MMEX 10-Q
MMEX Resources Corp (MMEX)
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) |
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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 | ☐ |
Non-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 14, 2021, there were
MMEX RESOURCES CORPORATION
TABLE OF CONTENTS
QUARTER ENDED JULY 31, 2021
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
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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, 2021 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.
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| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Balance Sheets
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| April 30, |
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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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Deposit |
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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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Convertible notes payable – related parties, net of discount of $ at July 31, 2021 and April 30, 2021, respectively |
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PPP loans payable |
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SBA express bridge loan payable |
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Derivative liabilities |
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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.
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| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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| 2021 |
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| 2020 |
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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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Non-controlling interest in income of consolidated subsidiaries |
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Net income (loss) attributable to the Company |
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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.
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MMEX RESOURCES CORPORATION
Condensed Consolidated Statement of Stockholders’ Deficit
Three Months Ended July 31, 2020 (Unaudited)
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| Shares |
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| Capital |
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Balance, April 30, 2020 |
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Net loss |
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Balance, July 31, 2020 |
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See accompanying notes to condensed consolidated financial statements.
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| Table of Contents |
MMEX RESOURCES CORPORATION
Condensed Consolidated Statement of Stockholders’ Deficit
Three Months Ended July 31, 2021 (Unaudited)
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| Amount |
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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 income |
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Balance, July 31, 2021 |
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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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| 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 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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Interest expense added to convertible note payable principal |
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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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Proceeds from convertible notes payable – related party |
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Proceeds from SBA express bridge loan 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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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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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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Derivative liabilities for related party debt discount |
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Convertible notes payable – related party for accrued expenses |
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Reverse split |
| $ |
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| $ |
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Exercise of prefunded warrants |
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See accompanying notes to condensed consolidated financial statements.
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| Table of Contents |
MMEX RESOURCES CORPORATION
Notes to Condensed Consolidated Financial Statements
Nine Months Ended January 31, 2021
(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.
The Company is a development-stage company focusing on the acquisition, development and financing of oil, gas, refining and infrastructure projects in Texas and South America, recently announcing it intends to develop solar energy to power multiple planned projects producing hydrogen and ultra-low sulfur fuels combined with carbon dioxide (CO2) capture in Texas.
The accompanying condensed 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:
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MMEX Resources Corporation (“MMEX”) |
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| Nevada |
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Pecos Refining & Transport, LLC (“PRT”) |
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| LLC |
| Texas |
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Armadillo Holdings Group Corp. |
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| Corporation |
| British Virgin Isles |
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Armadillo Mining Corp. (“AMC”) |
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| Corporation |
| British Virgin Isles |
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MMEX Solar Resources, LLC |
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| LLC |
| Texas |
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Texas Gulf Refining & Trading, LLC |
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| LLC |
| Texas |
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Louisiana Gulf Refining & Trading, LLC |
| LLC |
| Louisianna |
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Rolling Stock Marine, LLC |
| LLC | Texas |
PRT was formed in June 2017 with the Company as its sole member. PRT owns the land on which the Company’s planned hydrogen projects are to be developed. The Company’s other subsidiaries are currently inactive.
As of April 13, 2016, the Company assigned AMC to an irrevocable trust (the “Trust”), whose beneficiaries are the existing shareholders of MMEX. The accounts of AMC are included in the consolidated financial statements due to the common ownership. AMC through the Trust controls the Hunza coal interest previously owned by MMEX.
All significant inter-company transactions have been eliminated in the preparation of the consolidated financial statements.
These financial statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of the information contained therein.
The Company has adopted a fiscal year end of April 30.
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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, 2021 filed with the SEC on July 29, 2021.
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.
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
The Company has issued warrants and stock options, certain of which contain anti-dilution provisions were previously identified as derivatives. In addition, the Company has previously identified the conversion feature of convertible notes payable as derivatives. The number of warrants or common shares to be issued under these agreements is indeterminate; therefore, through April 30, 2021 the Company concluded that the equity environment was tainted and all warrants, stock options and convertible debt were included in the value of the derivatives. During the three months ended July 31, 2021 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.
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| Table of Contents |
We estimate the fair value of the derivatives using multinomial lattice models that value the derivative liabilities based on a probability weighted cash flow model using projections of the various potential outcomes. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility and management’s estimates of various potential equity financing transactions. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Fair value of financial instruments
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, prepaid expense and other current assets, accounts payable, accrued expenses and notes payable reported on the accompanying consolidated balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.
An entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value using a hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy prioritized the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in markets that are not active.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:
July 31, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
April 30, 2021 |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 11 |
| Table of Contents |
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 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.
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, 2021 and 2020 the dilutive effect of options, warrants, and convertible notes payable was
Employee stock-based compensation
Pursuant to FASB ASC 718, all share-based payments to employees, including grants of employee stock options, are recognized in the statement of operations based on their fair values. For the three months ended July 31, 2021 and 2020, the Company had no stock-based compensation to employees.
Issuance of shares for non-cash consideration
The Company accounts for the issuance of equity instruments 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 Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of the standards issued by the FASB. 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 by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
| 12 |
| Table of Contents |
Reclassifications
Certain amounts in the consolidated financial statements for the prior-year period have been reclassified to conform with the current-year period presentation.
Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under current GAAP, there are five accounting models for convertible debt instruments. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, the FASB decided to add disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital. ASU 2020-06 will be effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of the adoption of this accounting pronouncement to its financial statements.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations.
NOTE 3 – GOING CONCERN
Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $
| 13 |
| Table of Contents |
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.
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 January 1, 2020, the Maple Resources consulting agreement was amended to provide 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 $
| 14 |
| Table of Contents |
Effective February 1, 2021 the Company entered into consulting agreements with three children of our President and CEO. The consulting agreements can be terminated 15 days after written notice of termination by either party subject to the agreement or December 31, 2021, whichever occurs first. During the three months ended April 30, 2021 we incurred $
Series A Preferred Stock
Effective August 1, 2019, the Company issued
Convertible Notes Payable – Related Parties
Convertible notes payable – related parties consist of the following:
|
| July 31, 2021 |
|
| April 30, 2021 |
| ||
Convertible note payable with Maple Resources Corporation, matured December 27, 2020, with interest at 5%, convertible into common shares of the Company [1] |
| $ |
|
| $ |
| ||
Convertible note payable with BNL Family Trust, matured December 27, 2020, with interest at 5%, convertible into common shares of the Company [2] |
|
|
|
|
|
| ||
Convertible note payable with Maple Resources Corporation, matured February 12, 2021, with interest at 5%, convertible into common shares of the Company [3] |
|
|
|
|
|
| ||
Convertible note payable with Maple Resources Corporation, matured March 2, 2021, with interest at 5%, convertible into common shares of the Company [4] |
|
|
|
|
|
| ||
Convertible note payable with Maple Resources Corporation, matured May 12, 2021, with interest at 5%, convertible into common shares of the Company [5] |
|
|
|
|
|
| ||
Convertible note payable with Maple Resources Corporation, matured July 31, 2021, with interest at 5%, convertible into common shares of the Company [6] |
|
|
|
|
| 10,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Less discount |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
[1] This convertible note was entered into on December 27, 2019 in exchange for cash of $
| 15 |
| Table of Contents |
[2] This convertible note was entered into on December 27, 2019 in exchange for cash of $
[3] This convertible note was entered into on February 12, 2020 in exchange for cash of $
[4] This convertible note was entered into on March 2, 2020 in exchange for cash of $
[5] This convertible note was entered into on May 12, 2020 in exchange for accrued consulting fees worth $
[6] This convertible note was entered into on July 31, 2020 in exchange for cash of $
| 16 |
| Table of Contents |
Other Contractual Agreements
Maple Resources granted BNL Family Trust (“BNL”), a related party to Mr. Lemons, an option to purchase
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
|
| July 31, 2021 |
|
| April 30, |
| ||
|
|
|
|
|
|
| ||
Office furniture and equipment |
| $ |
|
| $ |
| ||
Computer equipment and software |
|
|
|
|
|
| ||
Refinery land |
|
|
|
|
|
| ||
Refinery land improvements |
|
|
|
|
|
| ||
Refinery land easements |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
On May 20, 2021, we entered into a Purchase and Sale Agreement to acquire 323.841 acres of land in, or near, Pecos County, Texas, which closed on July 27, 2021. We paid a total of $
Depreciation and amortization expense totaled $
| 17 |
| Table of Contents |
NOTE 6 – ACCRUED EXPENSES
Accrued expenses consisted of the following at:
|
| July 31, 2021 |
|
| April 30, |
| ||
|
|
|
|
|
|
| ||
Accrued payroll |
| $ |
|
| $ |
| ||
Accrued consulting |
|
|
|
|
|
| ||
Accrued interest and penalties |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
NOTE 7 – NOTES PAYABLE
Note Payable, Currently in Default
Note payable, currently in default, consists of the following at:
Notes Payable
|
| July 31, 2021 |
|
| April 30, |
| ||
|
|
|
|
|
|
| ||
Note payable to an unrelated party, matured March 18, 2014, with interest at 10% |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
