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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●
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the
risks of an exploration stage company;
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●
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management’s
plans, objectives and budgets for its future operations and future economic performance;
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●
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capital
budget and future capital requirements;
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●
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meeting
future capital needs;
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●
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our
dependence on management and the need to recruit additional personnel;
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●
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limited
trading for our common stock;
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●
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the
level of future expenditures;
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●
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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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●
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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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●
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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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●
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the
markets of our domestic operations;
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●
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the
impact of competitive products and pricing;
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●
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the
political, social and economic climate in which we conduct operations; and
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●
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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).
|
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, 2018 and 2017. 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
were 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 did not grant us an interest in or to the Property,
or any equity interest in WRR, but rather, granted 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”).
On
July 5, 2017, we entered into a property purchase agreement (the “Purchase Agreement”) with WRR on the Lapon Canyon
Project. Under the terms of the Purchase Agreement WRR agreed to buy back our 30% interest in the Lapon Canyon Project, which
was prorated based on the amount of eligible expenditures we’ve incurred as of that date, in exchange for 9,100,000 common
shares of WRR and warrants to acquire an additional 11,900,000 common shares (the “WRR Warrants”). Each warrant is
exercisable for a period of five years without further consideration into one common share in the capital of WRR. The terms of
the warrants contain a provision which prevents us from exercising any warrants which would result in us owning 10% or more of
the issued and outstanding shares of WRR. Closing of the Purchase Agreement was subject to the acceptance of the TSX Venture Exchange,
which was received on July 17, 2017. All securities issued pursuant to the Purchase Agreement were subject to a hold period
which expired on November 20, 2017.
On
June 7, 2017, we entered into an exploration lease and option to purchase agreement (the “Garfield Agreement”) with
Goodsprings Development LLC (“Goodsprings”), a Nevada limited liability corporation on the Garfield Flats Project
(the “Garfield Property”), consisting of six Orsa Claims and six Lazy Claims totaling 240 acres located in sections
27 and 28 of T 7 N, R 32 E, Mineral County, Nevada about 18 miles southeast of the town of Hawthorne. The term of the Garfield
Agreement is ten years, and is subject to extension for two additional terms of ten years each.
In
order to retain the rights to the exploration lease, we are required to make the following minimum annual payments:
|
|
Minimum
Payment
|
|
Upon
execution of the option agreement (the “Effective Date”)(paid)
|
|
$
|
15,000
|
|
First
anniversary of the Effective Date
|
|
$
|
15,000
|
|
Second
and third anniversaries of the Effective Date
|
|
$
|
20,000
|
|
Fourth
and fifth anniversaries of the Effective Date
|
|
$
|
25,000
|
|
Sixth
and each succeeding anniversary of the Effective Date in perpetuity
|
|
$
|
40,000
|
|
In
addition to the minimum annual payments, we agreed to pay Goodsprings a 2% production royalty based on the gross returns from
the production and sale of minerals from the Garfield Property.
At
any time during the term of the Agreement we have a right to acquire 100% ownership of the Garfield Property for a one-time payment
of $300,000 (the “Purchase Price”). The minimum annual payments paid by us to Goodsprings cannot be applied or credited
against the Purchase Price; however, once we exercise our option to acquire the Garfield Property, the minimum annual payments
shall be credited against the production royalties payable.
On
August 2, 2017, we entered into an exploration lease agreement (the “Lazy Claims Agreement”) with Tarsis Resources
US Inc. (“Tarsis”), a Nevada corporation, to lease rights to three additional Lazy claims totaling 60 acres and located
in the vicinity of our new Garfield Property. The term of the Lazy Claims Agreement is ten years, and is subject to extension
for an additional two consecutive 10-year terms. Full consideration of the Lazy Claims Agreement consists of the following: an
initial cash payment of $1,000 to Tarsis, which we paid upon the execution of the Lazy Claims Agreement, with $2,000 payable to
Tarsis on each subsequent anniversary of the effective date. We agreed to pay Tarsis a 2% production royalty (the “Lazy
Claims Royalty”) based on the gross returns from the production and sale of minerals from the Lazy Claims Property. Should
the Lazy Claims Royalty payments to Tarsis be in excess of $2,000 per year, we will not be required to pay a $2,000 annual minimum
payment.
During
our Fiscal 2017, we staked an additional 69 Orsa Claims and 75 Lazy Claims, with a total paid cost of $54,152. These claims were
added to the Garfield Flats Project.
Critical
Accounting Policies 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 and investing 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, 2018, 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, 2017.
