Item
2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
Forward
Looking Statements
This
Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Item 2 of Part I of this report include forward-looking statements within the meaning of Section 27A of
the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (collectively, the “Reform
Act”). The Reform Act provides a safe harbor for forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the projected results. All statements, other than
statements of historical fact that we make in this Quarterly Report on Form 10-Q are forward-looking. The words “anticipates,”
“believes,” “expects,” “intends,” “will continue,” “estimates,” “plans,”
“projects,” the negative of these terms and similar expressions are intended to identify forward-looking statements.
However, the absence of these words does not mean the statement is not forward-looking.
Forward-looking
statements involve risks, uncertainties or other factors which may cause actual results to differ materially from the future results,
performance or achievements expressed or implied by the forward-looking statements. These statements are based on our management’s
beliefs and assumptions, which in turn are based on currently available information. Certain risks, uncertainties or other important
factors are detailed in this Quarterly Report on Form 10-Q and may be detailed from time to time in other reports we file with
the Securities and Exchange Commission, including on Forms 8-K and 10-K.
Examples
of forward looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our expectations regarding
our ability to generate operating cash flows and to fund our working capital and capital expenditure requirements. Important assumptions
relating to the forward-looking statements include, among others, assumptions regarding demand for our future products, the timing
and cost of capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate.
Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations
may prove to be incorrect. Important factors that could cause actual results to differ materially from the results and events
anticipated or implied by such forward-looking statements include:
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the
risks of an exploration stage company;
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management’s
plans, objectives and budgets for its future operations and future economic performance;
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capital
budget and future capital requirements;
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meeting
future capital needs;
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our
dependence on management and the need to recruit additional personnel;
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limited
trading for our common stock;
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the
level of future expenditures;
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impact
of recent accounting pronouncements;
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the
outcome of regulatory and litigation matters; and
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the
assumptions described in this report underlying such forward-looking statements.
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Actual
results and developments may materially differ from those expressed in, or implied by, such statements due to a number of factors,
including:
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those
described in the context of such forward-looking statements;
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future
product development and marketing costs;
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the
markets of our domestic operations;
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the
impact of competitive products and pricing;
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the
political, social and economic climate in which we conduct operations; and
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the
risk factors described in other documents and reports filed with the Securities and Exchange Commission, including our Registration
Statement on Form S-1/A (SEC File No. 333-196075).
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We
operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us
to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor
may cause actual results to differ materially from those contained in any forward-looking statement. We believe these forward-looking
statements are reasonable. However, you should not place undue reliance on any forward-looking statements, which are based on
current expectations. Further, forward-looking statements speak only as of the date they are made, and unless required by law,
we expressly disclaim any obligation or undertaking to update publicly any of them in light of new information or future events.
The
following is management’s discussion and analysis of financial condition and results of operations and is provided as a
supplement to the accompanying unaudited condensed interim financial statements and notes to help provide an understanding of
our financial condition, results of operations and cash flows during the periods included in the accompanying unaudited condensed
interim financial statements.
In
this Quarterly Report on Form 10-Q, “Company,” “the Company,” “us,” and “our”
refer to Nevada Canyon Gold Corp., a Nevada corporation, unless the context requires otherwise.
We
intend the following discussion to assist in the understanding of our financial position and our results of operations for the
three months ended March 31, 2017 and 2016. You should refer to the Financial Statements and related Notes in conjunction with
this discussion.
General
We
are an exploration stage Company. We have only recently begun our exploration operations and have not generated or realized any
revenues from these business operations.
We
are a party to an Exploration Agreement (the “Agreement”) with Option to form a Joint Venture with Walker River Resources
Corp. (“WRR”) on its wholly-owned Lapon Canyon Gold Project (“Lapon Canyon Project”, or “the Property”)
located approximately 40 miles southeast of Yerington, Nevada. The Agreement does not grant us an interest in or to the Property,
or any equity interest in WRR, but rather, grants us the right to earn up to an undivided 50% interest in the Property by incurring
eligible expenditures of $500,000 (over a two-year period) in exploration and other expenses required to carry out a work program
established and operated by WRR on the Property (the “Eligible Expenses”). Thereafter, the Agreement grants us an
option to enter into a joint venture with WRR for further exploration and development of the Property.
