At April 30, 2016, we had total convertible notes payable of $63,486, net of discount of $284,664. Several of the note agreements require repayment through conversion of principal and interest into shares of the Company's common stock. We anticipate, therefore, converting these notes payable into shares of our common stock without the need for replacement financing; however, there can be no assurance that we will be successful in accomplishing this.
Pursuant to five convertible notes payable, we received total cash proceeds of $159,000 in November and December 2015 and February and March 2016. These short-term notes, which have a total principal of $172,500 at April 30, 2016 (including $13,500 total original interest discount), bear interest at annual rates ranging from 6% to 12% per annum and are convertible into common shares of the Company upon the terms and subject to the limitations and conditions set forth in the note agreements.
During the year ended April 30, 2016, net cash used in operating activities was $115,174, as a result of our net loss of $2,724,504, gain on extinguishment of debt of $122,222, and increase in prepaid expenses of $12,311, partially offset by non-cash expenses totaling $2,460,783, and increases in accounts payable of $40,863, accrued interest and fees payable of $39,233, accrued interest payable – related parties of $6,703, and payables – related parties of $196,281.
During the year ended April 30, 2015, we used net cash in operating activities of $70,263, as a result of our net loss of $484,202, non-cash gains totaling $42,885 and a decrease in prepaid expenses of $1,848, partially offset by non-cash expenses totaling $292,941 and increases in accounts payable of $9,932, accrued interest payable of $1,288, accrued interest payable – related parties of $10,238 and payables – related parties of $144,273.
During the years ended April 30, 2016 and 2015, we had no cash provided by or used in investing activities.
During the year ended April 30, 2016, net cash provided by financing activities was $115,014, comprised of proceeds from convertible notes payable of $159,000, partially offset by repayment of convertible notes payable of $43,986.
During the year ended April 30, 2015, net cash provided by financing activities was $70,050, comprised of proceeds from convertible notes payable of $68,500 and proceeds from convertible notes payable – related parties of $53,900, partially offset by payments on convertible notes payable of $30,500 and payments on convertible notes payable – related parties of $21,850.
We have not realized any revenues since inception and paid expenses and costs with proceeds from the issuance of securities as well as by loans from investor, stockholders and other related parties.
We believe a related party and one of our lenders will provide sufficient funds to carry on general operations in the near term. We expect that we will need to raise additional funds, most likely from the sale of securities or from stockholder loans, to be able to complete our exploration program. We may not be successful in our efforts to obtain equity financing to carry out our business plan and there is doubt regarding our ability to complete our planned exploration program.
As of April 30, 2016, we did not have sufficient cash to fund our operations for the next twelve months.
Effective 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.
Inflation
In the opinion of management, inflation has not and will not have a material effect on our operations until such time as we successfully complete an acquisition or merger. At that time, management will evaluate the possible effects of inflation related to our business and operations following a successful acquisition or merger.
Net Operating Loss Carryforward
We have accumulated a net operating loss carryforward of approximately $1,975,000 as of April 30, 2016. This loss carry forward may be offset against future taxable income through the year 2037. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforward. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforward that can be used. No tax benefit has been reported in the financial statements for the years ended April 30, 2016 and 2015 because it has been fully offset by a valuation reserve. The use of future tax benefit is undeterminable because we presently have no operations.
Due to the change in ownership provisions of U.S. federal and Canada and British Columbia income tax laws, operating loss carryforwards are potentially subject to annual limitations. As a result of the change in ownership of the Company, $1,502,000 of net operating loss carryforwards have been deemed to have been forfeited. The net operating loss balance above reflects the forfeiture of this carryforward.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Basic and Diluted Loss per Common Share
The Company computes net loss per share in accordance with ASC 260,
Earnings per Share
, which requires presentation of both basic and diluted loss per share ("EPS") on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, convertible preferred stock, and convertible debt, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive common shares if their effect is antidilutive. As of April 30, 2016, convertible debt and related accrued interest payable were convertible into 12,730,870 shares of the Company's common stock and 1,068,333 shares of the Company's common stock were issuable upon exercise of outstanding stock options and warrants.
Dividends
The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.
Comprehensive Income
The Company has no component of other comprehensive income. Accordingly, net loss equals comprehensive loss for the fiscal years ended April 30, 2016 and 2015.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Income Taxes
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Company's predecessor operated as entity exempt from Federal and State income taxes.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Accounting Basis
Our consolidated financial statements are prepared using the accrual method of accounting and accounting principles generally accepted in the United States of America. The Company has adopted an April 30 fiscal year end.
Derivative Liabilities
We have identified the conversion features of certain of our convertible notes payable as derivatives. We estimate the fair value of the derivatives using the Black-Scholes pricing model. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility and variable conversion prices based on market prices as defined in the respective agreements. These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Recent Accounting Pronouncements
There were no new accounting pronouncements issued during the year ended April 30, 2016 and through the date of filing this annual report that the Company believes would be applicable to or have a material impact on the Company's consolidated financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This item is not required for a smaller reporting company.
Item 8.
Financial Statements and Supplementary Data.
Financial statements for the fiscal year ended April 30, 2016 have been examined to the extent indicated in their report by Haynie & Company CPAs, independent registered public accounting firm, and have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to regulations promulgated by the SEC. The aforementioned financial statements are included herein under Item 15.
Financial statements for the fiscal year ended April 30, 2015 have been examined to the extent indicated in their report by HJ & Associates, LLC, independent registered public accounting firm, and have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to regulations promulgated by the SEC
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
On January 4, 2016 (the "Resignation Date") HJ & Associates, LLC ("HJ") resigned as the independent registered public accounting firm for the Company. On January 8, 2016, the Company engaged Haynie & Company, Salt Lake City, Utah, as its new independent registered public accounting firm. The change of the Company's independent registered public accounting firm from HJ to Haynie & Company was approved unanimously by our board of directors and was solely because Haynie & Company has acquired the assets of HJ.
The reports of HJ on the Company's financial statements for the two most recent fiscal years did not contain an adverse or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
During the two most recent fiscal years and through the Resignation Date, there were (i) no disagreements between the Company and HJ on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement, if not resolved to the satisfaction of HJ, would have caused HJ to make reference thereto in their reports on the consolidated financial statements for such years, and (ii) no "reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided HJ with a copy of this Form 8-K and requested that HJ furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not HJ agrees with the above statements. A copy of such letter, dated January 8, 2016, is attached as Exhibit 16.1.
During the Company's two most recent fiscal years and in the subsequent interim period through the Resignation Date, the Company has not consulted with Haynie & Company regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, and neither a written report nor oral advice was provided to the Company that Haynie & Company concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
Item 9A. Controls and Procedures.
Evaluation of Disclosures and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management has concluded that our internal control over financial reporting was not effective as of April 30, 2016.
Management's Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our intent is to design this system to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.
We operate with a limited number of accounting and financial personnel. Although we retain the services of an experienced certified public accountant, we have been unable to implement proper segregation of duties over certain accounting and financial reporting processes, including timely and proper documentation of material transactions and agreements. We believe these control deficiencies represent material weaknesses in internal control over financial reporting.
Despite the material weaknesses in financial reporting noted above, we believe that our consolidated financial statements included in this report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.
