Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
1.
ORGANIZATION AND BUSINESS OF COMPANY
Mexus Gold US (the “Company”) was originally incorporated under the laws of the State of Colorado on June 22, 1990, as U.S.A. Connection, Inc. On October 28, 2005, the Company changed its’ name to Action Fashions, Ltd. On September 18, 2009, the Company changed its’ domicile to Nevada and changed its’ name to Mexus Gold US to better reflect the Company’s new planned principle business operations. The Company has a fiscal year end of March 31.
The Company is a mining company engaged in the evaluation, acquisition, exploration and advancement of gold, silver and copper projects in the State of Sonora, Mexico and the Western United States, as well as, the salvage of precious metals from identifiable sources.
2.
BASIS OF PREPARATION
Pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q, the unaudited condensed consolidated financial statements, footnote disclosures and other information normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The condensed consolidated financial statements contained in this report are unaudited but, in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the consolidated financial statements. All significant inter-company accounts and transactions have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of results for the full year. The condensed consolidated balance sheet at March 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Management reviews these estimates and assumptions on an ongoing basis using currently available information. Actual results could differ from those estimates. Three and nine month figures are not necessarily indicative of the results to be reported at the year end.
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and controlled subsidiaries, Mexus Gold Mining, S.A. de C.V. (“Mexus Gold Mining), Mexus Enterprises S.A. de C.V. (“Mexus Gold Enterprises”) and Mexus Gold MX S.A. DE C.V. (“Mexus Gold MX”). Significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated 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 and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Management believes that the estimates used are reasonable. The more significant estimates and assumptions by management include, among others, the accrual of potential liabilities, the assumptions used in valuing share-based instruments issued for services, valuation of derivative liabilities and the valuation allowance for deferred tax assets.
Cash and cash equivalents
The Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
5
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
2.
BASIS OF PREPARATION (CONTINUED)
Equipment
Equipment consists of mining tools and equipment, watercraft and vehicles which are depreciated on a straight-line basis over their expected useful lives as follows (see Note 5):
Mining tools and equipment
|
7 years
|
Watercrafts
|
7 years
|
Vehicles
|
3 years
|
Equipment under Construction
Equipment under construction comprises mining equipment that is currently being fabricated and modified by the Company and is not presently in use. Equipment under construction totaled $17,018 and $73,456 as of June 30, 2018 and March 31, 2018, respectively. Equipment under construction at June 30, 2018 comprises a Hydraulic Drum 12YD, Skid Mounted Mill and Survey Winch Marine.
Exploration and Development Costs
Exploration costs incurred in locating areas of potential mineralization or evaluating properties or working interests with specific areas of potential mineralization are expensed as incurred. Development costs of proven mining properties not yet producing are capitalized at cost and classified as capitalized exploration costs under property, plant and equipment. Property holding costs are charged to operations during the period if no significant exploration or development activities are being conducted on the related properties. Upon commencement of production, capitalized exploration and development costs would be amortized based on the estimated proven and probable reserves benefited. Properties determined to be impaired or that are abandoned are written-down to the estimated fair value. Carrying values do not necessarily reflect present or future values.
Mineral Property Rights
Costs of acquiring mining properties are capitalized upon acquisition. Mine development costs incurred either to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates the carrying value of capitalized mining costs and related property and equipment costs, to determine if these costs are in excess of their recoverable amount whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Evaluation of the carrying value of capitalized costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with Accounting Standards Codification (ASC) 360-10-35-15,
Impairment or Disposal of Long-Lived Assets
.
Long-Lived Assets
In accordance with ASC 360, Property Plant and Equipment the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
6
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
2.
BASIS OF PREPARATION (CONTINUED)
Fair Value of Financial Instruments
ASC Topic 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
Included in the ASC Topic 820 framework is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed by market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to each category of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or use. The Company uses inputs which are as observable as possible and the methods most applicable to the specific situation of each company or valued item.
The Company's financial instruments consist of cash, accounts payable, accrued liabilities, advances, notes payable, and a promissory note payable. The carrying amount of these financial instruments approximate fair value due to either length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Secured convertible promissory note derivative liability is measured at fair value on a recurring basis using Level 3 inputs.
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. The notes payable, loans payable and secured convertible promissory notes have fixed interest rates therefore the Company is exposed to interest rate risk in that they could not benefit from a decrease in market interest rates. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposure through its normal operating and financing activities.