| 18 |
| Table of Contents |
Notes payable consist of the following at:
[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 8, 2021 the Company entered into a promissory note with JSJ Investments, Inc with a principal amount of $
[3] Effective March 11, 2021 the Company entered into a promissory note with Vista Capital Investments, Inc with a principal amount of $
Convertible Note Payable, Currently in Default
|
| July 31, 2021 |
|
| April 30, 2021 |
| ||
Note payable to an unrelated party with an issue date of February 22, 2021 with interest at 10% [1] |
| $ |
|
| $ |
| ||
$250,000 draw on March 5, 2021 $200,000 draw on March 26, 2021 |
|
|
|
|
|
| ||
Note payable to an unrelated party with an issue date of March 8, 2021 with interest at 10% [2] |
|
|
|
|
|
| ||
Note payable to an unrelated party with an issue date of March 11, 2021 with interest at 10% [3] |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
| 19 |
| Table of Contents |
Convertible notes payable, currently in default, consist of the following at:
|
| July 31, 2021 |
|
| April 30, 2021 |
| ||
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] |
|
|
|
|
|
| ||
Note payable to an accredited investor, maturing January 31, 2020, with interest at 10%, convertible into common shares of the Company at a defined variable exercise price [3] |
|
|
|
|
|
| ||
Note payable to an individual, maturing December 27, 2020, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [4] |
|
|
|
|
|
| ||
Note payable to an individual, maturing December 27, 2020, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [5] |
|
|
|
|
|
| ||
Note payable to an individual, maturing January 22, 2021, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [6] |
|
|
|
|
|
| ||
Note payable to an individual, maturing May 14, 2021, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [7] |
|
|
|
|
|
| ||
Note payable to an individual, maturing September 9, 2021, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [8] |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Less discount |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
[1] On March 8, 2010, the Company closed a note purchase agreement with an accredited investor pursuant to which the Company sold a $
[2] On January 28, 2011 and February 1, 2011, the Company closed a Convertible Note Agreement totaling $
[3] Effective January 31, 2019, the Company issued and delivered to Auctus Fund, LLC (“Auctus”) a
[4] Effective December 27, 2019 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $
| 20 |
| Table of Contents |
[5] Effective December 27, 2019 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $
[6] Effective January 22, 2020 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $
[7] Effective May 14, 2020 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $
[8] Effective September 9, 2020 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $
Convertible Notes Payable
Current convertible notes payable consisted of the following at:
|
| July 31, 2021 |
|
| April 30, 2021 |
| ||
Note payable to an accredited investor issued for extension fees, maturing November 20, 2020 with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [1] |
| $ |
|
| $ |
| ||
Note payable to an accredited investor issued for extension fees, maturing November 20, 2020 with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [2] |
|
|
|
|
|
| ||
Note payable to an accredited investor, maturing December 31, 2020 with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [3] |
|
|
|
|
|
| ||
Note payable to an accredited investor issued for extension fees, maturing August 31, 2020 with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [4] |
|
|
|
|
|
| ||
Note payable to an accredited investor issued for extension fees, maturing March 26, 2022 with interest at 10%, convertible into common shares of the Company at a defined variable exercise price [5] |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
Less discount |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net |
| $ |
|
| $ |
| ||
| 21 |
| Table of Contents |
[1] Effective March 31, 2020, the Company issued and delivered to GS an
[2] Effective February 4, 2020, the Company issued and delivered to GS an
[3]
[4] Effective December 31, 2020, the Company entered into a fifth amendment to certain convertible notes with GS ($
[5] Effective March 26, 2021, the Company issued and delivered to GS a 10% convertible note in the principal amount of $
In addition to the Convertible Notes outstanding as of July 31, 2021 and April 30, 2021, as noted above, effective June 22, 2021, the Company issued and delivered to GS a
| 22 |
| Table of Contents |
NOTE 8 – PPP LOANS PAYABLE
With an effective date of January 25, 2021, a loan to the Company was approved under the terms and conditions of the Paycheck Protection Program of the United States Small Business Administration (“SBA”) and the CARES Act (2020) (H.R. 748) (15 U.S.C. 636 et seq.) (“the Act”) in the amount of $
NOTE 9 – SBA BRIDGE LOAN PAYABLE
On July 14, 2020, the Company received $
NOTE 10 – DERIVATIVE LIABILITIES
In a series of subscription agreements, the Company issued warrants in prior years that contain certain anti-dilution provisions that have previously been identified as derivatives. In addition, the Company previously identified the conversion feature of certain convertible notes payable and convertible preferred stock as derivatives. The number of warrants or common shares to be issued under these agreements is indeterminate; therefore, through April 30, 2021 the Company concluded that the equity environment was tainted and all warrants, stock options and convertible debt were included in the value of the derivatives. During the three months ended July 31, 2021, it was determined that the Company could increase their authorized common shares at any time, based on an agreement of the majority of voters to do so when needed, therefore the environment was no longer deemed to be tainted and all derivative liabilities were written off the books.
