Amiko Kay and Jaramillo will mutually develop plans and programs to process the Tailings. Jaramillo will prepare a detailed budget setting forth the expenses to be paid under the Work Commitment, which will be approved by Amiko Kay. Finally, Jaramillo will provide quarterly financial reports to Amiko Kay.

If either party defaults under the JV Agreement, the defaulting party’s rights to participate in the JV Agreement will be immediately suspended, and the defaulting party will have no right to share in the revenues of the JV Agreement until the breach is cured. If the defaulting party is Jaramillo, then Amiko Kay may perform the duties of Jaramillo under the Agreement. The nondefaulting party may also sue for damages incurred as a result of the event of default.

The JV Agreement will terminate upon completion of processing the Tailings, as determined by Amiko Kay in its sole discretion. If Jaramillo materially breaches the JV Agreement, Amiko Kay may terminate the JV Agreement upon 30 days notice to Jaramillo. Jaramillo has no right to terminate the JV Agreement before the processing of the Tailings is complete.

Jaramillo provides independent consulting services to the Company on the La Candelaria project. He acts as Vice President of Exploration on the La Candelaria project (although he is not an executive officer, or an employee, of the Company, Metales or the Subsidiary).

The Company is obligated to fund $250,000 for the benefit of the operations under the JV Agreement before January 26, 2013, under the Work Commitment established for the Tailings Project. For the year ended December 31, 2012, the Company made payments totaling $250,000 pursuant to the Work Commitment. For the period ended March 31, 2013, the Company made payments totaling $10,000 towards the second year Work Commitment. See “Results of Operations”.

Approximately 6,000 tons of the Tailings material has been sent to the processing plant in Parral, Mexico (the "Parral Plant"). As of the date of this Quarterly Report, this shipment has not been fully processed. The Parral Plant closed unexpectedly during the third quarter of 2012 and reopened in March 2013. It has operated sporadically since March 2013 and has not been able to operate on a consistent basis. Accordingly, the Company estimates that the Parral Plant has accumulated a one year backlog of tailings to process, and the Company does not believe that it can rely on the Parral Plant to process a significant amount of the tailings in the foreseeable future. The Company has developed plans to build its own plant capable of processing 150 tons of tailings per day. The cost to build such a plant is estimated to be $1M. The Company is actively seeking investors to fund the construction of a plant. Accordingly, the Company has no revenues from the Tailings as of the date of filing.

The Company is constructing a basic wash plant and jig circuit on the property on which the Tailings are located. The cost of the wash plant and jig circuit, if completed, is expected to be approximately $80,000.

Lone Star Gold, Inc.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

March 31, 2013

(unaudited)

6.	Derivative Liability

On September 14, 2012, the Company sold 653,595 shares of its $0.001 par value Common Stock (the “Shares”) to Fairhills for an aggregate purchase price of $50,000. The Securities Purchase Agreement, as amended, (the “Fairhills SPA”) entered into between the Company and Fairhills provides that in the event that the value of the Shares is less than $50,000 at the earlier of (a) the effective date of a registration statement or (b) such time as the Shares can be sold pursuant to Rule 144 (the “Triggering Date”), the Company shall issue additional shares of registered Common Stock to Fairhills (the “Additional Shares’) such that the total value of the Shares and the Additional Shares issued to Fairhills by the Company shall total $50,000 (the “Price Protection Clause”).

The Price Protection Clause gives rise to a derivative. We have measured this derivative at fair value and recognize the derivative value as a current liability and recorded the derivative value on our consolidated balance sheet. The derivative is valued primarily using models based on unobservable inputs that are supported by little to no market activity. These inputs represent management’s best estimate of what market participants would use in pricing the liability at the measurement date and thus are classified as Level 3. Changes in the fair values of the derivative are recognized in earnings in the current period. During the year ended December 31, 2012, the Company recorded a derivative liability of $20,980 related to the Price Protection Clause. At December 21, 2012, the effective date of the registration statement, the price protection feature was triggered and additional shares were valued at approximately $30,000. These additional shares have not been issued as of the date of this filing.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Special Note on Forward-Looking Statements

This Form 10-Q contains "forward-looking" statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate," or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include, but are not limited to, economic conditions generally and in the industries in which we may participate, competition within our chosen industry, including competition from much larger competitors, technological advances, and the failure by us to successfully develop business relationships.

