Notes to Consolidated Financial
Statements
July 31, 2020
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Northern
Minerals & Exploration Ltd. (the “Company”) is an
emerging natural resource company operating in oil and gas
production in central Texas and exploration for gold and silver in
northern Nevada.
The
Company was incorporated in Nevada on December 11, 2006 under the
name Punchline Entertainment, Inc. On August 22, 2012, the
Company’s board of directors approved an agreement and plan
of merger to effect a name change of the Company from Punchline
Entertainment, Inc. to Punchline Resources Ltd. On July 12, 2013,
the stockholders approved an amendment to change the name of the
Company from Punchline Resources Ltd. to Northern Mineral &
Exploration Ltd. FINRA approved the name change on August 13,
2013.
On
November 22, 2017, the Company created a wholly owned subsidiary,
Kathis Energy LLC (“Kathis”) for the purpose of
conducting oil and gas drilling programs in Texas.
On
December 14, 2017, Kathis Energy, LLC and other Limited Partners,
created Kathis Energy Fund 1, LP, a limited partnership created for
raising investor funds.
On May
7, 2018, the Company created ENMEX LLC, a wholly owned subsidiary
in Mexico, for the purposes of managing and operating its
investments in Mexico including but not limited to the Joint
Venture opportunity being negotiated with Pemer Bacalar on the 61
acres on the Bacalar Lagoon on the Yucatan Peninsula. There was no
activity from inception to date.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The
accounting and reporting policies of the Company conform to U.S.
generally accepted accounting principles (US GAAP).
Use of estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and 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. Actual results may differ from those
estimates.
Cash and Cash Equivalents
The Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt
instruments purchased with a maturity of three months or less as
cash and cash equivalents. The carrying amount of financial
instruments included in cash and cash equivalents approximates fair
value because of the short maturities for the instruments
held. The Company had no cash equivalents as of July 31, 2020
and 2019.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, Kathis Energy
LLC, Kathis Energy Fund 1, LLP and Enmex Operations LLC. All
financial information has been prepared in conformity with
accounting principles generally accepted in the United States of
America. All significant intercompany transactions and balances
have been eliminated.
Revenue Recognition
Revenue
is recognized when a customer obtains control of promised goods or
services and is recognized in an amount that reflects the
consideration that an entity expects to receive in exchange for
those goods or services. In addition, the standard requires
disclosure of the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. The
amount of revenue that is recorded reflects the consideration that
the Company expects to receive in exchange for those goods. The
Company applies the following five-step model in order to determine
this amount: (i) identification of the promised goods in the
contract; (ii) determination of whether the promised goods are
performance obligations, including whether they are distinct in the
context of the contract; (iii) measurement of the transaction
price, including the constraint on variable consideration; (iv)
allocation of the transaction price to the performance obligations;
and (v) recognition of revenue when (or as) the Company satisfies
each performance obligation.
The Company only applies the five-step model to contracts
when it is probable that the entity will collect the consideration
it is entitled to in exchange for the goods or services it
transfers to the customer. Once a contract is determined to be
within the scope of ASC 606 at contract inception, the Company
reviews the contract to determine which performance obligations the
Company must deliver and which of these performance obligations are
distinct. The Company recognizes as revenues the amount of the
transaction price that is allocated to the respective performance
obligation when the performance obligation is satisfied or as it is
satisfied. Generally, the Company’s performance obligations
are transferred to customers at a point in time, typically upon
delivery.
The Company receives a majority of its revenue from oil and gas
sales from the J. E Richey lease located in Coleman County, Texas.
Revenue is recognized when received.
For the
year ended July 31, 2020 and 2019, we recognized 100% and 62.4% of
revenue, respectively, from crude oil sales on our Richey
Lease.
Accounts Receivable
Revenues that have been recognized but not yet received are
recorded as accounts receivable. Losses on receivables will be
recognized when it is more likely than not that a receivable will
not be collected. An allowance for estimated uncollectible amounts
will be recognized to reduce the amount of receivables to its net
realizable value. The allowance for uncollectible amounts is
evaluated quarterly.
