NOTES TO (UNAUDITED) CONDENSED
FINANCIAL STATEMENTS
SEPTEMBER 30, 2020 AND 2019
1.
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Organization History and Business
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Organization and Business
We were incorporated in
the State of Nevada on July 26, 2013 and are a mineral exploration and production company engaged in the exploration, acquisition,
and development of mineral properties. On April 2, 2020, we entered into a Share Exchange Agreement (the “Exchange Agreement”)
with Scythian Mining Group Ltd. (“SMG”), a United Kingdom company, to acquire 100% interest in SMG-Gold B.V. (“SMG-Gold”),
a Dutch limited liability company (the “SMG-Gold Acquisition”). While the Exchange Agreement was closed on July 7,
2020, it was never finalized because consideration for the transaction was never fully exchanged. On November 18, 2020, our Board
of Directors voted unanimously to rescind the transaction and return the SMG-Gold shares to SMG. See Note 3 for additional information.
Because the SMG-Gold Acquisition
was never completed and has been rescinded, our Company has no operating business. Management is currently investigating several
acquisition opportunities.
On March 11, 2020, the
World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and any related adverse public
health developments, has adversely affected workforces, economies, and financial markets globally, leading to an economic downturn.
The impact on our Company is not currently determinable, but management continues to monitor the situation.
2.
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Summary of Significant Accounting Policies
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Basis of Presentation
The accompanying
unaudited interim financial statements have been prepared by us pursuant to the rules and regulations of the United States
Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in the annual
financial statements prepared in accordance with the accounting principles generally accepted in the Unites States of America
have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and
disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of
normal recurring adjustments. These interim financial statements should be read in conjunction with our Company’s
historical financial statements and related notes filed with the SEC including our Annual Report on Form 10-K for the fiscal
year ended March 31, 2020 filed on August 5, 2020. The results of operations for the three and six months ended September 30,
2020, are not necessarily indicative of the results that may be expected for the full year.
Going Concern Considerations
The accompanying financial
statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which
contemplate continuation of our Company as a going concern. We currently have no revenues, have incurred net losses, and have an
accumulated deficit of $429,616 as of September 30, 2020. We presently have limited liquidity and limited access to capital. These
factors raise substantial doubt about our ability to continue as a going concern for one year from the date of this report. If
we are unable to obtain adequate capital, we could be forced to cease operations.
The continuation of our
Company as a going concern is dependent upon continued financial support from our shareholders, the ability to raise equity or
debt financing, and the attainment of profitable operations from any future business we may acquire. There are no assurances that we
will be successful in obtaining sufficient capital to continue as a going concern.
The accompanying financial
statements do not include any adjustments that might be necessary if our Company is unable to continue as a going concern.
New Accounting Pronouncements
We have reviewed all recently
issued accounting pronouncements and determined that they were either disclosed in our most recently filed Form 10-K or, based
on current operations, are not believed to have a material impact on our financial statements.
As stated in Note 1, on
April 2, 2020, we entered into the Exchange Agreement with SMG and SMG’s wholly owned subsidiary SMG-Gold. Under the Exchange
Agreement, SMG agreed to exchange one hundred percent (100%) of the issued and outstanding shares of SMG-Gold for an aggregate
of 1,000,000 shares of our Series A Preferred Stock and 1,000,000 shares of our Series C Preferred Stock (the “Preferred
Stock Consideration”). On September 4, 2020, we entered into the First Amendment to the Exchange Agreement which reduced
the Series C Preferred Stock consideration to 300,000 shares. The effective date of the First Amendment was June 1, 2020. The Closing
of the Exchange Agreement was dependent on certain conditions being met.