Derivative Instruments
Accounting standards require that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. A change in the market value of the financial instrument is recognized as a gain or loss in results of operations in the period of change.
Foreign Currency Translation
The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated to United States dollars in accordance with ASC 740, Foreign Currency Translation Matters, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
To the extent that the Company incurs transactions that are not denominated in its functional currency, they are undertaken in Mexican Pesos. The Company has not, as of the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Comprehensive Loss
ASC 220, Comprehensive Income establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at June 30, 2018 and 2017, the Company had no items that represent a comprehensive loss, and therefore has not included a schedule of comprehensive loss in the consolidated financial statements.
7
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
2.
BASIS OF PREPARATION (CONTINUED)
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Tax”. 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 carryforwards. 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.
Asset Retirement Obligations
In accordance with accounting standards for asset retirement obligations (ASC 410), the Company records the fair value of a liability for an asset retirement obligation (ARO) when there is a legal obligation associated with the retirement of a tangible long-lived asset and the liability can be reasonably estimated. The associated asset retirement costs are supposed to be capitalized as part of the carrying amount of the related mineral properties. As of June 30, 2018 and March 31, 2018, the Company has not recorded AROs associated with legal obligations to retire any of the Company’s mineral properties as the settlement dates are not presently determinable.
Revenue Recognition
The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 104 for revenue recognition and Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” Accordingly, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured.
Stock-based Compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
ASC 505, "Compensation-Stock Compensation", establishes standards for the accounting for transactions in which an entity exchanges its equity instruments to non-employees for goods or services. Under this transition method, stock compensation expense includes compensation expense for all stock-based compensation awards granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of ASC 505.
Per Share Data
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, "Earnings per Share". Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
8
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
2.
BASIS OF PREPARATION (CONTINUED)
At June 30, 2018 and March 31, 2018, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been anti-dilutive:
|
June 30,
2018
|
|
March 31,
2018
|
Common stock issuable upon conversion of convertible notes payable
|
8,009,091
|
|
13,675,741
|
Common stock issuable to satisfy stock payable obligations
|
76,748,205
|
|
48,641,961
|
Total
|
84,757,296
|
|
62,317,702
|
3.
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the three months ended June 30, 2018, the Company incurred a net loss of $384,877 and used cash in operating activities of $305,903, and at June 30, 2018, had an accumulated deficit of $27,238,871. At June 30, 2018, the Company is in the exploration stage and has not earned revenue from planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. The Company’s independent registered public accounting firm, in their report on the Company’s financial statements for the year ending March 31, 2018, expressed substantial doubt about the Company’s ability to continue as a going concern.
The Company is dependent upon outside financing to continue operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management’s plans to raise necessary funds through a private placement of its common stock to satisfy the capital requirements of the Company’s business plan. There is no assurance that the Company will be able to raise the necessary funds, or that if it is successful in raising the necessary funds, that the Company will successfully execute its business plan.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and/or liabilities that might be necessary should the Company be unable to continue as a going concern. The continuation as a going concern is dependent upon the ability of the Company to meet our obligations on a timely basis, and, ultimately to attain profitability.
4.
RECENT ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, as amended, is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. Under ASU 2014-09, revenue will be recognized when performance obligations under the terms of a contract are satisfied, which generally occurs upon shipment or delivery to customers based on written sales terms, which is also when control is transferred. Revenue will be measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer. The Company will adopted the guidance of ASU 2014-09 on April 1, 2018. As the Company does not currently have revenue, the adoption of the new guidance did not have an impact the Company’s consolidated financial statements.
9
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
4.
RECENT ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY (CONTINUED)
In February 2016, the FASB issued ASU No. 2016-02,
Leases.
ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the expected impact that the standard could have on its consolidated financial statements and related disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
5.
MINERAL PROPERTIES AND EXPLORATION COSTS
Project Mabel
On May 1, 2018, Mexus Gold MX, entered into three agreements (collectively known as Project Mabel) to exploit and transfer mineral rights owed by Cesar Mauricio Lemas Contreras.
(i)
Project “Mabel” –Participation of 90% Mexus Gold MX and 10% Pacific Comox S.A. de C.V. (“Pacific Comox”). The administrator of Pacific Comox is Cesar Maruicio Lemas Contreras. The agreement transfers mining rights at concessions 216136, 216137, 218587, 218588, 190649, 172975, 2019102, 172960, 180700, 222782 and 222783, which together add up to 2,128.2003 hectares.
