Item
2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
Forward
Looking Statements
This
Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Item 2 of Part I of this report include forward-looking statements within the meaning of Section 27A of
the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (collectively, the “Reform
Act”). The Reform Act provides a safe harbor for forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the projected results. All statements, other than
statements of historical fact that we make in this Quarterly Report on Form 10-Q are forward-looking. The words “anticipates,”
“believes,” “expects,” “intends,” “will continue,” “estimates,” “plans,”
“projects,” the negative of these terms and similar expressions are intended to identify forward-looking statements.
However, the absence of these words does not mean the statement is not forward-looking.
Forward-looking
statements involve risks, uncertainties or other factors which may cause actual results to differ materially from the future results,
performance or achievements expressed or implied by the forward-looking statements. These statements are based on our management’s
beliefs and assumptions, which in turn are based on currently available information. Certain risks, uncertainties or other important
factors are detailed in this Quarterly Report on Form 10-Q and may be detailed from time to time in other reports we file with
the Securities and Exchange Commission, including on Forms 8-K and 10-K.
Examples
of forward looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our expectations regarding
our ability to generate operating cash flows and to fund our working capital and capital expenditure requirements. Important assumptions
relating to the forward-looking statements include, among others, assumptions regarding demand for our future products, the timing
and cost of capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate.
Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations
may prove to be incorrect. Important factors that could cause actual results to differ materially from the results and events
anticipated or implied by such forward-looking statements include:
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management’s
plans, objectives and budgets for its future operations and future economic performance;
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capital
budget and future capital requirements;
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meeting
future capital needs;
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our
dependence on management and the need to recruit additional personnel;
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limited
trading for our common stock;
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the
level of future expenditures;
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impact
of recent accounting pronouncements;
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the
outcome of regulatory and litigation matters; and
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the
assumptions described in this report underlying such forward-looking statements.
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Actual
results and developments may materially differ from those expressed in, or implied by, such statements due to a number of factors,
including:
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those
described in the context of such forward-looking statements;
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future
product development and marketing costs;
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the
markets of our domestic operations;
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the
impact of competitive products and pricing;
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the
political, social and economic climate in which we conduct operations; and
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the
risk factors described in other documents and reports filed with the Securities and Exchange Commission, including our Registration
Statement on Form S-1/A (SEC File No. 333-196075).
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We
operate in a very competitive environment. New risks emerge from time to time. It is not possible for us to predict all of those
risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results
to differ materially from those contained in any forward-looking statement. We believe these forward-looking statements are reasonable.
However, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further,
forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation
or undertaking to update publicly any of them in light of new information or future events.
The
following is management’s discussion and analysis of financial condition and results of operations and is provided as a
supplement to the accompanying unaudited condensed interim financial statements and notes to help provide an understanding of
our financial condition, results of operations and cash flows during the periods included in the accompanying unaudited condensed
interim financial statements.
In
this Quarterly Report on Form 10-Q, “Company,” “the Company,” “us,” and “our”
refer to Nevada Canyon Gold Corp., a Nevada corporation, unless the context requires otherwise.
We
intend the following discussion to assist in the understanding of our financial position and our results of operations for the
three months ended March 31, 2019 and 2018. You should refer to the Financial Statements and related Notes in conjunction with
this discussion.
General
We
were incorporated under the laws of the state of Nevada on February 27, 2014. We are involved in acquiring and exploring mineral
properties in Nevada, however, as of the date of this Quarterly Report of Form 10-Q we have not generated or realized any revenues
from these business operations.
We
were a party to an exploration agreement (the “Agreement”) with an option to form a joint venture with Walker River
Resources Corp. (“WRR”) on its wholly-owned Lapon Canyon Gold Project (“Lapon Canyon Project”, or “the
Property”) located approximately 40 miles southeast of Yerington, Nevada. The Agreement did not grant us an interest in
or to the Property, or any equity interest in WRR, but rather, granted us the right to earn up to an undivided 50% interest in
the Property by incurring eligible expenditures of $500,000 (over a two-year period) in exploration and other expenses required
to carry out a work program established and operated by WRR on the Property (the “Eligible Expenses”).