On April 6, 2020 we entered
into an Escrow Agreement, with the parties Charles Giannetto (the “Escrow Agent”), SMG-Gold, and shareholders Joel
Cortez and Mark Soo. The Escrow Agreement required, among other things, that the Escrow Agent hold the Series A and Series C Preferred
shares referred to above until such time as all participatory interests in Altyn Kokus LLP, a limited liability partnership organized
under the laws of Kazakhstan engaged in mining operations, were transferred to SMG-Gold. In November 2019, SMG-Gold had been assigned
the rights and obligations of these participatory interests, but the assignment was not complete since the participatory interest
had not been legally transferred to SMG-Gold because certain payments had not been paid to Bulat Kulchimbayev (“Bulat”),
a Kazakhstan national, in consideration for the sale of the participatory interests.
Additionally, as part of
the Escrow Agreement, the Escrow Agent was to hold 10,000,000 of our common shares owned by Joel Cortez and 5,000,000 of our common
shares owned by Mark Soo until completion of the Exchange Agreement at which time the common shares would be exchanged for shares
of our Series B Preferred Stock, 1,000,000 shares for Joel Cortez and 500,000 shares for Mark Soo. Pursuant to our Form 8-K filed
on June 29, 2020 under the Form 10 Disclosure, Item 4, Note (7), Messrs. Cortez and Soo opted not to exchange their shares of our
common stock totaling an aggregate of 15,000,000 shares for shares of our Series B Preferred Stock. Instead, they will retain their
shares of our restricted common stock.
On May 1, 2020, SMG-Gold
and Bulat agreed to modify the obligations payable to Bulat as follows: (1) SMG-Gold would pay Bulat a total of $750,000 in US
Dollars, payable at various dates through October 15, 2020 ($15,000 of which has been paid to date); and (2) in anticipation of
the closing of the Exchange Agreement, SMG-Gold would provide that Palayan Resources, Inc. would issue to Bulat 4,000,000 shares
of our restricted common stock. We issued the 4,000,000 shares of our common stock to Bulat on June 8, 2020 and recorded a deposit
for the proposed SMG-Gold Acquisition of $16,000 based on an independent third-party valuation of the fair value of our common
stock on the date of issuance.
On June 1, 2020, we entered
into a Waiver of Conditions & Closing Agreement (the “Closing Agreement”) with SMG and SMG-Gold. The Closing Agreement
waived certain closing conditions and caused the Exchange Agreement to be closed once the SMG-Gold shares were registered as required
by Dutch Civil Code. Although the SMG-Gold share registration into Palayan Resources, Inc. was completed on July 7, 2020, which
effectively closed the Exchange Agreement, the Preferred Stock Consideration was not transferred to SMG because the participation
interests in Altyn Kokus LLP had not been transferred to SMG-Gold, as required by the Escrow Agreement, due to non-payment to Bulat
of the cash obligations owing to him.
To date, Bulat has not
received any cash obligations owed to him, except for the $15,000 previously paid by us, and has not transferred the participation
interests in Altyn Kokus LLP to SMG-Gold. It appears highly unlikely that any additional cash obligation will be paid to Bulat
and, as a result, equally unlikely that the participation interests in Altyn Kokus LLP will be transferred to SMG-Gold. As such,
the transaction contemplated by the Exchange Agreement has been deemed to be incomplete. Given the uncertainty of being able to
complete the transaction, on November 18, 2020, our Board of Directors called a Special Meeting in which they concluded that it
is in the best interests of our Company to rescind the SMG-Gold Acquisition. As such, our Board voted unanimously to rescind the
Exchange Agreement, to return the parties to their respective positions prior to entering into the Exchange Agreement, to the extent
possible, to return the SMG-Gold shares to SMG, and to place a Stop Transfer Order with our transfer agent for the 4,000,000 shares
of our common stock issued to Bulat.
In connection with the
Exchange Agreement, during the three months ended September 30, 2020, we have recorded a General and Administrative expense totaling
$31,000. This amount consists of the $15,000 paid in cash to Bulat plus $16,000 in value for the 4,000,000 common shares issued
to Bulat, since the Stop Transfer Order has not yet been put into effect.