We are committed to the establishment of effective internal controls over financial reporting and will place emphasis on quarterly and year-end closing procedures and timely documentation and internal review of accounting and financial reporting consequences of material contracts and agreements.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. The Company's internal control over financial reporting was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
Other than the matters discussed above, management has concluded that there has been no significant change in our internal control over financial reporting during the fiscal year ended April 30, 2016 that could materially affect, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Our executive officers and directors are as follows:
|
Name
|
Age
|
Position
|
|
|
|
|
|
Merrill W. Moses
|
62
|
President, CEO, Secretary, Interim CFO and Director
|
|
|
|
|
|
Charles C. Hooper
|
68
|
Director
|
On April 30, 2016, Stephen M. Studdert resigned as a director, President and CEO of the Company. Mr. Studdert will remain as a member of the Company's Advisory Board. Mr. Studdert was first appointed as a director on December 16, 2012 and served as our President and CEO from October 16, 2013 to May 21, 2014. At that time, he resigned as a director, President and CEO and was appointed as President and CEO of our subsidiary, Long Canyon Gold Resources Corp. Mr. Studdert was again appointed as a director, President and CEO of the Company on October 12, 2014, replacing Delbert G. Blewett who had passed away.
On April 30, 2016, the Board of Directors appointed Merrill W. Moses to replace Mr. Studdert as director, President and CEO of the Company.
On May 20, 2016, Frank Thorwald resigned his position as a director. Mr. Thorwald served as a director since November 23, 2015 and was replaced as a director on May 20, 2016 by Charles C. Hooper.
We presently anticipate that we will consider new, qualified persons to become directors in the future, although no new appointments or arrangements have been made as of the date hereof.
All directors serve for a one-year term until their successors are elected or they are re-elected at the annual stockholders' meeting. Officers hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated.
There is no arrangement, agreement or understanding between any of the directors or officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer. Also, there is no arrangement, agreement or understanding between management and non-management stockholders under which non-management stockholders may directly or indirectly participate in or influence the management of our affairs.
The business experience of each of the persons listed above during the past five years is as follows:
Merrill W. Moses
is a graduate of Brigham Young University and over the past 40 years has been an entrepreneur and founder of a variety of independent business ventures. He has also been involved in operating an independent oil and gas company and a mining and exploration company. Since 1992, Mr. Merrill has served as President and CEO of two oil and gas companies, Energy Pro Inc. and Dynamic Energy & Petroleum Inc. Mr. Moses is also a founding partner in 2007 of Liberty Capital International, Inc., an international financial and project management company that provides various private client financial and asset management services.
Charles C. Hooper
has a background in Mineral Exploration and Mining and currently is the owner of Old Town Financial in La Jolla, California, a designer, financier and developer of commercial buildings and other real estate projects. Previously, he was a missile guidance engineer designing and building missile guidance systems for the U.S. Army. Mr. Hooper also served as an officer in the U.S. Navy during the Viet Nam war. He is a graduate systems engineer from the University of California at Los Angeles and holds a Master of Science Degree in Management.
None of our officers, directors or control persons has had any of the following events occur:
|
●
|
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
●
|
any conviction in a criminal proceeding or being subject to a pending criminal proceeding, excluding traffic violations and other minor offenses;
|
|
|
|
|
●
|
being subject to any order, judgment or decree, not substantially reversed, suspended or vacated, of any court of competent jurisdiction, permanently enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking business; and
|
|
|
|
|
●
|
being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
|
Key Personnel
We have engaged the services of Development Resources LLC of American Fork, Utah to oversee our exploration program. DRLLC has an experienced geologists team living in the area, which can perform all of the exploration required including providing a qualified geology report and has a standing assay account with Chemex ASL labs in Elko, Nevada.
We have established an advisory board and Alex Burton has consented to join the board. Mr. Burton is a graduate geologist with a B.A. degree from the University of B.C. in 1954. He is registered as both a Professional Engineer and Registered Professional Geologist in British Columbia. Mr. Burton has served on the B.C. Yukon Chamber of Mines (n.k.a. Association for Mining Exploration) and for over 20 years taught their Placer Mining Course in association with the British Columbia Institute of Technology. Since 1954, Mr. Burton has had experience in various aspects of mine exploration, development and mine production, project scheduling, personnel assignment, field work, environmental auditing and reporting. Mr. Burton was the consulting geologist for DRLLC's preliminary geology report on our properties and also conducted additional fieldwork from May 19 to May 29, 2012 as part of the requirements for dissemination of the final geology report.
Committees of the Board of Directors
We currently have the following committees:
|
Management Team:
|
Chairman Strategy Committee 'LCGRC': Merrill W. Moses
|
|
|
Chief Financial Officer: Merrill W. Moses (Interim CFO)
|
|
|
Chairman Explorations Committee: Alexander Burton
|
|
|
|
|
Professional Advisory Board:
|
Exploration Geologist/Geochemist: Alexander Burton, Stephen M. Studdert
|
|
|
|
|
Exploration & Development:
|
Chairman Explorations Committee: Alexander Burton, Development Resources LLC, American Fork, Utah (DRLLC)
|
No director is deemed to be an independent director. Our board of directors performs some of the functions associated with a nominating committee and a compensation committee, including reviewing all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation. The board will also perform the functions of an audit committee until we establish a formal committee.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. We believe that no reports were filed during the fiscal year fiscal 2016.
Code of Ethics
We currently do not have a code of ethics. During the current fiscal year, we do intend to adopt a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions
Item 11. Executive Compensation
.
We do not have a bonus, profit sharing, or deferred compensation plan for the benefit of employees, officers or directors. We currently have no employees and do not pay any salaries. Compensation for our officers and directors is generally established through a written Service Agreement.
The following table depicts compensation accrued to officers and directors for the fiscal years ended April 30, 2016, 2015 and 2014.
|
Name and Principal Position
|
|
Year Ended
April 30,
|
|
|
Salary
|
|
|
Bonus
|
|
|
All Other
Consideration
|
|
|
Total
|
|
|
Stephen M. Studdert, Former President, CEO, Secretary, Interim CFO and Director
(1)
|
|
|
2014
2015
2016
|
|
|
$
$
$
|
0
0
0
|
|
|
$
$
$
|
0
0
0
|
|
|
$
$
$
|
15,000
30,000
30,000
|
|
|
$
$
$
|
15,000
30,000
30,000
|
|
|
Delbert G. Blewett, former President, CEO, Secretary, Interim CFO and Director
(2)
|
|
|
2014
2015
2016
|
|
|
$
$
$
|
0
0
0
|
|
|
$
$
$
|
0
0
0
|
|
|
$
$
$
|
31,500
15,000
0
|
|
|
$
$
$
|
31,500
15,000
0
|
|
|
Frank Thorwald, former Director
(3)
|
|
|
2014
2015
2016
|
|
|
$
$
$
|
0
0
0
|
|
|
$
$
$
|
0
0
0
|
|
|
$
$
$
|
0
0
116,000
|
|
|
$
$
$
|
0
0
116,000
|
|
|
(
1)
|
Mr. Studdert's compensation for fiscal years ended April 30, 2014, 2015 and 2016 includes $15,000, $30,000 and $30,000, respectively, for services as President and CEO. All such services in were accrued as a payable to Mr. Studdert pursuant to a Service Agreement, of which $25,000 was paid in common stock of the Company and $7,500 was paid in cash, leaving a balance payable to Mr. Studdert of $42,500 as of April 30, 2016.
|
|
|
|
|
(2)
|
Mr. Blewett's compensation for the fiscal year ended April 30, 2014 includes $30,000 for service as a director and $1,500 for rent. Mr. Blewett's compensation for the fiscal year ended April 30, 2015 includes $15,000 to serve as our President and CEO. Of the services payable to Mr. Blewett, $50,000 were paid in common stock of the Company in fiscal 2015, leaving a balance payable to the estate of Mr. Blewett of $20,792 as of April 30, 2016 for amounts incurred prior to fiscal year 2014.. Mr. Blewett passed away in October 2014.