Long Lived Assets
Property
consists of mineral rights purchases as stipulated by underlying
agreements and payments made for oil and gas exploration rights.
Our company assesses the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying value
may not be recoverable. When we determine that the carrying value
of long-lived assets may not be recoverable based upon the
existence of one or more indicators of impairment and the carrying
value of the asset cannot be recovered from projected undiscounted
cash flows, we record an impairment charge. Our company measures
any impairment based on a projected discounted cash flow method
using a discount rate determined by management to be commensurate
with the risk inherent in the current business model. Significant
management judgment is required in determining whether an indicator
of impairment exists and in projecting cash flows.
Mineral Property Acquisition and Exploration Costs
Mineral
property acquisition and exploration costs are expensed as incurred
until such time as economic reserves are quantified. Cost of lease,
exploration, carrying and retaining unproven mineral lease
properties are expensed as incurred. We have chosen to expense all
mineral exploration costs as incurred given that it is still in the
exploration stage. Once our company has identified proven and
probable reserves in its investigation of its properties and upon
development of a plan for operating a mine, it would enter the
development stage and capitalize future costs until production is
established. When a property reaches the production stage, the
related capitalized costs will be amortized over the estimated life
of the probable-proven reserves. When our company has capitalized
mineral properties, these properties will be periodically assessed
for impairment of value and any diminution in value.
Oil and Gas Properties
The
Company follows the successful efforts method of accounting for its
oil and gas properties. Under this method of accounting, all
property acquisition costs and costs of exploratory and development
wells are capitalized when incurred, pending determination of
whether the well found proved reserves. If an exploratory well does
not find proved reserves, the costs of drilling the well are
charged to expense. The costs of development wells are capitalized
whether those wells are successful or unsuccessful. Other
exploration costs, including certain geological and geophysical
expenses and delay rentals for oil and gas leases, are charged to
expense as incurred. Maintenance and repairs are charged to
expense, and renewals and betterments are capitalized to the
appropriate property and equipment accounts. Depletion and
amortization of oil and gas properties are computed on a
well-by-well basis using the units-of-production method. Although
the Company has recognized minimal levels of production and
revenue, none of its property have proved reserves. Therefore, the
Company’s properties are designated as unproved
properties.
Unproved
property costs are not subject to amortization and consist
primarily of leasehold costs related to unproved areas. Unproved
property costs are transferred to proved properties if the
properties are subsequently determined to be productive and are
assigned proved reserves. Proceeds from sales of partial interest
in unproved leases are accounted for as a recovery of cost without
recognizing any gain until all cost is recovered. Unproved
properties are assessed periodically for impairment based on
remaining lease terms, drilling results, reservoir performance,
commodity price outlooks or future plans to develop
acreage.
Asset Retirement Obligation
Accounting
Standards Codification (“ASC”) Topic 410, Asset
Retirement and Environmental Obligations (“ASC 410”)
requires an entity to recognize the fair value of a liability for
an asset retirement obligation in the period in which it is
incurred. The net estimated costs are discounted to present values
using credit-adjusted, risk-free rate over the estimated economic
life of the oil and gas properties. Such costs are capitalized as
part of the related asset. The asset is depleted on the equivalent
unit-of-production method based upon estimates of proved oil and
natural gas reserves. The liability is periodically adjusted to
reflect (1) new liabilities incurred, (2) liabilities settled
during the period, (3) accretion expense and (4) revisions to
estimated future cash flow requirements. To date, the Company has
very few operating wells. Currently, the Company has one working
well. Because there is only one active well on the Ritchie Lease
with a 24% working interest, the Company estimates the asset
retirement obligation to be trivial and has not recorded an ARO
liability.
Basic and Diluted Earnings Per Share
Net
income (loss) per common share is computed pursuant to ASC
260-10-45, Earnings per
Share—Overall—Other Presentation Matters. Basic
net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted net income (loss) per
common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and potentially
outstanding shares of common stock during the period.
