LSMG Lode-Star Mining Inc. - 10-K

ITEM 1A.

RISK FACTORS

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 obtain new financing to execute its business plan. As shown in the accompanying financial statements, the Company has had no revenue and has incurred accumulated losses of $4,747,171 as of December 31, 2025. These factors raise substantial doubt about the Company’s ability to continue as a going concern. To continue as a going concern, the Company will need, among other things, additional capital resources. The Company is significantly dependent upon its ability and will continue to attempt to secure additional equity and/or debt financing. There are no assurances that the Company will be successful and without sufficient financing, it would be unlikely for the Company to continue as a going concern. 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.

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.

Risks Related to Our Business

We have no operating history in software development or deployment of products into the software market.

We have no history in the software industry. Accordingly, we have no experience developing, deploying, or selling artificial intelligence (“AI”) or FinTech. Therefore, we should be considered a development stage company. As such, our operations will be subject to all the risks inherent in the establishment of a new business enterprise, including, but not limited to, hurdles or barriers to the implementation of our business plans. Further, because there is no history of operations, there is also no operating history from which to evaluate our directors’ and officers’ ability to manage our business and operations and achieve our goals or the likely performance of the Company. Investors should also consider the fact that certain of our directors and officers have not previously developed or managed similar companies. No assurances can be given that we will be able to achieve or sustain profitability.

Our lack of experience may hinder our ability to achieve or sustain profitability.

Our lack of experience in both the AI and FinTech industries makes it challenging to assess our current business and future prospects. As a growing company in the rapidly evolving AI and FinTech industries, we face, and will continue to face, various risks and challenges. These include issues with forecasting, allocating our limited resources effectively, gaining market acceptance for Alpha-Optimus, navigating a complex regulatory environment, and developing new product candidates. As a result, we may not be able to fully execute our business strategy or achieve the expected benefits from our growth plans within our anticipated timelines. Therefore, it is important to consider the risks and challenges we face as an early-stage AI and Fin-Tech company working to develop and market Alpha-Optimus.

Our success depends on further development and success of Alpha-Optimus, which may require substantial additional capital.

We plan to initially dedicate all of our time, effort, and resources to the further development and commercialization of Alpha-Optimus. If we are not successful in these efforts, we risk using up all or a significant portion of our available funds on an unsuccessful product, including funds provided by an investor in this offering. Additionally, factors such as pricing, demand, market acceptance, and regulatory compliance and approval could negatively impact the long-term success of Alpha-Optimus. As of the date of this Current Report, we believe that development costs to progress Alpha-Optimus through beta stage and release candidate phase will be between approximately $245,000 and $425,000. We expect to fund these additional costs through proceeds from one or more additional capital raises, including through public or private offerings of our equity securities. We may seek to access the public or private equity markets whenever conditions are favorable; however, there can be no assurance that we will be able to raise additional capital when needed or on terms that are favorable to us, if at all. We currently have no lines of credit or other arranged access to debt financing. In order to raise sufficient capital in the future, we may need to increase the number of authorized shares we are permitted to issue under or governing documents.

We are subject to rapid technological change, which could render our products and services obsolete.

Our future success depends in part on our ability to offer products and services that incorporate leading technology and address the increasingly sophisticated and varied needs of our current and prospective customers. Our market is characterized by rapidly changing and unproven technology, evolving industry standards, changes in customer needs, emerging competition and frequent new service introductions. These changes and developments may render our products and technologies obsolete in the future. As a result, our success depends on our ability to adapt to these changes, particularly to develop new products and services, adapt our current products and services or to acquire new products and services that can compete successfully. There can be no assurance that we will be successful in these efforts. In addition, future advances in technology may not be beneficial to or compatible with our business and we may not be able to incorporate technological advances into our products and services in a cost-effective and timely manner. Keeping pace with technological advances may require substantial expenditures and lead time, particularly with respect to acquiring updated hardware and infrastructure components for our systems. We may require additional financing to fund such purchases. Any such financing may not be available on commercially reasonably terms, if at all, when needed and may result in a loss of earnings and market share.

Alpha-Optimus is based on unproven technology, which may lead to delays in the release of our products or undetected errors in our products, resulting in increased costs, delayed market acceptance of our products, and delayed or lost revenue.