|
|
|
|
|
(3)
|
Mr. Thorwald's compensation for serving as a director in the fiscal year ended April 30, 2016 includes the payment of 200,000 shares of the Company's common stock valued at $91,020 and fees accrued totaling $25,000, which were payable to Mr. Thorwald as of April 30, 2016.
|
During each of the fiscal years ended April 30, 2014, 2015 and 2016, we accrued accounts payable for services rendered by EMAC in the amount of $60,000 pursuant to an Administration Agreement. Total accrued payable to EMAC for services and expense reimbursement as of April 30, 2016 was $429,833.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information as of July 7, 2016 with respect to the beneficial ownership of our common stock and based on 24,224,056 shares outstanding:
|
●
|
Each stockholder believed to be the beneficial owner of more than 5% of our common stock;
|
|
|
|
|
●
|
by each of our directors and executive officers; and
|
|
|
|
|
●
|
all of our directors and executive officers as a group.
|
For purposes of the following table, a person is deemed to be the beneficial owner of any shares of common stock (i) over which the person has or shares, directly or indirectly, voting or investment power, or (ii) of which the person has a right to acquire beneficial ownership at any time within 60 days after the date of this report. "Voting power" is the power to vote or direct the voting of shares and "investment power" includes the power to dispose or direct the disposition of shares.
|
Name and Address of Beneficial Owner
|
|
Amount and
Nature of
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
:
|
|
|
|
|
|
|
|
Merrill W. Moses, President & CEO
4730 S. Fort Apache Road, Suite 300
Las Vegas, Nevada 89147
|
|
|
350,000
|
|
|
|
1.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Charles C. Hooper, Director
4730 S. Fort Apache Road, Suite 300
Las Vegas, Nevada 89147
|
|
|
250,000
|
|
|
|
1.02
|
%
|
|
5% Beneficial Owners
|
|
|
|
|
|
|
|
|
|
Reinhard Hiestand
Schuetzenstr. 22, Pfaeffikon/Switzerland
|
|
|
11,841,750
|
(3)
|
|
|
48.38
|
%
|
|
Ernst Hiestand
Churerstrasse 52, 8808 Pfaeffikon/Switzerland
|
|
|
1,507,080
|
|
|
|
6.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (2 person)
|
|
|
600,000
|
|
|
|
2.45
|
%
|
|
(1)
|
Unless otherwise indicated, the named person will be the record and beneficially owner of the shares indicated.
|
|
(2)
|
Percentage ownership is based on 24,474,056 shares of common stock outstanding as of July 8, 2016.
|
|
(3)
|
Includes 11,781,750 shares held in the name of EMAC Handels AG that is owned and controlled by Reinhard Hiestand. The remaining 60,000 shares are held in the name of Mr. Hiestand.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Except as set forth below, we have not entered into any other material transactions with any officer, director, nominee for election as director, or any stockholder owning greater than five percent (5%) of our outstanding shares, nor any member of the above referenced individuals' immediate family.
On May 4, 2014, the Company issued 1,507,080 shares of its common stock to EMAC Handels AG ("EMAC"), a principal stockholder, in the conversion of a $101,000 convertible note payable and accrued interest payable related party of $49,708.
On May 4, 2014, the Company issued 600,000 shares of its common stock to Velania Treuhand AG, a principal stockholder, in the conversion of a $30,000 convertible note payable.
On April 7, 2014, the Company, on behalf of its wholly owned subsidiary, Long Canyon, executed an agreement with EMAC, to acquire a 100% interest in 180 mineral lease claims in the Long Canyon Trend area of Elko, County, Nevada. The Company issued 12,000,000 restricted shares of its common stock to EMAC valued at $240,000, the historical cost basis of the mineral properties to EMAC. This amount was recorded as mineral claims, a non-current asset in the Company's consolidated balance sheets.
The Company and EMAC were unable to make the required annual mineral lease payments due in September 2014 to maintain the 275 optioned claims and the 180 purchased claims. Therefore, these mineral interests were not renewed and the $240,000 cost basis of the 180 mineral lease claims was expensed as abandoned mineral claims in the consolidated statement of operations for the year ended April 30, 2015.
During the years ended April 30, 2016 and 2015, management and administrative services were compensated as per a Service Agreement between the Company and Stephen Studdert, its former Chief Executive Officer, executed on April 30, 2011, a Service Agreement between the Company and Delbert Blewett, its former Chief Executive Officer, executed on December 6, 2012 and terminated on his passing in October 2014 , and an Administration Agreement with a EMAC executed on March 15, 2011 and renewed on May 1, 2014. The fees are based on services provided and invoiced by the related parties on a monthly basis and the fees are paid in cash when possible or with the Company's common stock. The Company also, from time to time, has some of its expenses paid by related parties with the intent to repay. These types of transactions, when incurred, result in payables to related parties in the Company's consolidated financial statements as a necessary part of funding the Company's operations.
As of April 30, 2016, the Company had the following payable balances due to related parties, which resulted from transactions with significant shareholders and officers and directors of the Company.
|
EMAC
|
|
$
|
439,667
|
|
|
Stephen Studdert, Former President & CEO
|
|
|
42,500
|
|
|
Delbert Blewett, Former President & CEO
|
|
|
20,792
|
|
|
Frank Thorwald, Former Director
|
|
|
25,000
|
|
|
Harold Schneider, Former CFO
|
|
|
32,500
|
|
|
Alexander Burton, Advisory Board
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
$
|
565,459
|
|
Convertible notes payable – related parties consisted of the following at April 30, 2016:
|
Note payable to EMAC, no interest, convertible into common stock of the Company at $0.10 per share, imputed interest at 9% per annum
|
|
$
|
25,000
|
|
|
Note payable to Velania Treuhand AG, interest at 6%, convertible into common stock of the Company at $0.10 per share
|
|
|
32,050
|
|
|
|
|
|
|
|
|
|
|
$
|
57,050
|
|
Notes payable – related parties are currently in default and consisted of the following at April 30, 2016:
|
Note payable to EMAC, with interest at 6% per annum, due September 15, 2013
|
|
$
|
24,656
|
|
|
Note payable to EMAC, with interest at 6% per annum, due March 8, 2014
|
|
|
7,500
|
|
|
Note payable to EMAC, with interest at 6% per annum, due December 5, 2013
|
|
|
47,500
|
|
|
|
|
|
|
|
|
|
|
$
|
79,656
|
|
Accrued interest payable – related parties was $17,846 at April 30, 2016.
None of our directors are deemed to be independent directors. We do not have a compensation, audit or nominating committee, rather those functions are carried out by the board as a whole
Item 14. Principal Accounting Fees and Services.
We do not have an audit committee and as a result our entire board of directors performs the duties of an audit committee. Our board of directors will approve in advance the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services. As a result, we do not rely on pre-approval policies and procedures.
Audit Fees
The aggregate fees billable to us in 2016 by our auditors, Haynie & Company, for (i) services related to the audit of our annual financial statements for the year ended April 30, 2016 included in this annual report and (ii) quarterly reviews performed for the year ended April 30, 2016 will total approximately $50,000.
HJ & Associates, LLC, billed us $40,000 and $12,000 for (i) services related to the audit of our annual financial statements for the year ended April 30, 2015 included in this annual report and (ii) quarterly reviews performed for the years ended April 30, 2016 and 2015.
Audit Related Fees
We incurred no audit-related fees for the years ended April 30, 2016 and 2015 to Haynie & Company and HJ & Associates, LLP.
