NOTES
TO (UNAUDITED) CONDENSED FINANCIAL STATEMENTS
DECEMBER
31, 2020 AND 2019
1.
|
Organization History and Business
|
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.
As
reported in our Form 8-K filed January 13, 2020, on January 8, 2021, we entered into a Joint Venture Agreement (the “JV
Agreement”) with Provenance Gold Corporation, a Canadian publicly traded company (“PAU”) to fund and develop
a series of 102 lode mineral claims (the “Silver Bow Claims”) and one (1) patented mining claim (the “Blue Horse
Claim”) (collectively, the Silver Bow Claims and the Blue Horse Claim shall be hereinafter referred to as the “Project”),
all of which are located in Nye County in the State of Nevada (the “Venture”). See Note 9 for additional information.
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.
|
Summary of Significant Accounting Policies
|
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 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 nine months ended December 31, 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 $689,587 as of December 31, 2020. Effective December 4, 2020, we entered into a
Credit Line Agreement with Mambagone, S.A de C.V. (“Mamgabone”) which allows for advances totaling $1,050,000, $600,000
of which are estimated for general working capital purposes and $450,000 for required payments under the JV Agreement. While we
estimate that these advances will cover our general working capital needs for at least the next 12 months, that cannot be assured.
As a result, there is reasonable doubt about our ability to continue as a going concern for one year from the date of this report.
If our working capital needs are not met with the Mambagone Credit Line Agreement and 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.
Derivative
Financial Instruments
We
account for convertible debt with conversion features representing embedded derivative liabilities in accordance with ASC 815,
Derivatives and Hedging. ASC 815-15-25-1 requires that embedded derivative instruments be bifurcated and assessed on their issuance
date and measured at their fair value for accounting purposes. In determining the appropriate fair value, we use the Black-Scholes
option valuation method, resulting in a reduction of the initial carrying amount of the notes as unamortized debt discount. The
unamortized discount is amortized to interest expense over the term of each note using the effective interest method.
The
fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives
liability are recorded in the consolidated statement of operations under non-operating income (expense).
We
evaluate all our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated
statements of operations. For stock-based derivative financial instruments, we use a weighted average Black-Scholes-Merton option-pricing
model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement
of the derivative instrument could be required within twelve months of the balance sheet date.
Basic
and Diluted Net Loss Per Share
We
compute net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both
basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing
net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury
stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential shares
if their effect is anti-dilutive. As of December 31, 2020 and March 31, 2020, we had no potentially dilutive shares.
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”). In November 2019, SMG-Gold had been assigned the rights and obligations of these
participatory interests in Altyn Kokus LLP, a limited liability partnership organized under the laws of Kazakhstan engaged in
mining operations, but the assignment was not completed since the participatory interests had not been legally transferred to
SMG-Gold as a result of certain payments not being made to Bulat Kulchimbayev (“Bulat”), a Kazakhstan national, in
consideration for the sale of the participatory interests.
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.
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 was 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 nine months ended December 31, 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.
|
Property, Plant and Equipment, net
|
As
of December 31, 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 $283 and $496 for the three and nine months ended December 31, 2020. There was no depreciation
for the three and nine months ended December 31, 2019.
5.
|
Related Party
Transactions
|
Payable
to Stockholder
From
time to time, we have received advances from Joel Cortez, our largest stockholder. As of December 31, 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 nine months ended December 31, 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 December 31, 2020, nothing is owed for the
services of Mr. Jenkins.
During
the nine months ended December 31, 2020, we have accrued $67,500 for the services of Mr. Jenkins and paid C2CBusiness Strategies
LLC (formerly IAMB) $89,905 bringing the amount owed to zero.
Notes
payable consists of the following at December 31, 2020:
|
|
December 31, 2020
|
|
|
March 31,
2020
|
|
Non-Related Parties:
|
|
|
|
|
|
|
|
|
Unsecured promissory notes
|
|
$
|
68,000
|
|
|
$
|
38,000
|
|
Unsecured convertible promissory note
|
|
|
50,000
|
|
|
|
—
|
|
Less debt discount on convertible promissory note
|
|
|
(14,392
|
)
|
|
|
—
|
|
Advances under unsecured credit line agreement
|
|
|
135,000
|
|
|
|
—
|
|
Less debt discount on amounts borrowed
|
|
|
(130,947
|
)
|
|
|
—
|
|
Subtotal – non-related parties
|
|
|
107,661
|
|
|
|
38,000
|
|
Less current portion
|
|
|
(68,000
|
)
|
|
|
(38,000
|
)
|
Long-term portion
|
|
$
|
39,661
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Related Party:
|
|
|
|
|
|
|
|
|
Unsecured promissory note
|
|
$
|
25,600
|
|
|
$
|
—
|
|
Subtotal – related party
|
|
|
25,600
|
|
|
|
—
|
|
Less current portion
|
|
|
(25,600
|
)
|
|
|
—
|
|
Long-term portion
|
|
$
|
—
|
|
|
$
|
38,000
|
|
NON-RELATED
PARTIES
Unsecured
Promissory Notes
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.