For the
year ended July 31, 2020, the
Company had 3,031,958 of potentially dilutive shares. The shares
consisted of common shares and warrants from convertible debt of
1,687,972 and 843,986, respectively, and an additional 5000,000
warrants. For the year ended July 31,
2019, the Company had 4,768,408 of potentially dilutive
shares. The shares consisted of common shares and warrants from
convertible debt of 1,602,272 and 801,136, respectively, and an
additional 2,365,000 warrants. The diluted loss per share is the
same as the basic loss per share for the years ended July 31, 2020
and 2019, as the inclusion of any potential shares would have had
an antidilutive effect due to our loss from
operations.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments -
Credit Losses, and also issued subsequent amendments to the initial
guidance, ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11
(collectively, Topic 326), to introduce a new impairment model for
recognizing credit losses on financial instruments based on an
estimate of current expected credit losses (CECL). Under Topic 326,
an entity is required to estimate CECL on available-for-sale (AFS)
debt securities only when the fair value is below the amortized
cost of the asset and is no longer based on an impairment being
“other-than-temporary”. Topic 326 also requires the
impairment calculation on an individual security level and requires
an entity use present value of cash flows when estimating the CECL.
The credit-related losses are required to be recognized through
earnings and non-credit related losses are reported in other
comprehensive income. In April 2019, the FASB further clarified the
scope of Topic 326 and addressed issues related to accrued interest
receivable balances, recoveries, variable interest rates and
prepayment. The new guidance will require modified retrospective
application to all outstanding instruments, with a cumulative
effect adjustment recorded to opening retained earnings as of the
beginning of the first period in which the guidance becomes
effective. The amendments in this Update for the Company are
effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years. Early adoption
is permitted in any interim period after the issuance of this of
this Update. The Company is evaluating the impact of the adoption
of the new standard on its financial statement and
disclosures.
In
August 2018, the FASB issued ASU 2018-13 to improve the
effectiveness of disclosures about fair value measurements required
under ASC 820. The ASU modifies the disclosure objective paragraphs
of ASC 820 to eliminate (1) “at a minimum” from
the phrase “an entity shall disclose at a minimum” and
(2) other similar “open ended” disclosure
requirements to promote the appropriate exercise of discretion by
entities. The disclosure objective added in ASC 820-10-50-1C
states: The objective of the disclosure requirements in this
Subtopic is to provide users of financial statements with
information about assets and liabilities measured at fair value in
the statement of financial position or disclosed in the notes
to financial statements: a) the valuation techniques and inputs
that a reporting entity uses to arrive at its measures of fair
value, including judgments and assumptions that the entity makes,
b) the uncertainty in the fair value measurements as of the
reporting date, and c) how changes in fair value measurements
affect an entity’s performance and cash flows. The new ASU is
effective for all entities for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early
adoption is permitted.
The
Company has implemented all new accounting pronouncements that are
in effect. These pronouncements did not have any material impact on
the financial statements unless otherwise disclosed, and the
Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material
impact on its financial position or results of
operations.
NOTE 3 - GOING CONCERN
The
accompanying financial statements are prepared and presented on a
going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business. Accordingly, they do not include any adjustments relating
to the realization of the carrying value of assets or the amounts
and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. Since
inception to July 31, 2020, the Company has an accumulated deficit
of $2,999,090. The Company intends to fund operations through
equity financing arrangements, which may be insufficient to fund
its capital expenditures, working capital and other cash
requirements for the next twelve months. These factors, among
others, raise substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
On January 30, 2020, the World Health Organization declared the
coronavirus outbreak a "Public Health Emergency of International
Concern" and on March 10, 2020, declared it to be a pandemic.
