# MMEX Resources Corp: Form 10-Q for the period ended Jul 31, 2020

- Company: [MMEX Resources Corp](/companies/mmex.md) (CIK 1440799)
- Form: 10-Q
- Filed: 2020-09-21
- Accepted by EDGAR: Sep 21, 2020, 11:25 ET
- Period: 2020-07-31
- Accession: 0001477932-20-005505
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1440799/000147793220005505/mmex_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1440799/000147793220005505/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-07-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-05-01 to 2020-07-31 | $0 | us-gaap:Revenues |
| Selling, general and administrative | 3 months, 2020-05-01 to 2020-07-31 | $183.3k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-05-01 to 2020-07-31 | −$229.7k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2020-05-01 to 2020-07-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-05-01 to 2020-07-31 | $403.5k | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2020-05-01 to 2020-07-31 | $0.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-05-01 to 2020-07-31 | 25,000,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-05-01 to 2020-07-31 | −$72.5k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-05-01 to 2020-07-31 | $0 | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2020-07-31 | $14.4k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-07-31 | $30.3k | us-gaap:AssetsCurrent |
| Total assets | at 2020-07-31 | $529.5k | us-gaap:Assets |
| Current liabilities | at 2020-07-31 | $5.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-07-31 | $5.9m | us-gaap:Liabilities |
| Long-term debt | at 2020-07-31 | $123.1k | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2020-07-31 | −$5.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,379 characters.

The following discussion and analysis constitute forward-looking statements for purposes of the Securities Act and the Exchange Act and as such involves known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect”, “estimate”, “anticipate”, “predict”, “believes”, “plan”, “seek”, “objective” and similar expressions are intended to identify forward-looking statements or elsewhere in this report. Important factors that could cause our actual results, performance or achievement to differ materially from our expectations are discussed in detail in Item 1 above. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by such factors. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Notwithstanding the foregoing, we are not entitled to rely on the safe harbor for forward looking statements under 27A of the Securities Act or 21E of the Exchange Act as long as our stock is classified as a penny stock within the meaning of Rule 3a51-1 of the Exchange Act. A penny stock is generally defined to be any equity security that has a market price (as defined in Rule 3a51-1) of less than $5.00 per share, subject to certain exceptions.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto.

### Overview

#### Business Plan

MMEX Resources Corporation was formed as a Nevada corporation in 2005. The current management team lead an acquisition of the Company (then named Management Energy, Inc.) through a reverse merger completed on September 23, 2010 and changed the Company’s name to MMEX Mining Corporation on February 11, 2011. As of April 12, 2016, the Company changed its name from MMEX Mining Corporation to MMEX Resources Corporation to reflect the change in its business plan to an energy focus in the Americas.

We are a development stage company engaged in the exploration, extraction, refining and distribution of oil, gas, petroleum products and electric power. We plan to focus on the acquisition, development and financing of oil, gas, refining and electric power projects in the Americas using the expertise of our principals to identify, finance and acquire these projects.

The focus of our current business plan is to build crude oil distillation units and refining facilities in the Permian Basin in West Texas (hereinafter referred to as the “Projects”, or the “Distillation Unit” or the “CDU” or the “Refinery”). We intend to implement our current business plan now in several phases, First, through our subsidiary, Pecos Refining, we intend to build and commence operation of one 10,000 bpd crude oil Distillation Unit, now permitted by the TCEQ, that will produce a non-transportation grade diesel primarily for sale in the local market for drilling mud and frac fluids, along with naphtha and residual fuel oil to be sold to other refiners. In additional phases as separate projects we are contemplating building a second and possibly a third CDU with capacity of 10,000 bpd each. We contemplate that these projects will be built on land owned or land being negotiated for purchase by the Company. As of this date, we also are in negotiations to acquire an existing refinery in the Louisiana Gulf Coast-Mississippi River area with a capacity of 46,000 bpd (the “Louisiana Gulf Project”).

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Initially, Pecos Refining, the owner of the 1st Distillation Unit, and the other entities we may form to own and operate the 2nd and 3rd Distillation Units, and the Hydrotreater will be wholly owned subsidiaries of the Company. However, the construction of the Distillation Units and Hydrotreater will require substantial equity and debt financing, far beyond the expected resources of the Company, and we anticipate that these Subsidiaries will obtain equity and debt financing to finance the cost of construction. We anticipate these Subsidiaries will be able to finance approximately 65 to 70% of the total costs of the Distillation Units through debt financing, and the remaining 35 to 30% of the total costs would be financed through equity investments. To the extent these Subsidiaries raise money through the issuance of equity securities, our ownership will be diluted. We intend to retain managerial control of the Subsidiaries; however, our economic ownership of such entities may be a minority interest. As such, we will be entitled to only a portion of any future distributions made by these Subsidiaries.