Even
if we complete our current exploration programs and are successful in identifying a mineralized deposit, we will have to spend
substantial funds on further drilling and engineering studies before we will know if we have a commercially viable mineral deposit,
called a reserve.
We
commenced exploration of the Property in early 2016 with what we anticipated is sufficient funding for approximately one year
of operations. In order to continue our exploration activities we will be required to source additional cash through equity or
debt financing, or by borrowing the funds from our management. We did not buy or sell any significant equipment during the past
twelve months and do not anticipate buying or selling any significant equipment in the following 12 months either. If we find
mineralized materials in the Property, we have no intention to develop the reserves ourselves, but rather, we will attempt to
find a mining operations company to whom we can sell the property or with whom we can enter into a business arrangement to put
the ore deposit into operation.
We
do not intend to hire employees at this time. All of the work on the Property is being conducted by WRR, who is responsible for
surveying, geology, engineering, exploration, and excavation, and we are responsible for paying all of the expenses incurred in
such activities. As of October 15, 2016, we have incurred required $250,000 in Eligible Expenses, and earned the 25% interest
to the Property. Once we have paid an additional $250,000, we will have earned an additional 25% interest, for a total 50% in
the Property.
One
of our directors is present on the Property as a representative for the Company during most exploration operations. If we hire
an independent geologist, he/she will evaluate the information derived from the exploration and excavation and the engineers will
advise us on the economic feasibility of removing the mineralized material.
Mineral
property exploration is typically conducted in phases. We began our exploratory drilling campaign to determine if there is sufficient
mineralization on the property to warrant continued exploration and development activities. We estimate the cost of the drilling,
shipping samples, as well as geological mapping, rock chip sampling, grid establishment, hiring geologists, and soil sampling,
to be approximately $500,000, which is the amount we expect to pay in order to acquire a 50% interest in the Property.
After
the completion of the first phase of the exploration program, we will review the results and conclusions and evaluate the advisability
of additional exploration work on the Property.
If
we are unable to complete any phase of exploration because we don’t have enough funds, we will cease activities until we
raise more money. At the present time, we have made arrangements to raise the additional funds required to do advanced exploration
but not to place our Property into production. If we need additional cash and cannot raise it, we will either have to suspend
activities until we do raise the cash, or cease activities entirely. Other than as described in this paragraph, we have no financing
plans.
Critical
Accounting Policy and Estimates
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP
and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different
assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our
Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our unaudited condensed
interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those
related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its
estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most
significant accounting estimates inherent in the preparation of our unaudited condensed interim financial statements include estimates
as to the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources.
The
following discussion of our financial condition and results of operations should be read in conjunction with our unaudited interim
financial statements for the three months ended March 31, 2017 and 2016, together with notes thereto, which are included in this
Quarterly Report on Form 10-Q, as well as our most recent audited financial statements on Form 10-K for the year ended December
31, 2016.
Results
of Operations
Three
months ended March 31, 2017, compared to the three months ended March 31, 2016
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Three months
ended March 31,
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Changes between
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2017
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2016
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the periods
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Operating expenses
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Exploration expenses
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$
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20,008
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$
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24,953
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$
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(4,945
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General and administrative expenses
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4,945
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11,465
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(6,520
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Professional fees
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2,500
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2,500
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-
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Transfer agent and filing fees
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2,101
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2,226
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(125
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Total operating expenses
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(29,554
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(41,144
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(11,590
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Other items
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Accrued interest expense
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-
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(1,233
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(1,233
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Net and comprehensive loss
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$
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(29,554
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$
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(42,377
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$
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(12,823
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Revenues
.
We had no revenues for the three months ended March 31, 2017 and 2016. Due to the exploration rather than the production nature
of our business, we do not expect to have significant operating revenue in the foreseeable future.
