Notes to Condensed Consolidated Financial Statements
September 30, 2020
(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 condensed 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 condensed 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, 2020 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-month figures are not necessarily indicative of the results to be reported at the year end.
Basis of Consolidation
The 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.
7
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(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 4):
Mining tools and equipment
|
7 years
|
Watercraft
|
7 years
|
Vehicles
|
3 years
|
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.
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.
8
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
2. BASIS OF PREPARATION (CONTINUED)
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. For the six months ended September 30, 2020 and 2019, 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.
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.
9
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
2. BASIS OF PREPARATION (CONTINUED)
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 September 30, 2020 and March 31, 2020, 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
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy the performance obligation.
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.
At September 30, 2020 and March 31, 2020, 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:
|
September 30,
2020
|
|
March 31,
2020
|
Common stock issuable upon conversion of notes payable and convertible notes payable
|
11,992,046
|
|
18,009,112
|
Common stock issuable to satisfy stock payable obligations
|
2,970,315
|
|
3,437,035
|
Common stock issuable upon conversion of Series A Preferred Stock
|
1,000,000
|
|
1,000,000
|
Total
|
15,962,361
|
|
22,446,147
|
10
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
2. BASIS OF PREPARATION (CONTINUED)
Recently Issued Accounting Pronouncements
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.
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 six months ended September 30, 2020, the Company incurred a net loss of $1,239,576 and used cash in operating activities of $367,301, and at September 30, 2020, had an accumulated deficit of $33,585,244. At September 30, 2020, the Company is in the exploration stage. 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, 2020, 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 Company is unable to predict the effect, if any, that the coronavirus COVID-19 global pandemic may have on its access to the financing markets.
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. PROPERTY & EQUIPMENT
|
|
Cost
|
|
Accumulated
Depreciation
|
|
September 30,
2020
Net Book
Value
|
|
March 31,
2020
Net Book
Value
|
Mining tools and equipment
|
$
|
1,867,746
|
$
|
1,548,449
|
$
|
319,297
|
$
|
316,392
|
Vehicles
|
|
178,810
|
|
168,537
|
|
10,273
|
|
14,496
|
|
$
|
2,046,556
|
$
|
1,716,986
|
$
|
329,570
|
$
|
330,888
|
Depreciation expense for three and six months ended September 30, 2020 and 2019 was $25,149 and $53,689 and $50,318 and $113,479, respectively.
11
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
5. ACCOUNTS PAYABLE – RELATED PARTIES
During the three and six months ended September 30, 2020 and 2019, the Company incurred rent expense to Paul D. Thompson, the sole director and officer of the Company, of $11,400 and $22,800 and $11,400 and $22,800, respectively. At September 30, 2020 and March 31, 2020, $125,550 and $107,161 for this obligation is outstanding, respectively.
Compensation
On July 2, 2015, the Company entered into a compensation agreement with Paul D. Thompson Sr., 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 100,000 shares of common stock at the end of each fiscal quarter. On September 30, 2020, the compensation agreement was amended to increase the number of shares of common stock due to Mr. Thompson to 2,000,000 shares. At September 30, 2020 and March 31, 2020, $260,870 and $290,308 of compensation due is included in accounts payable – related party, respectively and $116,000 for 2,000,000 shares and $32,600 for 100,000 shares of common stock due is included in share subscriptions payable, respectively.
6. NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTY
During the six months ended September 30, 2020, the Company issued the following notes payable:
i)During the period June 12, 2020 to June 15, 2020, the Company issued two (2) promissory notes (“Notes”) with $20,000 in principal that earns interest at 12% per annum and a term of six months. These promissory notes together with any unpaid accrued interest are payable, at the option of the holder, in cash or shares in the Company valued at the average closing prices of the previous 14 trading days. These Notes has been accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity.
ii)On July 2, 2020, the Company issued a promissory note (“Note”) for cash with $35,000 in principal that earns interest at 12% per annum and a term of six months. In conjunction with the issuance of this Note the Company issued 875,000 shares of its common stock to the Note holder which was recorded as a $35,000 debt discount.