Actions taken around the world to help mitigate the spread of the
coronavirus include restrictions on travel, and quarantines in
certain areas, and forced closures for certain types of public
places and businesses. The coronavirus and actions taken to
mitigate it have had and are expected to continue to have an
adverseimpact on the economies and financial markets of many
countries, including the geographical area in which the Company
plan to operates. While it is unknown how long these conditions
will last and what the complete financial effect will be to the
company, to date, the Company has experienced a decline in revenue
due to the decreasing price of oil.
NOTE 4 - OIL AND GAS PROPERTIES
Active Projects:
The
Company currently has one active lease. We hold a 24% working
interest in one producing well (“Concho Richey #1”) on
the lease and a 100% working interest in the remainder of the
206-acre J. E Richey Lease. The Concho Richey #1 well is currently
producing 2.8 barrels of oil and 16 MCF of gas per
day.
The
Richey #1 well was plugged on January 3, 2018. As of July 31, 2019, management determined that
the $50,000 asset carried on the balance sheet was impaired
resulting in a loss on impairment of $21,200 lowering the value of
the investment in the Richey lease to $28,800.
No
additional impairment was recognized in the fiscal year
2020.
NOTE 5 – MINERAL RIGHTS AND PROPERTIES
ENMEX Operations LLC – Wholly owned Subsidiary - Pemer
Bacalar – Resort Development Project
On
September 22, 2017 the Company entered into a Letter of Intent
with Pemer Bacalar SAPI DE CV to
examine the opportunity of acquiring ownership in approximately 80
acres (“Property”) on a freshwater lagoon near the
community of Bacalar, Mexico in the state of Quintana Roo for the
purpose of entering into a joint venture for the potential
development of the Property into a resort. This was
followed up with a Memorandum of Understanding (“MOU”)
on November 16, 2017 in order to
further conduct due diligence toward this potential project.
An amended MOU was entered into on April 13, 2018 setting forth the
conditions for entering into a definitive agreement with Pemer
Bacalar to acquire 51% of the Property. These conditions
included obtaining an independent appraisal of the Property and
develop a business plan in conjunction with a Joint Venture
Operating Agreement. On June 11, 2019 a new agreement was
entered into regarding this property to incorporate certain requirements including, but
not limited to, finalizing the acquisition of additional acreage
and obtaining permits as well as formalize a plan to conduct
feasibility studies, etc. On March 13, 2018 a payment of
$20,266 was paid toward the architectural drawings prepared by
Callikson. No additional funds have been provided to this project
since the signing of the MOU on June 11, 2019.
NOTE 6 – WINNEMUCCA MOUNTAIN PROPERTY
As
previously announced, on September 14, 2012, we entered into an
option agreement with AHL Holdings Ltd., and Golden Sands
Exploration Inc. (“Optionors”), wherein we acquired an
option to purchase an 80% interest in and to certain mining claims,
which claims form the Winnemucca Mountain Property in Humboldt
County, Nevada (“Property”). This property currently is
comprised of 138 unpatented mining claims covering approximately
2,700 acres.
On July
23, 2018, the Company entered into a New Option Agreement with the
Optioners. This agreement provided for the payment of $25,000 and
the issuance of 3,000,000 shares of the Company’s common
stock and work commitments. The Company issued the shares and made
the initial payment of $25,000 per the terms of the July 31, 2018
agreement. The second payment of $25,000 per the terms of the
agreement was not paid when it became due on August 31, 2018
causing the Company to default on the terms of the July 23, 2018
agreement.
On
March 25, 2019 the Company entered into a New Option Agreement with
the Optionors. As stated in the New Option Agreement the Company
has agreed to certain terms and conditions to have the right to
earn an 80% interest in the Property, these terms include cash
payments, issuance of common shares of the Company and work
commitments.
The Company’s firm commitments per the March 25, 2019 option
agreement total $381,770 of which cash payments total
$181,770 and a firm work commitment of $200,000. These cash
payments include payments for rentals payable to BLM and also for
the staking of new claims adjoining the existing claims. The work
commitment is to be conducted prior to December 31, 2020. As
of July 31,
2020 and July 31, 2019, the
Company has accounted for $334,000 and $381,770, respectively, in
its accrued liabilities (Note 7).
