NORTHERN MINERALS & EXPLORATION LTD. - Quarter Report: 2023 April (Form 10-Q)

PART I – FINANCIAL INFORMATION

NORTHERN MINERALS & EXPLORATION LTD.

NORTHERN MINERALS & EXPLORATION LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these unaudited consolidated financial statements.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NORTHERN MINERALS & EXPLORATION LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2023 AND 2022

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NORTHERN MINERALS & EXPLORATION LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Northern Minerals & Exploration Ltd.

Notes to Consolidated Financial Statements

April 30, 2023

(Unaudited)

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 Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending July 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2022.

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 April 30, 2023 and July 31, 2022.

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.

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 in the past, 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 nine months ended April 30, 2023, the Company had no potentially dilutive shares of common stock. For the nine months ended April 30, 2022, the Company had 1,911,330 of potentially dilutive shares from warrants. The diluted loss per share is the same as the basic loss per share for the three and nine months ended April 30, 2023, as the inclusion of any potential shares would have had an antidilutive effect due to our loss from operations.

Recently issued accounting pronouncements

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 unaudited 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 April 30, 2023, the Company has an accumulated deficit of $3,513,721. 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 — 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 Optionors. 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. During the year ended July 31, 2021, the Company received notice from the Optionors of the current amount due resulting in the reduction of the liability to $285,453. As of April 30, 2023 and July 31, 2022, the Company has accounted for $285,453 and $285,453, respectively, in its accrued liabilities.

The Company has received notice from the Optionors, 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.

A settlement agreement was executed on June 1, 2023. Refer to Note 9.

NOTE 5 — 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 April 30, 2023, there is $15,000 and $7,500 of principal and accrued interest, respectively, due on this loan. As of July 31, 2022, there was $15,000 and $6,375 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 March 3, 2021, the party loaned another $5,000 to the Company. During the year ended July 31, 2022, the Company repaid $15,000 of the loan. The loan is unsecured, non-interest bearing and due on demand. As of April 30, 2023, there is a balance due of $4,000.

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 April 30, 2023, there is $17,215 of interest accrued on this note. This note is in default.

NOTE 6 — COMMON STOCK TRANSACTION

During the nine months ended April 30, 2023, the Company sold 4,000,000 shares of common stock for total cash proceeds of $80,000. As of April 30, 2023, the shares have not yet been issued by the transfer agent and are disclosed as common stock to be issued.

Refer to Note 8 for shares sold to a related party.

NOTE 7 — COMMITMENTS 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 interest in Calihoma Partners or one year whichever is shorter. As of April 30, 2023, 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 8 — RELATED PARTY TRANSACTIONS

For the nine months ended April 30, 2023 and 2022, total payments of $54,000 and $50,000, respectively, were made to Noel Schaefer, a Director of the Company, for consulting services. As of April 30, 2023, and July 31, 2022, there is $26,500 and $26,500 credited to accounts payable.

As of April 30, 2023 and July 31, 2022, there is $0 and $1,900, respectively, credited to accounts payable for amounts due to Rachel Boulds, CFO, for consulting services.

On January 9, 2023, Ivan Webb, CEO, advanced the Company $5,000. The advance was intended as a short term, non-interest bearing and due on demand. The advance was repaid on March 13, 2023.

During the nine months ended April 30, 2023, Mr. Webb purchased 500,000 shares of common stock for $10,000. As of April 30, 2023, the shares have not yet been issued by the transfer agent and are disclosed as common stock to be issued.

NOTE 9 — 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 issued and has determined that there are the following material subsequent events to disclose.

On June 1, 2023, the Company, and Golden Sands Exploration Inc, entered into a Settlement and Promissory Note Agreement for the outstanding amount due under the Winnemucca Option Agreement (Note 4). Per the terms of the agreement the amount owing is reduced to $85,000. The Company issued a Promissory Note (“Note”) to Golden Sands Exploration Inc, for $85,000, dated June 1, 2023. The note bears interest at 6% and matures on June 1, 2026. Interest is to be paid quarterly with the first payment due on or before September 1, 2023.

Forward-Looking Statements

This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs and the risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our unaudited financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Northern Minerals & Exploration Ltd., unless otherwise indicated.

General Overview

We are an emerging natural resource company operating in oil and gas production in central Texas and exploration for gold and silver in northern Nevada.

We will not be pursuing any bitcoin related business.

Current Business

Refer to NOTE 4 for property information.

Results of Operations

Results of Operations for the Three Months Ended April 30, 2023 and 2022

Revenue

We had no revenue for the three months ended April 30, 2023 and 2022.