iii)On August 26, 2020, the Company issued a promissory note (“Note”) for cash with $10,000 in principal that earns interest at 12% per annum and a term of six months. In conjunction with the issuance of this Note the Company issued 416,667 shares of its common stock to the Note holder which was recorded as a $10,000 debt discount.
iv)On September 4, 2020, the Company issued a promissory note (“Note”) with a principal of amount of $82,650 bearing interest of 10% per annum to settle $82,650 in accounts payable due for accounting fees. The Note is due on September 30, 2021. The Note holder, in its sole discretion, may convert any part or all of the principal, interest or other charges due and payable under this Note to restricted common stock of the Company at a variable conversion price calculated at 50% of the market price defined as the average of the five closing trading prices during the previous five trading days. This Note has been accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity.
v)On September 23, 2020, the Company agreed to change certain terms of a promissory note (“Note”) issued on April 15, 2019, with principal of $66,754 and accrued interest of $11,566. The Note had the following original terms (i) bearing interest of 10% per annum (ii) the holder of the Note may convert principal and interest into shares of common stock of the Company at $0.10 per share and (iii) due on June 30, 2020. The Company agreed the Note holder, in its sole discretion, may convert any part or all of the principal, interest or other charges due and payable under this Note to restricted common stock of the Company at a variable conversion price calculated at 50% of the market price defined as the average of the five closing trading prices during the previous five trading days and change the maturity date to September 30, 2021. This Note has been accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity. The Note is no longer convertible at a fixed price of $0.10 per share.
12
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
6. NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTY (CONTINUED)
During the six months ended September 30, 2020 and 2019, note principal of $2,000 and $52,000, respectively, was paid through the issuance of 50,000 shares and 907,500 shares of common stock, respectively. In addition, for six months ended September 30, 2020 and 2019, the Company paid $32,000 and $170,000 in cash, respectively, to settle debt.
At September 30, 2020 and March 31, 2020, the carrying value of the notes payable totaled $1,123,849 (net of unamortized debt discount of $28,492) and $934,248 (net of unamortized debt discount of $43,867), respectively.
Notes payable – related party – At September 30, 2020 and March 31, 2020, notes payable – related party of $141,169 and $138,169, respectively, are due to Paul Thompson Sr., the sole officer and director of the Company. These notes bear interest from 0% to 12% per annum. On June 26, 2020, the Company issued a note payable – related party for cash with $3,000 in principal that earns interest at 10% per annum and a term of six months.
Interest and amortization of debt discount was $136,185 and $71,336 for the six months ended September 30, 2020 and 2019, respectively.
At September 30, 2020 and March 31, 2020, accrued interest of $155,430 and $113,603, respectively, is included in accounts payable and accrued liabilities.
At September 30, 2020, $1,129,540 of notes payable and notes payable – related party were in default. There are no default provisions stated in these notes.
The amount by which the if-converted value of notes payable exceeds principal of notes payable at September 30, 2020 is $0.
7. PROMISSORY NOTE
At September 30, 2020 and March 31, 2020, outstanding Promissory Notes were $65,000 and $65,000, respectively. The Note bear interest of 4% per annum and are due on December 31, 2013. The Note is 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. As of September 30, 2020, the Company has not made the scheduled payments and is in default on this promissory note. The default rate on the notes is seven percent. At September 30, 2020 and March 31, 2020, accrued interest of $42,657 and $38,043, respectively, is included in accounts payable and accrued liabilities.
8. CONVERTIBLE PROMISSORY NOTES
Power Up Lending Group Ltd.
On October 3, 2019, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $82,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing August 15, 2020 for $80,000 in cash. After 170 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen trading day period ending on the latest complete trading day prior to the conversion date. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $50,377 which was recorded as a debt discount. The Company may repay the Note if repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the original principal amount plus interest, and between 151 days and 170 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. From April 13, 2020 to April 22, 2020, the Company issued 2,489,415 shares of common shares of the Company with the fair value $154,491 to the Holder to fully settle the Note resulting in a loss on settlement of $19,953. Interest and amortization of debt discount was $42,155 for the six months ended September 30, 2020.