NOTE 7 - ACCRUED LIABILITIES
The
Company has partnered with others whereby they provide all or a
portion of the working capital for either well work to be completed
on existing properties or towards the acquisition of new
properties. As of July 31, 2020 and 2019, the Company has unused
funds it has received of $23,175 and $65,879,
respectively.
During
the year ended July 31, 2020, various third parties, either forgave
monies due from advances for well work or assumed other liabilities
totaling $167,705. The $167,705
was from advances comprised of
$125,000 received by Kathis Energy and $42,705 received by the
Company, from investors, for the drilling of the Richey 2A well.
During the year ended July 31, 2020, the Company entered into an
agreement with an unrelated third party in which they assumed the
obligations of these advances totaling $167,705 and to drill the Richey 2A well. The well was
drilled prior to July 31, 2020 releasing the Company and Kathis
Energy of any further obligations to the investors for the funds
they had advanced.
Accrued
liabilities as of July 31:
|
|
|
|
|
General
accrual
|
$2,444
|
$1,887
|
|
Interest
|
$62,597
|
$47,802
|
|
Distributions and
royalty
|
$15,416
|
$15,416
|
|
Advances for well
work
|
$23,175
|
$65,879
|
|
Winnemucca
Property
|
$334,000
|
$381,770
|
|
Investment funds to
be used for the development of future properties
|
$-
|
$125,000
|
|
|
$437,632
|
$637,754
|
NOTE 8 - CONVERTIBLE DEBT
On
August 22, 2013 the Company entered into a $50,000 Convertible Loan
Agreement with an un-related party. The Loan and interest are
convertible into Units at $0.08 per Unit with each Unit consisting
of one common share of the Company and ½ warrant with each
full warrant exercisable for one year to purchase one common share
at $0.30 per share. On July 10, 2014, a further $35,000 was
received from the same unrelated party under the same terms. On
July 31, 2018, this Note was amended whereby the principal and
interest are now convertible into Units at $0.04 per Unit with each
Unit consisting of one common share of the Company and ½
warrant with each full warrant exercisable for one year to purchase
one common share at $0.08 per share. The Loan shall bear interest
at the rate of Eight Percent (8%) per annum and matures on March
26, 2020. As of July 31, 2020, there is $85,000 and $58,038 of
principal and accrued interest, respectively, due on this loan. As
of July 31, 2019, there was $85,000 and $43,182 of principal and
accrued interest, respectively, due on this loan. This note is
currently in default.
On
October 20, 2017, the Company executed a convertible promissory
note for $25,000 with a third party. The note accrues interest at
6%, matures in two years and is convertible into shares of common
stock at maturity, at a minimum of $0.10 per share, at the option
of the holder. As of July 31, 2020 and 2019, there is $4,527 and
$2,367, respectively, of accrued interest due on this loan. This
note is currently in default.
NOTE 9 – LOANS PAYABLE
On
April 16, 2017, the Company executed a promissory note for $15,000
with a third party. The note matures in two years and interest is
set at $3,000 for the full two years. As of July 31, 2020, there is
$15,000 and $3,375 of principal and accrued interest, respectively,
due on this loan. As of July 31, 2019, there is $15,000 and $1,875
of principal and accrued interest, respectively, due on this loan.
This loan is currently in default.
On June 11, 2020, a third party loaned the Company $14,000. The
loan is unsecured, non-interest bearing and due on
demand.
As of
July 31, 2020, the Company owed
$5,000 to a third party. The loan is unsecured, non-interest
bearing and due on demand.
During
the year ended July 31, 2020, a
third party loaned the Company $15,000. The loan is unsecured,
bears interest at 8% per annum and matures on September 1, 2021. As
of July 31, 2020, there is
$1,022 of interest accrued on this note.
During
the year ended July 31, 2020, a
third party loaned the Company $60,000. The loan is unsecured,
bears interest at 8% per annum and matures on September 1, 2021. As
of July 31, 2020, there is
$3,906 of interest accrued on this note.