#### Current Business Operations and Strategy

The Company’s business plan has not changed and it continues to evolve into additional potential components:

|  |  |
| --- | --- |
| ♦ | The addition of a 2nd CDU at our present site Pecos County Texas site and potentially a 3rd CDU at another location |
| ♦ | Adding a Crude by Rail transportation and export component |
| ♦ | Adding a Hydrotreater as separate component to produce transportation grade diesel |
| ♦ | Development of a Terminal and Storage facility on the Texas Gulf Coast |
| ♦ | Organization of a Trading Company for exporting physical petroleum products to Latin American markets |
| ♦ | Associated gas and gas liquids treating |
| ♦ | Development of a Solar Project to power the Projects by solar energy |
| ♦ | Acquisition of an existing refinery in the Louisiana Gulf Coast-Mississippi River area |

We plan on marketing and distributing refined products in the Western areas of the United States and Mexico, and we may export product to Latin America. The Projects will be located on the Texas Pacifico Railroad rail route 20 miles Northeast of Fort Stockton, Texas, approximately 1.5 miles from the Sulphur Junction on the Texas Pacifico Railroad (“TXPF”) . Effective August 14, TXPF awarded a $14M contract to start rail improvement work immediately as part of a phased, multi-year capex program to further enhance the railroad. At the same time, the parent company of TXPF, Grupo México Transportes, through Ferromex, has also embarked on a project of similar size and scope (~$15M) on the Mexican side of the border going towards Chihuahua, Mexico. These joint projects are projected to be completed by the end of the first quarter of 2021, which will allow rail traffic over the bridge at Presidio, Texas /Ojinaga, Mexico and this corridor in April.

Once these rail improvements are completed, the TXPF will connect to the Ferromex RR in Ojinago, Mexico, giving us access to the western Mexico markets.

The Company has hired VFuels Oil & Gas Engineering and Saulsbury Industries (the “EPCs”) with respect to the construction of the 1st CDU. The total indicated cost estimate including continencies and owner costs plus or minus 10% is $ 112 Million for the 1st CDU. Once we close on the financing and issue the notice to proceed, the completion and start-up date guaranteed by the EPCs is 15 months. We expect the 2nd CDU to be less in cost than the 1st CDU and the Hydrotreater capex to be in the range of $25,000,000. The total indicated cost of the 1st CDU, the 2nd CDU and the Hydrotreater is in the range of $250 million.

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Constructing the Projects will require a significant number of governmental permits and approvals. The principal permit for the construction is the Air Permit issued by TCEQ, which has been received for the 1st CDU.

Through July 31, 2020, we have had no revenues and have reported continuing losses from operations.

### Results of Operations

#### Revenues

We have not yet begun to generate revenues.

#### General and Administrative Expenses

Our general and administrative expenses decreased to $183,325 for the three months ended July 31, 2020 from $246,107 for the three months ended July 31, 2019. The decrease resulted from lower salaries, travel and other expenses associated with securing debt financing and administrative activities of our refinery project due to limitations on funding during the current fiscal year.

#### Refinery Start-Up Costs

During the three months ended July 31, 2020 and 2019, our refinery start-up costs totaled $37,700 and $51,400, respectively. We expense the direct costs incurred prior to opening our proposed crude oil refinery in Pecos County, Texas, including acquisition of refinery rights, planning, design and permitting. These amounts represent reduced levels due to financing constraints. The levels of spending on the development of our refinery will vary from period to period based on availability of financing.

#### Depreciation and Amortization Expense

Our depreciation and amortization expense results from the depreciation of refinery land improvements and amortization of refinery land easements and totaled to $8,718 and $8,587 for the three months ended July 31, 2020 and 2019, respectively.

#### Other Income (Expense)

Our interest expense includes interest accrued on debt, amortization of debt discount and penalties assessed on debt. Interest expense totaled $554,089 and $687,972 for the three months ended July 31, 2020 and 2019, respectively. This decrease in interest expense is due no material new non-related party convertible debt in the current year second and third quarters, resulting in less amortization of debt discount to interest expense, partially offset by an increase in loan penalties.

We reported gains on derivative liabilities of $1,187,352 and $255,127 for the three months ended July 31, 2020 and 2019, respectively. We have issued warrants that contain certain anti-dilution provisions that we have identified as derivatives. We also identified the variable conversion feature of certain convertible notes payable as derivatives. We estimate the fair value of the derivatives using multinomial lattice models that value the warrants based on a probability weighted cash flow model using projections of the various potential outcomes. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility and management’s estimates of various potential equity financing transactions. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

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We reported a gain on extinguishment of liabilities of $1,992 for the three months ended July 31, 2019 related to the issuance of our common shares in payment of accrued expenses. Where shares of our common stock are issued in extinguishment of liabilities, we record the value of the shares issued at the current market price, which at times may differ from the book value of the debt, resulting in a gain or loss on extinguishment of liabilities. We reported no gain or loss on extinguishment of liabilities for the three months ended July 31, 2020.