On
July 5, 2017, we entered into a property purchase agreement (the “Purchase Agreement”) with WRR on the Lapon Canyon
Project. Under the terms of the Purchase Agreement WRR agreed to buy back our 30% interest in the Lapon Canyon Project, which
was prorated based on the amount of eligible expenditures we’ve incurred as of that date, in exchange for 9,100,000 common
shares of WRR and warrants to acquire an additional 11,900,000 common shares (the “WRR Warrants”). Each warrant is
exercisable for a period of five years without further consideration into one common share in the capital of WRR. The terms of
the warrants contain a provision which prevents us from exercising any warrants which would result in us owning 10% or more of
the issued and outstanding shares of WRR. Closing of the Purchase Agreement was subject to the acceptance of the TSX Venture Exchange,
which was received on July 17, 2017.
On
June 7, 2017, we entered into an exploration lease and option to purchase agreement (the “Garfield Agreement”) with
Goodsprings Development LLC (“Goodsprings”), a Nevada limited liability corporation on the Garfield Flats Project
(the “Garfield Property”), consisting of six Orsa Claims and six Lazy Claims totaling 240 acres located in sections
27 and 28 of T 7 N, R 32 E, Mineral County, Nevada about 18 miles southeast of the town of Hawthorne. The term of the Garfield
Agreement is ten years, and is subject to extension for two additional terms of ten years each.
During
our Fiscal 2017, we staked an additional 69 Orsa Claims and 75 Lazy Claims, with a total paid cost of $54,152. These claims were
added to the Garfield Flats Project.
On
July 11, 2018, we entered into a definitive purchase agreement with WRR for the sale of the Garfield Agreement. Full consideration
for the Garfield Agreement consisted of a one-time cash payment of $55,000 (the “Cash Consideration”). In lieu of
the Cash Consideration, WRR agreed to extinguish the $55,000 note payable we issued to WRR during our fiscal 2017.
On
August 2, 2017, we entered into an exploration lease agreement (the “Lazy Claims Agreement”) with Tarsis Resources
US Inc. (“Tarsis”), a Nevada corporation, to lease rights to three additional Lazy claims totaling 60 acres and located
in the vicinity of the Garfield Property. The term of the Lazy Claims Agreement is ten years, and is subject to extension for
an additional two consecutive 10-year terms. Full consideration of the Lazy Claims Agreement consists of the following: an initial
cash payment of $1,000 to Tarsis, which we paid upon the execution of the Lazy Claims Agreement, with $2,000 payable to Tarsis
on each subsequent anniversary of the effective date. We agreed to pay Tarsis a 2% production royalty (the “Lazy Claims
Royalty”) based on the gross returns from the production and sale of minerals from the Lazy Claims Property. Should the
Lazy Claims Royalty payments to Tarsis be in excess of $2,000 per year, we will not be required to pay a $2,000 annual minimum
payment. As of the date of this Quarterly Report on Form 10-Q, we retain our leasing rights to Lazy Claims.
Critical
Accounting Policies and Estimates
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP
and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different
assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our
Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our unaudited condensed
interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those
related to revenue recognition, accrued expenses, financing and investing operations, and contingencies and litigation. Management
bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. The most significant accounting estimates inherent in the preparation of our unaudited condensed interim financial
statements include estimates as to the appropriate carrying value of certain assets and liabilities, which are not readily apparent
from other sources.
The
following discussion of our financial condition and results of operations should be read in conjunction with our unaudited interim
financial statements for the three months ended March 31, 2019, together with notes thereto, which are included in this Quarterly
Report on Form 10-Q, as well as our most recent audited financial statements on Form 10-K for the year ended December 31, 2018.