Alpha-Optimus is based on unproven technology. To achieve market acceptance, our products may require long development and testing periods, which could result in delays in scheduled introduction. Any delays in the release schedule for our products may delay market acceptance of these products and may delay new or existing customers from using our products and result in the loss of new or existing customers. In addition, our products may contain a number of undetected errors or “bugs” when they are first released. Although we test each product before it is released to the market, there can be no assurance that significant errors will not be found in product releases. As a result, in the months following the introduction of certain releases, we may need to devote significant resources to correct these errors. There can be no assurance, however, that all of these errors can be corrected.

Use of artificial intelligence in our operations and product offerings could result in reputational or competitive harm, legal or regulatory liability and adverse impacts on our results of operations.

We have incorporated, and expect to continue to incorporate in the future, AI solutions into our operations and product offerings, and the use of AI involves various risks and challenges that could adversely affect our business, financial condition or results of operations. The development and deployment of AI systems involve inherent technical complexities and uncertainties, and our AI systems may encounter unexpected technical difficulties, limitations or errors, including inaccuracies in data processing or flawed algorithms, which could compromise the reliability and effectiveness of our products and services based on AI. In addition, our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively.

The use of AI applications, including large language models, may result in cybersecurity incidents that implicate the personal data of end users of such applications. Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and results of operations. AI also presents emerging ethical issues, and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, regulatory scrutiny or legal liability.

The introduction of AI technologies into our products and services may result in new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns or other complications that could adversely affect our business, reputation or financial results. The regulatory landscape governing AI technologies is evolving rapidly, and changes in laws, regulations or enforcement practices may impose new compliance requirements, restrict certain AI applications or increase our regulatory obligations, which could negatively impact our business and results of operations.

Data privacy risks, such as cyber-attacks and security breaches of customer, employee, or Company information, may have a may have a material adverse effect on our business, financial condition, and results of operations.

In the development and commercialization of Alpha-Optimus, we will rely extensively on computer systems, including third-party systems, to collect, use, transmit, store and report data on information systems and interact with customers, vendors and employees. Increased global IT security threats and more sophisticated and targeted computer crime and increased ransomware attacks pose a risk to the security of our systems and networks and third-party systems and networks with our data (including employee and customer data), and the confidentiality, availability and integrity of our data. Despite our security measures, our IT systems and infrastructure may be vulnerable to computer viruses, cyber-attacks, and/or security breaches caused by employee error, malfeasance or other disruptions, with heightened risks due to geopolitical conflicts. These threats also may be further enhanced in frequency or effectiveness through threat actors’ use of artificial intelligence technologies, which are becoming more widely adopted and increasingly sophisticated. Any such threat could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. A security breach of our computer systems or third-party systems with our data could interrupt or damage our operations or harm our reputation, or both. In addition, we could be subject to legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties if confidential information relating to customers, suppliers, employees or other parties is misappropriated from our computer system or third-party systems with our data. We cannot guarantee that our security efforts will prevent unauthorized access or loss of functionality to our or our third-party providers’ systems.

We depend on key management personnel and attracting and retaining other qualified personnel, and our business could be harmed if we lose key management personnel or cannot attract and retain other qualified personnel.

A significant part of our Company’s success relies on the technical expertise and ongoing contributions of Arcterix and its employees or contractors, and we do not currently have any “key man” insurance policies in place. Additionally, as we seek to grow, we will need to recruit additional specialized personnel. Our plans to grow and invest in the development of Alpha-Optimus will lead to higher personnel and operational costs. To acquire and retain skilled employees, we will be competing with other companies both inside and outside the AI and FinTech industries, some of which may have greater financial resources and more intellectual property than we do. There is no guarantee that we will be able to hire and keep employees with the necessary expertise to support our growth and ensure success, especially if we struggle to secure adequate financing. If we are unable to maintain the qualified staff needed to meet our growth objectives, it could materially and adversely impact on our business, financial condition, and future prospects.

We operate in very competitive industries and will have competitors with greater resources than us.

The market for Alpha-Optimus is intensely competitive, rapidly evolving, and highly sensitive to the launch of new products. We anticipate that Alpha-Optimus will face direct competition from several well-established AI and FinTech products and many more early-stage AI and FinTech products. If we are unable to keep pace with rapid advancements in AI, especially in the FinTech industry, our business results and competitive position may suffer.

We expect that we will need to raise additional funding, which may not be available to us on acceptable terms or at all.