General Overview

We are a start-up exploration stage company in the business of gold and mineral exploration, acquisition and development. Our principal office is located at 6565 Americas Parkway NE, Suite 200, Albuquerque, New Mexico 87110. Our telephone number is (505) 563-5828.

Agreements

La Candelaria Project

In May 2011, Metales HBG, S.A. de C.V., a company organized under the laws of Mexico (“Metales”) was formed, with the Company owning 70% of the issued and outstanding shares of capital stock. Metales owns certain gold and silver mining Concessions covering 800 hectares, or 1,976 acres, near Guachochi, Chihuahua, Mexico. The Concessions are sometimes referred to as the “La Candelaria Project”. See Note 5 to the Financial Statements.

The Company has granted anti-dilution rights to Gonzalez, such that the Company must allow Gonzalez the opportunity to maintain his percentage stock ownership in the Company until the date on which the Company has complied fully with its obligations under the Option Agreement or January 11, 2014, whichever comes first. Gonzalez has waived the exercise of his anti-dilution rights with respect to issuances of Common Stock to North American under the Investment Agreement, but has not waived those rights as to the Fairhills Investment Agreement discussed below.

If the Company fails to comply with all its obligations under the Option Agreement before January 11, 2014, the Option Agreement will terminate and the Company will be obligated to return the Concessions to Gonzalez. The Company and Gonzalez have verbally agreed that any further Work Plan payments have been put on hold until such time as the Company has sufficient capital to continue the project.

The Concessions are without known proven (measured) or probable (indicated) reserves, as defined under SEC Industry Guide 7, and the exploration program described in this Quarterly Report is exploratory in nature. See “No Proven or Probable Reserves” below .

Tailings Project

On January 26, 2012, the Company, acting through a newly-formed subsidiary, Amiko Kay entered into the Joint Venture Agreement with Jaramillo to process mine tailings located in the city of Hidalgo Del Parral in the state of Chihuahua, Mexico, and, after processing, to use, market and sell any minerals extracted from the Tailings. See Note 6 to the Financial Statements for a description of the JV Agreement.

The Company is obligated to fund $250,000 for the benefit of the processing operation before January 26, 2013, under the work commitment established for the Tailings Project. For the year ended December 31, 2012, the Company made payments totaling $250,000 pursuant to the Work Commitment. For the period ended March 31, 2013, the Company made payments totaling $10,000 towards the second year Work Commitment. See “Results of Operations” below.

On the Tailings property, two out of three on-site washing jigs are now complete and operational. The jigs separate the heavy mineral-rich material from the lighter worthless material in the Tailings. The Company has been pre-washing material for approximately three months to maximize the silver and gold content per ton of material to be shipped to nearby floatation and leaching plants in Parral, Mexico. The cost of the wash plant and jig circuit was $60,000 to date. Washing has been halted until the local plant in Parral is operational, as discussed below.

No Proven or Probable Reserves

We are a start-up, exploration-stage company engaged in the search for gold and related minerals. No proven (measured) or probable (indicated) reserves have been established with respect to the La Candelaria project or the Tailings project, and the proposed program of exploration and development for the La Candelaria project and the Tailings project is exploratory in nature. There is no assurance that a commercially viable mineral deposit, or reserve, exists on the property covered by the Concessions or the Tailings project or can be shown to exist until sufficient and appropriate exploration is done, and a comprehensive evaluation of such work concludes that the extraction of such a mineral deposit, if found, can be economically and legally feasible.