Tax Fees
We incurred no tax fees for the years ended April 30, 2016 and 2015 to Haynie & Company and HJ & Associates, LLP.
All Other fees
We incurred no other fees for the years ended April 30, 2016 and 2015 to Haynie & Company and HJ & Associates, LLP.
PART IV
Item 15. Exhibits, Financial Statement Schedules
|
Exhibit No.
|
Exhibit Name
|
|
|
|
|
2.1
(2)
|
Agreement for Acquisition of Long Canyon Gold Resources Corp.
|
|
|
|
|
3.1
(2)
|
Articles of Incorporation and amendments thereto
|
|
|
|
|
3.2
(1)
|
Bylaws
|
|
|
|
|
4.1
(2)
|
Instrument defining security holder rights
|
|
|
|
|
10.1
(2)
|
Option Agreement between EMAC Handels AG and Long Canyon Gold Resources Corp.
|
|
|
|
|
10.2
(3)
|
Extension Agreement to Option Agreement
|
|
|
|
|
10.3
(4)
|
Administration Agreement with EMAC Handels AG
|
|
|
|
|
10.4
(5)
|
Definite Agreement with EMAC Handels AG
|
|
|
|
|
10.5
(6)
|
Definitive Agreement to acquire Defense Technology Corporation
|
|
|
|
|
16.1
(7)
|
Letter from HJ & Associates, LLC dated January 8, 2016.
|
|
|
|
|
21.1
|
Subsidiaries
|
|
|
|
|
31.1
|
Certification of Chief Executive Officer and Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.1
|
Certification of Chief Executive Officer and Interim Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
101 INS
|
XBRL Instance Document*
|
|
|
|
|
101 SCH
|
XBRL Schema Document*
|
|
|
|
|
101 CAL
|
XBRL Calculation Linkbase Document*
|
|
|
|
|
101 DEF
|
XBRL Definition Linkbase Document*
|
|
|
|
|
101 LAB
|
XBRL Labels Linkbase Document*
|
|
|
|
|
101 PRE
|
XBRL Presentation Linkbase Document*
|
*
The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
|
(1)
|
Filed as exhibit to Form S-1 filed on November 10, 2011.
|
|
(2)
|
Filed as exhibit to Amendment No. 1 to Form S-1 filed on March 12, 2012.
|
|
(3)
|
Filed as exhibit to Amendment No. 2 to Form S-1 filed on April 23, 2012.
|
|
(4)
|
Filed as exhibit to Amendment No. 4 to Form S-1 filed on August 17, 2012.
|
|
(5)
|
Filed as exhibit to Form 8-K filed on April 10, 2014.
|
|
(6)
|
Filed as exhibit to Form 8-K filed on July 20, 2016.
|
|
(7)
|
Filed as exhibit to Form 8-K filed on January 8, 2016.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Defense Technologies International Corp.
|
|
|
|
|
|
|
|
By:
/S/
Merrill W. Moses
|
|
|
|
Merrill W. Moses
|
|
|
|
Chief Executive Officer
|
|
|
|
Dated: July 29, 2016
|
|
|
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/S/
Merrill W. Moses
|
Director
|
July 29, 2016
|
|
Merrill W. Moses
|
|
|
|
|
|
|
|
/S/
Charles C. Hooper
|
Director
|
July 29, 2016
|
|
Charles C. Hooper
|
|
|
(Formerly Canyon Gold Corp.)
Index to Consolidated Financial Statements
Years Ended April 30, 2016 and 2015
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-3
|
|
|
|
|
Consolidated Balance Sheets as of April 30, 2016 and 2015
|
F-4
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended April 30, 2016 and 2015
|
F-5
|
|
|
|
|
Consolidated Statements of Stockholders' Deficit for the Years Ended April 30, 2016 and 2015
|
F-6
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended April 30, 2016 and 2015
|
F-7
|
|
|
|
|
Notes to the Consolidated Financial Statements
|
F-8
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Defense Technologies International Corp. (formerly Canyon Gold Corp.)
We have audited the accompanying consolidated balance sheet of Defense Technologies International Corp. (formerly Canyon Gold Corp.) and subsidiary as of April 30, 2016, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Defense Technologies International Corp. (formerly Canyon Gold Corp.) and subsidiary as of April 30, 2016, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered significant recurring losses which have resulted in an accumulated deficit. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include an adjustment that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
/s/ Haynie & Company CPAs
Haynie & Company CPAs
Salt Lake City, Utah
July 29, 2016
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Defense Technologies International Corp. (formerly Canyon Gold Corp.)
We have audited the accompanying consolidated balance sheet of Defense Technologies International Corp. (formerly Canyon Gold Corp.) and subsidiary as of April 30, 2015, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Defense Technologies International Corp. (formerly Canyon Gold Corp.) and subsidiary as of April 30, 2016, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered significant recurring losses which have resulted in an accumulated deficit. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
July 29, 2015
|
Defense Technologies International Corp. and Subsidiary
|
|
(Formerly Canyon Gold Corp.)
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
April 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
23
|
|
|
$
|
183
|
|
|
Prepaid expenses
|
|
|
18,169
|
|
|
|
5,858
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,192
|
|
|
|
6,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral claims
|
|
|
-
|
|
|
|
37,820
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,192
|
|
|
$
|
43,861
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
150,362
|
|
|
$
|
109,499
|
|
|
Accrued interest and fees payable
|
|
|
63,979
|
|
|
|
2,383
|
|
|
Accrued interest payable – related parties
|
|
|
17,846
|
|
|
|
11,143
|
|
|
Derivative liabilities
|
|
|
2,081,931
|
|
|
|
47,808
|
|
|
Convertible notes payable, net of discount
|
|
|
63,486
|
|
|
|
199,748
|
|
|
Convertible notes payable – related parties, net of discount
|
|
|
57,050
|
|
|
|
57,050
|
|
|
Notes payable – related parties
|
|
|
79,656
|
|
|
|
79,656
|
|
|
Payables – related parties
|
|
|
565,459
|
|
|
|
369,178
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,079,769
|
|
|
|
876,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,079,769
|
|
|
|
876,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 20,000,000 shares authorized, 1,100,000 shares issued and outstanding
|
|
|
110
|
|
|
|
110
|
|
|
Common stock, $0.0001 par value; 200,000,000 shares authorized, 21,249,676 and 20,867,943 shares issued and outstanding, respectively
|
|
|
2,125
|
|
|
|
2,087
|
|
|
Additional paid-in capital
|
|
|
1,447,968
|
|
|
|
952,475
|
|
|
Accumulated deficit
|
|
|
(4,511,780
|
)
|
|
|
(1,787,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(3,061,577
|
)
|
|
|
(832,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
18,192
|
|
|
$
|
43,861
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
Defense Technologies International Corp. and Subsidiary
|
|
(Formerly Canyon Gold Corp.)
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
65,124
|
|
|
|
45,945
|
|
|
Management and administrative fees
|
|
|
90,000
|
|
|
|
90,000
|
|
|
Professional fees
|
|
|
205,692
|
|
|
|
53,799
|
|
|
Directors' fees
|
|
|
116,020
|
|
|
|
15,000
|
|
|
Exploration costs
|
|
|
2,200
|
|
|
|
8,800
|
|
|
Abandoned mineral claims
|
|
|
37,820
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
516,856
|
|
|
|
453,544
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(516,856
|
)
|
|
|
(453,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(224,998
|
)
|
|
|
(73,543
|
)
|
|
(Loss) gain on derivative liabilities
|
|
|
(2,104,872
|
)
|
|
|
23,188
|
|
|
Gain on extinguishment of debt
|
|
|
122,222
|
|
|
|
19,697
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(2,207,648
|
)
|
|
|
(30,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,724,504
|
)
|
|
|
(484,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,724,504
|
)
|
|
$
|
(484,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding -
|
|
|
|
|
|
|
|
|
|
basic and diluted
|
|
|
21,099,768
|
|
|
|
20,733,637
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
Defense Technologies International Corp. and Subsidiary
(Formerly Canyon Gold Corp.)
