NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
Alternative Energy and Environmental Solutions, Inc. (a development stage company) (the "Company") was incorporated under the laws of the State of Nevada on June 10, 2010 to market an innovative new biotechnology that utilizes nutrient stimulants – organic microbes – to extract coalbed methane more efficiently in high-production as well as from low-producing, depleted and abandoned coalmines in the U.S. Coalbed methane is a clean-burning natural gas used for heating in homes and is used to generate electricity.
Activities during the development stage include developing the business plan and raising capital.
(B) Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include valuation of equity based transactions, the valuation of in kind contribution of services and the valuation on deferred tax assets.
(C) Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At July 31, 2013 and 2012, the Company had no cash equivalents.
(D) Loss Per Share
In accordance with the accounting guidance now codified as FASB ASC Topic 260, “
Earnings per Share”
basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
Since the Company reflected a net loss for the years ended July 31, 2013 and 2012, the effect of 6,155,100 and 6,155,100 outstanding warrants, respectively, is anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Alternative Energy & Environmental Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF JULY 31, 2013
(E) Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The net deferred tax liability in the accompanying balance sheets includes the following amounts of deferred tax assets and liabilities:
|
|
July 31, 2013
|
|
|
July 31, 2012
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforward
|
|
|
394,147
|
|
|
|
351,047
|
|
Valuation Allowance
|
|
|
(394,147
|
)
|
|
|
(351,047
|
)
|
Net deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
Net deferred tax liability
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Alternative Energy & Environmental Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF JULY 31, 2013
The valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to utilize all of the net operating loss carryforwards before they will expire through the year 2033.
As of July 31, 2013, the Company has a net operating loss carryforward of approximately $1,022,409 available to offset future taxable income through July 31, 2033. The valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to utilize all of the net operating loss carryforwards before they will expire through the year 2033. The Company’s federal income tax returns for the years ended July 31, 2009 through July 31, 2013 remain subject to examination by the Internal Revenue Service and State Taxing Authorities as of July 31, 2013.
The net change in the valuation allowance for the year ended July 31, 2013 and 2012 was an increase of $43,099 and $53,420, respectively.
The components of income tax expense related to continuing operations are as follows:
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|
2013
|
|
|
2012
|
|
Federal
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|
|
|
|
|
|
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Current
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$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
State and Local
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company's income tax expense differed from the statutory rates (federal 34% and state 4.55%) as follows:
|
|
July 31, 2013
|
|
|
July 31, 2012
|
|
Statutory rate applied to earnings before income taxes:
|
|
$
|
(49,250
|
)
|
|
$
|
(59,434
|
)
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
State income taxes
|
|
|
-
|
|
|
|
-
|
|
Change in deferred tax asset valuation allowance
|
|
|
43,099
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|
|
|
53,420
|
|
Non-deductible expenses
|
|
|
6,151
|
|
|
|
6,014
|
|
Income Tax Expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Alternative Energy & Environmental Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF JULY 31, 2013
(F) Business Segments
The Company operates in one segment and therefore segment information is not presented.
(G) Revenue Recognition
The Company will recognize revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
(H) Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not, or are not, believed by management to have a material impact on the Company’s present or future financial statements.
During the year ended July 31, 2013, a related party paid $2,023 in expenses on Company’s behalf in exchange for a note payable. Pursuant to the terms of the note, the note is non-interest bearing, unsecured and is due on demand. For the year ended July 31, 2013 the Company recorded $31 as an in-kind contribution of interest.
During June 2013, the Company received $7,694 from a related party. Pursuant to the terms of the note, the note is non-interest bearing, unsecured and is due on demand. For the year ended July 31, 2013 the Company recorded $64 as an in-kind contribution of interest.
On November 13, 2012 the Company received $6,034 from an unrelated party. Pursuant to the terms of the note, the note is non-interest bearing, unsecured and is due on demand.
For the year ended July 31, 2013 the Company recorded $260 as an in-kind contribution of interest.
On August 23, 2011, the Company issued an unsecured promissory note in the amount of $10,000 due August 23, 2012 and bearing interest at a rate of 6% per annum. Interest on the outstanding principal balance is payable quarterly in arrears on the last day of each calendar quarter. The Company is currently in default of this note and expects to make the necessary payments whenever the Company is able to make such payments. Then on, on December 28, 2011, the Company issued an additional unsecured promissory note in the amount of $10,000 due December 28, 2012 and bearing interest at a rate of 6% per annum. Interest on the outstanding principal balance is payable quarterly in arrears on the last day of each calendar quarter. The Company is currently in default of this note and expects to make the necessary payments whenever the Company is able to make such payments. As of July 31,2013, the Company recorded $2,222 in accrued interest.
NOTE 3
STOCKHOLDERS’ EQUITY/(DEFICIENCY)
(A) Common Stock and Warrants Issued for Cash
During the year ended July 31, 2012 the Company issued 40,002 units of common stock for $10,000 ($0.25/unit). Each unit consisted of one share of common stock and two warrants to purchase common stock for a total of 40,002 shares of common stock and 80,004 warrants to purchase common stock at an exercise price of $0.83 per share.