Results
of Operations
Three
months ended March 31, 2019, compared to the three months ended March 31, 2018:
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Three months ended
March 31,
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Changes between the
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2019
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2018
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periods
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Operating expenses
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Exploration expenses
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30,000
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-
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30,000
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General and administrative expenses
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70,384
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3,443
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66,941
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Professional fees
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2,200
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1,500
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700
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Transfer agent and filing fees
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2,484
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4,984
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(2,500
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Total operating expenses
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(105,068
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(9,927
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95,141
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Other items
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Fair value gain (loss) on equity investments
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890,801
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(363,022
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1,253,823
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Foreign exchange gain
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3,772
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-
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3,772
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Interest income
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468
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-
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468
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Gain on sale of equity investments
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247,524
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-
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247,524
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Net income (loss)
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1,037,497
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(372,949
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)
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1,410,466
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Deferred tax recovery
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-
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21,978
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(21,978
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)
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Comprehensive income (loss)
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$
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1,037,497
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$
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(350,971
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$
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1,388,468
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Revenues
.
We had no revenues for the three months ended March 31, 2019 and 2018. Due to the exploration rather than the production nature
of our business, we do not expect to have significant operating revenue in the foreseeable future.
Operating
expenses.
Our operating expenses include exploration expenses, general and administrative expenses, professional fees and
transfer agent and filing fees. During the three-month period ended March 31, 2019, our operating expenses increased by $95,141,
or 958%, to $105,068 for the three months then ended, compared to $9,927 for the three-month period ended March 31, 2018. This
change was mainly associated with increased general and administrative fees, which have increased by $66,941 to $70,384 for the
three-month period ended March 31, 2019, as compared to $3,443 we incurred during the three months ended March 31, 2018, the main
component affecting the change in general and administrative expenses was associated with $60,000 in management consulting fees
the Company incurred with its related parties for the services they provided during the reporting period. In addition to the increases
in the general and administrative expenses, our exploration expenses increased by $30,000 to $30,000 for the three-month period
ended March 31, 2019, we did not incur any exploration expenses during the three-month period ended March 31, 2018, and
the professional fees increased by $700 to $2,200 during the three months ended March 31, 2019, as compared to $1,500 we incurred
during our Fiscal 2018. These increases were in part offset by $2,500 decrease to our transfer agent and regulatory fees, which
amounted to $2,484 during the three-month period ended March 31, 2019, as opposed to $4,984 we incurred during the three-month
period ended March 31, 2018; higher regulatory expenses in the comparative period were associated with the Company uplisting the
Company’s shares from OTCPink marketplace to OTCQB.
Other
items.
During the three months ended March 31, 2019, we recognized $890,801 gain on fair value of equity investments (2018
– loss of $363,022), which resulted from revaluation of WRR Shares and WRR Warrants we received in exchange for our 30%
interest in Lapon Canyon Gold Property. The gain resulted mainly from an increase in market price of WRR’s common stock
from CAD$0.06 per share at December 31, 2018, to CAD$0.135 per share at March 31, 2019, and to a smaller degree from fluctuation
of exchange rates between the US and Canadian dollars.
During
the same period, we recorded $247,524 gain on our equity investments, which resulted from the sale of 5,242,000 WRR shares for
gross proceeds of $478,077 (CAD$632,068). We invested CAD$489,500 of the proceeds from the sales of WRR shares into Guaranteed
Investment Certificates (“GIC”) at floating interest rate with reference to the market. During the three-month period
ended March 31, 2019, we received $426 in dividend payments on the balance in GIC, which we reinvested. In addition, we received
cash interest of $41. Since our investments and the funds held in the GIC account are held in Canadian dollars, during the three-month
period ended March 31, 2019, we recorded gain of $3,772 associated with fluctuations in foreign exchange rates.
Income
tax.