(ii)
Project “El Plomito” –Participation of 50% Mexus Gold MX and 50% Pacific Comox. The agreement transfers mining rights at concessions 220563, 213711, 215941, 216544, 200395 and 222989, which together add up to 275.02 hectares.
(iii)
Project “La Famosa” – Participation of 50% Mexus Gold MX and 50% Pacific Comox. The agreement transfers mining rights at concessions 220394, 220395, 220840, 220841 and 199006, which together add up to 200.0568 hectares.
On January 23, 2018, the Company paid 6,000,000 shares of common stock valued at $324,000 ($0.0540 per share) to Cesar Maruicio Lemas Contreras as consideration to enter into three Letter of Intent agreements. At March 31, 2018, the payment was recorded as a deposit on mineral property in the condensed consolidated balance sheet. On May 1, 2018, the $324,000 deposit on mineral properties was transferred to property costs on the condensed consolidated balance sheet.
6.
EQUIPMENT
|
|
Cost
|
|
Accumulated
Depreciation
|
|
June 30,
2018
Net Book
Value
|
|
March 31,
2018
Net Book
Value
|
Mining tools and equipment
|
$
|
1,610,370
|
$
|
1,173,504
|
$
|
436,866
|
$
|
444,266
|
Vehicles
|
|
159,084
|
|
136,580
|
|
22,504
|
|
26,054
|
|
$
|
1,769,454
|
$
|
1,310,084
|
$
|
459,370
|
$
|
470,320
|
Depreciation expense for the three months ended June 30, 2018 and 2017 was $67,388 and $59,006, respectively.
10
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
7.
ACCOUNTS PAYABLE – RELATED PARTY
During the three months ended June 30, 2018 and 2017, the Company incurred rent expense to Paul D. Thompson, the sole director and officer of the Company, of $11,400 and $11,400, respectively. At June 30, 2018 and March 31, 2018, $108,423 and $97,023 for this obligation is outstanding, respectively.
Compensation
On July 2, 2015, the Company entered into a compensation agreement with Paul D. Thompson, the sole director and officer of the Company. Mr. Thompson is compensated $15,000 per month and has the option to take payment in Company stock valued at an average of 5 days closing price, cash payments or deferred payment in stock or cash. In addition, Mr. Thompson is due 2,000,000 shares of common stock at the end of each fiscal quarter. At June 30, 2018 and March 31, 2018, $295,754 and $277,646 of compensation due is included in accounts payable – related party, respectively and $32,600 for 2,000,000 shares of common stock due is included in share subscriptions payable, respectively.
8.
NOTES PAYABLE – RELATED PARTIES
Notes due to North Pacific Gold were accumulated through a series of cash advances to the Company which are unsecured, non-interest bearing and due on demand. North Pacific Gold is controlled by Paul Thompson, Jr., an immediate family member of Paul D. Thompson Sr., the sole director and officer of the Company. As of June 30, 2018 and March 31, 2018, notes payable due to North Pacific Gold totaled $10,017 and $10,851, respectively.
9.
NOTES PAYABLE
During the year ended March 31, 2014, the Company received cash advances of $164,502 from three unrelated shareholders of the Company. At June 30, 2018 and March 31, 2018, the balance of these advances outstanding totaled $15,000 and $15,000, respectively.
During the years ended March 31, 2016 and 2015, the Company received various advances totaling $290,300 from nineteen investors and received various advances totaling $286,757 from twenty-two investors, respectively. These advances are unsecured and are due within 30 to 180 days of issue. Upon receipt of the cash advances, the Company paid a majority of the investors the value of their investment in shares of common stock of the Company as a finance fee. The investor has the option to be repaid when due by one of the following: (i) In cash (ii) One-half in cash and one—half in shares converted into common stock of the Company or (iii) The entire amount of the investment converted into shares of common stock of the Company. The conversion prices range from $0.0018 per share to $0.040 per share. For one promissory note with principal of $15,000 payments equal to 20% of cash proceeds received by the Company are due when equipment held for sale is sold.
