UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For the quarterly period ended
For the transition period from _______________ to _______________.
Commission file number:
(Exact name of Issuer as specified in its charter) |
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(State or other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices, including zip code) |
| (Issuer’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
(Do not check if a smaller reporting company) | Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of September 12, 2022, there were
MMEX RESOURCES CORPORATION
TABLE OF CONTENTS
QUARTER ENDED JULY 31, 2022
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
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| Table of Contents |
PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying condensed consolidated financial statements of MMEX Resources Corporation and subsidiaries (the “Company”) are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
Operating results and cash flows for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. These condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended April 30, 2022 filed with the Securities and Exchange Commission (“SEC”).
The Company amended its articles of incorporation to provide for a 1 for 10,000 reverse stock split of its common shares, which was effective as of July 1, 2021. The Company has given retroactive effect to the reverse stock split for all periods presented in this report on Form 10-Q.
| 3 |
| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Balance Sheets
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| July 31, 2022 |
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| April 30, 2022 |
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Assets |
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Current assets: |
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Cash |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Total assets |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
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Accrued expenses |
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Accounts payable and accrued expenses – related parties |
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Note payable, currently in default |
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Note payable |
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Convertible notes payable, currently in default, net of discount of $ |
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Convertible notes payable, net of discount of $ |
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Total current liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ deficit: |
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Common stock; $ |
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Preferred stock; $ |
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Additional paid-in capital |
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Non-controlling interest |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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See accompanying notes to condensed consolidated financial statements.
| 4 |
| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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| Three Months Ended July 31, |
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| 2022 |
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| 2021 |
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Revenues |
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Operating expenses: |
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General and administrative expenses |
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Project costs |
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Depreciation and amortization |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest expense |
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Gain (loss) on derivative liabilities |
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Gain (loss) on extinguishment of liabilities |
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Total other income (expense) |
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Income (loss) before income taxes |
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Provision for income taxes |
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Net income (loss) |
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Deemed dividend |
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Net income (loss) attributable to common shareholders |
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Net income (loss) per common share – basic |
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Net income (loss) per common share – diluted |
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Weighted average number of common shares outstanding - basic |
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Weighted average number of common shares outstanding - diluted |
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See accompanying notes to condensed consolidated financial statements.
| 5 |
| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Statement of Stockholders’ Deficit
Three Months Ended July 31, 2021 (Unaudited)
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| Common Stock |
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| Deficit |
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| Total |
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Balance, April 30, 2021 |
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Shares issued with prefunded warrants for cash |
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Shares issued for conversion of convertible notes payable and accrued interest |
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Shares issued for reverse stock split |
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Shares issued for the exercise of prefunded warrants |
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Offering Costs |
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Net loss |
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Balance, July 31, 2021 |
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See accompanying notes to condensed consolidated financial statements.
| 6 |
| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Statement of Stockholders’ Deficit
Three Months Ended July 31, 2022 (Unaudited)
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| Common Stock |
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| Series A Preferred Stock |
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| Additional Paid-in |
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| Non-Controlling |
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| Amount |
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| Capital |
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| Interest |
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| Deficit |
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| Total |
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Balance, April 30, 2022 |
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Shares issued for conversion of convertible notes payable and accrued interest |
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Warrants issued as stock-based compensation |
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Shares issued for the exercise of warrants |
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Deemed dividend |
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Net (loss) |
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Balance, July 31, 2022 |
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See accompanying notes to condensed consolidated financial statements.