#### Net Income (Loss)

As a result of the above, we reported net income of $403,520 for the three months ended July 31, 2020 and a net loss of $736,947 for the three months ended July 31, 2019.

#### Non-Controlling Interest in Income of Consolidated Subsidiaries

Currently, we have no activity in our consolidated subsidiaries. Non-controlling interest in income of consolidated subsidiaries was $0 for all periods presented

#### Net Income (Loss) Attributable to the Company

Because we had no non-controlling interest in income of consolidated subsidiaries, net loss attributed to the Company was the same as net income (loss) – net income of $403,520 for the three months ended July 31, 2020 net loss of $736,947 for the three months ended July 31, 2019.

### Liquidity and Capital Resources

#### Working Capital

As of July 31, 2020, we had current assets of $30,274, including cash of $14,352, and current liabilities of $5,850,941, resulting in a working capital deficit of $5,820,667. Included in our current liabilities as of July 31, 2020 are derivative liabilities of $1,426,683, which we do not anticipate will require the payment of cash. As further discussed in the notes to our condensed consolidated financial statements, we have substantial debt that is in default.

#### Sources and Uses of Cash

Our sources and uses of cash for the three months ended July 31, 2020 and 2019 were as follows:

|  | 2020 | 2019 |
| --- | ---: | ---: |
| Cash, beginning of period | $66,830 | $55,188 |
| Net cash used in operating activities | (72,478) | (314,882) |
| Net cash used in investing activities | - | (2,463) |
| Net cash provided by financing activities | 20,000 | 265,300 |
| Cash, end of period | $14,352 | $3,143 |

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We used net cash of $72,478 in operating activities for the three months ended July 31, 2020 as a result of our net income of $403,520, non-cash expenses totaling $124,146, decrease in prepaid expenses and other current assets of $7,223, and increases in accounts payable of $39,214, accrued expenses of $431,286 and accounts payable and accrued expenses – related party of $109,485, partially offset by non-cash gain of $1,187,352.

We used net cash of $314,882 in operating activities for the three months ended July 31, 2019 as a result of net loss of $736,947, non-cash gains totaling $257,119 and decrease in accounts payable of $15,848, partially offset by non-cash expenses totaling $599,740, decrease in prepaid expenses and other current assets of $11,115, and increases in accrued expenses of $64,358 and accounts payable and accrued expenses – related party of $19,819.

Net cash used in investing activities for the three months ended July 31, 2019 was $2,463, comprised of the purchase of property and equipment. We had no net cash provided by or used in investing activities for the three months ended July 31, 2020.

Net cash provided by financing activities for the three months ended July 31, 2020 was $20,000, comprised of proceeds from convertible notes payable - related party of $10,000 and proceeds from an SBA express bridge loan of $10,000.

Net cash provided by financing activities for the three months ended July 31, 2019 was $265,300, comprised of proceeds from convertible notes payable of $365,300, partially offset by repayments of convertible notes payable of $100,000. We had net cash provided by financing activities of $140,000 for the three months ended July 31, 2018, comprised of proceeds from convertible notes payable.

#### Going Concern Uncertainty

Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $43,054,287 and a total stockholders’ deficit of $5,321,441 at July 31, 2020, and have reported negative cash flows from operations since inception. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months, and we expect to have ongoing requirements for capital investment to implement our business plan, including the construction of our proposed refinery project. Finally, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which we operate.

Since inception, our operations have primarily been funded through private debt and equity financing, and we expect to continue to seek additional funding through private or public equity and debt financing. Most recently, we have funded our operations from the proceeds of convertible debt. However, we currently do not have sufficient authorized shares of common stock to secure additional convertible debt funding. The ongoing Covid-19 worldwide pandemic has negatively impacted capital markets adding to the difficulty of raising either debt or equity financing.

Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, raise substantial doubt that we will be able to continue as a going concern for a reasonable period of time.

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The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

#### Capital Resources

We have not generated any revenues or operating cash flows. As a result, we have significant short-term cash needs. Our principal source of operating capital has been provided from the issuance of convertible notes payable. During the three months ended July 31, 2020 we received net proceeds of $10,000 from the issuance of a convertible note payable – related party. We also received proceeds from an SBA express bridge loan of $10,000. These amount compare, however, to net proceeds of $365,300 received from the issuance of convertible notes payable during the three months ended July 31, 2019.