The Company estimated the fair value of the derivative liabilities at the issuance date and at each subsequent reporting date, using a multinomial lattice model simulation. The model is based on a probability weighted discounted cash flow model using projections of the various potential outcomes.
During the three months ended July 31, 2021, we had the following activity in our derivative liabilities:
|
| Options and |
|
| Convertible |
|
|
| ||||
|
| Warrants |
|
| Notes |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance, April 30, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
Change in fair value of derivative liabilities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
| 23 |
| Table of Contents |
NOTE 11 – STOCKHOLDERS’ DEFICIT
Authorized Shares
As of July 31, 2021, the Company had authorized
Common Stock Issuances
During the three months ended July 31, 2021, the Company issued a total of
During the three months ended July 31, 2020, the Company did not issue any shares of its common stock.
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, has the right to vote on all shareholder matters equal to 51% of the total vote.
During the three months ended July 31, 2021 and 2020 the Company did not issue any shares of its preferred stock.
Warrants
The Company has issued warrants in prior years to investors in a series of subscription agreements in equity financings or for other stock-based compensation. Certain of the warrants contain anti-dilution provisions that the Company has previously identified as derivatives. The Company estimates 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 and considering the previous existence of a tainted equity environment (see Note 10).
| 24 |
| Table of Contents |
A summary of warrant activity during the three months ended July 31, 2021 is presented below:
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life (Years) |
| |||
|
|
|
|
|
|
|
|
|
| |||
Outstanding, April 30, 2021 |
|
|
|
| $ |
|
|
|
| |||
Granted |
|
|
|
| $ |
|
|
|
|
| ||
Canceled / Expired |
|
| - |
|
| $ | - |
|
|
|
|
|
Exercised |
|
| ( | ) |
| $ |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, July 31, 2021 |
|
|
|
| $ |
|
|
|
| |||
During the three months ended July 31, 2021 the Company granted
Common Stock Reserved
Combined with the
NOTE 12 – 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, 2021 we were not involved in any material legal proceedings.
NOTE 13 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, all subsequent events have been reported through the filing date as set forth below.
Common Shares Issued
Subsequent to July 31, 2021, the Company issued
Amendment to Articles of Incorporations
| 25 |
| Table of Contents |
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
Business Plan
MMEX Resources Corporation was formed as a Nevada corporation in 2005. The current management team lead an acquisition of the Company (then named Management Energy, Inc.) through a reverse merger completed in 2010 and thereafter changed the Company’s name to MMEX Mining Corporation. In 2016, the Company changed its name to MMEX Resources Corporation to reflect the change in its business plan to an energy focus in the Americas.
The Company is a development-stage company focusing on the acquisition, development and financing of oil, gas, refining and infrastructure projects in Texas and South America, recently announcing it intends to develop solar energy to power multiple planned projects producing hydrogen and ultra-low sulfur fuels combined with carbon dioxide (CO2) capture in Texas.
Current Business Operations and Strategy
Since 2016, the focus of our business has been to build crude oil distillation units and refining facilities (CDUs) in the Permian Basin in West Texas. We revised our business plan in 2021 to move MMEX to clean energy use and production, leveraging our history, management and business relationships from the traditional energy sector. The focus of our business plan is to
| · | Modify our planned CDU projects in Pecos County (West Texas) to produce potentially hydrogen and ultra-low sulfur fuel products combined with CO2 capture. |
|
|
|
| · | Purchase additional acreage allowing us to develop additional megawatts of solar power for distribution to our projects in West Texas. |
| 26 |
| Table of Contents |
Our immediate plans are to pursue the following three projects:
Project 1: A clean refining 10,000 barrel per day facility at our Pecos County site to produce 87° gasoline, ultra-low sulphur diesel and low-sulphur fuel oil, utilizing the Ultra Fuels concept.