4.
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Property, Plant and Equipment, net
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As of September 30, 2020,
property, plant and equipment consists of a laptop computer. Depreciation was calculated on a straight-line basis over a three-year
period and was $212 for the three and six months ended September 30, 2020. There was no depreciation for the three and six months
ended September 30, 2019.
5.
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Related Party Transactions
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Payable to Stockholder
From time to time, we have
received advances from Joel Cortez, our largest stockholder. As of September 30, 2020, we owe Mr. Cortez $146,425 for amounts advanced.
These advances bear no interest and are reported on our Balance Sheets under the caption Due to Related Parties. For the six months
ended September 30, 2020, there were no advances received from or repaid to Mr. Cortez.
In addition, on September
10, 2020, we issued an unsecured promissory note to Mr. Cortez in the amount of $25,600 which is reported on our Balance Sheet
under the caption Note Payable – Related Party. See Note 6 for additional information.
Employment Agreement
Under an April 1, 2020
Executive Employment Agreement, we retained the services of Mr. James Jenkins, our CEO and Director, by and through Irvine America
MB Management, LLC (“IAMB”) as reported on Form 8-K filed on April 6, 2020. The employment agreement calls for monthly
payments of $7,500 to IAMB for Mr. Jenkins services along with business expense reimbursements and employee benefits, if and when
offered. No employee benefits are offered at this time.
As of September 30, 2020,
we owe $39,905 for the services of Mr. Jenkins. The amounts owed for Mr. Jenkins services are reported on our Balance Sheets under
the caption Due to Related Parties.
During the six months ended
September 30, 2020, we have paid IAMB $27,500 and accrued an additional $17,500 owing under the employment agreement.
Notes payable consists of the following at September
30, 2020:
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September 30, 2020
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March 31, 2020
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Non-Related Parties:
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Unsecured promissory notes
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$
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68,000
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$
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38,000
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Unsecured convertible promissory note
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50,000
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–
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Less debt discount on convertible promissory note
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(16,715
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)
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Subtotal – non-related parties
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101,285
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38,000
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Less current portion
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(68,000
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)
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(38,000
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)
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Long-term portion
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$
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33,285
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$
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–
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|
|
|
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Related Party:
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Unsecured promissory note
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$
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25,600
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$
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–
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Subtotal – related party
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25,600
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|
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–
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Less current portion
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(25,600
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)
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|
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–
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Long-term portion
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$
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–
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|
|
$
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–
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|
|
|
|
|
|
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|
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During our fiscal year
ended March 31, 2020, we issued three unsecured promissory notes to unrelated third parties in the principal amounts aggregating
$38,000. During the six months ended September 30, 2020, we issued two unsecured promissory notes to unrelated third parties in
the principal amounts aggregating $30,000. Each note contained the same terms, bearing interest at 10% per annum and being repayable
on demand. No demand for payment has been made to date with respect to these notes payable and no payments have been made.
On July 24, 2020, we issued
an unsecured convertible promissory note to an unrelated third party in the principal amount of $50,000. The note bears interest
at 10% per annum. The note is repayable on the earlier of (1) mandatory and automatic conversion provisions of the note or (2)
the two (2) year anniversary of the note. The principal and accrued interest of this note may be converted, in whole, into shares
of our common stock at the option of the note holder at any time after 30 days from the issue date. In addition, if at any time
prior to maturity (a) the closing price of our common stock for five consecutive trading days equals or exceeds $2.00 per share,
and (b) the daily trading volume equals or exceeds 20,000 shares during the same five consecutive trading days, then all unpaid
principal and accrued interest shall be automatically converted into shares of our common stock. The conversion price for this
note is $1.00 per share. We have determined that this convertible note contains a beneficial conversion feature of $18,432 based
on the difference between the fair market value of our common stock on the date of issuance and the conversion price. We have recorded
this amount as a debt discount and are amortizing the discount on a straight-line basis over the two-year term of the note. During
the three months ended September 30, 2020 we recorded amortization expense of $1,716 in connection with this note.