Consolidated Statements of Stockholders' Deficit
For the Years Ended April 30, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2014
|
|
|
14,491,896
|
|
|
$
|
1,450
|
|
|
|
1,100,000
|
|
|
$
|
110
|
|
|
$
|
408,360
|
|
|
$
|
(1,303,074
|
)
|
|
$
|
(893,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for payables – related parties at $0.07 per share
|
|
|
2,400,000
|
|
|
|
240
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174,760
|
|
|
|
-
|
|
|
|
175,000
|
|
|
Common stock issued for conversion of debt at $0.10 per share
|
|
|
1,868,966
|
|
|
|
187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
186,379
|
|
|
|
-
|
|
|
|
186,566
|
|
|
Common stock issued for conversion of related party debt at $0.09 per share
|
|
|
2,107,080
|
|
|
|
210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180,498
|
|
|
|
-
|
|
|
|
180,708
|
|
|
Adjustment to common shares outstanding
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Imputed interest on convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,478
|
|
|
|
-
|
|
|
|
2,478
|
|
|
Net loss for the year ended April 30, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(484,202
|
)
|
|
|
(484,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2015
|
|
|
20,867,943
|
|
|
|
2,087
|
|
|
|
1,100,000
|
|
|
|
110
|
|
|
|
952,475
|
|
|
|
(1,787,276
|
)
|
|
|
(832,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of debt at $0.187 per share
|
|
|
181,748
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,969
|
|
|
|
-
|
|
|
|
33,987
|
|
|
Common stock issued for director fees at $0.4551 per share
|
|
|
200,000
|
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91,000
|
|
|
|
-
|
|
|
|
91,020
|
|
|
Adjustment to common shares outstanding
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
117,221
|
|
|
|
-
|
|
|
|
117,221
|
|
|
Beneficial conversion feature of convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232,650
|
|
|
|
-
|
|
|
|
232,650
|
|
|
Warrants issued for interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,403
|
|
|
|
-
|
|
|
|
18,403
|
|
|
Imputed interest on convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
2,250
|
|
|
Net loss for the year ended April 30, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,724,504
|
)
|
|
|
(2,724,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2016
|
|
|
21,249,676
|
|
|
$
|
2,125
|
|
|
|
1,100,000
|
|
|
$
|
110
|
|
|
$
|
1,447,968
|
|
|
$
|
(4,511,780
|
)
|
|
$
|
(3,061,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
|
|
Defense Technologies International Corp. and Subsidiary
|
|
(Formerly Canyon Gold Corp.)
|
|
Consolidated Statements of Cash Flows
|
|
|
|
Years Ended April 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,724,504
|
)
|
|
$
|
(484,202
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
91,020
|
|
|
|
-
|
|
|
Stock-based compensation
|
|
|
117,221
|
|
|
|
-
|
|
|
Imputed interest on convertible notes payable
|
|
|
2,250
|
|
|
|
2,478
|
|
|
Amortization of debt discount to interest expense
|
|
|
89,197
|
|
|
|
50,463
|
|
|
Warrants issued for interest expense
|
|
|
18,403
|
|
|
|
-
|
|
|
(Gain) loss on derivative liabilities
|
|
|
2,104,872
|
|
|
|
(23,188
|
)
|
|
Gain on extinguishment of debt
|
|
|
(122,222
|
)
|
|
|
(19,697
|
)
|
|
Abandoned mineral claims
|
|
|
37,820
|
|
|
|
240,000
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Increase in prepaid expenses
|
|
|
(12,311
|
)
|
|
|
(1,848
|
)
|
|
Increase in accounts payable
|
|
|
40,863
|
|
|
|
9,932
|
|
|
Increase in accrued interest and fees payable
|
|
|
39,233
|
|
|
|
1,288
|
|
|
Increase in accrued interest payable – related parties
|
|
|
6,703
|
|
|
|
10,238
|
|
|
Increase in payables – related parties
|
|
|
196,281
|
|
|
|
144,273
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(115,174
|
)
|
|
|
(70,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
159,000
|
|
|
|
68,500
|
|
|
Proceeds from convertible notes payable – related parties
|
|
|
-
|
|
|
|
53,900
|
|
|
Payments on convertible notes payable
|
|
|
(43,986
|
)
|
|
|
(30,500
|
)
|
|
Payments on convertible notes payable – related parties
|
|
|
-
|
|
|
|
(21,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
115,014
|
|
|
|
70,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(160
|
)
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of the year
|
|
|
183
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of the year
|
|
$
|
23
|
|
|
$
|
183
|
|
The accompanying notes are an integral part of these consolidated financial statements
Defense Technologies International Corp. and Subsidiary
(Formerly Canyon Gold Corp.)
Notes to Consolidated Financial Statements
Years Ended April 30, 2016 and 2015
1. Nature of Operations and Continuation of Business
Defense Technologies International Corp. (the "Company ") was incorporated in the State of Delaware on May 27, 1998. Effective June 15, 2016, the Company changed its name to Defense Technologies International Corp. from Canyon Gold Corp. to
more fully represent the Company's expansion goals into the advanced technology sector.
Effective July 15, 2016, the Company completed the acquisition of 100% of the member's equity of Defense Technology Corporation, a privately held Colorado limited liability company ("DTC"). DTC is a developer of defense detection and protection products intended to improve security for military personnel, schools and other public facilities. See Note 3.
On July 20, 2011, the Company acquired 100% of the issued shares of Long Canyon Gold Resources Corp. ("Long Canyon"), a private British Columbia, Canada Corporation, incorporated on June 19, 2008, in a share for share exchange accounted for as a reverse acquisition and recapitalization. As a result, the consolidated financial statements of the Company (the legal acquirer) are, in substance, those of Long Canyon (the accounting acquirer) from the effective date of the acquisition. Subsequent to April 30, 2016 Long Canyon renewed leases for 30 BLM mineral lease claims, situated in the west section of the new Long Canyon Gold Trend area of east central Nevada.
The claims had previously lapsed due to late payment of the annual lease obligations.
Going Concern
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going concern. Through April 30, 2016, the Company has no revenues, has accumulated losses of $4,511,780 since inception on June 19, 2008 and a working capital deficit of $3,061,577 and expects to incur further losses in the development of its business, all of which cast substantial doubt about the Company's ability to continue as a going concern. Management plans to continue to provide for the Company's capital needs during the year ending April 30, 2017 by issuing debt and equity securities and by the continued support of its related parties (see Note 5). The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. There is no assurance that funding will be available to continue the Company's business operations.
2. Summary of Significant Accounting Policies
(a)
Basis of Presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The Company's fiscal year end is April 30. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Long Canyon Gold Resources Corp. ("Long Canyon"). All inter-company transactions and balances have been eliminated.
(b)
Exploration Costs
All exploration costs, including lease payments, sampling, metallurgical, engineering, contractor costs, and efforts to obtain mineral rights have been charged to expense as incurred.
(c)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260,
Earnings per Share
, which requires presentation of both basic and diluted loss per share ("EPS") on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, convertible preferred stock, and convertible debt, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive common shares if their effect is antidilutive. As of April 30, 2016, convertible debt and related accrued interest payable were convertible into 12,730,870 shares of the Company's common stock and 1,068,333 shares of the Company's common stock were issuable upon exercise of outstanding stock options and warrants.