During the years ended March 31, 2018 and 2017, the Company received various advances for notes payable totaling $135,000 from eight investors and received $0 in advances, respectively. These notes are unsecured, due in three to six months of issue and earn a finance fee of 15% to 20% of principal. The investors have the option for principal and the finance fee to be repaid when due by one of the following: (i) In cash or (ii) Converted into shares of common stock of the Company $0.02 to $0.10 per share. These notes were initially recorded net of a debt discount of $80,000 for a beneficial conversion feature with a corresponding increase in additional paid-in capital of $80,000. In conjunction with issuance of these notes payable 300,000 shares of common stock of the Company valued at $9,568 were issued to the note holders and recorded as debt discount. At March 31, 2018 and 2017, a debt discount of $0 and $0, respectively has been recorded on the consolidated balance sheet related to these notes.
During the year ended March 31, 2018 and 2017, note principal and interest of $95,000 and $132,000 was paid through the issuance of shares of common stock, respectively, and $0 and $26,500 in cash, respectively.
During the three months ended June 30, 2018, the Company received various advances for notes payable totaling $186,500 from ten investors. These notes are unsecured and are due in three to six months from the date issue.
11
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
9.
NOTES PAYABLE (CONTINUED)
i)
Note holders with $139,500 principal earn interest at 12% per annum and received 1,992,000 shares of common stock of the Company value at $32,530 as an incentive to purchase Notes. If the Company defaults on repayment, these Notes together with any unpaid accrued interest is secured by shares of common stock valued at 50% of market value calculated using the average of the last 30 day closing price. These Notes has been accounted for in accordance with ASC 480
Distinguishing Liabilities from Equity
.
ii)
Notes holders with $30,000 of principal earn interest at 0% to 20% per annum and are convertible into shares of common stock of the Company at $0.005 to $0.010 per share. This notes were initially recorded net of a debt discount of $15,328 for a beneficial conversion feature with a corresponding increase in additional paid-in capital of $15,328.
iii)
Note holders with $17,000 of principal are interest bearing.
During the three months ended June 30, 2018, note principal and interest of $0 was paid through the issuance of shares of common stock and $6,500 in cash.
At June 30, 2018 and March 31, 2018, the carrying value of the advances received from April 1, 2013 to June 30, 2018 totaled $256,925 (net of unamortized debt discount of $130,847) and $83,600, respectively. At June 30, 2018, $98,600 of these notes were in default. There are no default provisions stated in these notes. At June 30, 2018 and March 31, 2018, accrued interest of $8,609 and $6,236, respectively, is included in accounts payable and accrued liabilities.
On January 19, 2016, the Company issued a promissory note (“Note”) with a principal of amount of $77,150 bearing interest of 10% per annum to settle $77,150 in accounts payable due for accounting fees. Payments equal to 15% of cash proceeds received by the Company are due when equipment held for sale is sold. Any unpaid principal and interest is due in full on July 19, 2016. At June 30, 2018 and March 31, 2018 and 2017, the balance of this note was $0 and $74,297, respectively. On May 25, 2018, the Company issued 7,429,654 shares of common stock valued at $133,734 ($0.0180 per share) to settle the Note resulting in a loss on settlement of $56,584.
The amount by which the if-converted value of notes payable exceeds principal of notes payable at June 30, 2018 is $7,444.
10.
PROMISSORY NOTES
On April 18, 2013, the Company issued Promissory Notes for $255,000 in cash. The Notes bear interest of 4% per annum and are due on December 31, 2013. The Notes are secured by all of Mexus Gold US shares of stock in Mexus Resources S.A. de C.V. and a personal guarantee of Paul D. Thompson. In addition, a fee of 2,550,000 shares of common stock of the Company valued at $501,075 ($0.1965 per share) was paid to the Note holders on April 18, 2013. These financing fees were capitalized in the consolidated balance sheet as deferred finance expense and were being amortized on a straight-line basis, which approximates the effective interest rate method, as interest expense over the life of the Promissory Notes. On August 24, 2015, $100,000 of these Promissory Notes were settled on issuance of a convertible promissory note. On December 1, 2015, $60,000 of these Promissory Notes were settled on issuance of a convertible promissory note. On September 19, 2016, the Company issued 570,750 shares of common stock with a fair value $44,234 ($0.0775 per share) to settle a promissory note with principal of $20,000. On March 31, 2017, a promissory note with principal of $10,000 was settled for no consideration and recorded as a gain on the consolidated statement of operations. At June 30, 2018 and March 31, 2018, outstanding Promissory Notes were $65,000 and $65,000, respectively. As of June 30, 2018, the Company has not made the scheduled payments and is in default on these promissory notes. The default rate on the notes is seven percent. At June 30, 2018 and March 31, 2018 accrued interest of $26,238 and $24,673, respectively, is included in accounts payable and accrued liabilities.