Currently, all of our authorized shares of common stock are either issued or reserved for issuance of outstanding warrants, stock options and convertible notes payable. Therefore, no common shares are available for share issuances other than those shares included in the reserves established for debt holders. The lack of authorized shares currently limits our ability to raise capital through convertible debt financing

In addition, we do not expect to have the financial resources necessary to complete the proposed Refinery projects. The Company expects to operate the Distillation Unit through its subsidiary, Pecos Refining, and to operate the Large Refinery through another subsidiary set up for such purpose. The construction of the Distillation Unit and the Large Refinery will require substantial equity and debt financing, far beyond the expected resources of the Company. We anticipate that these Subsidiaries will obtain typical project development financing for the construction and development of the Distillation Unit and the Large Refinery and that such financings will be composed of both debt and equity financings. We anticipate these Subsidiaries will be able to finance approximately 80% of the total costs of the Distillation Unit and the Large Refinery through debt financing, and the remaining 20% of the total costs would be financed through equity investments. The Company has had only preliminary discussions with prospective equity sources regarding the financing of these projects and it is unclear at this time if we will be able to obtain such financing and, if so, how much equity in the Subsidiaries the equity investors will require in order to provide the financing. Any equity financing into which a Subsidiary enters will dilute the Company’s ownership of such Subsidiary. In addition, while the Company believes that the Refinery’s cost is financeable in large part through debt, it has not yet obtained a letter of intent or commitment for such financing.

### Current and Future Impact of Covid-19

The Covid-19 pandemic continues to have a material negative impact on capital markets. Without a current source of revenue, we are currently dependent on debt or equity financing to fund our operations and execute our business plan. We believe that the impact on capital markets of Covid-19 may make it more costly and more difficult for us to access these sources of funding. Effective April 20, 2020, the Company received loan proceeds of $167,900 in connection with the Paycheck Protection Program of the United States Small Business Administration (“SBA”) and the CARES Act implemented in response to the Covid-19 pandemic. The loan may be forgiven pursuant to the provisions of the Act. See Note 10 to the Consolidated Financial Statements.

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### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

### Critical Accounting Policies

Our results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, investments, intangible assets, income taxes, financing operations, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For further information on our significant accounting policies see the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 30, 2019 filed with the SEC and Note 2 to our condensed consolidated financial statements included in this quarterly report. There were no changes to our significant accounting policies during the three months ended July 31, 2020. The following is a description of those significant accounting policies that involve estimates and judgment by management.

### Derivative liabilities

The Company has issued warrants and stock options, certain of which contain anti-dilution provisions that have been identified as derivatives. In addition, the Company has identified the conversion feature of convertible notes payable as derivatives. As of July 31, 2020, the number of warrants or common shares to be issued under these agreements is indeterminate; therefore, the Company concluded that the equity environment is tainted and all additional warrants, stock options and convertible debt are included in the value of the derivatives. We estimate the fair value of the derivatives using multinomial lattice models that value the derivative liabilities based on a probability weighted cash flow model using projections of the various potential outcomes. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility and management’s estimates of various potential equity financing transactions. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

### Fair value of financial instruments

Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, *Fair Value Measurements and Disclosures,* and ASC 825, *Financial Instruments,* the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, prepaid expense and other current assets, accounts payable, accrued expenses and notes payable reported on the accompanying consolidated balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.

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An entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value using a hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy prioritized the inputs into three levels that may be used to measure fair value:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in markets that are not active.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:

| July 31, 2020 | Total | Level 1 | Level 2 | Level 3 |
| --- | ---: | ---: | ---: | ---: |
| Derivative liabilities | $1,426,683 | $- | $- | $1,426,683 |

| April 30, 2020 | Total | Level 1 | Level 2 | Level 3 |
| --- | ---: | ---: | ---: | ---: |
| Derivative liabilities | $2,607,433 | $- | $- | $2,607,433 |

## Controls and procedures

As filed, 5,091 characters.

### (a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(c) and 15d – 15(e). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Securities Exchange Act”) is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our condensed consolidated financial statements included in this quarterly report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:

1\. As of July 31, 2020, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

2\. As of July 31, 2020, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.

3\. As of July 31, 2020, we did not establish a formal written policy for the approval, identification and authorization of related party transactions.

4\. As of July 31, 2020, we had no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to ensure that all transactions are accounted for accurately and in a timely manner.

Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of July 31, 2020, based on the criteria established in “2013 Internal Control-Integrated Framework” issued by the COSO.

### (b) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Filed Sep 21, 2020.
Source: SEC EDGAR, the filing index for accession 0001477932-20-005505. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.