Since we had no dilutive effect of stock options, warrants or convertible debt for the years ended April 30, 2016 and 2015, basic weighted average number of common shares outstanding is the same as diluted weighted average number of common shares outstanding.
(d)
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740,
Income Taxes
. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
(e)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(f)
Financial Instruments
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 April 30, 2016 and 2015, 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.
Liabilities measured at fair value on a recurring basis were estimated as follows at April 30, 2016 and 2015:
|
2016
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
2,081,931
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,081,931
|
|
|
Convertible notes payable, net
|
|
|
63,486
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
2,145,417
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,145,417
|
|
|
2015
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
47,808
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,808
|
|
|
Convertible notes payable, net
|
|
|
199,748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
247,556
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
247,556
|
|
(g) Derivative Liabilities
We have identified the conversion features of certain of our convertible notes payable as derivatives. We estimate the fair value of the derivatives using the Black-Scholes pricing model. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility and variable conversion prices based on market prices as defined in the respective agreements. These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
(h)
Non-Monetary Transactions
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 pertains to services rendered by consultants and others and has been valued at the market value of the shares issued.
The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505,
Equity Based Payments to Non Employees
. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.
In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
(i)
Cash and Cash Equivalents
The Company considers all investments purchased with original maturity of three or fewer months to be cash equivalents.
3. Defense Technology Corporation Acquisition
On October 5, 2015, the Company entered into an agreement to acquire 100% of Defense Technology Corporation, a privately held Colorado limited liability company with principal offices in New Port Richey, Florida ("DTC"). DTC is the developer of defense, detection and protection products to improve security for military personnel and schools and other public facilities.
In consideration for the acquisition, the Company will issue 4,000,000 shares of its common stock to the sole shareholder of DTC and certain of its note holders. The shares will be restricted from trading for a period of one year and will be released on a quarterly basis. Additionally, DTC will be able to earn additional Company preferred shares, Series "B" Convertible ("Series "B" Shares"), upon attaining certain milestone gross sales. The closing of the acquisition was scheduled on or before November 30, 2015 and was subsequently extended to December 31, 2015. The closing was further extended to and completed on July 15, 2016 to allow for completion of the audit of DTC's financial statements. Following completion of the acquisition, DTC became a wholly owned subsidiary of the Company. The Company will use its reasonable best efforts to effectuate a spin-off of its present subsidiary, Long Canyon Gold Resources Corp., on terms to be determined.
4. Mineral Claims
On March 12, 2011, the Company's wholly owned subsidiary, Long Canyon, acquired a 100% interest in 30 mineral claims located in the State of Nevada for $37,820. This amount was recorded as mineral claims, a non-current asset in the Company's consolidated balance sheets. The Company was unable to renew the mineral claims prior to April 30, 2016, and the $37,820 was expensed to abandoned mineral claims in the consolidated statement of operations for the year ended April 30, 2016. Subsequent to April 30, 2016, Long Canyon renewed the mineral claims (see Note 13).
On April 7, 2014, the Company, on behalf of Long Canyon, executed an agreement with EMAC, the majority shareholder of the Company at the date of the agreement and a related party, to acquire a 100% interest in 180 mineral lease claims in the Long Canyon Trend area of Elko, County, Nevada. The Company issued 12,000,000 restricted shares of its common stock to EMAC valued at $240,000, the historical cost basis of the mineral properties to EMAC. This amount was recorded as mineral claims, a non-current asset in the Company's consolidated balance sheets. The Company and EMAC were subsequently unable to make the required annual mineral lease payments to maintain the claims. Therefore, these mineral interests were not renewed and the $240,000 cost basis of the claims was expensed as abandoned mineral claims in the consolidated statement of operations for the year ended April 30, 2015.
The Company is committed to pay a 3% Net Smelter Royalty on all the claims acquired by Long Canyon.
5. Related Party Transactions and Balances
During the years ended April 30, 2016 and 2015, management and administrative services were compensated as per a Service Agreement between the Company and a former Chief Executive Officer executed on April 30, 2011, a Service Agreement between the Company and a former Chief Executive Officer executed on December 6, 2012, and an Administration Agreement with a related party executed on March 15, 2011 and renewed on May 1, 2014. The fees are based on services provided and invoiced by the related parties on a monthly basis and the fees are paid in cash when possible or with the Company's common stock. The Company also, from time to time, has some of its expenses paid by related parties with the intent to repay. These types of transactions, when incurred, result in payables to related parties in the Company's consolidated financial statements as a necessary part of funding the Company's operations.
See Note 4 for discussion of the acquisition of mineral claims from a related party.
As of April 30, 2016 and 2015, the Company had payable balances due to related parties totaling $565,459 and $369,178, respectively, which resulted from transactions with significant shareholders and officers and directors of the Company.
Convertible notes payable – related parties consisted of the following at April 30:
|
|
|
2016
|
|
|
2015
|
|
|
Note payable to related party, no interest, convertible into common stock of the Company at $0.10 per share, imputed interest at 9% per annum
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
Note payable to related party, interest at 6%, convertible into common stock of the Company at $0.10 per share
|
|
|
32,050
|
|
|
|
32,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,050
|
|
|
$
|
57,050
|
|
Convertible notes payable – related parties issued prior to the fiscal year ended April 30, 2014 were convertible 30 days from the first day the Company's common shares are qualified for trading on the OTC Bulletin Board, which occurred in November 2012. As of April 30, 2016, the convertible note payable – related party of $25,000 had not been converted and therefore is in default.
On May 4, 2014, the Company issued 1,507,080 shares of its common stock in the conversion of a $101,000 convertible note payable - related party and accrued interest payable – related party of $49,708.
On May 4, 2014, the Company issued 600,000 shares of its common stock in the conversion of a $30,000 convertible note payable – related party.
Notes payable – related parties are currently in default and consisted of the following at April 30:
|
|
|
2016
|
|
|
2015
|
|
|
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 $17,846 and $11,143 at April 30, 2016 and 2015, respectively.
6. Convertible Notes Payable
Convertible notes payable consisted of the following at April 30:
|
|
|
2016
|
|
|
2015
|
|
|
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
|
|
|
141,150
|
|
|
|
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
|
|
|
|
-
|
|
|
Note payable, with interest at 6% per annum, convertible into common stock of the Company at $0.05 per share
|
|
|
17,000
|
|
|
|
-
|
|
|
Note payable to institutional investor, with interest at 8% per annum, convertible into common stock of the Company at defined conversion price
|
|
|
55,500
|
|
|
|
-
|
|
|
Note payable to institutional investor, with interest at 8% per annum, convertible into common stock of the Company at defined conversion price
|
|
|
39,000
|
|
|
|
-
|
|
|
Note payable to institutional investor, with interest at 12% per annum, convertible into common stock of the Company at defined conversion price
|
|
|
41,000
|
|
|
|
-
|
|
|
Note payable to institutional investor, with interest at 8% per annum, convertible into common stock of the Company at defined conversion price, repaid in 2015
|
|
|
-
|
|
|
|
38,000
|
|
|
Note payable to institutional investor, with interest at 8% per annum, convertible into common stock of the Company at defined conversion price, repaid in 2015
|
|
|
-
|
|
|
|
16,000
|
|
|
Less discount
|
|
|
(284,664
|
)
|
|
|
(29,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,486
|
|
|
$
|
199,748
|
|
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 December 3, 2014, the Company entered into a convertible promissory note with an institutional investor ("Investor") for $38,000, which bore interest at an annual rate of 8% and matured on September 5, 2015. The Investor had 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 58% (representing a discount rate of 42%) of the average of the lowest three trading prices for the Company's common stock during the ten trading day period ending one trading day prior to the date of the conversion notice. At any time for the period beginning on the date of the note and ending on the date which is 30 days following the date of the note, the Company could prepay the note upon payment of an amount equal to the outstanding principal multiplied by 120%, together with accrued and unpaid interest. The amount of the prepayment increased every subsequent 30 days to 125%, 130%, 135%, 140% and 145% of the outstanding principal together with accrued and unpaid interest. After the expiration of 180 days following the date of the note, the Company had no right of prepayment.