| 7 |
| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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| Three Months Ended July 31, |
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| 2021 |
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Cash flows from operating activities: |
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Net income (loss) |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization expense |
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(Gain) loss on derivative liabilities |
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Amortization of debt discount |
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Warrants issued as stock-based compensation |
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Note recorded for loan penalties |
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(Gain) loss on extinguishment of liabilities |
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(Increase) decrease in prepaid expenses and other current assets |
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Increase (decrease) in liabilities: |
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Accounts payable |
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Accrued expenses |
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Accounts payable and accrued expenses – related party |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from notes payable |
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Proceeds from convertible notes payable |
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Repayments of notes payable |
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Repayments of convertible notes payable |
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Proceeds from the sale of common stock and prefunded warrants |
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Proceeds from the sale of series B preferred stock and warrants |
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Offering costs |
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Net cash provided by financing activities |
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Net increase (decrease) in cash |
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Cash at the beginning of the period |
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Cash at the end of the period |
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Supplemental disclosure: |
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Interest paid |
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| $ |
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Income taxes paid |
| $ |
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Non-cash investing and financing activities: |
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Common stock issued in conversion of debt |
| $ |
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| $ |
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Exercise of warrants for an accrued liability |
| $ |
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| $ |
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Reverse split |
| $ |
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| $ |
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Exercise of prefunded warrants |
| $ |
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| $ |
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Deemed dividend |
| $ |
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| $ |
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See accompanying notes to condensed consolidated financial statements.
| 8 |
| Table of Contents |
MMEX RESOURCES CORPORATION
Notes to Condensed Consolidated Financial Statements
Nine Months Ended July 31, 2022
(Unaudited)
NOTE 1 – BACKGROUND, ORGANIZATION AND BASIS OF PRESENTATION
MMEX Resources Corporation (the “Company” or “MMEX”) 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 and to MMEX Resources Corporation on April 6, 2016.
Since 2021 MMEX has expanded its focus to the development, financing, construction and operation of clean fuels infrastructure projects powered by renewable energy.
The accompanying consolidated financial statements include the accounts of the following entities, all of which the Company maintains control through a majority ownership or through common ownership:
Name of Entity |
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| State of Incorporation |
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MMEX Resources Corporation |
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| Nevada |
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Pecos Clean Fuels Transport (formerly Pecos Refining Transport, LLC |
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| Texas |
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MMEX Solar Resources, LLC |
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| Texas |
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Rolling Stock Marine, LLC |
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| Texas |
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Hydrogen Global, LLC |
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| Texas |
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Clean Energy Global, LLC (formerly Hydrogen Ultra, LLC) |
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| Texas |
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All significant inter-company transactions have been eliminated in the preparation of the consolidated financial statements.
The Company has adopted a fiscal year end of April 30.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended April 30, 2022 filed with the SEC on July 15, 2022.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its aforementioned subsidiaries and entities under common ownership. All significant intercompany accounts and transactions have been eliminated in consolidation. The ownership interests in subsidiaries that are held by owners other than the Company are recorded as non-controlling interest and reported in our consolidated balance sheets within stockholders’ deficit. Losses attributed to the non-controlling interest and to the Company are reported separately in our consolidated statements of operations.
| 9 |
| Table of Contents |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Property and equipment
Property and equipment is recorded at the lower of cost or estimated net recoverable amount, and is depreciated using the straight-line method over the estimated useful life of the related asset as follows:
Office furniture and equipment | |
Computer equipment and software | |
Land improvements | |
Land easements |
The land easements owned by the Company have a legal life of
Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments will be capitalized. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The Company will assess the recoverability of property and equipment by determining whether the depreciation and amortization of these assets over their remaining life can be recovered through projected undiscounted future cash flows. The amount of equipment impairment, if any, will be measured based on fair value and is charged to operations in the period in which such impairment is determined by management.
Derivative liabilities
In a series of subscription agreements, the Company issued warrants in prior years that contained certain anti-dilution provisions that were previously identified as derivatives. In addition, the Company had previously identified the conversion feature of certain convertible notes payable and convertible preferred stock as derivatives. Through April 30, 2021, the number of warrants or common shares to be issued under these agreements was indeterminate; therefore, the Company concluded that the equity environment was tainted and all additional warrants, stock options and convertible debt were included in the value of the derivative. During the year ended April 30, 2022 it was determined that the Company could increase their authorized common shares at any time, therefore the environment was no longer deemed to be tainted and all derivative liabilities were written off the books.
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.
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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 consolidated 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.
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.