We currently believe, based upon our expected costs and expenses, that the gross proceeds received pursuant to this offering will be sufficient to enable the development of Alpha-Optimus. However, if for any number of reasons, including, but not limited to, our costs and expenses being higher than anticipated, unexpected delays and/or faults in our design and development process and/or in obtaining regulatory approvals, such funds may not be sufficient to allow us to finalize development of Alpha-Optimus. In that case, we will need additional funds to develop the sales, marketing and operational expertise to support Alpha-Optimus. We also expect to need further funds to market and commercialize Alpha-Optimus. If we are unsuccessful in securing additional financing when needed and on terms acceptable to us, we may be unable to execute our business plan which could result in us scaling back or halting our operations. Our ability to raise additional capital is uncertain and depends on various factors outside of our control, including, but not limited to, market conditions, economic factors, the availability of credit, the AI industry, and other related and unrelated factors. If we raise additional capital through the sale of equity or convertible debt securities, the interests of then-existing stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect their rights as common stockholders. If we pursue debt financing or preferred equity financing, the agreements may impose restrictive covenants that limit our ability to take certain actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

Our operations and profitability could be adversely affected by government policies and regulations, particularly those affecting the artificial intelligence and financial services industries.

The use of AI in Alpha-Optimus may result in enhanced governmental or regulatory scrutiny, litigation, compliance issues, ethical concerns, confidentiality or security risks, as well as other factors that could adversely affect our business, reputation, and financial results. For example, AI technologies can “hallucinate,” producing inaccurate or misleading results. Additionally, AI can produce results with unintended biases and discriminatory outcomes. Such hallucinations or biases could negatively impact our customers, damage our reputation, and expose us to legal liability. We may be restricted in our ability to use, develop, or deploy AI in our products or processes due to laws, regulations or industry standards that develop in response to the use of AI, which could hinder the growth of our business. For example, we may be subject to significant costs to comply with EU’s AI Act, which became effective on August 1, 2024, and governs the development, marketing and use of AI in the EU, or we could receive significant fines for failing to comply.

Moreover, Alpha-Optimus may rely on third-party data, which introduces risks related to data rights and protection. The legal and regulatory environment surrounding AI is rapidly changing and remains uncertain, especially regarding intellectual property ownership and license rights, cybersecurity, and data protection laws, and is yet to be fully addressed by courts or regulators. The development, use, or integration of AI technologies into our products could expose us to third-party claims of copyright infringement or other intellectual property violations, which may result in us being required to pay compensation or licensing fees to third parties. The ongoing changes to the legal, regulatory and compliance landscape of AI may also impact our ability to protect our own data and intellectual property against infringement.

We are dependent on intellectual property obtained or licensed from third parties, and if we were to fail to comply with our obligations under our existing and any future intellectual property licenses with third parties, we could lose intellectual property rights that are important to our business and we may not be able to continue developing or commercializing our product candidates, if approved.

We are party to the License Agreement, pursuant to which Predictive granted the Company an exclusive worldwide license to use certain AI technology owned by Predictive in connection with the further development of Alpha-Optimus which is important to our business. We may enter into additional license agreements in the future. Our existing license agreement with Predictive imposes, various due diligence, license fees, and other obligations on us, and we expect that any future license agreements will impose similar obligations, including, but not limited to, milestone payments, royalties, and insurance obligations. Any uncured, material breach under the License Agreement could result in our loss of rights to use the intellectual property licensed to us, and could compromise our development and commercialization efforts for our current or any future product candidates.

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise regarding intellectual property subject to the License Agreement or a future license agreement, including disputes regarding:

the scope of rights granted under the license agreement and other interpretation-related issues;

whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

our obligations to third parties;

our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations;

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us;

our right to transfer or assign the license; and

the effects of termination.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangement on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

If we fail to effectively protect our technology or enforce our intellectual property rights, our business could be negatively impacted.