Fairhills Investment Agreement

On April 30, 2012, the Company entered into an Investment Agreement (as amended, the “Fairhills Investment Agreement”) with Fairhills Capital Offshore Ltd., a Cayman Islands exempted company (“Fairhills”), as amended by Amendment No. 1 to Investment Agreement dated June 25, 2012 and Amendment No.2 to Investment Agreement dated September 21, 2012. Under the Fairhills Investment Agreement, Fairhills agreed to purchase shares of Common Stock for an aggregate purchase price of up to $15,000,000. The Fairhills Investment Agreement was filed as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed on May 14, 2012, Amendment No. 1 was filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-1 filed with the Commission on October 16, 2012, and Amendment No. 2 was filed as Exhibit 10.16 to the Company’s Registration Statement on Form S-1 filed with the Commission on October 16, 2012. Fairhills assigned their interest in the Fairhills Investment Agreement to Deer Valley Management, LLC ("Deer Valley") on November 12, 2012.

The Fairhills Investment Agreement provides that the Company may, from time to time during the Open Period (defined below), in its sole discretion, deliver a put notice to Deer Valley which states the dollar amount that the Company intends to sell to Deer Valley on a date specified in the put notice. The maximum investment amount per notice shall be no more than two hundred percent (200%) of the average daily volume of the Common Stock for the ten consecutive trading days immediately prior to date of the applicable put notice. The purchase price per share to be paid by Deer Valley will be calculated at a twenty-four and a half percent (24.5%) discount to the lowest trading price of the Common Stock reported by Bloomberg, L.P. during the ten (10) consecutive trading days immediately prior to Deer Valley's receipt of the put notice. The Open Period begins on the trading day after a registration statement is declared effective as to the Common Stock to be subject to the put, and ends thirty-six (36) months after such date, unless earlier terminated in accordance with the Fairhills Investment Agreement. The Company has reserved 30,000,000 shares of its Common Stock for issuance to Deer Valley under the Fairhills Investment Agreement.

The Company will use the proceeds from the sale of the Common Stock under the Fairhills Investment Agreement for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith, deems to be in the best interest of the Company.

The Company filed a Registration Statement on Form S-1 on October 16, 2012, covering the resale of 20,000,000 shares of Common Stock subject to the Fairhills Investment Agreement, and 653,595 shares of Common Stock issued under a Securities Purchase Agreement with Fairhills, which is described in Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.” The registration statement on Form S-1 was declared effective on December 21, 2012, after being reviewed by the SEC.

On five occasions in January, February and March 2013, the Company exercised its right pursuant to the Fairhills Investment Agreement with Deer Valley to require Deer Valley to purchase additional shares of the Company’s Common Stock. The total amount of these puts is $270,000. There was an additional put exercised in December 2012, the amount of which is $15,000 whose shares were not issued and proceeds were not received until 2013 as well. The total of these six put shares issuances resulted in 9,510,000 shares being issued in 2013 for proceeds of $285,000.

Results of Operations

We have not generated any revenue since our inception. We do not anticipate earning revenues until we have begun to commercially produce minerals from the Concessions, the Tailings, or other mineral properties that we may own in the future.

Three months ended March 31, 2013 and 2012

For the periods below, we had the following expenses:

	For the Three months Ended March 31,
	2013		2012
General and administrative	$	105,218	$	152,064
Exploration		24,500		356,696
Management fees		279,999		279,999
Total operating expenses	$	409,717	$	788,759

For the three months ended March 31, 2013, we incurred general and administrative expenses totaling $105,218. This was a decrease of $46,846 compared to the first quarter of 2012. In 2013, our expenses consisted, primarily, of accounting and auditing fees of $40,163, professional fees of $31,774, legal fees of $25,385, depreciation expense of $2,340, rent expense of $2,319, and transfer agent and filing fees of $2,143.