Revenue Recognition
The Company has adopted ASC 606, Revenue from Contracts with Customers, as amended, using the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. To date, the Company has no operating revenues; therefore, there was no cumulative effect of adopting the new standard and no impact on our consolidated financial statements. The new standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.
Project costs
All project costs incurred, including acquisition of refinery rights, planning, design and permitting, have been recorded as project costs and expensed as incurred.
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Basic and diluted income (loss) per share
Basic net income or loss per share is calculated by dividing net income or loss (available to common stockholders) by the weighted average number of common shares outstanding for the period. Diluted income or loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, warrants, convertible debt and convertible preferred stock, were exercised or converted into common stock. For the three months ended July 31, 2022 all potentially dilutive securities had an anti-dilutive effect and basic net loss per common share is the same as diluted net loss per share. For the three months ended July 31, 2021 the dilutive effect of options, warrants, and convertible notes payable was
Stock-based compensation
Pursuant to FASB ASC 718, the Company accounts for the issuance of equity instruments, including grants of stock options and warrants, to acquire goods and/or services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably determinable. The measurement date for the fair value of the equity instruments issued is determined as the earlier of (i) the date at which a commitment for performance is reached or (ii) the date at which the performance is complete. In the case of equity instruments issued for services to be performed over time, the fair value of the equity instrument is recognized over the service period. For the three months ended July 31, 2022 and 2021, the Company recorded stock-based compensation of $
Recently Issued Accounting Pronouncements
The Company has reviewed all new accounting pronouncements issued or proposed by the FASB and does not believe any of the accounting pronouncements has had, or will have, a material impact on its consolidated financial position or results of operations.
NOTE 3 – GOING CONCERN
Our consolidated 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, and have reported negative cash flows from operations since inception. Additionally, we have a working capital deficit, therefore there is a question of whether or not we have the cash resources to meet our operating commitments for the next twelve months and have, or will obtain, sufficient capital investments to implement our business plan. 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 and emerging 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. 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 or that amounts 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.
The consolidated 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 consolidated 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.
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NOTE 4 – RELATED PARTY TRANSACTIONS
Accounts Payable and Accrued Expenses – Related Parties
Accounts payable and accrued expenses to related parties, consisting primarily of consulting fees and expense reimbursements payable, totaled $
Effective July 1, 2019, we entered into a consulting agreement with Maple Resources Corporation (“Maple Resources”), a related party controlled by our President and CEO, that provides for payment of consulting fees and expense reimbursement related to business development, financing and other corporate activities. Effective March 1, 2021 the Maple Resources consulting agreement provided for monthly consulting fees of $
In addition, the consulting agreement provides for the issuance to Maple Resources of shares of our common stock each month with a value of $
Amounts included in accounts payable and accrued expenses – related parties due to Maple Resources totaled $
Effective October 1, 2018, we entered into a consulting agreement with Leslie Doheny-Hanks, the wife of our President and CEO, to issue shares of our common stock each month with a value of $
Effective February 1, 2021 the Company entered into consulting agreements with three children of our President and CEO, which were amended as of December 31, 2021 to continue on a month-to-month basis. During the three months ended July 31, 2022 we incurred $
Effective September 1, 2021, we entered into a consulting agreement with BNL Family Trust, a related party to Bruce Lemons, Director, to issue shares of our common stock each month with a value of $
Accounts Payable and Accrued Expenses – Related Parties
During the three months ended July 31, 2022 the Company granted
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NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
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| July 31, 2022 |
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| April 30, 2022 |
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Office furniture and equipment |
| $ |
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| $ |
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Computer equipment and software |
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Refinery land |
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Refinery land improvements |
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Refinery land easements |
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Less accumulated depreciation and amortization |
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| ( | ) |
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| ( | ) |