NOTE 10 - COMMON STOCK
During the year ended July 31, 2019, the Company issued 150,000
shares of common stock to two individuals as consideration for
their support with the Richey #2A project. The shares were valued
at $0.065 per share, the closing price on the date of grant, for
total non-cash expense of $9,750.
During the year ended July 31, 2019, the Company sold 1,000,000
Units of its common stock for total cash proceeds of $50,000. Each
Unit consists of one common share and one-half share purchase
warrant exercisable for 2 years. Each whole share purchase warrant
has an exercise price of $0.15 per common share. The Company
determined the fair value of the warrants to be $25,205 using the Black
Scholes pricing model.
During the year ended July 31, 2019, the Company issued 7,400,000
shares of common stock and received total cash proceeds of
$220,000, $50,000 of was a receivable at July 31, 2019
During the year ended July 31, 2019, the Company issued 75,000
shares of common stock for services. The shares were valued at
$0.051 for total non-cash expense of $3,825.
On July 31, 2019, the Company entered into an agreement with
J.V. Rhyne whereby advance for work to
be conducted on several wells in the net amount of $61,850 were
transferred to J.V. Rhyne for consideration of 1,000,000 shares of
common stock. The shares were valued at $0.041, the closing stock
price on the date of the agreement, for total value of $41,100. The
transaction resulted in a gain on the write off of debt of
$20,750.
On June
4, 2020, the Company filed a Certificate of Amendment to its
Articles of Incorporation in which it increased its authorized
capital stock to 250,000,000 shares of common stock, par value
$0.001 and 50,000,000 shares of preferred stock, par value
$0.001.
During the year ended July 31, 2020, the Company sold 666,660
shares of common stock at $0.03
per share for total cash proceeds of $20,000.
During the year ended July 31, 2020, the Company sold 2,500,000
shares of common stock at $0.02 per share for total cash proceeds
of $50,000.
During the year ended July 31, 2020, the Company sold 3,000,000
shares of common stock at $0.01 per share for total cash proceeds
of $30,000.
During the year ended July 31, 2020, the Company issued 1,075,000
shares of common stock that had been shown in equity as a common
stock payable as of July 31, 2019.
NOTE 11 - WARRANTS
|
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contract Term
|
|
Exercisable at July
31, 2018
|
2,015,000
|
$0.15
|
1.47
|
|
Granted
|
500,000
|
0.15
|
1.28
|
|
Expired
|
(150,000)
|
0.15
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Exercisable at July
31, 2019
|
2,365,000
|
0.15
|
.65
|
|
Granted
|
-
|
-
|
-
|
|
Expired
|
(1,865,000)
|
0.15
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Exercisable at July
31, 2020
|
500,000
|
$0.15
|
.27
|
NOTE 12 - RELATED PARTY TRANSACTIONS
For the years ended July 31, 2020 and 2019, total payments of $0
and $8,500, respectively, were made to Ivan Webb, CEO for
consulting services. As of July 31, 2019, there was a $22,500
credited to accounts payable. During the year ended July 31, 2020,
Mr. Webb agreed to forgive the full amount due to him. The $22,500
was credited to additional paid in capital.
For the years ended July 31, 2019 and 2018, total payments of
$60,000 and $52,500, respectively, were made to Noel Schaefer, a
Director of the Company, for consulting services. As of July 31,
2020 and 2019, there is $27,500 and $27,500 credited to accounts
payable.
As of July 31, 2020, there is $2,200 credited to accounts payable
for amounts due to Rachel Boulds, CFO, for consulting
services.
During the year ended July 31, 2020, the Company sold 2,500,000
shares of common stock to a director for total cash proceeds of
$80,000.
On July 31, 2019, Ivan Webb, CEO, agreed to assume a $15,000
liability due to Renaissance Oil & Gas Inc. that had been paid
for the reworking of the S O Curry #1 well. The assumption of the
liability was credited to additional paid in capital.
