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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended January 31, 2016

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission File Number 000-54851

 (Exact name of registrant as specified in its charter)

(Address of principal executive offices)

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   [X]     No  [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  [X]    No  [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  [   ]   No  [X]

As of March 10, 2015, there were 21,249,676 shares of the registrant's common stock, $0.0001 par value, outstanding

CANYON GOLD CORP.

FORM 10-Q

FOR THE QUARTER ENDED JANUARY 31, 2016

 

TABLE OF CONTENTS

PART  I   —   FINANCIAL INFORMATION

See notes to condensed consolidated financial statements

 

See notes to condensed consolidated financial statements

 

 

See notes to condensed consolidated financial statements

Canyon Gold Corp.

Notes to Condensed Consolidated Financial Statements

January 31, 2016

(Unaudited)

2. Basis of Presentation and Summary of Significant 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

Basic loss per share is calculated by dividing the Company's net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company's net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.  There are no such common stock equivalents outstanding for the three and nine months ended January 31, 2016 and 2015.

 

3. Mineral Claims

4. Related Party Transactions and Balances

Convertible notes payable – related parties consisted of the following at:

Notes payable – related parties are currently in default and consisted of the following at:

5. Convertible Notes Payable

Convertible notes payable consisted of the following at:

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 debt issuance costs of $500 in prepaid expenses, and 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.

During the nine months ended January 31, 2016, we had the following activity in our derivative liability account:

The estimated fair value of the derivative liability at January 31, 2016 was calculated using the Black-Scholes pricing model with the following assumptions:

7. Stockholders' Deficit

(a)	Litigation

(b)	Indemnities and Guarantees

(c)	Commitments

There were no new accounting pronouncements issued during the nine months ended January 31, 2016 and through the date of filing this quarterly report that the Company believes would be applicable to or have a material impact on the Company's consolidated financial statements.

10. Supplemental Statement of Cash Flows Information

During the nine months ended January 31, 2016 and 2015, the Company paid $67,514 and $1,550 for interest.

During the nine months ended January 31, 2016 and 2015, the Company paid no amounts for income taxes.

During the nine months ended January 31, 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 $84,500.

During the nine months ended January 31, 2015, the Company had the following non-cash investing and financing activities:

Increased common stock by $239, increased additional paid-in capital by $174,761 and decreased payables – related parties by $175,000.

Increased common stock by $211, increased additional paid-in capital by $180,497, 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 $186,380, decreased accrued interest payable by $2,406 and decreased convertible notes payable by $158,168.

Increased debt discount and derivative liability by $37,326.

11. Acquisitions

Defense Technology Corporation

Vaportech

On June 6, 2015, the Company entered into an agreement to acquire 90% of Vaportech3d LLC, a privately held Nevada limited liability company, formerly known as EMAC Holdings, LLC, a related party, ("Vaportech"), owner of the Cedar Leaf Oil Vapor Technology.  Based on the due diligence performed, on September 8, 2015, the parties entered into an agreement to cancel the acquisition.

12. Subsequent Events

In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events to determine events occurring after January 31, 2016 that would have a material impact on the Company's financial results or require disclosure.

The Company has not closed the acquisition of DTC pending the completion of audited financial statements of DTC.

Overview

The following information should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q.

Canyon Gold Corp. ("Canyon Gold" or the "Company") was incorporated in the State of Delaware on May 27, 1998.  Canyon Gold presently holds mining claims and leases located in the State of Nevada.

In July 2011, we acquired 100% of the outstanding capital stock of Long Canyon Gold Resources Corp. of North Vancouver BC, Canada ("Long Canyon"), whereby Long Canyon became our wholly owned subsidiary.  The acquisition of Long Canyon was accounted for as a reverse acquisition and recapitalization, with Canyon Gold being the legal acquirer and Long Canyon being the accounting acquirer.

Canyon Gold and Long Canyon own and control a 100% interest in approximately 640 acres of mineral lease properties and/or approximately 30 BLM mineral lease claims, situated in the west section of the new Long Canyon Gold Trend area of east central Nevada.  The properties, located in Range Section 35, T 34N R63, Meridian MDB&M, are held for the purpose of exploration for gold and silver mineralization deposits and are located near existing exploration projects by other mining companies.