We believe that the success of Alpha-Optimus largely depends on our intellectual property. Currently, we do not hold any copyrights or patents, and due to the importance of intellectual property to our success, it may be necessary for us to secure and maintain copyright and patent protection. However, the scope of a patent can be significantly reduced during the application process, and it can be altered after being granted. Additionally, if our patent applications are rejected, or are granted but later invalidated in court, our ability to competitively leverage Alpha-Optimus could be substantially harmed. Even if patents are granted, they may not offer significant competitive advantages or could be challenged or circumvented by competitors, potentially limiting our ability to commercially capitalize on our technology. We will also depend on trade secrets and contracts to protect our unpatented, confidential, and proprietary technology. However, protecting trade secrets is challenging, and although we will require certain employees, consultants, and others to sign agreements regarding our confidential information, there is no guarantee these agreements will fully protect our trade secrets or proprietary information. Breaches of these agreements may occur, or they may not be enforceable in all cases, leaving us without sufficient remedies. Additionally, our trade secrets could be discovered or independently developed by competitors. If we are unable to effectively protect our technology, trade secrets, proprietary knowledge, or enforce any patents we obtain, our business, financial condition, and future prospects could suffer.

Intellectual property litigation is becoming more frequent and increasingly costly, potentially leading to significant business restrictions and expenses, even if we prevail in such disputes.

Patent and intellectual property litigation may be required to defend against or assert infringement claims, protect trade secrets, clarify the scope and validity of third-party proprietary rights, or enforce any patents we hold or acquire, including those we may license from others. While we do not believe our intellectual property infringes on the rights of others, there is no guarantee that litigation will not arise in the future, nor can we ensure a favorable outcome or the ability to acquire necessary intellectual property on reasonable terms, if at all. Any such litigation, whether justified or not, is both time-consuming and expensive to defend or pursue. Moreover, if we are found to infringe on the intellectual property rights of others, we could lose the right to develop, manufacture, or sell our products, or be forced to pay damages or royalties to license the necessary intellectual property from third parties. An unfavorable outcome in court or a failure to obtain required licenses could hinder our ability to develop, manufacture, or sell products, significantly harming our business, financial standing, and future prospects.

We may encounter unforeseen challenges that could require us to adjust or even abandon our current business plan.

As an AI company in its early development stage, there is a chance our business plan may change significantly based on our encountering unforeseen challenges. Given the capital-intensive nature of our business, as well as statutory or regulatory requirements and other factors beyond our control, we may encounter challenges that are detrimental to our business plan. Accordingly, we reserve the right to significantly modify our business plan depending on future events.

As a public company, we incur increased expenses.

We have incurred, and will likely continue to incur, expenses associated with continuing as a public company, including, but not limited to, legal, accounting, filing and other related costs.

Risks Related to Our Common Stock

There is no active liquid trading market for our Common Stock.

Our Common Stock is traded on pink sheets and is not actively traded. There is no guarantee that a viable trading market will ever develop, or if one does, that it will be sustained. As a result, investors may have difficulty selling their shares or obtaining accurate price quotations. This lack of liquidity could negatively impact the market price of our Common Stock. A limited market may also hinder our ability to raise capital through share sales or to acquire other companies or assets using our Common Stock as payment. If an active market for our Common Stock develops, there is a significant risk that its price could experience considerable fluctuations due to factors beyond our control, including: (i) variations in our quarterly operating results; (ii) announcements that our revenue or income fall below analysts’ expectations; (iii) general economic downturns; (iv) large sales of our Common Stock; and (v) announcements by us or our competitors of major contracts, acquisitions, strategic partnerships, joint ventures, or capital commitments.

Our Common Stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for stockholders to sell our Common Stock.

Our Common Stock qualifies as a “penny stock” under Rule 15g-9 the Securities Exchange Act of 1934 (the “Exchange Act”), which imposes additional sales practice requirements on brokers-dealers who engage in transactions involving our securities. Specifically, broker-dealers must make a special suitability determination and receive a written agreement from you before making a sale on your behalf. Due to these additional requirements, broker-dealers may be reluctant to make a market for our Common Stock, which could limit your ability to resell your shares and may lead to a decrease in the value of your investment.

FINRA sales practice requirements may limit your ability to buy and sell our Common Stock, which could suppress the price of our shares.

The Financial Industry Regulatory Authority’s (“FINRA”) rules require broker-dealers to have reasonable grounds to believe that an investment is suitable for a customer before recommending it to that customer. Before recommending speculative, low-priced securities to non-institutional customers, broker-dealers are required to make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other factors. Based on interpretations of these rules, FINRA views speculative, low-priced securities as potentially unsuitable for some customers. As a result, FINRA’s requirements may make it more difficult for broker-dealers to recommend our Common Stock, which could negatively affect the market for our stock and your ability to trade it, thus putting downward pressure on its price. Compliance with the reporting requirements of federal securities laws can be time-consuming, complex, and costly.