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|
| $ |
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| $ |
| ||
Depreciation and amortization expense totaled $
NOTE 6 – ACCRUED EXPENSES
Accrued expenses consisted of the following at:
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| July 31, 2022 |
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| April 30, 2022 |
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Accrued payroll |
| $ |
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| $ |
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Accrued consulting |
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Accrued interest and penalties |
|
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Other |
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| $ |
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| $ |
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NOTE 7 – NOTES PAYABLE
Note Payable, Currently in Default
Note payable, currently in default, consists of the following at:
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| July 31, 2022 |
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| April 30, 2022 |
| ||
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Note payable to an unrelated party, matured March 18, 2014, with interest at 10% |
| $ |
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| $ |
| ||
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| $ |
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| $ |
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Notes Payable
Notes payable consist of the following at:
|
| July 31, 2022 |
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| April 30, 2022 |
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Note payable to an unrelated party with an issue date of February 22, 2021 with interest at 10% [1] |
|
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$250,000 draw on March 5, 2021 |
| $ |
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| $ |
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$200,000 draw on March 26, 2021 |
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$50,000 draw on April 13, 2022 |
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Note payable to an unrelated party with an issue date of March 11, 2021 with interest at 10% [2] |
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Note payable to an unrelated party with an issue date of February 28, 2022 with interest at 10% [3] |
|
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Note payable to an unrelated party with an issue date of March 3, 2022 with interest at 5% [4] |
|
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Total |
| $ |
|
| $ |
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| [1] | Effective February 22, 2021 the Company entered into a promissory note with GS Capital Partners, LLC, with a principal amount of $ |
|
|
|
| [2] | Effective March 11, 2021 the Company entered into a promissory note with Vista Capital Investments, Inc with a principal amount of $ |
|
|
|
| [3] | Effective February 28, 2022 the Company entered into a promissory note with Oscar and Ilda Gonzales with a principal amount of $ |
|
|
|
| [4] | Effective March 3, 2022 the Company entered into a promissory note with Sabby Volatility Warrant Master Fund with a principal amount of $ |
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Convertible Note Payable, Currently in Default
Convertible notes payable, currently in default, consist of the following at:
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| July 31, 2022 |
|
| April 30, 2022 |
| ||
Note payable to an unrelated party, matured December 31, 2010, with interest at 10%, convertible into common shares of the Company [1] |
| $ |
|
| $ |
| ||
Note payable to an unrelated party, matured January 27, 2012, with interest at 25%, convertible into common shares of the Company [2] |
|
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Less discount |
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Total |
| $ |
|
| $ |
| ||
| [1] | On March 8, 2010, the Company closed a note purchase agreement with an accredited investor pursuant to which the Company sold a $ |
|
|
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| [2] | On January 28, 2011 and February 1, 2011, the Company closed a Convertible Note Agreement totaling $ |
Convertible Notes Payable
Current convertible notes payable consisted of the following at:
|
| July 31, 2022 |
|
| April 30, 2022 |
| ||
Extension fee added to note payable to an accredited investor, with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [1] |
| $ |
|
| $ |
| ||
Extension fee added to note payable to an accredited investor, with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [2] |
|
|
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Note payable to an accredited investor, with interest at 10%, convertible into common shares of the Company at $0.10 per share [3] |
|
|
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Note payable to an accredited investor, with interest at 10%, convertible into common shares of the Company at $0.11 per share [4] |
|
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Total |
|
|
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| ||
Less discount |
|
| ( | ) |
|
| ( | ) |
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Net |
| $ |
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| $ |
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| [1] | Effective March 31, 2020, the Company entered into a second amendment to certain convertible notes with GS Capital Partners, LLC (“GS”) ($ |
|
|
|
| [2] | Effective September 12, 2019, the Company entered into an amendment to certain convertible notes with GS ($ |
|
|
|