Operating
expenses.
Our operating expenses include exploration expenses, general and administrative expenses, professional fees and
transfer agent and filing fees. During the three-month period ended March 31, 2017, our operating expenses decreased by
$11,590, or 28%, to $29,554 for the three months then ended, compared to $41,144 for the comparable period in 2016. This change
was associated with reduced exploration expenses, as the main part of the drilling program we commenced on the Lapon Canyon claims
(the “Exploration Program”), which was required under our Agreement with WRR to earn a 50% interest in a joint venture,
was completed in our Fiscal 2016. During the three-month period ended March 31, 2017, we recorded $20,008 in exploration
expenses directly associated with the Exploration Program, as compared with $24,953 we spend during the three-month period ended
March 31, 2016. Our general and administrative expenses decreased by $6,520, or 57%, to $4,945 for the three months ended
March 31, 2017, compared with $11,465 for the three-month period ended March 31, 2016. The greater general and administrative
expenses during the comparable period were attributable to the fair value of 800,000 common shares we issued to Nevada Canyon
Gold Corporation, a Nevada privately held corporation, with the President and CEO in common (“NCG”), which
were valued at $8,000. The shares were issued to purchase the intangible assets of NCG which included its corporate name, domain
name and all related content.
Net
loss.
Our net loss decreased by $12,823 or 30%, to $29,554 for the three months ended March 31, 2017, compared to $42,377
for the comparable period in 2016. The decrease was primarily attributable to the operating expenses discussed above, as well
as $1,233 in interest expense we accrued on a $100,000 note payable we issued to an arms-length party (“Note Payable”).
Liquidity
and Capital Resources
Working capital
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March 31, 2017
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December 31, 2016
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Current assets
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$
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30,843
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$
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66,797
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Current liabilities
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99,800
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106,200
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Working capital deficit
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$
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(68,957
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$
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(39,403
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As
of March 31, 2017, we had a cash balance of $15,176, and working capital deficit of $68,957 with cash flows used in operations
totaling $31,613 for the period then ended. During the three-month period ended March 31, 2017, our operations were funded with
proceeds from a private placement for gross proceeds of $375,000, which we closed in the second quarter of our Fiscal 2016.
We
did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for the three-month period
ended March 31, 2017. There is no assurance that we will be able to generate sufficient cash from our operations to repay the
amounts owing under the advances payable, or to support our exploration program. If we are unable to generate sufficient
cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing from other
sources.
We
intend to seek additional financing for our working capital, in the form of equity or debt, to provide us with the necessary capital
to accomplish our plan of operation. There can be no assurance that we will be successful in our efforts to raise additional capital.
Cash
Flow
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Three
Months Ended
March 31,
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2017
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2016
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Cash flows used in operating activities
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$
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(31,613
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$
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(33,728
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Cash flows provided by (used in) financing activities
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(5,000
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30,000
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Net decrease in cash during the period
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$
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(36,613
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$
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(3,728
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Net
cash used in operating activities
: Our net cash used in operating activities decreased by $2,115, or 6%, to $31,613 for the
three months ended March 31, 2017, compared with $33,728 for the comparable period in 2016. During the three months ended March
31, 2017, we used $29,554 to cover our cash operating costs, $1,400 to decrease amounts payable to our vendors, and $659 to increase
prepaid expenses.
During
the three months ended March 31, 2016, we used $33,728 in our operating activities. This cash was used to cover our cash operating
costs of $33,144 and to decrease our accounts payable by $584.
Certain
non-cash transactions:
During the three months ended March 31, 2016, our operating costs included $1,233 in accrued interest
on $100,000 note payable we issued to an arms-length party, as well as $8,000 in share-based payment we recorded on issuance of
800,000 common shares to NCG in exchange for its intangible assets, including its corporate name, domain name and all related
content. We did not have any non-cash transactions during the three-month period ended March 31, 2017.
Net
cash provided by (used in) financing activities
: Our net cash provided by financing activities decreased by $35,000, or 117%.