On September 10, 2020,
we issued an unsecured promissory note to a related third party, Mr. Cortez, in the amount of $25,600. The note bears interest
at 10% per annum and is payable on demand. No demand for payment has been made to date with respect to this note payable and
no payments have been made.
On June 1, 2020, we amended
our Articles of Incorporation to increase the number of authorized shares of our common stock from 75,000,000 to 500,000,000 and
to authorize the issuance of up to 100,000,000 shares of blank check preferred stock.
Preferred Stock
We are authorized to issue
100,000,000 shares of our $0.001 par value preferred stock and, as of September 30, 2020, have designated three (3) series of preferred
stock whose rights are described below:
Series A Preferred Stock –
we have designated 5,000,000 Series A preferred shares. The Series A preferred ranking is senior to common shares, no dividends
are payable, and each share is convertible into common shares at a rate of 15 common shares for each Series A preferred share.
The voting rights for the Series A preferred was originally designated to be 100 votes for each Series A preferred share. On September
4, 2020 in the First Amendment to the Exchange Agreement, the voting rights were reduced to 20 votes for each Series A preferred
share. No Series A preferred shares are issued and outstanding at either September 30, 2020 or March 31, 2020.
Series B Preferred Stock –
we have designated 5,000,000 Series B preferred shares. The Series B preferred ranking is senior to common stock, no dividends
are payable, and each share is convertible into common shares at a rate of 10 common shares for each Series B preferred share.
The voting rights for this Series B is designated to be 10 votes for each Series B preferred share. No Series B preferred shares
are issued and outstanding at either September 30, 2020 or March 31, 2020.
Series C Preferred Stock –
we have designated 5,000,000 Series C preferred shares. The Series C preferred ranking is senior to common stock, no dividends
are payable, and each share is convertible into common shares at a rate of 30 common shares for each Series C preferred share.
The Series C shares have no voting rights. No Series C preferred shares are issued and outstanding at either September 30, 2020
or March 31, 2020.
As described in Note 3,
the provisions of the Exchange Agreement and the Escrow Agreement calling for the exchange of 10,000,000 common shares held by Joel
Cortez and 5,000,000 common shares held by Mark Soo to be exchanged into shares of Series B Preferred Stock has been cancelled.
Common Stock
We are authorized to issue
500,000,000 shares of our $0.001 par value common stock and each holder is entitled to one (1) vote on all matters subject to a
vote of stockholders.
During the six months ended
September 30, 2020, the following activity took place with respect to our common stock:
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(1)
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As stated in Note 3, we issued 4,000,000 shares to Bulat at fair value of $16,000 based on an
independent third-party valuation of the fair value of our common stock on the date of issuance.
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(2)
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We issued 30,968 shares for Board of Director services rendered by
two individuals. We recorded a general and administrative expense of $124 in the three months ended June 30, 2020 in connection
with this issuance based on the fair market value of our common stock on the date of issuance.
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(3)
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We issued 315,790 to a vendor for services and recorded a general
and administrative expense of $1,263 in the three months ended June 30, 2020 in connection with this issuance based on the fair
market value of our common stock on the date of issuance.
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(4)
We sold 10,000 shares
in the three months ended September 30, 2020 for a total of $5,000.
a. On November 18,
2020, our Board of Directors voted unanimously to rescind the Exchange Agreement, to return the parties to their respective
positions prior to entering into such agreement, to the extent possible, including returning the SMG-Gold shares to SMG, and
placing a Stop Transfer Order with our transfer agent for the 4,000,000 shares of our common stock issued to Bulat.
b.
As at November 6, 2020, we issued a note payable for $20,000 to a non-related party,
which is unsecured, bears interest at 10% per annum, and is due on demand.