As a publicly reporting company in the United States, we are subject to the information and reporting requirements of the Exchange Act, other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The process of preparing and filing annual and quarterly reports, as well as other required information with the SEC, along with obtaining and submitting the necessary certifications, is time-consuming, complex, and costly. Furthermore, if we fail to provide up-to-date information to market makers, they may be unable to trade our stock. Non-compliance with applicable securities laws could lead to legal action, either private or governmental, against us or our officers and directors, potentially harming our business and financial condition, reducing the value of our stock, and limiting stockholders’ ability to resell their shares. Our investors’ ownership in the Company may be diluted in the future.

In the future, we may issue additional authorized but previously unissued equity securities, which would dilute the ownership interests of our current stockholders. This could include issuing a substantial number of shares of Common Stock or other securities convertible into or exercisable for Common Stock in connection with hiring or retaining employees, making future acquisitions, raising additional capital to fund operations, or other business purposes. The issuance of additional shares of our Common Stock will result in the dilution of an investor’s stake in the Company.

Our certificate of incorporation grants our Board of Directors the power to designate and issue additional shares of common and/or preferred stock.

Our authorized capital consists of 480,000,000 shares of Common Stock and 20,000,000 shares of preferred stock, of which 1,000,000 is designated as series A preferred stock. Our preferred stock may be designated into series pursuant to authority granted by our certificate of incorporation, and on approval from our board of directors. Our board of directors, without any action by our stockholders, may designate and issue shares in such classes or series as the board of directors deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of other classes or series of stock that may be issued could be superior to the rights of holders of our Common Stock. The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to shares of our Common Stock.

We do not intend to pay dividends; thus, there will be fewer ways in which you are able to earn on your investment.

We have not declared any cash dividends, nor do we have any plans to do so. If we receive additional funding in the future, the source or sources of such funding may prohibit us from declaring dividends. Since we have no intention of declaring any dividends, the price of our Common Stock will need to appreciate for you to earn on your investment.

Rule 144 is not generally available to holders of our Common Stock, which makes it difficult to resell shares in the future.

With limited exceptions related to certain shares acquired before we became a “shell company” (as defined in Rule 405 of the Securities Act of 1933 (the “Securities Act”)), all of our presently outstanding shares of Common Stock are “restricted securities” as defined under Rule 144 promulgated under the Securities Act (“Rule 144”) and may only be resold pursuant to an effective registration statement or an exemption from registration. Rule 144 generally provides a safe harbor exemption for the resale of restricted securities. However, restricted securities that we issued while we were a shell company or anytime thereafter, can only be resold in reliance on Rule 144 if the following conditions are met:

we have ceased to be a shell company;

we are subject to the reporting requirements of Section 13 or 15(d) of Exchange Act;

(iii)

we filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months, other than Current Reports on Form 8-K; and

at least one year has elapsed from the time we filed current comprehensive disclosure with the SEC reflecting our status as an entity that is not a shell company known as “Form 10 Information.”

There can be no assurance that we will ever meet these conditions or that holders of our shares of Common Stock will be entitled to rely on Rule 144 for the resale of their shares. This could have a materially adverse effect on the trading market for our shares, if a trading market develops, of which there is no assurance.

Future sales of our Common Stock could adversely affect our stock price and our ability to raise capital in the future, resulting in our inability to raise required funding for our operations.

Any sales of substantial amounts of our Common Stock in the public market, or the perception that those sales might occur, could harm the market price of our Common Stock. Further, certain stockholders have “piggy-back” registration rights afforded to them if we file a registration statement with the SEC; these shares or any registered securities we may register can also have an adverse effect on any market for our Common Stock. The issuance of additional shares would dilute the value of our outstanding shares of Common Stock.

Our principal stockholders and management own a significant percentage of our Common Stock and will be able to control matters subject to stockholder approval.

As of immediately after the Closing, our executive officers, directors and holders of 5% or more of our capital stock beneficially owned approximately 32.12% of our outstanding Common Stock. The interests of these stockholders may not be the same as or may even conflict with the interests of other stockholder. For example, these stockholders could delay or prevent a change of control of the Company, even if such a change of control would benefit other stockholders, which could deprive our other stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might affect the prevailing market price of our Common Stock. The significant concentration of stock ownership may adversely affect the trading price of our Common Stock due to investors’ perception that conflicts of interest may exist or arise.