On September 25, 2018, the Company executed a loan agreement with
the wife of the CEO for $6,800. The loan was to be repaid by
December 15, 2018, with an additional $680 to cover interest and
fees. On October 10, 2018, the Company executed another loan
agreement for $15,000. The loan was to be repaid by December 15,
2018, with an additional $1,500 to cover interest and fees. As of
July 31, 2020, the Company owes $23,210 on this loan. This loan is
in default.
Victor Miranda, a Director of the Company is also President and
owner of Labrador Capital SAPI DE CV (“Labrador”), a
major shareholder of the Company owning 8.8% of its issued and
outstanding shares. The Company has entered into a Memorandum of
Understanding with Labrador to jointly pursue developing real
estate projects in Mexico. As of the date of this report no
projects have been identified to jointly pursue. In the event
of a decision to go forward with Labrador, Victor Miranda will
abstain from voting to avoid any conflict of interest.
NOTE 12 - INCOME TAX
Deferred
taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss and tax credit carry forwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment. The U.S. federal income tax
rate of 21% is being used for 2017 due to the new tax law recently
enacted.
The
provision for Federal income tax consists of the following July
31:
|
|
|
|
|
Federal income tax
benefit attributable to:
|
|
|
|
Current
Operations
|
$9,100
|
$261,400
|
|
Less: valuation
allowance
|
(9,100)
|
(261,400)
|
|
Net provision for
Federal income taxes
|
$-
|
$-
|
The
cumulative tax effect at the expected rate of 21% of significant
items comprising our net deferred tax amount is as
follows:
|
|
|
|
|
Deferred tax asset
attributable to:
|
|
|
|
Net operating loss
carryover
|
$964,100
|
$955,000
|
|
Less: valuation
allowance
|
(964,100)
|
(955,000)
|
|
Net deferred tax
asset
|
$-
|
$-
|
At July
31, 2020, the Company had net operating loss carry forwards of
approximately $1,145,000 that maybe offset against future taxable
income. No tax benefit has been reported in the July 31,
2020 or 2019 financial statements since the potential tax benefit
is offset by a valuation allowance of the same amount. The
change in the valuation allowance for the year ended July 31, 2020
was an increase of $9,100.
On
December 22, 2017, the U.S. government enacted comprehensive tax
legislation commonly referred to as the Tax Cut and Jobs Act (the
“Tax Act”). The Tax Act establishes new tax laws that
affects 2018 and future years, including a reduction in the U.S.
federal corporate income tax rate to 21% effective January 1, 2018.
For certain deferred tax assets and deferred tax
liabilities.
Due to
the change in ownership provisions of the Tax Reform Act of 1986,
net operating loss carry forwards for Federal income tax reporting
purposes are subject to annual limitations. Should a change in
ownership occur, net operating loss carry forwards may be limited
as to use in future years.
ASC
Topic 740 provides guidance on the accounting for uncertainty in
income taxes recognized in a company’s financial statements.
Topic 740 requires a company to determine whether it is more likely
than not that a tax position will be sustained upon examination
based upon the technical merits of the position. If the
more-likely-than-not threshold is met, a company must measure the
tax position to determine the amount to recognize in the financial
statements.
The
Company includes interest and penalties arising from the
underpayment of income taxes in the statements of operations in the
provision for income taxes. As of July 31, 2020, the Company had no
accrued interest or penalties related to uncertain tax positions.
The Company is subject to examination
by the various taxing authorities beginning with the tax year ended
December 31, 2016 (or the tax year ended December 31, 2002 if the
Company were to utilize its NOLs)
NOTE 13 - SUBSEQUENT EVENTS
Management
has evaluated subsequent events pursuant to the requirements of ASC
Topic 855, from the balance sheet date through the date the
financial statements were available to be issued, and has
determined that no material subsequent events exist other than the
following.
Subsequent
to July 31, 2020, the Company sold 1,000,200 shares of common stock
for total proceeds of $30,000.
