Notes to Consolidated Financial
Statements
July 31, 2021
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, 2021
and 2020.
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.
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, 2021, the
Company had 1,911,330 of potentially dilutive shares from warrants.
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 500,000 warrants. The diluted loss per share is the same
as the basic loss per share for the years ended July 31, 2021 and
2020, as the inclusion of any potential shares would have had an
antidilutive effect due to our loss from operations.
Recently issued accounting pronouncements
In
November 2019, the FASB issued ASU 2019-10, Financial
Instruments—Credit Losses (Topic 326), Derivative and Hedging
(Topic 815), and Leases (Topic 842). This new guidance became
effective for us on January 1, 2020. The adoption of this guidance
did not have a material impact on the Company’s consolidated
financial statements.
On January 1, 2020 the Company adopted ASU
2017-04, Intangibles - Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The ASU eliminates
Step 2 of the goodwill impairment test and the qualitative
assessment for any reporting unit with a zero or negative carrying
amount. The ASU also requires an entity to disclose the amount of
goodwill allocated to each reporting unit with a zero or negative
carrying amount. The adoption did not have an impact on the
Company’s consolidated financial
statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40)—Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting
models for convertible debt instruments and convertible preferred
stock. For convertible instruments with conversion features that
are not required to be accounted for as derivatives under Topic
815, Derivatives and
Hedging, or that do not result
in substantial premiums accounted for as paid-in capital, the
embedded conversion features no longer are separated from the host
contract. ASU 2020-06 also removes certain conditions that should
be considered in the derivatives scope exception evaluation under
Subtopic 815-40, Derivatives and
Hedging—Contracts in Entity’s Own
Equity, and clarify the scope
and certain requirements under Subtopic 815-40. In addition, ASU
2020-06 improves the guidance related to the disclosures and
earnings-per-share (EPS) for convertible instruments and contract
in entity’s own equity. ASU 2020-06 is effective for public
business entities that meet the definition of a Securities and
Exchange Commission (SEC) filer, excluding entities eligible to be
smaller reporting companies as defined by the SEC, for fiscal years
beginning after December 15, 2021, including interim periods within
those fiscal years. For all other entities, the amendments are
effective for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years. The Board specified that an entity should adopt the guidance
as of the beginning of its annual fiscal year. The Company is
currently evaluation the impact this ASU will have on its
consolidated financial statements.
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, 2021, the Company has an accumulated deficit
of $3,242,058. 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.
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
Richey #1 well was plugged on January 3, 2018. As of July 31, 2021, management determined that
the asset carried on the balance sheet was fully impaired resulting
in a loss on impairment of $28,800 for the year ended July 31,
2021.
NOTE 5 – WINNEMUCCA MOUNTAIN PROPERTY
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 commitments
include payments for rentals payable to BLM and also for the
staking of new claims adjoining the existing claims. The work
commitment was to be conducted prior to December 31, 2020. As of
July 31, 2021 and 2020, the Company has accounted for $285,453 and
$334,000, respectively, in its accrued liabilities.
The Company has received notice, effective October 27, 2020, that
its Option Agreement to earn an interest in the Winnemucca Mountain
Gold Property has been terminated for being in default of certain
terms and conditions of the Agreement. Management is in discussions
with the principals of the Winnemucca property to resolve any
outstanding obligations.
During the year ended July 31, 2021, the Company received notice of
the current amount due resulting in the reduction of the liability
to $285,453. As a result, the Company recognized a gain on debt
forgiveness of $23,616.
The Company does not fully agree with the amount due and is working
to resolve the issue.
NOTE 6 - 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 matured on March
26, 2020. As of July 31, 2020, there was $85,000 and $50,908 of
principal and accrued interest, respectively, due on this loan. On
July 31, 2021, the Note holder converted this note in full into
3,822,659 shares of common stock and 1,911,330 warrants.
The shares were value at $0.04.
The Company recognized a loss on the conversion of
$6,857.
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, 2021 and 2020, there is $5,769 and
$4,257, respectively, of accrued interest due on this loan. This
note is currently in default.
NOTE 7 – 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, 2021, there is
$15,000 and $4,875 of principal and accrued interest, respectively,
due on this loan. As of July 30, 2020, there is $15,000 and $3,375
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. On September 9,
2020, the Company repaid $5,000 on this loan. On March 3, 2021, the
party loaned another $5,000 to the Company. The loan is unsecured,
non-interest bearing and due on demand.
As of
April 30, 2021, 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, 2021, there is
$2,232 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, 2021, there is
$8,745 of interest accrued on this note.
NOTE 8 - COMMON STOCK
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.
On May 5, 2021, the Company issued 5,000,000 shares of common stock
to Foster S Zeiders, per the terms of the agreement with
Calihoma Partners LLC (Note 10). The shares are being held by the
transfer agent and are disclosed as issued but not
outstanding.