Unsecured
Convertible Promissory Note
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 share 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 and nine months ended December 31, 2020 we recorded amortization expense of $2,323 and $4,040
in connection with this note.
Unsecured
Credit Line Agreement
Effective
December 4, 2020, we entered into a Credit Line Agreement with Mamgabone (“the Mamgabone LOC”) under which Mambagone
agreed to advance our Company a total of $1,050,000 on various dates specified in the Mamgabone LOC, $600,000 of which are estimated
for general working capital purposes and $450,000 for required payments under the JV Agreement. The Mamgabone LOC was revised
effective January 9, 2021 to reflect an updated schedule of advances. Each advance under the Mamgabone LOC bears interest at 8%
per annum and matures, along with all accrued and unpaid interest, on July 31, 2022.
Mamgabone
has the right, but not the obligation, at any time, to convert all or any portion of the outstanding principal amount and accrued
interest into fully paid and non-assessable shares of our common stock. The conversion price shall be equal to seventy-five percent
(75%) of the average of the closing price of our common stock during the ten (10) trading days immediately preceding the conversion
date. We determined that the conversion provisions of the Mamgabone LOC contain an embedded derivative feature and we valued the
derivative feature separately, recording debt discount and derivative liabilities during the three and nine months ended December
31, 2020 in accordance with the provisions of the advances. See Note 7. We are amortizing the debt discount on a straight-line
basis over the term of the advances. For the three and nine months ended December 31, 2020, amortization of debt discount for
these notes totaled $4,679.
RELATED
PARTY
Unsecured
Promissory 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 these
notes payable and no payments have been made.
7.
|
Derivative Liabilities
|
As
stated in Note 6, Notes Payable, we determined that the advances under the unsecured credit line agreement each contained an embedded
derivative feature in the form of a conversion provision which was adjustable based on future prices of our common stock. In accordance
with ASC 815-10-25, each derivative feature was initially recorded at its fair value using the Black-Scholes option valuation
method and then re-valued at the December 31, 2020 reporting date, with changes in the fair value reported in the statements of
operations. Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement
of the derivative instrument could be required within 12 months of the balance sheet date.
The
following table represents our derivative liability activity for the three and nine months ended December 31, 2020:
Initial measurement of advances
|
|
$
|
135,626
|
|
Derivative expense
|
|
|
53,746
|
|
Balance at December 31, 2020
|
|
$
|
189,372
|
|
The
fair value of the derivative features of the convertible notes were calculated using the following assumptions:
|
|
December
31, 2020
|
Expected
term in years
|
|
Through
7/31/22
|
Risk-free interest
rate
|
|
0.09% to 0.12%
|
Annual expected
volatility
|
|
345% to 362%
|
Dividend yield
|
|
0.00%
|
Risk-free
interest rate: We use the risk-free interest rate of a U.S. Treasury Bill with a similar term on the date of the issuance.
Volatility:
We estimate the expected volatility of the stock price based on the corresponding volatility of our historical stock price
for a period consistent with the convertible notes’ expected terms.
Dividend
yield: We use a 0% expected dividend yield as we have not paid dividends to date and do not anticipate declaring dividends
in the near future.
Remaining
term: The remaining term is based on the remaining contractual term of the convertible notes.
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.
During
the three months ended December 31, 2020, we issued a total of 2,500,000 Series A preferred shares to our CEO and Director. We
valued the preferred shares at $150,000 based on a June 2020 independent third-party transaction.
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 December 31, 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 December 31, 2020 or March 31, 2020.
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 nine months ended December 31, 2020, the following activity took place with respect to our common stock:
(1)
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.
(2)
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.
(3)
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.
(4)
We sold 10,000 shares in the three months ended September 30, 2020 for a total of $5,000.
