2. Basis of Presentation and Summary of Significant Accounting Policies
The common shares used in the computation of our basic and diluted net income (loss) per share are reconciled as follows:
3. Defense Technology Corporation Acquisition
As of the date of filing of this report, not all financial information, including pro forma financial information was available for the acquisition. Therefore, the above financial disclosure is based on preliminary assumptions and is subject to adjustment.
4. Mineral Claims
5. Related Party Transactions and Balances
Notes payable – related parties are currently in default and consisted of the following at:
|
|
|
July 31,
2016
|
|
|
April 30,
2016
|
|
|
Note payable to related party, with interest at 6% per annum, due September 15, 2013
|
|
$
|
24,656
|
|
|
$
|
24,656
|
|
|
Note payable to related party, with interest at 6% per annum, due March 8, 2014
|
|
|
7,500
|
|
|
|
7,500
|
|
|
Note payable to related party, with interest at 6% per annum, due December 5, 2013
|
|
|
47,500
|
|
|
|
47,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,656
|
|
|
$
|
79,656
|
|
Accrued interest payable – related parties was $19,521 and $17,846 at July 31, 2016 and April 30, 2016, respectively.
In May 2016, the Company issued 350,000 of its common shares, valued at $105,000, to its Chief Executive Officer pursuant to his Service Agreement.
6. Convertible Notes Payable
Convertible notes payable consisted of the following at:
|
|
|
July 31,
2016
|
|
|
April 30,
2016
|
|
|
Note payable, amended April 30, 2016, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share 90 days from demand
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, amended April 30, 2016, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share 90 days from demand
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, amended April 30, 2016, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share 90 days from demand
|
|
|
91,150
|
|
|
|
141,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, amended April 30, 2016, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share 90 days from demand
|
|
|
14,500
|
|
|
|
14,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, amended April 30, 2016, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share 90 days from demand
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share
|
|
|
17,000
|
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to institutional investor, with interest at 12% per annum, convertible into common stock of the Company at defined conversion price
|
|
|
41,000
|
|
|
|
41,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share
|
|
|
53,650
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to institutional investor, with interest at 10% per annum, convertible into common stock of the Company at a defined conversion price
|
|
|
25,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to institutional investor, with interest at 8% per annum, convertible into common stock of the Company at a fixed conversion price of $0.25 per share
|
|
|
189,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable to individuals assumed in the DTC acquisition (Note 3) with interest imputed at 8%, to be converted into 4,000,000 shares of the Company's common stock
|
|
|
1,068,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to institutional investor repaid in July 2016
|
|
|
-
|
|
|
|
55,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to institutional investor repaid in July 2016
|
|
|
-
|
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,539,300
|
|
|
|
348,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Less discount
|
|
|
(73,729
|
)
|
|
|
(284,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,465,571
|
|
|
$
|
63,486
|
|
On April 30, 2016, the convertible notes payable with principal balances of $11,000, $9,000, $141,150, $14,500 and $20,000 were amended to establish a conversion price of $0.05 per share, interest at 6% retroactive to the original issuance date of the notes, and a conversion date of 90 days from demand of the lender. The amendments were determined to be extinguishments of the prior debt and the issuance of new debt in accordance with ASC 470-50,
Debt – Modifications and Extinguishments
, resulting in a loss on extinguishment of debt totaling $33,237. In addition, the Company recorded a debt discount and a beneficial conversion feature totaling $195,650 at the inception of the new debt.
On March 10, 2016, the Company entered into a convertible promissory note for $17,000, which bears interest at an annual rate of 6% and is convertible into shares of the Company's common stock at $0.05 per share. The Company recorded a debt discount and a beneficial conversion feature of $17,000 at the inception of the note.