On October 5, 2015, we entered into an agreement to acquire 100% of Defense Technology Corporation, a privately held Colorado 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. Following completion of the acquisition, DTC will become a wholly owned subsidiary of the Company.  The closing of the acquisition was scheduled on or before November 30, 2015 and was subsequently extended to December 31, 2015.  However, the closing has been extended pending the completion of DTC's audited financial statements.  Following the closing, 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.  The Company has not closed the acquisition of DTC pending the completion of audited financial statements of DTC.

Our principal executive office is located at 4730 South Fort Apache Road, Suite 300, Las Vegas, Nevada 89147, telephone 1-(800) 520-9485.  Additional office space is subleased from EMAC at 641 West 3rd Street, North Vancouver BC, Canada.  The office of DRLLC that is responsible for management of exploration program is located at 125 East Main Street # 307, American Fork, Utah 84003.

Industry Segments

This report contains forward-looking statements relating to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or similar terms, variations of such terms or the negative of such terms.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors.  Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results could differ materially from those anticipated in such statements.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our condensed 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 January 31, 2016, the Company has no revenues, has accumulated losses of $2,220,159 since inception on June 19, 2008 and a working capital deficit of $1,176,613 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, 2016 by issuing debt and equity securities and by the continued support of its related parties.  The condensed 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.

We currently have no sources of operating revenues. Accordingly, no revenues were recorded for the three and nine months ended January 31, 2016 and 2015.

Our total operating expenses increased to $165,727 in the three months ended January 31, 2016 from $50,994 in the three months ended January 31, 2015, and increased to $286,263 in the nine months ended January 31, 2016 from $196,479 in the nine months ended January 31, 2015.  The increase was due primarily to an increase in directors' fees, including the issuance of 200,000 shares of our common stock valued at $91,020 in December 2015 to a new director.  We also incurred increases in general and administrative expenses and professional fees.

As a result, our net loss increased to $232,445 in the three months ended January 31, 2016 from $42,861 in the three months ended January 31, 2015, and increased to $432,883 in the nine months ended January 31, 2016 from $214,352 in the nine months ended January 31, 2015.

We have no firm commitments for capital expenditures other than to explore our properties as funds permit.  In the process of carrying out our business plan, we may determine that we cannot raise sufficient capital to support our business on acceptable terms, or at all.

Pursuant to two convertible notes payable to institutional investors, we received total cash proceeds of $104,500 in November and December 2015.  The notes, which have a total principal of $94,500 ($10,000 total original interest discount), bear interest at 8% per annum, matures in one year, 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.

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 January 31, 2016, we did not have sufficient cash to fund our operations for the next twelve months.

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.

Exploration Costs

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

Comprehensive Loss

We have no component of other comprehensive income.  Accordingly, net loss equals comprehensive loss for the three and nine months ended January 31, 2016 and 2015.

Cash and Cash Equivalents

For purposes of the statement of cash flows, we consider 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

We provide 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.  Our 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

We continually monitor 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, we assess 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, we recognize 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 condensed consolidated financial statements are prepared using the accrual method of accounting and accounting principles generally accepted in the United States of America.  We have adopted an April 30 fiscal year end.

Revenue Recognition

See the notes to our condensed consolidated financial statements for a discussion of recently issued accounting pronouncements that we have either implemented or that may have a material future impact on our financial position or results of operations.

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.

 

This item is not required for a smaller reporting company.

Changes in Internal Control over Financial Reporting.  There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

There are no material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.

Item 1A.              Risk Factors

This item is not required for a smaller reporting company.

During the three months ended January 31, 2016, the Company issued 200,000 shares of its common stock in payment of director's fees valued at $91,020.  The securities were issued in a private transaction to a related party pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.

This item is not applicable.

This item is not applicable.

 

Not applicable

 

Item 6.                  Exhibits

The following exhibits are filed as part of this report:

* 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 Exchange Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

SIGNATURES

Pursuant to the requirements 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.