Officer compensation

Officer compensation was $6,600 and $6,600 for the three months ended April 30, 2023 and 2022, respectively. Officer compensation is paid to our CFO.

Consulting – related party

Consulting – related party services were $18,000 and $15,000 for the three months ended April 30, 2023 and 2022, respectively. Fees are paid to Noel Schaefer, Director, but are recorded as consulting fees. Mr. Schaefer’s fee was increased from $5,000 to $6,000 per month on August 1, 2022.

Professional fees

Professional fees were $10,000 and $5,220 for the three months ended April 30, 2023 and 2022, respectively, an increase of $4,780. Professional fees generally consist of legal, audit and accounting expense. The increase can be attributed to audit fees billed during the period.

General and administrative

General and administrative expenses were $7,568 and $4,452 for the three months ended April 30, 2023 and 2022, respectively, an increase of $3,116 or 70%.

Interest expense

During the three months ended April 30, 2023 and 2022, we had interest expense of $1,585 and $1,585, respectively.

Net Loss

For the three months ended April 30, 2023, we had a net loss of $43,753 as compared to a net loss of $32,857 for the three months ended April 30, 2022, an increase of $10,896, or 33.2%. The increase is due to the increase audit fees, related party consulting and G&A expenses.

Results of Operations for the Nine Months Ended April 30, 2023 and 2022

Revenue

We had no revenue for the nine months ended April 30, 2023 and 2022.

Officer compensation

Officer compensation was $19,800 and $19,800 for the nine months ended April 30, 2023 and 2022, respectively. Officer compensation is paid to our CFO.

Consulting – related party

Consulting – related party services were $54,000 and $50,000 for the nine months ended April 30, 2023 and 2022, respectively. Fees are paid to Noel Schaefer, Director, but are recorded as consulting fees. Mr. Schaefer’s fee was increased from $5,000 to $6,000 per month on August 1, 2022.

Professional fees

Professional fees were $26,500 and $30,615 for the nine months ended April 30, 2023 and 2022, respectively, a decrease of $4,115 or 13.4%. Professional fees generally consist of legal, audit and accounting expenses. The decrease can be attributed to a $2,500 decrease in audit fees and a decrease in legal expense.

General and administrative

General and administrative expenses were $19,271 and $19,924 for the nine months ended April 30, 2023 and 2022, respectively, a decrease of $653 or 3.3%.

Interest expense

During the nine months ended April 30, 2023 and 2022, we had interest expense of $4,755 and $13,961, respectively. The decrease is due to the repayment and/or conversion of debt prior to the current quarter.

Other income

During the nine months ended April 30, 2023 and 2022, we recognized other income of $1,946 and $2,287. We also recognized a gain on forgiveness of debt of $17,167 in the prior period.

Net Loss

For the nine months ended April 30, 2023, we had a net loss of $122,380 as compared to a net loss of $114,846 for the nine months ended April 30, 2022, an increase of $7,534, or 6.6%.

Liquidity and Financial Condition

Operating Activities

Cash used by operating activities was $109,525 for the nine months ended April 30, 2023. Cash used for operating activities was $132,541 for the nine months ended April 30, 2022.

Financing Activities

Net cash provided by financing activities was $90,000 for the nine months ended April 30, 2023. We received $80,000 from the sale of our common stock, $10,000 of which was from a related party. We also received and repaid a $5,000 loan from a related party.

Net cash provided by financing activities was $155,550 for the nine months ended April 30, 2022. We received $165,550 from the sale of our common stock and $5,000 from a loan payable, which was offset by repayment of $15,000.

We had the following loans outstanding as of April 30, 2023:

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 April 30, 2023, there is $15,000 and $7,500 of principal and accrued interest, respectively, due on this loan.

As of April 30, 2023, there is a balance due of $4,000 due to third party.

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 April 30, 2023, there is $17,215 of interest accrued on this note. This note is in default.

We will require additional funds to fund our budgeted expenses over the next twelve months. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable. We need to raise additional funds in the immediate future in order to proceed with our budgeted expenses.

Off-Balance Sheet Arrangements

We have no 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 is material to stockholders.

Critical Accounting Policies

Refer to Note 2 of our financial statements contained elsewhere in this Form 10-Q for a summary of our critical accounting policies and recently adopted and issued accounting standards.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of quarter covered by this report. Based on the evaluation of these disclosure controls and procedures the chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective.

Changes in Internal Controls

During the quarter covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

PART II – OTHER INFORMATION

We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

During the three months ended April 30, 2023, the Company sold 2,000,000 shares of common stock for total cash proceeds of $40,000. Proceeds from the sale are being used for general operating expenses.

None. 

Not applicable.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.