| [3] | Effective April 12, 2022, the Company issued and delivered to GS a 10% convertible note in the principal amount of $ |
|
|
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| [4] | Effective June 7, 2022, the Company entered into a convertible promissory note with a principal amount of $ |
NOTE 8 – STOCKHOLDERS’ DEFICIT
Authorized Shares
The Company has authorized
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Common Stock
During the three months ended July 31, 2022, the Company issued a total of
During the three months ended July 31, 2021, the Company issued a total of
Series A Preferred Stock
The Series A preferred stock has no redemption, conversion or dividend rights; however, the holders of the Series A preferred stock, voting separately as a class, have the right to vote on all shareholder matters equal to
Series B Preferred Stock
The Series B preferred stock has a stated value equal to $
During the three months ended July 31, 2022 and 2021 the Company did not issue any shares of its Series B preferred stock, however, as a result of the change in the Conversion Price that occurred on June 7, 2022, the Company recognized a deemed dividend of $
Warrants
A summary of warrant activity during the three months ended July 31, 2022 is presented below:
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life (Years) |
| |||
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Outstanding, April 30, 2022 |
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| $ |
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Granted |
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| $ |
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Cancelled / Expired |
|
| ( | ) |
| $ |
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Exercised |
|
| ( | ) |
| $ |
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| |
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Outstanding, July 31, 2022 |
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| $ |
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During the three months ended July 31, 2022 the Company granted
Common Stock Reserved
Combined with the 24,409,802 common shares outstanding as of July 31, 2022, all authorized common shares had been issued or reserved for issuance of outstanding warrants, stock options, and convertible notes payable and no common shares were available for share issuances other than those shares included in the reserves.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal
In the ordinary course of business, we may be, or have been, involved in legal proceedings from time to time. During the three months ended July 31, 2022 we were not involved in any material legal proceedings.
NOTE 10 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, there have been no subsequent events that are required to be reported through the filing date of these consolidated financial statements other than those stated below.
On August 15, 2022 the Company entered into a Securities Purchase Agreement and convertible note payable with Diagonal Lending, LLC with a principal amount of $
On August 27, 2022 the Company approved the issuance of
Subsequent to July 31, 2022 the Company issued
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ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
Company Information and Business Plan
MMEX Resources Corporation (“MMEX”) 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 in 2010 and thereafter changed the Company’s name to MMEX Mining Corporation.
MMEX is focused on the development, financing, construction and operation of clean fuels infrastructure projects powered by renewable energy. We have formed two operating sub-divisions of the Company - one sub-division to transition from legacy refining transportation fuels by producing them as ultra clean fuels with carbon capture or as stand-alone renewable or clean fuels projects, and the second sub-division which plans to produce green and/or blue hydrogen with the option of hydrogen conversion to ammonia or methanol. These two sub-divisions will be operating respectively as Clean Energy Global, LLC and Hydrogen Global, LLC. The planned projects are designed to be powered by solar and wind renewable energy.
Our portfolio contains the following pipeline of planned projects:
Clean Energy Global, LLC
Project 1: Pecos Clean Fuels Transport, LLC -Ultra Clean Fuels Refining-Pecos County, Texas
We have teamed with Polaris Engineering to develop an ultra-clean transportation fuel, up to 11,600 barrel per day feedrate crude oil refining facility at our Pecos County, Texas site to produce 87° gasoline, ultra-low sulphur diesel and low-sulphur fuel oil, utilizing the Polaris Ultra FuelsTM patented concept, which removes over 95% emissions of a standard refinery. Added to this patented process, the Company plans to incorporate carbon capture with the CO2 marketed to enhanced oil recovery projects in the area. We have signed the term sheet for the CO2 purchase with a super major international oil company and agreed to a proposal with the world’s largest U.S. utility for solar development. The Ultra FuelsTM concept, with capex and technical details completed in the Front-End Load-2 (“FEL-2”) study, features small size facilities to take advantage of proximity to smaller markets and/or locate directly near crude oil production areas near the Company’s owned 126-acre site. Because equipment is fabricated in modular units and shipped to site, this allows for an 18 month project completion time and more rapid implementation than traditional facilities. The smaller size and footprint, as well as lower emissions, also allows for faster permitting which we obtained for this facility from the Texas Commission on Environmental Quality on February 18, 2022.
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Project 2: Arroyo Cabral, Cordoba Province Argentina Solar Power Project.