12
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
11.
CONVERTIBLE PROMISSORY NOTE
On November 14, 2017, the Company issued a Convertible Promissory Note (“Note”) to JMJ Financial (“Holder”), for a principal sum of $166,667 plus one-time 10% interest charge of $16,667 which matures on May 14, 2018 for $150,000 in cash. The Company may repay the Note and interest any time in cash before the maturity date without a prepayment penalty. If the Company defaults on repayment, this Note together with any unpaid accrued interest is convertible into shares of common stock at the Holder’s option at a variable conversion price calculated as lesser of (a) $0.0375 or (b) 50% (40% if the conversion shares are not deliverable by DWAC) of the lowest trade occurring during the 25 consecutive trading days immediately preceding the conversion date. On issuance of the Note, an embedded derivative with a fair value of $66,205 was identified and recorded as debt discount (See Note 12). In conjunction with the Note, the Company issued 3,591,940 shares of common stock (“Origination Shares”) of the Company which was recorded as debt discount. The Origination Shares and the Note were valued at $51,920 and $31,875 upon issuance, respectively, using the relative fair value method. Additional interest expense is accreted on the Note between issuance and maturity dates with the expectation that principal and interest is likely to be settled in shares of common stock of the Company at a variable conversion price calculated at 40% of trade price of common stock of the Company. On May 16, 2018, the Company paid JMJ Financial $183,333 in cash to fully settle the Convertible Promissory Note issued on November 14, 2017 resulting in a gain on settlement of $275,000. At June 30, 2018 and March 31, 2018, the principal and interest outstanding of $0 and $391,482, respectively, is recorded net of unamortized debt discount of $0 and $36,818, respectively. Interest and amortization of debt discount was $103,669 and $0 for the three months ended June 30, 2018 and 2017.
12.
CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITY
The Convertible Promissory Note (“Note”) with JMJ Financial with an issue date of November 14, 2017 was accounted for under ASC 815. The variable conversion price is not considered predominately based on a fixed monetary amount settleable with a variable number of shares due to the volatility and trading volume of the Company’s common stock. The Company’s convertible promissory note derivative liabilities has been measured at fair value at November 14, 2017 and March 31, 2018 using the Black-Scholes model.
The inputs into the Black-Scholes models are as follows:
|
|
November 14,
2017
|
|
March 31,
2018
|
Closing share price
|
$
|
0.038
|
$
|
0.02467
|
Conversion price
|
$
|
0.0348
|
$
|
0.0200
|
Risk free rate
|
|
0.050%
|
|
0.050%
|
Expected volatility
|
|
109%
|
|
157%
|
Dividend yield
|
|
0%
|
|
0%
|
Expected life
|
|
0.5 years
|
|
0.13 years
|
At May 16, 2018, the Notes was settled in full for $183,333 in cash. The fair value of the conversion option derivative liability is $0 and $68,934 at June 30, 2018 and March 31, 2018, respectively. The decrease in the fair value of the conversion option derivative liability of $68,934 is recorded as a gain in the unaudited condensed consolidated statements of operations for the three months ended June 30, 2018.
13.
CONTINGENT LIABILITIES
An asset retirement obligation is a legal obligation associated with the disposal or retirement of a tangible long-lived asset that results from the acquisition, construction or development, or the normal operations of a long-lived asset, except for certain obligations of lessees. While the Company, as of June 30, 2018, does not have a legal obligation associated with the disposal of certain chemicals used in its leaching process, the Company estimates it will incur costs up to $50,000 to neutralize those chemicals at the close of the leaching pond.
13
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
14.
STOCKHOLDERS’ EQUITY
The stockholders’ equity of the Company comprises the following classes of capital stock as of June 30, 2018 and March 31, 2018:
Preferred Stock, $0.001 par value per share; 9,000,000 shares authorized, 0 issued and outstanding at June 30, 2018 and March 31, 2018.
Series A Convertible Preferred Stock (‘Series A Preferred Stock”), $0.001 par value share; 1,000,000 shares authorized: 1,000,000 shares issued and outstanding at June 30, 2018 and March 31, 2018.