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, 2021, the Company sold 2,667,200
shares of common stock at $0.03 per share for total cash
proceeds of $50,000.
On July 31, 2021, the Company issued 250,000 shares of common stock
in conversion of a $25,000 accounts payable. The shares were value
at $0.04, the closing stock price on the date of grant. The Company
recognized a $15,000 gain on the conversion.
As discussed in Note 6 a note holder converted his note in
full into 3,822,659 shares of common stock.
Refer to Note 11 for stock issued to related parties.
NOTE 9 – WARRANTS
The Company issued 1,911,330 warrants as part of a debt conversion
(Note 6). The warrants were evaluated for purposes of
classification between liability and equity. The warrants do not
contain features that would require a liability classification and
are therefore considered equity. The Black Scholes pricing model
was used to estimate the fair value of $72,631 of the Warrants with
the following inputs: stock price of $0.04, exercise price of
$0.08, 2-year term, volatility of 313%, and a risk free rate of
0.19.
|
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contract Term
|
|
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
|
|
Granted
|
1,911,330
|
.08
|
2
|
|
Expired
|
(500,000)
|
0.15
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Exercisable at July
31, 2021
|
1,911,330
|
$0.15
|
2
|
NOTE 10 - COMMITTEMENTS AND CONTINGENCIES
On
April 13, 2021, the Company entered into an agreement with Foster
S. Zeiders, one of the owners of the Calihoma Partners LLC
(“Fosters’). Per the terms of the agreement Foster is
willing to transfer to NMEX Natural Gas LLC, (a subsidiary of the
Company still to be created), all of his interest, including but
not limited to a 35% back-in after payout interest in Calihoma
Partners LLC which has 60% ownership in West Lenapah Project
including the assets and project definition as described in the
agreement. Foster hereby agrees to transfer one hundred (100%)
percent of his membership interests in Calihoma Partners LLC, in
exchange for 5,000,000 shares of common stock to be issued to him
and an additional 5,000,000 shares to be issued pursuant to a
specified timeframe.
During the initial period of this Agreement if either party hereto
for reasonable cause determines that membership interests in
Calihoma Partners LLC should no longer be held by NMEX Natural Gas
LLC. Foster shall exchange his shares in Northern for the
membership interests in NMEX Natural Gas LLC, and Northern will
convey such membership interests to Foster in exchange for his
stock in Northern, and NMEX Natural Gas LLC shall become wholly
owned by Foster. Foster shall serve as Manager of NMEX Natural Gas
LLC until Northern determines to convey the interests in Calihoma
Partners or one year whichever is shorter. As of July 31, 2021, the
initial 5,000,000 shares of common stock have been issued but are
being held by the transfer agent pending final confirmation that
the agreement is finalized.
NOTE 11 - RELATED PARTY TRANSACTIONS
For the years ended July 31, 2021 and 2020, total payments of $60,000 and $60,000,
respectively, were made to Noel Schaefer, a Director of the
Company, for consulting services. As of July 31,
2021, and July 31, 2020 there is
$32,500 and $27,500 credited to accounts
payable.
As of July 31, 2021 and July
31, 2020, there is $2,200 and $2,200, respectively, credited to
accounts payable for amounts due to Rachel Boulds, CFO, for
consulting services.
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, 2021, 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.
During the year ended July 31, 2021, the Company sold 2,500,000
shares of common stock to Mr. Miranda at $0.02 per share for total
cash proceeds of $50,000. Mr. Miranda purchased an additional
600,000 shares of common stock at $0.03 per shares for $18,000. The
600,000 shares have not been issued by the transfer agent as of
July 31, 2021, so are disclosed as common stock to be
issued.
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
|
$231,000
|
$9,100
|
|
Other nondeductible
expenses
|
194,600
|
-
|
|
Less: valuation
allowance
|
(425,600)
|
(9,100)
|
|
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
|
$250,700
|
$964,100
|
|
Less: valuation
allowance
|
(250,700)
|
(964,100))
|
|
Net deferred tax
asset
|
$-
|
$-
|
At July
31, 2021, the Company had net operating loss carry forwards of
approximately $964,100 that maybe offset against future taxable
income. No tax benefit has been reported in the July 31,
2021 or 2020 financial statements since the potential tax benefit
is offset by a valuation allowance of the same
amount.
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, 2021, 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, 2017 (or the tax year ended December 31, 2003 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, 2021, the Company issued the 600,000 due to
Mr. Miranda. In addition, Mr. Miranda
purchased as an additional 2,100,000 shares for
$63,000.
Subsequent
to July 31, 2021, the Company sold 50,000 shares of common stock
for total proceeds of $5,000.
Subsequent
to July 31, 2021, note holders converted $48,400 into 484,000
shares of common stock.