At the inception of the convertible note to institutional investor, the Company recorded debt issuance costs of $3,000 in prepaid expenses, and a debt discount and derivative liability of $37,325 related to the conversion feature. Interest expense for the amortization of the debt discount was calculated on a straight-line basis over the life of the convertible note.
In June 2015, the Company paid the institutional investor $25,000, $14,286 principal of the $38,000 convertible note payable and $10,714 in early payment penalties. On July 1, 2015, the institutional investor converted $10,014 principal of the convertible loan into 181,748 shares of the Company's common stock. In August 2015, the Company paid the institutional investor $20,000, $5,714 principal and $14,286 in accrued interest and early payment penalties. In October 2015, the Company paid the institutional investor $42,500, the remaining principal of $7,986 and $34,514 in loan extension fees and early payment penalties.
On March 2, 2015, the Company entered into a convertible promissory note with an institutional investor for $16,000, which bore interest at an annual rate of 8% and matured on December 4, 2015. The investor had 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 58% (representing a discount rate of 42%) of the average of the lowest three trading prices for the Company's common stock during the ten trading day period ending one trading day prior to the date of the conversion notice. At any time for the period beginning on the date of the note and ending on the date which is 30 days following the date of the note, the Company could prepay the note upon payment of an amount equal to the outstanding principal multiplied by 120%, together with accrued and unpaid interest. The amount of the prepayment increased every subsequent 30 days to 125%, 130%, 135%, 140% and 145% of the outstanding principal together with accrued and unpaid interest. After the expiration of 180 days following the date of the note, the Company had no right of prepayment.
At the inception of the convertible note to institutional investor, the Company recorded a debt discount and derivative liability of $16,000 related to the conversion feature. Interest expense for the amortization of the debt discount was calculated on a straight-line basis over the life of the convertible note. The convertible note was paid in full in September 2015.
On November 24, 2015, the Company entered into a convertible promissory note with an institutional investor for $55,500, which bears interest at an annual rate of 8% and matures on November 24, 2016. 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 55% (representing a discount rate of 45%) of the lowest sale price of the Company's common stock during the twenty consecutive trading days immediately preceding the date of the conversion notice. At any time for the period beginning on the date of the note and ending on the date which is six months following the date of the note, the Company can prepay the note upon payment of an amount equal to the outstanding principal multiplied by 135%, together with accrued and unpaid interest, provided that such prepayment factor shall equal 125% if prepayment is made on or before a date that is 90 days from the date of the note. After the expiration of 180 days following the date of the note, the Company has no right of prepayment.
At the inception of the convertible note to institutional investor, the Company recorded debt issuance costs of $3,000 in prepaid expenses, a debt discount of $55,500, including an original issue discount of $7,000, a derivative liability of $167,776 related to the conversion feature, and a loss on derivative liability of $119,276. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.
On December 31, 2015, the Company entered into a convertible promissory note with an institutional investor for $39,000, which bears interest at an annual rate of 8% and matures on December 31, 2016. 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 55% (representing a discount rate of 45%) of the lowest trading price of the Company's common stock during the twenty consecutive trading days immediately preceding the date of the conversion notice. The Company can prepay the outstanding note principal pursuant to the following schedule: payment on day 1 – 60 at 120% of principal owed; payment on day 61 – 120 at 135% of principal owed; and payment on day 121 – 180 at 150% of principal owed. After the expiration of 180 days following the date of the note, the Company has no right of prepayment.
At the inception of the convertible note to institutional investor, the Company recorded debt issuance costs of $4,500 in prepaid expenses, a debt discount of $39,000, including an original issue discount of $3,000, a derivative liability of $70,144 related to the conversion feature, and a loss on derivative liability of $34,144. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible 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 recorded debt issuance costs of $2,500 in prepaid expenses, 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 May 4, 2014, the Company issued 800,000 shares of its common stock in the conversion of a $100,000 convertible note payable.
On May 4, 2014, the Company issued 1,000,000 shares of its common stock in the conversion of a $25,010 convertible note payable, $25,000 of a $36,000 convertible note payable, and $2,406 in accrued interest payable, recognizing a gain on settlement of debt of $2,416.
On August 21, 2014, the Company issued 68,966 shares of its common stock in the conversion of $12,000 principal of a convertible note payable to institutional investor.
During the years ended April 30, 2016 and 2015, we had the following activity in our derivative liabilities:
|
Balance at April 30, 2014
|
|
$
|
63,359
|
|
|
|
|
|
|
|
|
Issuance of convertible notes
|
|
|
83,393
|
|
|
Gain on derivative liability
|
|
|
(53,257
|
)
|
|
Conversion of debt to shares of common stock and repayment of debt
|
|
|
(45,687
|
)
|
|
|
|
|
|
|
|
Balance at April 30, 2015
|
|
|
47,808
|
|
|
|
|
|
|
|
|
Issuance of convertible notes
|
|
|
122,000
|
|
|
Loss on derivative liability
|
|
|
2,104,872
|
|
|
Conversion of debt to shares of common stock and repayment of debt
|
|
|
(192,749
|
)
|
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
$
|
2,081,931
|
|
The estimated fair value of the derivative liabilities at April 30, 2016 was calculated using the Black-Scholes pricing model with the following assumptions:
|
Risk-free interest rate
|
0.40% - 0.48%
|
|
Expected life in years
|
0.57 – 0.77
|
|
Dividend yield
|
0%
|
|
Expected volatility
|
158.45% - 167.70%
|
These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Accrued interest and fees payable was $63,979 and $2,383 at April 30, 2016 and 2015, respectively.
7. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by the valuation allowances when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components at April 30:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
770,400
|
|
|
$
|
615,900
|
|
|
Related party accrued interest
|
|
|
27,900
|
|
|
|
12,600
|
|
|
Accrued expenses – related parties
|
|
|
220,500
|
|
|
|
357,000
|
|
|
Valuation allowance
|
|
|
(1,018,800
|
)
|
|
|
(985,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The income tax provision (benefit) differs from the amount of income tax determined by applying U.S. Federal, Canada corporate and British Columbia corporate income tax rates to pre-tax loss due to the following:
|
|
|
Year Ended April 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Book loss
|
|
$
|
(926,300
|
)
|
|
$
|
(149,100
|
)
|
|
Non deductible expenses
|
|
|
746,800
|
|
|
|
3,000
|
|
|
Gain on debt settlement
|
|
|
(41,600
|
)
|
|
|
-
|
|
|
Related party accruals
|
|
|
66,700
|
|
|
|
3,400
|
|
|
Related party interest
|
|
|
19,700
|
|
|
|
8,100
|
|
|
Valuation allowance
|
|
|
134,700
|
|
|
|
134,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
At April 30, 2016, the Company had net operating loss carry forwards of approximately $1,975,000 that may be offset against future taxable income through 2035. No tax benefit has been reported in the accompanying consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
The Company has adopted the Income Tax topic of FASB ASC 740,
Accounting for Uncertainty in Income Taxes
. Included in the balance at April 30, 2016, are no tax positions for which the ultimate deductibility is uncertain. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.