13
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
8. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
On December 12, 2019, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $57,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing September 15, 2020 for $55,000 in cash. After 170 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen trading day period ending on the latest complete trading day prior to the conversion date. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $49,646 which was recorded as a debt discount. The Company may repay the Note if repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. From June 17, 2020 to June 24, 2020, the Company issued 1,935,938 shares of common shares of the Company with the fair value $137,709 to the Holder to fully settle the Note resulting in a loss on settlement of $43,940. Interest and amortization of debt discount was $52,332 for the six months ended September 30, 2020.
On March 2, 2020, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $52,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing December 15, 2020 for $50,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen trading day period ending on the latest complete trading day prior to the conversion date. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $70,613 which was recorded as a debt discount. The Company may repay the Note if repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. From September 8, 2020 to September 17, 2020, the Company issued 1,114,824 shares of common shares of the Company with the fair value $90,894 to the Holder to fully settle the Note resulting in a loss on settlement of $5,278. Interest and amortization of debt discount was $76,712 for the six months ended September 30, 2020.
On March 26, 2020, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $42,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing January 15, 2021 for $40,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen trading day period ending on the latest complete trading day prior to the conversion date. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $38,003 which was recorded as a debt discount. The Company may repay the Note if repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At September 30, 2020, the Note is recorded at an accreted value of $58,625 less unamortized debt discount of $12,191. Interest and amortization of debt discount was $43,255 for the six months ended September 30, 2020.
14
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
8. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
On June 9, 2020, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $52,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing April 1, 2021 for $50,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen trading day period ending on the latest complete trading day prior to the conversion date. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $67,285, of which $50,000 was recorded as debt discount and the remainder of $17,285 was recorded expensed and included in gain (loss) on derivative liability. The Company may repay the Note if repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At September 30, 2020, the Note is recorded at an accreted value of $66,011 less unamortized debt discount of $29,958. Interest and amortization of debt discount was $36,054 for the six months ended September 30, 2020.
On July 17, 2020, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $42,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing May 17, 2021 for $40,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen (15) trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the Note if repaid in cash within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At September 30, 2020, the Note is recorded at an accreted value of $47,258 less unamortized debt discount of $23,191. Interest and amortization of debt discount was $15,672 for the six months ended September 30, 2020.
On September 17, 2020, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $47,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing September 17, 2021 for $45,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen (15) trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the Note if repaid in cash within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At September 30, 2020, the Note is recorded at an accreted value of $46,223 less unamortized debt discount of $32,469. Interest and amortization of debt discount was $2,515 for the six months ended September 30, 2020.
15
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
8. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
JSJ Investments Inc.
On September 16, 2019, the Company issued a Convertible Promissory Note (“Note”) to JSJ Investments Inc. (“Holder”) in the original principal amount of $142,000 less debt discount of $17,000 bearing a 6% annual interest rate and maturing September 16, 2020 for $125,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 35% discount to the average of the two lowest trading prices during the previous fifteen (15) trading days. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $103,604 which was recorded as a debt discount. The Company may repay the Note if repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the original principal amount plus interest, and between 151 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. From April 15, 2020 to April 29, 2020, the Company issued 5,595,893 shares of common shares of the Company with the fair value $305,082 to the Holder to fully settle the Note resulting in a loss on settlement of $78,158. Interest and amortization of debt discount was $92,382 for the six months ended September 30, 2020.
On June 9, 2020, the Company issued a Convertible Promissory Note (“Note”) to JSJ Investments Inc. (“Holder”) in the original principal amount of $130,000 less debt discount of $3,000 bearing a 6% annual interest rate and maturing June 9, 2021 for $127,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 35% discount to the average of the two lowest trading prices during the previous fifteen (15) trading days. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $139,417, of which $127,000 was recorded as debt discount and the remainder of $12,417 was recorded expensed and included in gain (loss) on derivative liability. The Company may repay the Note if repaid within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest, between 121 days and 150 days at 130% of the original principal amount plus interest, and between 151 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. At September 30, 2020, the Note is recorded at an accreted value of $152,386 less unamortized debt discount of $86,753. Interest and amortization of debt discount was $65,633 for the six months ended September 30, 2020.