On February 4, 2016, the Company entered into a convertible promissory note with an institutional investor for $41,000, which matures on February 4, 2017. The Company may repay the note at any time on or before the date that is 120 days after the date of the note. If the Company does not repay the note during the first 120 days, a one-time interest charge of 12% will be charged. After the first 120 days, the note may be prepaid by the Company with the prior written consent of the investor at 125% of the principal owed. The investor has the right, after the first 180 days of the note, to convert the note and accrued interest in whole or in part into shares of the common stock of the Company at a price per share equal to 60% (representing a discount rate of 40%) of the lowest bid price of the Company's common stock during the 60 consecutive trading days immediately preceding the date of the conversion notice. At the inception of the convertible note to institutional investor, the Company paid debt issuance costs of $2,500, and recorded a debt discount of $41,000, including an original issue discount of $3,500, a derivative liability of $78,034 related to the conversion feature, and a loss on derivative liability of $40,534. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.
On July 31, 2016, the Company entered into a convertible promissory note for $53,650, which has no defined maturity date. The note bears interest at an annual rate of 6% and is payable only on conversion into shares of the Company's common stock at $0.10 per share.
On June 8, 2016, the Company entered into a convertible promissory note with an institutional investor for $25,000, which bears interest at an annual rate of 10% and matures on December 9, 2016. The note holder has the right, after a period of 180 days of the note, to convert the note and accrued interest into shares of the common stock of the Company at a discounted price per share equal to 50% to 65% of the market price of the Company's common stock, depending upon the stock's liquidity as determined by the note holder's broker. At the inception of the convertible note, the Company paid debt issuance costs of $2,500, recorded a debt discount of $22,500, and recorded a derivative liability of $51,553 related to the conversion feature, and a loss on derivative liability of $29,053. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.
On July 18, 2016, the Company entered into a Senior Secured Convertible Promissory Note with an institutional investor for $189,000, with net proceeds to the Company of $175,000. The note bears interest at an annual rate of 8%, matures on January 17, 2017 and is convertible into common shares of the Company after six months at a fixed conversion price of $0.25 per share. In the event of default, the conversion price changes to a variable price based on a defined discount to the market price of the Company's common stock. The net proceeds were used to retire two outstanding convertible promissory notes and to provide working capital.
During the three months ended July 31, 2016, the Company issued a total of 1,829,880 shares of its common stock in the conversion of $72,605 convertible notes principal and $11,644 accrued interest payable.
During the three months ended July 31, 2016, we had the following activity in our derivative liabilities account:
|
Balance at April 30, 2016
|
|
$
|
2,081,931
|
|
|
Issuance of new debt
|
|
|
22,500
|
|
|
Gain on derivative liability
|
|
|
(1,498,059
|
)
|
|
Conversion of debt to shares of common stock and repayment of debt
|
|
|
(377,547
|
)
|
|
|
|
|
|
|
|
Balance at July 31, 2016
|
|
$
|
228,825
|
|
The estimated fair value of the derivative liabilities at July 31, 2016 was calculated using the Black-Scholes pricing model with the following assumptions:
|
Risk-free interest rate
|
|
|
0.38
|
%
|
|
Expected life in years
|
|
|
0.36 - 0.52
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
115.03% - 150.87
|
%
|
Accrued interest and fees payable was $365,593 and $63,979 at July 31, 2016 and April 30, 2016, respectively.
Pursuant to ASC 820,
Fair Value Measurements and Disclosures
and ASC 825,
Financial Instruments,
an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value using a hierarchy based on the level of independent, objective evidence when measuring fair value using a hierarch based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization with the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy prioritized the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in markets that are not active.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
As of July 31, 2016, the Company believes the amounts reported for cash, payables, accrued liabilities and amounts due to related parties approximate their fair values due to the nature or duration of these instruments. In addition, the fair value of certain of the Company's convertible notes was not determinable at the time of issuance since there was no current market value for the Company's common stock. Accordingly, no beneficial conversion feature or derivative liabilities were determinable or have been recognized related to these convertible notes payable.
The convertible notes payable and related derivative liabilities are measured at fair value on a recurring basis and estimated as follows at July 31, 2016:
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
228,825
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
228,825
|
|
|
Convertible notes payable, net
|
|
|
1,465,571
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,465,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
1,694,396
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,694,396
|
|
8. Stockholders' Deficit
The Company has 200,000,000 shares of $0.0001 par value common stock authorized.