For the period ended July 31, 2010, the Company issued 3,037,548 units, for cash. Each unit consisted of one share of common stock and two warrants with a five year life, to purchase common stock for a total of 3,037,548 shares of common stock and 6,075,096 warrants to purchase common stock for $759,376($0.25/share) less stock offering costs of $15,000. In addition, the Company also received the right to immediately call the warrants if the Company’s common stock trades for a period of 20 consecutive days at an average trading price of $1.00 per share or greater (see Note 3(C)). Of the total funds raised, $54,000 was recorded as a subscription receivable. The $54,000 was received August 4, 2010 and $4,175 of stock offering costs were recorded.
The Company also issued 15,000,000 shares of common stock to its founders for $500 ($0.00003 per share) (See note 5).
(B) In-Kind Contribution
For the year ended July 31, 2013, a shareholder of the Company contributed services having a fair value of $15,600 (See Note 5).
For the year ended July 31, 2012, a shareholder of the Company contributed services having a fair value of $15,600 (See Note 5).
For the year ended July 31, 2011, a shareholder of the Company contributed services having a fair value of $15,600 (See Note 5).
For the year ended July 31, 2010, a shareholder of the Company contributed services having a fair value of $2,100 (See Note 5).
Alternative Energy & Environmental Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF JULY 31, 2013
(C) Warrants
The following tables summarize all warrant grants for the period ended July 31, 2013, and the related changes during these periods are presented below.
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|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Warrants
|
|
|
|
|
|
|
Balance at July 31, 2012
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|
6,155,100
|
|
|
$
|
0.83
|
|
Granted
|
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|
-
|
|
|
|
-
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|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at July 31, 2013
|
|
|
6,155,100
|
|
|
|
0.83
|
|
Warrants exercisable at July 31, 2013
|
|
|
6,155,100
|
|
|
$
|
0.83
|
|
Of the total warrants outstanding, 6,155,100 are fully vested, exercisable and non-forfeitable.
These warrants are immediately exercisable at $0.83 per share and are immediately callable by the Company if the Company’s common stock trades for a period of 20 consecutive days at an average trading price of $1.00 per share or greater. This option gives the Company the right, but not the obligation to repurchase the shares of common stock (See Note 3(A)). During the year ended July 31, 2013, the average trading price exceeded $1.00 per share and the options are callable by the Company, although none have been called to date.
(D) Stock Split
On August 22, 2012, a three–for-one forward stock split was declared effective for stockholders of record on June 5, 2012. Per share and weighted average amounts have been retroactively restated in the accompanying financial statements and related notes to reflect this stock split.
NOTE 4
COMMITMENTS
On June 4, 2010, the Company entered into a consulting agreement with a related party to receive administrative and other miscellaneous services. The Company is required to pay $4,500 a month. The agreement is to remain in effect unless either party desires to cancel the agreement (See Note 5).
Alternative Energy & Environmental Solutions, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF JULY 31, 2013
NOTE 5
RELATED PARTY TRANSACTIONS
During the year ended July 31, 2013, a related party paid $2,023 in expenses on Company’s behalf in exchange for a note payable. Pursuant to the terms of the note, the note is non-interest bearing, unsecured and is due on demand. For the year ended July 31, 2013 the Company recorded $31 as an in-kind contribution of interest.
During June, 2013 the Company received $7,694 from a related party. Pursuant to the terms of the note, the note is non-interest bearing, unsecured and is due on demand. For the year ended July 31, 2013 the Company recorded $64 as an in-kind contribution of interest.
For the year ended July 31, 2013, a shareholder of the Company contributed services having a fair value of $15,600 (See Note 3(B)).
For the year ended July 31, 2012, a shareholder of the Company contributed services having a fair value of $15,600 (See Note 3(B)).
For the year ended July 31, 2011, a shareholder of the Company contributed services having a fair value of $15,600 (See Note 3(B)).
For the year ended July 31, 2010, a shareholder of the Company contributed services having a fair value of $2,100 (See Note 3(
B
)).
On June 18, 2010, the Company issued 15,000,000 shares of common stock to its founders having a fair value of $500 ($0.00003/share) in exchange for cash provided (See Note 3 (
A
)).
On June 4, 2010, the Company entered into a consulting agreement with Tryon Capital Ventures, LLC (“Tryon”), a related party, to receive administrative and other miscellaneous services. Peter Coker is a 50% owner of Tryon. The Company is required to pay $4,500 a month. The agreement is to remain in effect unless either party desires to cancel the agreement (See Note 4).
NOTE 6
GOING CONCERN
As reflected in the accompanying financial statements, the Company is in the development stage with limited operations, a working capital and stockholders’ deficiency of $271,707, used cash in operations of $786,327 from inception and has a net loss since inception of $1,071,663. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.