Crown Bridge Partners, LLC
On November 21, 2019, the Company issued a Convertible Promissory Note (“Note”) to Crown Bridge Partners, LLC (“Holder”) in the original principal amount of $27,500 less transaction costs of $3,250 bearing a 12% annual interest rate and maturing November 21, 2020 for $24,250 in cash. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the market price defined as the lowest trading price during the twenty trading day period ending on the latest complete trading day prior to the conversion date. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $18,608 which was recorded as a debt discount. The Company may repay the Note if repaid within 60 days of date of issue at 125% of the original principal amount plus interest, between 61 days and 120 days at 135% of the original principal amount plus interest and between 121 days and 180 days at 145% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. From June 2, 2020 to August 19, 2020, the Company issued 2,310,089 shares of common shares of the Company with the fair value $171,028 to the Holder to fully settle the Note resulting in a loss on settlement of $132,785. Interest and amortization of debt discount was $29,331 for the six months ended September 30, 2020.
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MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
8. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
On August 11, 2020, the Company issued a Convertible Promissory Note (“Note”) to Crown Bridge Partners, LLC (“Holder”) in the original principal amount of $55,000 less transaction costs of $5,000 bearing a 12% annual interest rate and maturing August 10, 2021 for $50,000 in cash. This Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 60% of the market price defined as the lowest trading price during the twenty trading day period ending on the latest complete trading day prior to the conversion date. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $91,113 which was recorded as a debt discount. The Company may repay the Note if repaid within 60 days of date of issue at 125% of the original principal amount plus interest, between 61 days and 120 days at 135% of the original principal amount plus interest and between 121 days and 180 days at 145% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $91,113, of which $50,000 was recorded as debt discount and the remainder of $41,113 was recorded expensed and included in gain (loss) on derivative liability. At September 30, 2020, the Note is recorded at an accreted value of $56,543 less unamortized debt discount of $42,445. Interest and amortization of debt discount was $14,098 for the six months ended September 30, 2020.
Auctus Fund, LLC
On December 19, 2019, the Company entered into a Securities Purchase Agreement with Auctus Fund, LLC, (“Holder”) relating to the issuance and sale of a Convertible Promissory Note (the “Note”) with an original principal amount of $112,750 less an original issue discount of $10,000 and transaction costs of $2,750 bearing a 12% annual interest rate and maturing September 15, 2020 for $100,000 in cash. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature and warrant liability was $110,475 which was recorded as a debt discount. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 50% of the market price defined as the lowest trading price during the twenty-five trading day period ending on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date of issue at 135% of the original principal amount plus interest and between 90 days and 180 days at 150% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. On June 15, 2020, the Company paid $178,855 in cash the Holder to fully settle the Note resulting in a gain on settlement of $59,359. Interest and amortization of debt discount was $154,426 for the six months ended September 30, 2020.
9. CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITY
The Convertible Promissory Notes (“Notes”) with Power Up Lending Group Ltd., JSJ Investments Inc., Crown Bridge Partners, LLC and Auctus Fund, LLC 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 notes derivative liabilities has been measured at fair value using the Black-Scholes model.
|
March 31,
2020
|
June 30,
2020
|
September 30,
2020
|
Closing share price
|
$0.076
|
$0.068
|
$0.058
|
Conversion price
|
$0.052 - $0.056
|
$0.048 - $0.064
|
$0.058
|
Risk free rate
|
0.11% - 0.15%
|
0.14% - 0.15%
|
0.10% - 0.12%
|
Expected volatility
|
201% - 256%
|
192% - 223%
|
148% - 206%
|
Dividend yield
|
0%
|
0%
|
0%
|
Expected life (years)
|
0.21 – 0.79
|
0.39 – 0.94
|
0.29 – 0.96
|
The inputs into the Black-Scholes models are as follows:
The fair value of the conversion option derivative liabilities is $214,741 and $486,663 at September 30, 2020 and March 31, 2020, respectively. The decrease in the fair value of the conversion option derivative liability for the three and six months ended September 30, 2020 and 2019 of $115,711 and $564,287 and $207,727 and $235,229, respectively, is recorded as a gain in the unaudited condensed consolidated statements of operations.
17
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
10. WARRANT LIABILITY
In conjunction with the issuance of the Convertible Promissory Notes with Crown Bridge Partners, LLC on November 21, 2019 and August 11, 2020, the Company issued, with each Note, 1,100,000 warrants with an exercise price of $1.00 and a term of five years.