The sale of our 30% interest in the Lapon Canyon Project in exchange for 9,100,000 common shares of WRR and warrants
to acquire an additional 11,900,000 common shares, which we effected during the year ended December 31, 2017, resulted in a deferred
tax expense of $358,228. During the three-month period ended March 31, 2018, we recorded $21,978 as recovery of deferred tax liability
associated with the decrease in the fair market value of WRR shares. We did not have similar expenses during the three-month period
ended March 31, 2019.
Net
income (loss).
At March 31, 2019, we recorded a net income of $1,037,497, as compared to net loss of $372,949 for the three-month
period ended March 31, 2018. This change mainly resulted from $247,524 gain on the sale of WRR Shares, as well as $890,801 gain
on revaluation of our equity investments.
Comprehensive
income (loss).
At March 31, 2019, we recorded a comprehensive income of $1,037,497 for the three-month period then ended,
as compared to comprehensive loss of $350,971 for the three-month period ended March 31, 2018. The overall increase in our comprehensive
income resulted from $247,524 gain on the sale of WRR Shares, as well as $890,801 gain on revaluation of our equity investments.
During the three-month period ended March 31, 2018, our comprehensive loss was affected by $21,978 in recovery of deferred tax
liability.
Liquidity
and Capital Resources
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March
31, 2019
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December 31, 2018
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Current assets
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$
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442,170
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$
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2,884
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Current liabilities
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1,189,705
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1,119,696
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Working capital deficit
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$
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(747,535
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$
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(1,116,812
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)
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As
of March 31, 2019, we had a cash balance of $440,703, of which $366,736 were held in GIC at floating interest rate with reference
to the market, and working capital deficit of $747,535 with cash flows used in operations totaling $38,975 for the period then
ended. During the three months ended March 31, 2019, our operations were funded with $478,077 cash we generated from the sale
of our equity securities.
We
did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for the three-month period
ended March 31, 2019. There is no assurance that we will be able to generate sufficient cash from our operations to repay the
amounts owing under the advances payable, or to support our exploration program. If we are unable to generate sufficient cash
flow from our operations to repay the amounts owing when due, we may be required to continue selling our equity investments or
raise additional financing by borrowing funds or issuing our equity. There can be no assurance that we will be successful in our
efforts to raise additional capital.
Cash
Flow
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Three Months Ended
March 31,
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2019
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2018
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Cash flows used in operating activities
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$
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(38,975
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$
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(9,369
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Cash flows provided by investing activities
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478,077
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-
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Cash flows provided by financing activities
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-
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10,000
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Net increase in cash during the period
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$
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439,102
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$
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631
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Net
cash used in operating activities
: Our net cash used in operating activities increased by $29,606, or 316%, to $38,975 for
the three months ended March 31, 2019, compared with $9,369 for the comparable period in 2018. During the three months ended March
31, 2019, we used $108,800 to cover our cash operating costs and $184 to . increase our prepaid expenses. These uses of cash were
offset by $9,909 increase in our accounts payable and by $60,100 increase in the amounts due to our related parties.
Our
net cash used in operating activities decreased by $22,244, or 70%, to $9,369 for the three months ended March 31, 2018, compared
with $31,613 for the comparable period in 2017. During the three months ended March 31, 2018, we used $9,927 to cover our cash
operating costs and $1,139 to reduce our accounts payable. These uses of cash were offset by $1,697 decrease in our prepaid expenses.
Adjustments
to reconcile net loss to net cash used by operating activities:
During the three months ended March 31, 2019, we recognized
$890,801 gain on revaluation of fair value of equity investments associated with WRR Shares and WRR Warrants we received in exchange
for our 30% interest in Lapon Canyon Gold Property which resulted from the fluctuation in share prices and foreign exchange rates,
we also recorded $247,524 gain on sale of our equity investments. These gains were further increased by $7,504 in foreign exchange
fluctuations and $468 we received in interest and dividend income on our investments.