The Company along with its international partners have entered a proposal with EPEC, the local utility in Cordoba Province to build potentially the Arroyo Cabral 48 MWe solar park for local power demand following the Company’s completion of a confidential information memorandum and pre-feasibility study for the project completed in June 2021. The local utility, EPEC, has proposed a Build Own Transfer structure with EPEC contributing 15% of the project costs as an equity contribution. The financing of the project potentially is to be provided by the Company’s international partners and other third parties.
Hydrogen Global, LLC
Project 3: Hydrogen Global- Pecos County, Texas- Green Hydrogen Project
This planned project to utilize the proprietary electrolyzer technology of Siemens Energy, a major international technology provider to the Company, plans to convert water to hydrogen through electrolysis. The facility will utilize solar power, with the Company’s water supply to produce up to 55 tons of hydrogen production per day. The Company and Siemens have completed the Front-End Engineering and Design (“FEED”) study in April 2022, which outlines the capex of the electrolyzer complex on the Company’s 321-acre site. The Company is in discussions with the same renewable power utility for the Ultra Fuels project to become the technology provider for 160 MWe solar power component. In addition, the Company is in discussions with three potential product off-takes (i) international partners to provide turn-key mobility markets to include hydrogen fueling stations and buses utilizing hydrogen fuel cells. The potential market would be the major metropolitan areas in Texas; (ii) with technology providers for an Ammonia or Methanol complex, for conversion of the hydrogen to ammonia or methanol to facilitate transportation of the finished product for marketing in the U.S. domestic or international ammonia or methanol markets.
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Project 4: Hydrogen Global- Tierra del Fuego Province Argentina-Green Hydrogen Project
On April 28, 2022, the Province of Tierra del Fuego and the Company announced the potential joint development of a green hydrogen project in the Río Grande, Tierra del Fuego area powered by wind energy. The Company has signed an amendment with Siemens Energy to adapt the Green H2 electroylzer FEED Study completed for Pecos County to this Project. In addition, the Company has a preliminary understanding with Siemens Gamesa as the technology provider for the wind energy. The Company estimates the land requirement of up to 10,000 hectares for the wind farm and the Green H2 facilities. The Company is in discussions with the same technology provider for the Ammonia complex as for Pecos County. The potential market for the Ammonia is Europe or Asia and the project location is ideal for ocean borne shipping east or west.
Project 5: Hydrogen Global- Tangier Morocco- Green Hydrogen Project
The Company has identified sea-based land assets in Tangier Morocco and is in negotiations for the supply of 160MWe of certified renewable power with local utility. The Company has international partners with local prescence in Morocco. Tangier has developed what is now the largest trading hub in Africa with ten major ports (https://www.marineinsight.com/know-more/10-major-ports-in-morocco/) including multi-modal deep seaports, multiple free-zones areas with substantial tax and trade incentives and it is located 15km from Europe ports (Spain and Gibraltar). Tangier and the neighboring coastal area benefit from some of the best wind conditions in the world, which can also be associated with solar power generation. The Kingdom of Morocco is strongly pushing the use of renewable energy and has recently issued a Green Hydrogen regulatory framework. The principal off-take markets are the shipping and terminal companies present in the Tangier Port Med including APM Terminals (https://www.apmterminals.com/en/medport-tangier/about/our-terminal), and CGM-CMA (https://www.cma-cgm.com).
Project 6: Hydrogen Global- Southern Coast of Peru-Green Hydrogen Project
The Company has entered advanced discussions with Peru’s principal electric power distribution company to develop potentially a Green Hydrogen project to produce up to 55 tons per day of hydrogen, requiring 160 MWe of constant and certified renewable power load. The Company plans to use its Siemens Energy Electrolyzer FEED template and adapt it for Peru. The Peru distribution company will also provide the land area as part of the transaction – approximately 5 hectares, by the sea to facilitate exports of green Hydrogen/Ammonia/Methanol to Asia and the U.S. West Coast. Peru’s mining industry with its use of heavy extraction and transportation equipment has significant market potential for the Company's hydrogen production.