Also, in conjunction with the issuance of the Convertible Promissory Note with Auctus Fund, LLC (the “Note”) on December 19, 2019, the Company issued 10,000,000 warrants with an exercise price of $0.10 and a term of five years.
These warrants are subject to down round and other anti-dilution protections. These warrants are classified as a liability since there is a possibility during the life of these warrants the Company would not have enough authorized shares available if these warrants are exercised.
The inputs into the Black-Scholes models are as follows:
|
March 31, 2020
|
June 30, 2020
|
September 30, 2020
|
Closing share price
|
$0.076
|
$0.068
|
$0.058
|
Conversion price
|
$1.00 - $0.10
|
$1.00 - $0.10
|
$1.00 - $0.10
|
Risk free rate
|
0.37%
|
0.37%
|
0.27%
|
Expected volatility
|
181%
|
171 - 175%
|
167% - 180%
|
Dividend yield
|
0%
|
0%
|
0%
|
Expected life (years)
|
4.72
|
4.40 – 4.47
|
4.15 – 4.86
|
The fair value of the warrant liability is $28,030 and $39,387 at September 30, 2020 and March 31, 2020, respectively. The decrease in the fair value of the warrant liability of $6,238 and $11,357 is recorded as a gain in the unaudited condensed consolidated statements of operations for the three and six months ended September 30, 2020, respectively.
11. 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 September 30, 2020, 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.
12. STOCKHOLDERS’ EQUITY (DEFICIT)
On October 6, 2020, a Certificate of Amendment to our Articles of Incorporation was filed with the Secretary of State of Nevada to effect a one-for-twenty reverse stock split of our common stock became effective. All common stock share and per-share amounts for all periods presented in these unaudited condensed consolidated financial statements have been adjusted retroactively to reflect the reverse stock split.
The stockholders’ equity of the Company comprises the following classes of capital stock as of September 30, 2020 and March 31, 2020:
Preferred Stock, $0.001 par value per share; 9,000,000 shares authorized, 0 issued and outstanding at September 30, 2020 and March 31, 2020.
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 September 30, 2020 and March 31, 2020.
18
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
12. STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Holders of Series A Preferred Stock may convert one share of Series A Preferred Stock into ten shares 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; 5,000,000,000 shares authorized: 107,964,017 and 79,699,130 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively. Holders of Common Stock have one vote per share of Common Stock held.
Common Stock Issued
On April 2, 2020, the Company issued 1,124,167 shares of common stock to satisfy obligations under share subscription agreements of $28,500 for cash and $3,800 for settlement of notes payable and interest included in share subscriptions payable.
From April 14, 2020 to May 1, 2020, the Company issued 8,085,309 shares of common stock to satisfy obligations under share subscription agreements of $459,572 for settlement of convertible notes included in share subscriptions payable.
On May 4, 2020, the Company issued 1,563,732 shares of common stock to satisfy obligations under share subscription agreements of $53,680 for settlement of services and $54,000 for the settlement of note payable included in share subscriptions payable.
On May 11, 2020, the Company issued 67,500 shares of common stock to satisfy obligations under share subscription agreements of $5,130 for settlement of services included in share subscriptions payable.
On May 12, 2020, the Company issued 352,500 shares of common stock to satisfy obligations under share subscription agreements of $14,805 for settlement of services included in share subscriptions payable.
On May 21, 2020, the Company issued 357,895 shares of common stock to satisfy obligations under share subscription agreements of $28,000 for settlement of services included in share subscriptions payable.
From June 4, 2020 to June 25, 2020, the Company issued 3,460,938 shares of common stock to satisfy obligations under share subscription agreements of $244,359 for settlement of convertible notes included in share subscriptions payable.
On June 5, 2020, the Company issued 250,000 shares of common stock to satisfy obligations under share subscription agreements of $5,000 for settlement of cash included in share subscriptions payable.
On July 13, 2020, the Company issued 250,000 shares of common stock to satisfy obligations under share subscription agreements of $20,000 for the settlement of convertible notes included in share subscriptions payable.
On July 23, 2020, the Company issued 1,979,678 shares of common stock to satisfy obligations under share subscription agreements of $33,000 for cash and $32,105 for settlement of services included in share subscriptions payable.