During
the three months ended March 31, 2018, our operating costs included $363,022 loss we recognized on revaluation of fair value of
equity investments associated with WRR Shares and WRR Warrants we received in exchange for our 30% interest in Lapon Canyon Gold
Property, and $21,978 deferred tax recovery associated with the decrease in fair market value of WRR shares.
Net
cash generated by investing activities
: During the three-month period ended March 31, 2019, we generated $478,077 on the sale
of 5,242,000 WRR Shares.
During
the three months ended March 31, 2018, we did not have any investing transactions that would have effected our cash flows.
Net
cash provided by financing activities
: During the three months ended March 31, 2019, we did not have any financing transactions
that would have effected our cash flows.
During
the three months ended March 31, 2018, we received a $10,000 non-interest-bearing advance from our director.
Going
Concern
At
March 31, 2019, we had a working capital deficit of $747,535 and cash on hand of $440,703, which is not sufficient enough to carry
out our current plan of operation. Our capital assets include equity investment in WRR shares and warrants, which we can use as
a source of additional cash inflow should we decide to sell all or part of our investment. In addition, we are actively pursuing
other means of financing our operations through additional equity and/or debt financing. There can be no assurance that we will
be able to procure funds sufficient to support our day-to-day operations and exploration programs. If operating difficulties or
other factors (many of which are beyond our control) delay our realization of revenues or cash flows from operations, we may be
limited in our ability to pursue our business plan. Moreover, if our resources from obtaining additional capital or cash flows
from operations, once we commence them, do not satisfy our operational needs or if unexpected expenses arise due to unanticipated
pressures or if we decide to expand our business plan beyond its currently anticipated level or otherwise, we will require additional
financing to fund our operations, in addition to anticipated cash generated from our operations. Additional financing might not
be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms,
our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise
respond to competitive pressures would be significantly limited. In a worst-case scenario, we might not be able to fund our operations
or to remain in business, which could result in a total loss of our stockholders’ investment. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced,
and these newly issued securities might have rights, preferences or privileges senior to those of existing stockholders.
Impact
of Inflation
We
believe that inflation has had a negligible effect on operations over the past fiscal quarter.
Capital
Expenditures
The
Company expended no amounts on capital expenditures for the three months ended March 31, 2019.
Unproved
Mineral Properties
As
of the date of this quarterly report on Form 10-Q, our mineral interests are represented by Lazy Claims Property under an exploration
lease agreement with Tarsis Resources US Inc. (“Tarsis”), a Nevada corporation, dated for reference August 2, 2017,
(the “Lazy Claims Agreement”). The Lazy Claims Agreement grants us a right to conduct exploratory work for minerals
on three Lazy Claims totaling 60 acres and located in Mineral County, Nevada about 18 miles southeast of the town of Hawthorne
(the “Lazy Claims”).
The
term of the Lazy Claims Agreement is ten years and is subject to extension for an additional two consecutive 10-year terms. Full
consideration for the Lazy Claims Agreement consists of the following: an initial cash payment of $1,000 to Tarsis, which we paid
upon the execution of the Lazy Claims Agreement, with $2,000 payable to Tarsis on each subsequent anniversary of the effective
date. We agreed to pay Tarsis a 2% production royalty (the “Lazy Claims Royalty”) based on the gross returns from
the production and sale of minerals from the Lazy Claims Property. Should the Lazy Claims Royalty payments to Tarsis be in excess
of $2,000 per year, we will not be required to pay a $2,000 annual minimum payment.
Off-Balance
Sheet Arrangements
None.
Use
of Estimates
Areas
where significant estimation judgments are made and where actual results could differ materially from these estimates are the
carrying value of certain assets and liabilities which are not readily apparent from other sources and the classification of net
operating loss and tax credit carry forwards.
We
evaluate impairment of our long-lived assets by applying the provisions of SFAS No. 144. In applying those provisions, we have
not recognized any impairment charge on our long-lived assets during the three months ended March 31, 2019.