For the three months ended March 31, 2012, we incurred general and administrative expenses totaling $152,064. In 2012, our expenses consisted, primarily, of professional fees of $94,840, accounting and auditing fees of $29,617, legal fees of $37,237, telephone expense of $5,301, travel of $2,229, depreciation expense of $2,340 and rent expense of $2,696.

Included in Exploration expenses for the three months ended March 31, 2013 are costs of $24,500 related to the Tailings and La Candelaria Projects. With respect to the Tailings Project, the Company made a payment of $10,000 for services from Adam Whyte. For La Candelaria, the Company made a payment of $14,500 to Mining Capital Advisors for services.

For the three months ended March 31, 2012, we incurred aggregate Exploration costs of $356,696 related to our investment in Metales and expenditures under the Work Plan, and our Tailings Project as follows: $50,000 to fund the La Candelaria Work Plan and $160,000 to fund the Tailings Project Work Commitment and additional costs of $146,696 incurred in connection with the La Candelaria Project.

During the three months ended March 31, 2013, the Company paid management fees totaling $30,000 to our sole officer and director and recognized $249,999 in expenses related to the stock grant under Mr. Ferris’ Employment Agreement.

During the three months ended March 31, 2012, the Company paid management fees totaling $30,000 to our sole officer and director, and recognized $249,999 in expenses related to the stock grant under Mr. Ferris’ Employment Agreement during the three months ended March 31, 2012.

Liquidity and Capital Resources

The following is a summary of our balance sheets as of March 31, 2013 and December 31, 2012:

	March 31, 2013			December 31, 2011
Cash	$	-		$	-
Current Liabilities		195,607			320,053
Working Capital Deficit		(192,455	)		(319,901)

Shareholders’ Equity (Deficit)		22,858			(102,248)

We have committed to fund $450,000 over three years under the La Candelaria Work Plan, and $1,000,000 over two years under the work commitment for the Tailings Project. Because the Company has no revenues from operations, we are dependent upon obtaining additional financing in order to fund our obligations under the Work Plan, and also to fund our obligations under the Tailings Project. The Company has funded its exploratory program to date primarily through sales of its common stock. In addition to funding those commitments, the proceeds of the Fairhills Investment Agreement may be used for general corporate and working capital purposes, acquisitions, and other purposes as determined in good faith by the Board of Directors. There is no assurance that adequate financing on acceptable terms will continue to be available to us.

In the three months ended March 31, 2013, we received $285,000 from the sale of 9,510,000 shares of common stock under the Fairhills Agreement. See Part II, Item 2 for a description of the sale of restricted shares of Common Stock to Deer Valley.

The proceeds of the sale of shares of restricted Common Stock to Deer Valley were used to make certain payments relating to the Company’s Tailings Project, and for general operating expenses.

Going Concern

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive exploration activities. For these reasons our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.

Accounting Plan

We intend to continue to have our outside accountants assist us in the preparation of our quarterly and annual financial statements and have these financial statements reviewed or audited by our independent auditor. Our outside accountant is expected to charge us approximately $7,500 to prepare our quarterly financial statements and approximately $20,000 to prepare our annual financial statements.

Off-balance sheet arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

N/A

Item 4. Controls and Procedures.

Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to a lack of segregation of duties and an absence of written policies and procedures for accounting and financial reporting, which are identified in our Annual Report on Form 10-K for the year ended December 31, 2012 as a material weakness in our internal controls over financial reporting.

b) Changes In Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

We are not aware of any pending or threatened legal proceedings which involve the Company.

Item 1A. Risk Factors.

There are no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K filed with the Commission on April 15, 2013.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Our mining activities are located and operated outside of the United States of America. Therefore, the Company is not required to provide information under this Item.

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1	Certification of Periodic Financial Reports by Daniel M. Ferris in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Periodic Financial Reports by Daniel M. Ferris in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LONE STAR GOLD, INC.

By:	/s/ Daniel M. Ferris
Name:	Daniel M. Ferris
Title:	President, Secretary and Treasurer

Date:	May 20, 2013

Attached files

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