On July 28, 2020, the Company issued 1,395,588 shares of common stock to satisfy obligations under share subscription agreements of $14,000 for cash, $49,300 for settlement of services and $39,690 for the settlement of convertible notes included in share subscriptions payable.
On August 19, 2020, the Company issued 5,566,667 shares of common stock to satisfy obligations under share subscription agreements of $109,516 for cash, $14,800 for settlement of services and supplies and $41,000 for the settlement of interest included in share subscriptions payable.
On August 20, 2020, the Company issued 185,189 shares of common stock to satisfy obligations under share subscription agreements of $17,778 for settlement of convertible notes included in share subscriptions payable.
19
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
12. STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
On September 9, 2020, the Company issued 384,615 shares of common stock to satisfy obligations under share subscription agreements of $33,077 for settlement of convertible notes included in share subscriptions payable.
On September 10, 2020, the Company issued 2,510,901 shares of common stock to satisfy obligations under share subscription agreements of $49,500 for cash, $14,402 for settlement of services and supplies, $4,000 for interest and $47,278 for the settlement of equipment included in share subscriptions payable.
On September 15, 2020, the Company issued 300,000 shares of common stock to satisfy obligations under share subscription agreements of $23,400 for settlement of convertible notes included in share subscriptions payable.
On September 18, 2020, the Company issued 430,208 shares of common stock to satisfy obligations under share subscription agreements of $34,417 for settlement of convertible notes included in share subscriptions payable.
Common Stock Payable
As at September 30, 2020, the Company had total subscriptions payable for 2,970,315 shares of common stock for $28,366 in cash, shares of common stock for interest valued at $27,911, shares of common stock for services valued at $145,681 and shares of common stock for notes payable of $20,673.
During the six months ended September 30, 2020, the Company settled common stock obligations of $59,800 for no consideration. The decrease in common stock payable was recorded as an increase in additional paid-in capital.
13. RELATED PARTY TRANSACTIONS
During the six months ended September 30, 2020 and 2019, the Company entered into the following transactions with related parties:
Paul D. Thompson, sole director and officer of the Company
Taurus Gold, Inc., controlled by Paul D. Thompson
Accounts payable – related parties – Note 5
Notes payable – Note 6
14. SUBSEQUENT EVENTS
Common Stock Issued
From October 5, 2020 to October 16, 2020, the Company issued 1,357,488 shares of common stock to satisfy obligations under share subscription agreements of $85,374 for settlement of convertible notes included in share subscriptions payable.
On October 6, 2020, as a result of the one-for-twenty reverse stock split of our common stock the Company issued 150 shares of common stock due to rounding.
On October 7, 2020, the Company issued 625,000 shares of common stock to satisfy obligations under share subscription agreements of $15,000 for settlement of cash included in share subscriptions payable.
On November 6, 2020, the Company issued 2,135,000 shares of common stock to satisfy obligations under share subscription agreements of $123,860 for settlement of services included in share subscriptions payable.
20
MEXUS GOLD US AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
14. SUBSEQUENT EVENTS (CONTINUED)
Common Stock Payable
As at November 10, 2020, the Company had total subscriptions payable for 835,315 shares of common stock for $28,366 in cash, shares of common stock for interest valued at $27,911, shares of common stock for services valued at $21,850 and shares of common stock for notes payable of $20,673.
Power Up Lending Group Ltd.
On October 15, 2020, the Company issued a Convertible Promissory Note (“Note”) to Power Up Lending Group Ltd. (“Holder”) in the original principal amount of $52,500 less transaction costs of $2,500 bearing a 12% annual interest rate and maturing October 15, 2021 for $50,000 in cash. After 180 days after the issue date, this Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the average of the lowest two trading prices during the fifteen (15) trading day period ending on the latest complete trading day prior to the conversion date. The Company may repay the Note if repaid in cash within 30 days of date of issue at 110% of the original principal amount plus interest, between 31 days and 60 days at 115% of the original principal amount plus interest, between 61 days and 90 days at 120% of the original principal amount plus interest, between 91 days and 120 days at 125% of the original principal amount plus interest and between 121 days and 180 days at 135% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment.
21