Project 7: Hydrogen Global- Pecos County, Texas-Blue Hydrogen Project
The Company is in planning discussions with a super major oil company (the “Super Major”) to develop jointly a Blue Hydrogen project at the Company’s Pecos County, Texas site. The Project plans to utilize potentially a portion of the Super Major’s 2 billion cubic feet per day natural gas production and transportation from the area to produce hydrogen utilizing an autothermal reformer (“ATR”) technology along with carbon capture. In turn, the hydrogen will be used in Siemens Energy turbines and generator sets to produce 365 MWe of electric power which are projected to utilize initially a 75% hydrogen-25% natural gas feed and moving to a 100% hydrogen feed, with the electric power to be marketed by the power commodity trading desk of the Super Major. Solar and wind power will be utilized in the ATR and under discussions with the renewable utility developing the Company’s other solar projects in the area.
Completion of these projects is dependent upon our obtaining the necessary capital for planning, construction and start-up costs. There is no assurance that such financing can be obtained on favorable terms.
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Results of Operations
Revenues
We have not yet begun to generate revenues.
General and Administrative Expenses
Our general and administrative expenses increased to $817,312 for the three months ended July 31, 2022 from $454,285 for the three months ended July 31, 2021. The increase is a result of the Company issuing 3,000,000 shares each to two entities affiliated with the Company’s two board members and a consultant and recognizing $495,000 as stock based compensation during the three months ended July 31, 2022, versus no similar expense recognized during the three months ended July 31, 2021.
Project Costs
We expense the direct costs incurred on our projects, including acquisition of rights, planning, design and permitting. Our project costs have remained consistent at $4,357 and $3,060 for the three months ended July 31, 2022 and 2021, respectively, as we did not have funding available to invest in our projects during the periods presented.
Depreciation and Amortization Expense
Our depreciation and amortization expense results from the depreciation of land improvements and amortization of land easements and totaled to $9,097 and $8,718 for the three months ended July 31, 2022 and 2021, respectively.
Other Income (Expense)
Our interest expense includes interest accrued on debt, amortization of debt discount and penalties assessed on debt. Interest expense totaled $62,889 and $204,610 for the three months ended July 31, 2022 and 2021, respectively. The decrease in interest expense is due to lower levels of new non-related party convertible debt in the current period as a result of debt being paid off or converted into shares common stock. Additionally, the lower levels of debt also resulted in less amortization of debt discount to interest expense and less loan penalties incurred in the period.
We reported gains on derivative liabilities of $0 and $3,010,042 for the three months ended July 31, 2022 and 2021, respectively. We had previously identified the variable conversion feature of certain convertible notes payable as derivatives. We estimated 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 were subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities would fluctuate from period to period, and the fluctuation has been material. During the three months ended July 31, 2021 all derivative liabilities were written off the books, resulting in a large gain in the prior period.
We reported a net gain (loss) on extinguishment of liabilities of $16,540 and $(59,856) for the three months ended July 31, 2022 and 2021, respectively. The gain in the current period was due to a lender converting a note payable and forgiving certain amounts of accrued interest, while the loss in the prior period was due to a convertible note being paid off and its debt discount being recognized into earnings.
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Net Income (Loss)
As a result of the above, we reported net income (loss) of $(863,660) and $2,291,291 for the three months ended July 31, 2022 and 2021, respectively.
Deemed Dividend
Effective June 7, 2022 we reduced the conversion price of our Series B preferred stock from $0.10 to $0.05. This resulted in the recognition of a deemed dividend of $2,534,402 during the three months ended July 31, 2022 in order to account for the change in fair value of the Series Be preferred stock.
Net Income (Loss) Attributable to the Common Shareholders
As a result of the deemed dividend, our net loss attributed to common shareholders was $(3,398,062) for the three months ended July 31, 2022. We had no similar activity during the three months ended July 31, 2021, therefore net income attributed to the Company was the same as net income of $2,291,291.
Liquidity and Capital Resources
Working Capital
As of July 31, 2022, we had current assets of $38,092, comprised of cash and prepaid expenses, and current liabilities of $3,157,971, resulting in a working capital deficit of $3,119,879.