Results
of Operations
Three
months ended March 31, 2018, compared to the three months ended March 31, 2017:
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|
Three
months ended
March 31,
|
|
|
Changes
between
the
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|
|
|
2018
|
|
|
2017
|
|
|
periods
|
|
|
|
|
|
|
|
|
|
|
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Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
expenses
|
|
|
-
|
|
|
|
20,008
|
|
|
|
(20,008
|
)
|
General
and administrative expenses
|
|
|
3,443
|
|
|
|
4,945
|
|
|
|
(1,502
|
)
|
Professional
fees
|
|
|
1,500
|
|
|
|
2,500
|
|
|
|
(1,000
|
)
|
Transfer
agent and filing fees
|
|
|
4,984
|
|
|
|
2,101
|
|
|
|
2,883
|
|
Total
operating expenses
|
|
|
(9,927
|
)
|
|
|
(29,554
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)
|
|
|
(19,627
|
)
|
Other
items
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value loss on equity investments
|
|
|
(363,022
|
)
|
|
|
-
|
|
|
|
363,022
|
|
Deferred
tax recovery
|
|
|
21,978
|
|
|
|
-
|
|
|
|
21,978
|
|
Net
and comprehensive loss
|
|
$
|
(350,971
|
)
|
|
$
|
(29,554
|
)
|
|
$
|
321,417
|
|
Revenues
.
We had no revenues for the three months ended March 31, 2018 and 2017. 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, 2018, our operating expenses decreased by $19,627,
or 66%, to $9,927 for the three months then ended, compared to $29,554 for the comparable period in 2017. This change was mainly
associated with overall reduced business activity and absence of exploration expenses as compared to $20,008 we spent on exploration
during the three months ended March 31, 2017, as the drilling program we carried out 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, and the new exploration program on the Garfield Property has not commenced yet. In addition, our professional fees
and general and administrative expenses have also decreased by $1,000 and $1,502, respectively. Our transfer agent and filing
fees have increased by $2,883 to $4,984 for the three-month period ended March 31, 2018, as compared to $2,101 we incurred during
the three months ended March 31, 2017, this increase resulted from our uplisting from OTCPink marketplace to OTCQB.
Other
items.
During the three months ended March 31, 2018, we recognized $363,022 loss on fair value of equity investments, which
resulted from revaluation of WRR Shares and WRR Warrants we received in exchange for our 30% interest in Lapon Canyon Gold Property.
The loss resulted mainly from the decrease in market price of WRR’s common stock from CAD$0.08/share at December 31, 2017,
to CAD$0.06/share at March 31, 2018, and to a small extent from fluctuation of exchange rates between the US and Canadian dollars.
During the same period we recorded $21,978 as recovery of deferred tax liability associated with the decrease in fair market
value of WRR shares.
Net
and comprehensive loss.
At March 31, 2018, we recorded net loss of $350,971 for the three-month period then ended,
as compared to net loss of $29,554 for the three-month period ended March 31, 2017. The overall increase in our net loss resulted
from the revaluation of WRR Shares and WRR Warrants as more thoroughly described in “
Results of Operations
;
Other
items”,
which was in part offset by decrease in our operating expenses.
Liquidity
and Capital Resources
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
10,164
|
|
|
$
|
11,230
|
|
Current
liabilities
|
|
|
781,793
|
|
|
|
772,932
|
|
Working
capital deficit
|
|
$
|
(771,629
|
)
|
|
$
|
(761,702
|
)
|
As
of March 31, 2018, we had a cash balance of $3,612, and working capital deficit of $771,629 with cash flows used in operations
totaling $9,369 for the period then ended. During the three months ended March 31, 2018, our operations were funded with $10,000
non-interest bearing advance we received from our director.
We
did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for the three-month period
ended March 31, 2018. 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.
To
provide us with the necessary capital to accomplish our plan of operation we intend to seek additional financing in the form of
equity or debt. There can be no assurance that we will be successful in our efforts to raise additional capital.
Cash
Flow
|
|
Three
Months Ended
March
31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash
flows used in operating activities
|
|
$
|
(9,369
|
)
|
|
$
|
(31,613
|
)
|
Cash
flows provided by (used in) financing activities
|
|
|
10,000
|
|
|
|
(5,000
|
)
|
Net
increase (decrease) in cash during the period
|
|
$
|
631
|
|
|
$
|
(36,613
|
)
|
Net
cash used in operating activities
: Our net cash used in operating activities decreased by $22,244, or 70%, to $9,369 for the
three months ended March 31, 2018, compared with $31,613 for the comparable period in 2017. During the three months ended March
31, 2018, we used $9,927 to cover our cash operating costs and $1,139 to reduce our accounts payable. These uses of cash were
offset by $1,697 decrease in our prepaid expenses.
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.
Certain
non-cash transactions:
During the three months ended March 31, 2018, our operating costs included $363,022 loss we recognized
on revaluation of fair value of equity investments associated with WRR Shares and WRR Warrants we received in exchange for our
30% interest in Lapon Canyon Gold Property, and $21,978 deferred tax recovery associated with the decrease in fair market value
of WRR shares.
During
the three months ended March 31, 2017, we did not incur any non-cash transactions that would have affected our net and comprehensive
loss.