During the three months ended March 31, 2017, we repaid $5,000 in advances we received from our CEO and President during our Fiscal
2016.
During
the three-month period ended March 31, 2016, we received $30,000 as a non-interest bearing advance from our CEO and President.
During
the three months ended March 31, 2017 and 2016, we did not have any investing transactions that would have effected our cash flows.
Going
Concern
At
March 31, 2017, we had a working capital deficit of $68,957 and cash on hand of $15,176, which is not sufficient enough to carry
out our current plan of operation, however we are in the process of trying to procure funds sufficient to fund our operations
until we are able to finance our operations through cash flow. There can be no assurance that we will be able to procure funds
sufficient for such purpose. If operating difficulties or other factors (many of which are beyond our control) delay our realization
of revenues or cash flows from operations, we may be limited in our ability to pursue our business plan. Moreover, if our resources
from obtaining additional capital or cash flows from operations, once we commence them, do not satisfy our operational needs or
if unexpected expenses arise due to unanticipated pressures or if we decide to expand our business plan beyond its currently anticipated
level or otherwise, we will require additional financing to fund our operations, in addition to anticipated cash generated from
our operations. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available
or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities,
develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In a worst-case
scenario, we might not be able to fund our operations or to remain in business, which could result in a total loss of our stockholders’
investment. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders would be reduced, and these newly issued securities might have rights, preferences or privileges senior to
those of existing stockholders.
Income
Tax Benefit
The
Company has a prospective income tax benefit resulting from a net operating loss carry forwards that may offset any future operating
profit.
Impact
of Inflation
We
believe that inflation has had a negligible effect on operations over the past fiscal quarter.
Capital
Expenditures
The
Company expended no amounts on capital expenditures for the three months ended March 31, 2017.
Unproved
Mineral Properties
On
December 17, 2015, we entered into a definitive agreement (the “Agreement”) with Nevada Canyon Gold Corporation, to
acquire all of NCG’s rights, titles and interests in and into an exploration agreement with an option to form a joint venture
with Walker River Resources Corp. dated September 15, 2015. WRR owns a 100% undivided interest in and to the Lapon Canyon Gold
Property, containing the Lapon Canyon claims (“the Property”), which is the subject of the Agreement.
The
Agreement does not grant us an interest in or to the Property, or any equity interest in WRR, but rather, grants us the right
to earn up to an undivided 50% interest in the Property by incurring $500,000 (over a two-year period) in eligible exploration
and other expenses required to carry out an Exploration Program established and operated by WRR on the Property (the “Eligible
Expenses”). As of October 15, 2016, we have incurred required $250,000 in Eligible Expenses, and earned the 25% interest
to the Property. Once we have paid an additional $250,000, we will have earned an additional 25% interest, for a total 50% in
the Property. For additional information on the acquisition of the Property please refer to the discussion included in the
General
section of this MD&A.
The
Property consists of 36 claims (Sleeper claims 1–36) comprising 720 acres situated in the Wassuk Range (Mt. Grant Mining
District), approximately 40 miles southeast of Yerington, Nevada. The Property is easily accessible by a well-maintained secondary
state road to the Lapon Canyon road, which is generally a 15% grade canyon road. A state grid power transmission line passes within
two miles of the property. An ample source of water exists (for drilling and other activities) in several locations on the Property.
As
of the date of the filing of this report on Form 10-Q, we have incurred $300,277 in Eligible Expenses on the Exploration Program,
of which $232,840 were associated with mineral exploration expenses on the Property.
Off-Balance
Sheet Arrangements
None.
Use
of Estimates
Areas
where significant estimation judgments are made and where actual results could differ materially from these estimates are the
carrying value of certain assets and liabilities which are not readily apparent from other sources and the classification of net
operating loss and tax credit carry forwards.
We
evaluate impairment of our long-lived assets by applying the provisions of SFAS No. 144. In applying those provisions, we have
not recognized any impairment charge on our long-lived assets during the three months ended March 31, 2017.