Holders of Series A Preferred Stock may convert one share of Series A Preferred Stock into one share of Common Stock. Holders of Series A Preferred Stock have the number of votes determined by multiplying (a) the number of Series A Preferred Stock held by such holder, (b) the number of issued and outstanding Series A Preferred Stock and Common Stock on a fully diluted basis, and (c) 0.000006.
Common Stock, par value of $0.001 per share; 2,000,000,000 shares authorized: 813,188,020 and 755,922,947 shares issued and outstanding at June 30, 2018 and March 31, 2018, respectively. Holders of Common Stock have one vote per share of Common Stock held.
Increase in the Number of Authorized Shares
On June 4, 2018, the Company’s board of directors and the majority shareholder approved an increase in the number of authorized shares of common stock of the Company from eight hundred fifty million (850,000,000) shares of common stock, par value $0.001 per share, to two billion (2,000,000,000) shares of common stock, par value $0.001 per share. A Certificate of Amendment for the increase in authorized shares was filed with the State of Nevada on July 6, 2018.
Common Stock Issued
On April 2, 2018, the Company issued 5,300,000 shares of common stock to satisfy obligations under share subscription agreements of $22,610 for settlement of services and $25,000 for cash receipts included in share subscriptions payable.
On April 16, 2018, the Company issued 18,600,000 shares of common stock to satisfy obligations under share subscription agreements of $186,000 for cash receipts included in share subscriptions payable.
On May 2, 2018, the Company issued 2,800,000 shares of common stock to satisfy obligations under share subscription agreements of $32,400 for settlement of accounts payable and $10,000 for cash receipts included in share subscriptions payable.
On May 24, 2018, the Company issued 5,945,410 shares of common stock to satisfy obligations under share subscription agreements of $70,050 for settlement of services and $25,280 for cash receipts included in share subscriptions payable.
On May 30, 2018, the Company issued 4,269,663 shares of common stock to satisfy obligations under share subscription agreements of $67,888 for settlement of the Top-off Liability included in accounts payable and accrued liabilities (see Note 11) included in share subscriptions payable.
On June 12, 2018, the Company issued 350,000 shares of common stock to satisfy obligations under share subscription agreements of $5,425 for services included in share subscriptions payable.
Common Stock Payable
As at June 30, 2018, the Company had total subscriptions payable for 76,748,205 shares of common stock for $263,782 in cash, shares of common stock for equipment valued at $1,500, shares of common stock for interest valued at $48,014, shares of common stock for services valued at $282,930 and common stock for settlement of notes payable valued at $133,734.
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MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
15.
SUBSEQUENT EVENTS
Common Stock Payable
For the period of July 1, 2018 to August 8, 2018, the Company issued subscriptions payable for 12,000,000 shares of common stock ($0.001 per share) for $12,000 in cash.
For the period of July 1, 2018 to August 8, 2018, the Company issued subscriptions payable for 2,600,000 shares of common stock ($0.0136 per share) for $35,300 in services.
For the period of July 1, 2018 to August 8, 2018, the Company issued subscriptions payable for 3,200,000 shares of common stock ($0.0137 per share) for $43,840 in settlement of note payable.
Promissory Notes
On July 12, 2018, the Company issued a Promissory Note (“Note”) for cash with an issue price of $22,500. The Note is unsecured, matures 90 days after the issue date and has a face value of $25,000. The Company has agreed to sell certain equipment and apply the proceeds against the face value of the note. If the face value of the Note is not paid in cash on the maturity date, the Company will pay the holder the numbers of shares of common stock of the Company calculated as the unpaid total face value divided by 50% of the closing share price immediately before the maturity date.
On July 20, 2018, the Company issued a Promissory Note (“Note”) for $5,000 in cash. The Note are unsecured, matures in six months after the issue date and earns interest at 12% per annum. The Note and interest is convertible, at the option of the holder, into shares of common stock of the Company at a price of $0.003 per share.
On August 8, 2018, the Company issued a Promissory Note (“Note”) to Paul Thompson Sr., the Chief Executive Officer and the sole director of the Company, for $21,110 in cash. The Note is unsecured, matures in six months after the issue date and earns interest at 12% per annum. The Note and interest are convertible, at the option of the holder, into shares of common stock of the Company at a price of $0.00455 per share.
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