Net
cash provided by financing activities
: Our net cash provided by financing activities increased by $15,000, or 300%. During
the three months ended March 31, 2018, we received $10,000 non-interest bearing advance from our director. 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.
Net
cash provided by investing activities:
During the three months ended March 31, 2018 and 2017, we did not have any investing
transactions that would have effected our cash flows.
Going
Concern
At
March 31, 2018, we had a working capital deficit of $771,629 and cash on hand of $3,612, which is not sufficient enough to carry
out our current plan of operation. Our capital assets include equity investment in WRR shares and warrants, which we can use as
a source of additional cash inflow, should we decide to sell all or part of our investment. In addition, we are actively pursuing
other means of financing our operations through additional equity and/or debt financing. There can be no assurance that we will
be able to procure funds sufficient to support our day-to-day operations and exploration programs. 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.
Deferred
Tax Liability
At
December 31, 2017, we had $21,978 in deferred tax liability associated with our equity investment in WRR as a result of
the sale of our 30% interest in Lapon Canyon Gold Project to WRR. At March 31, 2018, the decrease in fair market value of WRR
shares, resulted in full recovery of deferred tax liability.
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, 2018.
Unproved
Mineral Properties
As
of the date of this quarterly report on Form 10-Q, our mineral interests are comprised of the following:
Name
|
|
Number
of
Claims
|
|
|
Total
Size
(Acres)
|
|
Garfield
Flats Project (Exploration Lease and Option to Purchase Agreement)
|
|
|
12
|
|
|
|
240
|
|
Lazy
Claims Property (Exploration Lease Agreement)
|
|
|
3
|
|
|
|
60
|
|
Orsa
claims (staked and added to Garfield Flats Project)
|
|
|
69
|
|
|
|
1,380
|
|
Lazy
claims (staked and added to Garfield Flats Project)
|
|
|
75
|
|
|
|
1,500
|
|
Total
|
|
|
159
|
|
|
|
3,180
|
|
Garfield
Flats Project
On
June 7, 2017, we entered into an exploration lease and option to purchase agreement (the “Garfield Agreement”) with
Goodsprings Development LLC (“Goodsprings”), a Nevada limited liability corporation on the Garfield Flats Project
(the “Garfield Property”), consisting of 12 claims totaling 240 acres located in sections 27 and 28 of T 7 N, R 32
E, Mineral County, Nevada about 18 miles southeast of the town of Hawthorne. The term of the Garfield Agreement is ten years,
and is subject to extension for two additional terms of ten years each.
In
order to retain the rights to the exploration lease, we are required to make the following minimum annual payments:
|
|
Minimum
Payment
|
|
Upon
execution of the option agreement (the “Effective Date”)(paid)
|
|
$
|
15,000
|
|
First
anniversary of the Effective Date
|
|
$
|
15,000
|
|
Second
and third anniversaries of the Effective Date
|
|
$
|
20,000
|
|
Fourth
and fifth anniversaries of the Effective Date
|
|
$
|
25,000
|
|
Sixth
and each succeeding anniversary of the Effective Date in perpetuity
|
|
$
|
40,000
|
|
In
addition to the minimum annual payments, we agreed to pay Goodsprings a 2% production royalty based on the gross returns from
the production and sale of minerals from the Garfield Property.
At
any time during the term of the Agreement we have a right to acquire 100% ownership of the Garfield Property for a one-time payment
of $300,000 (the “Purchase Price”). The minimum annual payments paid by us to Goodsprings, cannot be applied or credited
against the Purchase Price, however, once we exercise our option to acquire the Garfield Property, the minimum annual payments
shall be credited against the production royalties payable.
Lazy
Claims
On
August 2, 2017, we entered into an exploration lease agreement (the “Lazy Claims Agreement”) with Tarsis Resources
US Inc. (“Tarsis”), a Nevada corporation, on three additional Lazy Claims totaling 60 acres and located in Mineral
County, Nevada about 18 miles southeast of the town of Hawthorne (the “Lazy Claims”).
The
term of the Lazy Claims Agreement is ten years, and is subject to extension for an additional two consecutive 10-year terms. Full
consideration of the Lazy Claims Agreement consists of the following: an initial cash payment of $1,000 to Tarsis, which we paid
upon the execution of the Lazy Claims Agreement, with $2,000 payable to Tarsis on each subsequent anniversary of the effective
date. We agreed to pay Tarsis a 2% production royalty (the “Lazy Claims Royalty”) based on the gross returns from
the production and sale of minerals from the Lazy Claims Property. Should the Lazy Claims Royalty payments to Tarsis be in excess
of $2,000 per year, we will not be required to pay a $2,000 annual minimum payment.
Additional
Claims Acquisition
During
our Fiscal 2017, we staked an additional 69 Orsa Claims and 75 Lazy Claims, with a total paid cost of $54,152. These claims were
added to the Garfield Flats Project.
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, 2018.