The
JV Agreement
As
stated in Note 1, on January 8, 2021, we entered into the JV Agreement with PAU to fund and develop the Project consisting of
the Silver Bow Claims (102 lode mineral claims) and the Blue Horse Claim, a patented mining claim, all of which are located in
Nye County in the State of Nevada (the “Venture”). The Joint Venture will be carried out through a newly established
corporation or such similar structure agreed to by the Venturers (“Newco”).
The
Project has already had preliminary work done which, in turn, has led to the planned Phase I exploration program to be completed
by the Joint Venture (the “Phase 1 Program”). PAU’s interest in the Project consists of (a) its rights to acquire
the Silver Bow Claims, subject to a two percent (2.0%) net smelter returns royalty, pursuant to a property option agreement (the
“Underlying Option”) entered into with Donald Jennings and Boies Hall and (b) its control of the Blue Horse Claim, subject
to a one percent (1.0%) net smelter returns royalty, pursuant to a mining lease (the “Underlying Lease”) entered into
by its wholly owned subsidiary, Provenance Gold USA, with Thomas Perkins, Trustee of The Thomas E Perkins 2000 Trust, the Estate
of Ruth Ann McNeilly, and the Estate of Randall Clark Dugan.
PAU
will contribute its interest in the Project and its full-time expertise in the mining operations of the Venture, and in exchange,
our Company will fund the Venture as follows: (i) on or before January 29, 2021, a cash payment of $100,000 USD to Newco, (ii)
on or before February 12, 2021 a cash payment of $50,000 USD to Newco, (iii) on or before February 26, 2021, a cash payment of
$125,000 USD to Newco, and (iv) on or before March 12, 2021, a cash payment of $125,000 USD to Newco.
PAU,
in combination with PLYN, is currently in the process of transferring all project plans and entitlements, claims, leases, and
options in the Silver Bow and Blue Horse Claims to GS Exploration Corporation, the newly formed JV company.
We
will provide additional funding to a maximum of $50,000.00 USD on no less than ten (10) days written notice by PAU; which additional
funds shall be deposited into Newco and used directly for any overage from the original estimated budget for the Phase 1 Program.
Following
completion of the payments, the initial percentage ownership of each of the Venturers will be as follows: (a) PLYN 49.5% and (b)
PAU 50.5%. The interest of each Venturer in any profits or losses and/or liabilities that may result from the Venture and their
interests in all property and equipment acquired and all money received in connection with the performance of the Project shall
be based on the same ownership percentages indicated above.
In
the event we fail to complete the required payments, the Joint Venture shall cease and our percentage ownership in Newco shall
be adjusted as follows: ratio of the amount we actually invested over $400,000 (our required total payments) times 49.5%. As an
example, if we invest $150,000, our percentage ownership in Newco will be 18.56% ($150,000 divided by $400,000 times 49.5%). We
will retain our ownership percentage until such time as PAU contributes further funds to the Project, at which point our interest
will be diluted. In the event we invest a minimum of $225,000, then we will have met certain minimum thresholds as set forth in
the JV Agreement and the Joint Venture will continue.
The
mining operations and management of the Joint Venture shall be conducted by Newco utilizing PAU’s and our Company’s
management and consultants.
Debt
Mitigation
In
January 2021, the certain creditors agreed to cancel the amounts owed to them. The following table reflects the creditors, types
of debt and amounts cancelled.
|
|
|
|
Principal
|
|
|
December 31,
2020
Accrued Interest
|
|
Joel Cortez
|
|
Due to related party
|
|
$
|
146,425
|
|
|
$
|
—
|
|
Joel Cortez
|
|
Note payable – related party
|
|
|
25,600
|
|
|
|
786
|
|
Ka Wai, S.A. DE C.V.
|
|
Note payable – non-related party
|
|
|
50,000
|
|
|
|
2,192
|
|
Miko Roka, S.A. DE C.V.
|
|
Note payable – non-related party
|
|
|
5,000
|
|
|
|
289
|
|
Viveka Limited
|
|
Note payable – non-related party
|
|
|
58,000
|
|
|
|
4,605
|
|
|
|
|
|
$
|
285,025
|
|
|
$
|
7,872
|
|
We
paid no consideration to these creditors in exchange for the cancellation of their debts. The former founder of the company, Mr.
Joel Cortez, through a private share sale to non-related third parties, extinguished his debt and paid these creditors. The transactions
will be accounted for as extinguishments of debt during the three-month period ending March 31, 2021.