During the three months ended July 31, 2016, the Company issued a total of 3,246,380 shares of its common stock: 1,400,000 shares for services valued at $303,800; 16,500 shares in payment of accrued fees payable of $10,325, recognizing a gain on extinguishment of debt of $4,550; and a total of 1,829,880 shares in the conversion of debt principal of $72,605 and accrued interest payable of $11,644.
All issuances of the Company's common stock for non-cash consideration have been assigned a dollar amount equaling either the market value of the shares issued or the value of consideration received whichever is more readily determinable. The majority of the non-cash consideration received pertaining to services rendered by consultants and others has been valued at the market value of the shares issued.
Preferred Stock
The Company has 20,000,000 shares of $0.0001 par value preferred stock authorized.
The 600,000 shares of Series A convertible preferred stock are convertible into ten common voting shares and carry voting rights on the basis of 100 votes per share with rights and preferences being decided by the Board of Directors of the Company.
The 500,000 shares of Series B convertible preferred stock are convertible into ten common voting shares and carry no voting rights.
9. Stock Options and Warrants
During the year ended April 30, 2016, the Company issued options to a consultant to purchase a total of 1,000,000 shares of the Company's common stock and warrants to a lender to purchase 68,333 shares of the Company's common stock.
During the three months ended July 31, 2016, the Company issued warrants to a lender to purchase 250,000 shares of the Company's common stock at an exercise price of $0.60 per share. The warrants vested upon grant and expire on July 17, 2018. The Company estimated the grant date fair value of the warrants at $14,365 using the Black-Scholes option-pricing model and charged the amount to debt discount.
The following assumptions were used in estimating the value of the warrants:
|
Risk free interest rate
|
|
|
.68
|
%
|
|
Expected life in years
|
|
|
2.0
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
137.99
|
%
|
A summary of the Company's stock options and warrants as of July 31, 2016, and changes during the three months then ended is as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2016
|
|
|
1,068,333
|
|
|
$
|
1.559
|
|
|
|
|
|
Granted
|
|
|
250,000
|
|
|
$
|
0.600
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Forfeited or expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at July 31, 2016
|
|
|
1,318,333
|
|
|
$
|
1.377
|
|
2.00
|
$
|
-
|
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $0.1750 as of July 31, 2016, which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.
10. Contingencies and Commitments
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company. The Company is currently not aware of any such legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
|
(b)
|
Indemnities and Guarantees
|
During the normal course of business, the Company has made certain indemnities and guarantees under which it may be required to make payments in relation to certain transactions. The Company indemnifies its directors, officers, employees and agents to the maximum extent permitted under the laws of the State of Nevada. These indemnities include certain agreements with the Company's officers under which the Company may be required to indemnify such person for liabilities arising out of their employment relationship. The duration of these indemnities and guarantees varies and, in certain cases, is indefinite. The majority of these indemnities and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated balance sheets.
The Company has the following material commitments as of July 31, 2016:
|
a)
|
Administration Agreement with EMAC Handels AG, renewed effective May 1, 2014 for a period of three years. Monthly fee for administration services of $5,000, office rent of $250 and office supplies of $125. Extraordinary expenses are invoiced by EMAC on a quarterly basis. The fee may be paid in cash and or with common stock.
|
|
b)
|
Service Agreement signed April 25, 2016 with Merrill W. Moses, President, Director and CEO, for services of $7,500 per month beginning May 2016 and the issuance of 350,000 restricted common shares of the Company. The fees may be paid in cash and or with common stock.
|
|
c)
|
Service Agreement signed May 20, 2016 with Charles C. Hooper, Director, for services of $5,000 per month beginning May 2016 and the issuance of 250,000 restricted common shares of the Company. The fees may be paid in cash and or with common stock.
|
|
d)
|
In order to maintain the Company's claims and/or leases, the Company must make annual payments to the Bureau of Land Management ("BLM") and the State of Nevada, due in September of each year. Payment to the BLM is currently $195 per claim and the State of Nevada is currently $40 per claim, for a total annual commitment of $7,050.
|
11. Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)". The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In March 2016, the FASB issued ASU No. 2016-09, "Stock Compensation (Topic 718)", which is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income tax impacts, the classification on the statement of cash flows, and forfeitures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In April 2015, the FASB issued ASU No. 2015-03, "Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs." To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public companies, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company adopted the new guidance effective May 1, 2016. The Company's prior period consolidated financial statements were not impacted by the adoption of this Update.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations.