The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Due to the change in ownership provisions of U.S. federal and Canada and British Columbia income tax laws, operating loss carryforwards are potentially subject to annual limitations. As a result of the change in ownership of the Company, $1,502,000 of net operating loss carryforwards have been deemed to have been forfeit. The net operating loss balance above reflects the forfeiture of this carryforward.
8. Stockholders' Deficit
Common Stock:
The Company has 200,000,000 shares of $0.0001 par value common stock authorized.
During the year ended April 30, 2016, the Company issued a total of 381,748 shares of its common stock: 181,748 shares for conversion of debt of $33,987 and 200,000 shares for director fees of $91,020. A reduction of 15 shares was recorded to adjust the number of common shares outstanding.
During the year ended April 30, 2015, the Company issued a total of 6,376,047 shares of its common stock: 2,400,000 shares for payables – related parties of $175,000; 1,868,966 shares for conversion of debt of $186,566; 2,107,080 shares for conversion of related party debt of $180,708; and 1 share to adjust the number of common shares outstanding.
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. The options vested upon grant, expire on May 31, 2018, with 250,000 options exercisable at $1.25 per share, 250,000 options exercisable at $1.50 per share, 250,000 options exercisable at $1.75 per share and 250,000 options exercisable at $2.00 per share. The Company estimated the grant date fair value of the options at $117,221 using the Black-Scholes option-pricing model and charged the amount to professional fees.
During the year ended April 30, 2016, the Company issued warrants to a lender to purchase 68,333 shares of the Company's common stock at $0.60 per share. The warrants vested upon grant and expire on February 4, 2021. The Company estimated the grant date fair value of the warrants at $18,403 using the Black-Scholes option pricing model and charged the amount to interest expense.
The following assumptions were used in estimating the value of the options and warrants:
|
Risk free interest rate
|
0.77% - 1.25%
|
|
Expected life in years
|
2.08 – 5.0
|
|
Dividend yield
|
0%
|
|
Expected volatility
|
123.41 - 138.42%
|
A summary of the Company's stock options and warrants as of April 30, 2016, and changes during the year then ended is as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Granted
|
|
|
1,068,333
|
|
|
$
|
1.559
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Forfeited or expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at April 30, 2016
|
|
|
1,068,333
|
|
|
$
|
1.559
|
|
2.26
|
|
$ -
|
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $0.30 as of April 30, 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
(a)
Litigation
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.
(c)
Commitments
The Company has the following commitments as of April 30, 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 November 24, 2015 with Frank Thorwald, Director, for director fees of $5,000 per month beginning December 2015 and the issuance of 200,000 restricted common shares of the Company. The fees may be paid in cash and or with common stock. Mr. Thorwald resigned as Director on May 20, 2016.
|
|
c)
|
Service Agreement signed April 25, 2016 with Merrill W. Moses, President, Director and CEO, for administration fees 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.
|
|
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
There were no new accounting pronouncements issued during the year ended April 30, 2016 and through the date of filing this annual report that the Company believes would be applicable to or have a material impact on the Company's consolidated financial statements.
12.
Supplemental Statement of Cash Flows Information
During the years ended April 30, 2016 and 2015, the Company paid no amounts for income taxes.
During the years ended April 30, 2016 and 2015, the Company paid $67,514 and $1,550 for interest.
During the year ended April 30, 2016, 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 $10,723 and derivative liability by $168,698.
|
|
|
|
|
·
|
Increased debt discount and derivative liability by $122,000.
|
|
|
|
|
·
|
Increased debt discount and additional paid in capital by $232,650.
|
During the year ended April 30, 2015, the Company had the following non-cash financing and investing activities:
|
·
|
Increased common stock by $240 and additional paid-in capital by $174,760 and decreased payables – related parties by $175,000 for common shares issued for payables – related parties.
|
|
|
|
|
·
|
Increased common stock by $210, increased additional paid-in capital by $180,498, decreased accrued interest payable – related parties by $49,708, and decreased convertible notes payable – related parties by $131,000.
|
|
|
|
|
·
|
Increased common stock by $187, increased additional paid-in capital by $186,379, decreased accrued interest payable by $2,406, decreased derivative liability by $24,585 and decreased convertible notes payable (net of discount) by $158,168.
|
|
|
|
|
·
|
Increased debt discount and derivative liability by $53,326.
|
13. Subsequent Events
In accordance with ASC 855,
Subsequent Events
, the Company has evaluated subsequent events to determine events occurring after April 30, 2016 that would have a material impact on the Company's results or require disclosure.
Name Change
Effective June 15, 2016, the Company changed its name to Defense Technologies International Corp. The new corporate name more fully represents the Company's expansion goals into the advanced technology sector.
DTC Acquisition
As discussed in Note 3, the closing of the acquisition of DTC was extended to and completed on July 15, 2016 to allow for completion of the audit of DTC's financial statements. The Company will now use its reasonable best efforts to effectuate a spin-off of its present subsidiary, Long Canyon Gold Resources Corp., on terms to be determined.
Issuances of Common Stock
Subsequent to April 30, 2016, the Company issued the following shares of its common stock:
|
·
|
350,000 shares to Merrill W. Moses, President, CEO and Director, for services valued at $119,000 pursuant to a Service Agreement.
|
|
|
|
|
·
|
16,500 shares to a consultant in payment of accrued financing fees valued at $5,775.
|
|
|
|
|
·
|
A total of 325,000 shares to a lender for conversion of debt of $15,125.
|
|
|
|
|
·
|
1,232,880 shares to a lender for conversion of debt of $61,644.
|
|
|
|
|
·
|
A total of 750,000 shares to a consultant in payment of fees valued at $160,275.
|
|
|
|
|
·
|
A total of 300,000 shares to a consultant in payment of fees valued at $32,000.
|
|
|
|
|
·
|
250,000 shares to Charles C. Hooper, Director, for services valued at $25,000 pursuant to a Service Agreement.
|
Renewal of Mineral Leases
In May 2016, Long Canyon renewed leases for 30 BLM mineral lease claims, situated in the west section of the new Long Canyon Gold Trend area of east central Nevada and is required to pay the associated fees within 90 days of the renewal. The Company anticipates completing the payment of fees by August 5, 2016. As a result of the renewal of the claims in May 2016, the Company currently holds these claims.
Service Agreement
On May 20, 2016, the Company entered into a Service Agreement with Charles C. Hooper, Director, for director fees 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.
Consulting Agreements
In May 2016, the Company entered into a three-month Consulting Agreement with Trilogy Marketing Strategies ("Trilogy") for the development and commercialization of its subsidiary companies. The Company is to pay Trilogy $7,500 per month and issue 10,000 shares of the Company's restricted common stock per quarter. The Consulting Agreement may be extended on a quarterly basis. With the consent of Trilogy, the Company entered into a Sub-Consulting Agreement with Brian McLain ("McLain.") pursuant to which the Company is to issue to McLain a total of 750,000 shares of the Company's common stock.
In June 2016, the Company entered into a three-month Consulting Agreement with Uptick Capital LLC ("Uptick") for strategic, marketing, financial and business planning services. The Company is to pay Uptick a set-up fee of $2,500 and issue 300,000 shares of the Company's restricted common stock for the first month and $20,000 worth of restricted shares for each additional three- month renewal term at the Company's option.
Senior Secured Convertible Promissory Note
Effective 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.
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