DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2024

BUSINESS SEGEMENTS

DISCONTINUED OPERATIONS

NOTE 11 – DISCONTINUED OPERATIONS

As described in Note 1, on March 11, 2024, the Company shut down the operations of USAMSA and announced its plans to sell its USAMSA subsidiary, operations, or assets over the next year. The accounting requirements for reporting USAMSA as a discontinued operation were met in the first quarter of 2024. Accordingly, the condensed consolidated financial statements and notes to the condensed consolidated financial statements reflect the results of USAMSA as a discontinued operation and are excluded from continuing operations and segment results for all periods presented.

Our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, and Condensed Consolidated Statements of Cash Flows report discontinued operations separate from continuing operations. Our Condensed Consolidated Statements of Equity combine the results of continuing and discontinued operations.

The key components of the loss from discontinued operations for the three months ended March 31, 2024 and 2023 were as follows:

	For the three months ended
	March 31, 2024			March 31, 2023
REVENUES	$	240,677		$	-
COST OF REVENUES		474,096			930,262
GROSS PROFIT LOSS		(233,419	)		(930,262	)
OPERATING EXPENSES:
General and administrative		44,892			14,323
Professional fees		35,151			38,802
Other operating expenses		88,246			108,345
TOTAL OPERATING EXPENSES		168,289			161,470
LOSS FROM OPERATIONS		(401,708	)		(1,091,732	)
OTHER EXPENSE:
Other miscellaneous expense		(7,161	)		(8,633	)
TOTAL OTHER EXPENSE		(7,161	)		(8,633	)
LOSS FROM DISCONTINUED OPERATIONS BEFORE TAX		(408,869	)		(1,100,365	)
Income tax expense		-			-
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX	$	(408,869	)	$	(1,100,365	)

Depreciation and amortization expense of USAMSA totaled $nil and $154,909 for the three months ended March 31, 2024 and 2023, respectively.

Accretion of asset retirement obligation of USAMSA totaled $nil and $2,993 for the three months ended March 31, 2024 and 2023, respectively.

Write down of inventory to net realizable value of USAMSA totaled $43,074 and $246,792 for the three months ended March 31, 2024 and 2023, respectively.

Capital expenditures of USAMSA totaled $nil and $113,568 for the three months ended March 31, 2024 and 2023, respectively.

The carrying amounts of major classes of assets and liabilities of USAMSA included in assets and liabilities of discontinued operations were as follows:

	March 31, 2024		December 31, 2023
ASSETS
CURRENT ASSETS
Inventories, net	$	215,110	$	366,955
Total current assets, discontinued operations		215,110		366,955
Properties, plants and equipment, net		5,689,446		5,689,446
IVA receivable and other assets, net		526,128		491,139
Total assets, discontinued operations	$	6,430,684	$	6,547,540
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	137,744	$	126,788
Accrued liabilities		20,359		24,500
Total current liabilities, discontinued operations		158,103		151,288
Asset retirement obligations		536,466		536,466
Total liabilities, discontinued operations	$	694,569	$	687,754

Mexican Tax Assessment

In 2015, the Mexican tax authority (“SAT”) initiated an audit of the USAMSA’s 2013 income tax return. In October 2016, as a result of its audit, SAT assessed the Company $13.8 million pesos, which was approximately $666,400 in U.S. Dollars (“USD”) as of December 31, 2016. SAT’s assessment was based on the disallowance of specific costs that the Company deducted on the 2013 USAMSA income tax return. The assessment was settled in 2018 with no assessment due from the Company.

In early 2019, the Company was notified that SAT re-opened its assessment of USAMSA’s 2013 income tax return and, in November 2019, SAT assessed the Company $16.3 million pesos, which was approximately $795,000 USD as of December 31, 2021.

Management reviewed the 2019 assessment notice from SAT and, similar to the earlier assessment, believes the findings have no merit. An appeal was filed by the Company in November 2019 suspending SAT from taking immediate action regarding the assessment. The Company posted a guarantee of the amount in March 2020 as is required under the appeal process. In August 2020, the Company filed a lawsuit against SAT for resolution of the process and, in December 2020, filed closing arguments.  In 2022, the Mexican court ruled against the Company in the above matter. The Company subsequently appealed the ruling.

As of December 31, 2023, the updated SAT assessment was approximately $22.4 million pesos, or approximately $1,320,000 USD, which includes $352,000 of unpaid income taxes and $968,000 of interest and penalties. Management, along with its legal counsel, assessed the possible outcomes for this tax audit and believes, based on discussions with its attorneys located in Mexico, that the most likely outcome will be that the Company will be successful in its appeal resulting in no tax due. Management determined that no amount should be accrued at December 31, 2023 or December 31, 2022 relating to this potential tax liability.

In March 2024, the Company received a favorable ruling from its appeal with no assessment due related to this audit of USAMSA’s 2013 income tax return by SAT. This ruling supports the Company’s position on this tax matter and had no impact on the Company’s financial statements at March 31, 2024 or December 31, 2023. Mexico’s lower court will issue a final ruling on this matter as to whether this decision can be appealed by the appropriate Mexican authorities.

Mexico Value Added Tax

USAMSA records a receivable for the Value Added Tax (“VAT” or “IVA”) it pays on certain goods and services representing amounts to be reimbursed from the Mexican government. USAMSA has a reserve of $717,647 and $687,534 on its IVA receivable balance at March 31, 2024 and December 31, 2023, respectively. The net IVA receivable of $470,083 and $435,094 at March 31, 2024 and December 31, 2023, respectively, is recorded in “IVA receivable and other assets, net” in assets held for sale in discontinued operations.