12. Supplemental Statement of Cash Flows Information
During the three months ended July 31, 2016 and 2015, the Company paid $85,057 and $10,714 for interest.
During the three months ended July 31, 2016 and 2015, the Company paid no amounts for income taxes.
During the three months ended July 31, 2016, the Company had the following non-cash investing and financing activities:
In the DTC acquisition, increased inventories by $400, increased property and equipment by $11,463, increased intangible assets by $1,437,345, increased accounts payable by $1,445, increased accrued interest and fees payable by $341,161, increased convertible notes payable by $1,068,000 and increased payables – related parties by $57,011.
In debt conversions, increased common stock by $183, increased additional paid-in capital by $304,923, decreased convertible notes payable by $72,605, decreased accrued interest and fees payable by $11,644, decreased debt discount by $39,837 and decreased derivative liabilities by $41,880.
Increased debt discount and additional paid-in capital by $40,237 for beneficial conversion feature of new convertible notes payable.
Increased debt discount and decreased prepaid expenses by $16,294.
Increased debt discount and derivative liability by $22,500.
Increased common stock by $2 and additional paid-in capital by $5,773 and decreased accrued interest and fees payable by $10,325.
Increased debt discount and additional paid-in capital by $14,365 for the issuance of warrants.
During the three months ended July 31, 2015, the Company had the following non-cash investing and financing activities:
Increased common stock by $18, increased additional paid-in capital by $33,969, decreased convertible notes payable by $10,014, decreased debt discount by $2,594 and decreased derivative liability by $24,051.
Decreased debt discount by $6,680 and derivative liability by $71,943.
13. Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events to determine events occurring after January 31, 2016 that would have a material impact on the Company's financial results or require disclosure.
Issuances of Common Shares
Subsequent to July 31, 2016, the Company issued the following shares of its common stock:
|
·
|
250,000 shares to
Charles C. Hooper, Director
, for services valued at $87,500 pursuant to a Service Agreement.
|
|
|
|
|
·
|
400,000 shares to a lender in payment of fees valued at $56,000.
|
|
|
|
|
·
|
300,000 shares to a lender valued at $38,400 for settlement of warrant agreement.
|
|
|
|
|
·
|
600,000 shares to a consultant in payment of fees valued at $90,600.
|
|
|
|
|
·
|
150,000 shares to a lender in payment of fees valued at $24,000.
|
Mineral Claims
Subsequent to July 31, 2016, the Long Canyon reregistered and restaked the 30 mineral claims in Nevada and has 90 days from registration to pay the assessment fees for the period ended September 2017.
Warrant Settlement Agreement
On August 9, 2016, the Company entered into a Warrant Settlement Agreement with a lender to eliminate the lender's warrant to purchase 68,333 shares of common stock of the Company previously issued in connection with a convertible promissory note. The Company is required to pay a total of $50,000 cash and issue 300,000 shares of its common stock. The Company paid $10,000 and issued the shares in August 2016
Amendment to Security Purchase Agreement
On August 1, 2016, the Company entered into an Amendment to Security Purchase Agreement whereby the lender that loaned the Company $189,000 pursuant to a Senior Secured Convertible Promissory Note agreed to loan the Company an additional $10,000.
Security Purchase Agreement
On August 3, 2016, the Company entered into a Securities Purchase Agreement with an institutional lender for the issuance of an 8% convertible note in the aggregate principal amount of $37,000. The Company issued 150,000 shares of its common stock to the lender as a loan commitment fee.