Sources and Uses of Cash
Our sources and uses of cash for the three months ended July 31, 2022 and 2021 were as follows:
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Cash, beginning of period |
| $ | 136,867 |
|
| $ | 330,449 |
|
Net cash used in operating activities |
|
| (233,608 | ) |
|
| (826,842 | ) |
Net cash used in investing activities |
|
| - |
|
|
| (245,397 | ) |
Net cash provided by financing activities |
|
| 105,000 |
|
|
| 2,474,019 |
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
| $ | 8,259 |
|
| $ | 1,732,229 |
|
We used net cash of $233,608 in operating activities for the three months ended July 31, 2022 as a result of our net loss of $863,660, offset by non-cash net expense totaling $510,129, a decrease in prepaid expenses of $17,500, and increases in accounts payable, accrued expenses, and accounts payable and accrued expenses - related party of $102,423.
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We used net cash of $826,842 in operating activities for the three months ended July 31, 2021 as a result of our net income of $2,291,291, non-cash expenses totaling $131,649, increases in accrued expenses of $38,798, and accounts payable and accrued expenses – related party of $20,490. This was offset by our non-cash gain of $3,010,042, increase in our prepaid expenses and other current assets of $293,390, and a decrease in accounts payable of $5,638.
Net cash used in investing activities for the three months ended July 31, 2022 was $0 compared to $245,397 for the three months ended July 31, 2021 which was comprised of the purchase of land.
Net cash provided by financing activities for the three months ended July 31, 2022 was $105,000, comprised of proceeds from notes payable.
Net cash provided by financing activities for the three months ended July 31, 2021 was $2,474,019, comprised of proceeds from notes payable of $200,000, proceeds from convertible notes payable of $78,500, and proceeds from the sale of our common stock of $3,000,000. This was offset by repayments of notes payable of $200,000, repayments of convertible notes payable of $255,331, and offering costs incurred of $349,150.
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, and have reported negative cash flows from operations since inception. Additionally, we have a working capital deficit, therefore there is a question of whether or not we have the cash resources to meet our operating commitments for the next twelve months and have, or will obtain, sufficient capital investments to implement our business plan. 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 and emerging 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. 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.
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.
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.
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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, 2022 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, 2022.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4 Controls and Procedures
(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 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.
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.
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, 2022. 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. Based on our evaluation, management concluded that we maintained effective internal control over financial reporting as of July 31, 2022, based on the COSO framework criteria. Management believes our processes and controls are sufficient to ensure the that the consolidated 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 in accordance with U.S. GAAP.
(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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PART II – OTHER INFORMATION
ITEM 1 Legal Proceedings
None.
ITEM 1A Risk Factors
Not applicable.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
On July 18, 2022 the Company issued 448,500 shares of its common stock for the exercise of its Series A warrants and received proceeds of $45.
On July 15, 2022 the Company issued 9,000,000 Series E warrants that were assigned a fair market value of $495,000.
On July 21, 2022 the Company issued 648,818 shares of its common stock for the cashless exercise of 650,000 Series B warrants.
On August 15, 2022 the Company entered into a Securities Purchase Agreement and convertible note payable with Diagonal Lending, LLC with a principal amount of $78,750.
On August 16, 2022 the Company issued 973,073 shares of its common stock for the cashless exercise of 975,000 Series B warrants.
On August 27, 2022 the Company approved the issuance of 91,414 shares of common stock to BNL Family Trust, an entity related to a director, as repayment of $1,006 worth of accrued interest.
On August 31, 2022 the Company issued 997,854 shares of its common stock for the cashless exercise of 1,000,000 Series B warrants.
ITEM 3 Defaults Upon Senior Securities
There is no information required to be disclosed by this Item.
ITEM 4 Mine Safety Disclosures
There is no information required to be disclosed by this Item.
ITEM 5 Other Information
There is no information required to be disclosed by this Item.
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ITEM 6 Exhibits
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101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* | Filed herewith. |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MMEX Resources Corporation |
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Dated: September 14, 2022 | By: | /s/ Jack W. Hanks |
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| Chief Executive Officer (Principal Executive Officer), President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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