Project 2: We have teamed with Black Tree Group to develop a “blue hydrogen” facility in Pecos County to produce hydrogen with carbon capture and storage employing steam methane reformer technology with the abundant natural gas supplies in the immediate area as the feedstock.
Project 3: A parallel “green hydrogen” plant in Pecos County, which plans to utilize the proprietary electrolizer technology of a major international technology partner.
We are in various stages of negotiations with major company off-takes that range from specialty air and gas companies to international trading companies. We would expect the sales of hydrogen by these companies will be to their customer base, which are more traditional chemical end uses. The proposed distribution network of liquid hydrogen from our planned projects will be by truck and rail.
Results of Operations
Revenues
We have not yet begun to generate revenues.
General and Administrative Expenses
Our general and administrative expenses increased to $442,507 for the three months ended July 31, 2021 from $183,325 for the three months ended July 31, 2020. The increase resulted from higher professional fee costs, which included increased costs for legal, public relations, and consulting services.
Project Costs
Our project costs decreased to $3,060 for the three months ended July 31, 2021 from $37,700 for the three months ended July 31, 2020. We expense the direct costs incurred on our projects, including acquisition of rights, planning, design and permitting. During the three months ended July 31, 2021 we entered into planning and design contracts for our project development, however, while the projects required deposits, they were not yet completed during the period, therefore amounts were recorded as prepaid expenses as of July 31, 2021, thus explaining the decrease in the expense in the current period. The levels of spending on our projects will vary from period to period based on availability of financing and will be expensed as projects are completed.
Depreciation and Amortization Expense
Our depreciation and amortization expense results from the depreciation of land improvements and amortization of land easements and totaled to $8,718 for the three months ended July 31, 2021 and 2020, respectively.
Other Income (Expense)
Our interest expense includes interest accrued on debt, amortization of debt discount and penalties assessed on debt. Interest expense totaled $204,610 and $554,089 for the three months ended July 31, 2021 and 2020, respectively. The decrease in interest expense is due to a lower levels of new non-related party convertible debt in the current period, resulting in less amortization of debt discount to interest expense, less loan penalties incurred in the period, and reduced debt balances as a result of debt being paid off or converted into shares common stock.
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We reported gains on derivative liabilities of $3,010,042 and $1,187,352 for the three months ended July 31, 2021 and 2020, 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 larger gain in the current period than in the prior period.
We reported a loss on extinguishment of liabilities of $59,856 for the three months ended July 31, 2021, due to convertible notes being paid off during the period where the debt discount on the notes had to be recognized into earnings. We reported no gain or loss on extinguishment of liabilities for the three months ended July 31, 2021.
Net Income (Loss)
As a result of the above, we reported net income of $2,291,291 and $403,520 for the three months ended July 31, 2021 and 2020, respectively.
Non-Controlling Interest in Income of Consolidated Subsidiaries
Currently, we have no activity in our consolidated subsidiaries. Non-controlling interest in income of consolidated subsidiaries was $0 for all periods presented.
Net Income (Loss) Attributable to the Company
Because we had no non-controlling interest in income of consolidated subsidiaries, net income (loss) attributed to the Company was the same as net income (loss).
Liquidity and Capital Resources
Working Capital
As of July 31, 2021, we had current assets of $2,063,512, comprised of cash and prepaid expenses, and current liabilities of $3,558,629, resulting in a working capital deficit of $1,495,117. Included in our current liabilities as of July 31, 2021 are PPP Loans of $150,000, which we expect to be forgiven.
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Sources and Uses of Cash
Our sources and uses of cash for the three months ended July 31, 2021 and 2020 were as follows:
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| 2021 |
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| 2020 |
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Cash, beginning of period |
| $ | 330,449 |
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| $ | 66,830 |
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Net cash used in operating activities |
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| (826,842 | ) |
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| (72,478 | ) |
Net cash used in investing activities |
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| (245,397 | ) |
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| - |
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Net cash provided by financing activities |
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| 2,474,019 |
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| 20,000 |
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Cash, end of period |
| $ | 1,732,229 |
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| $ | 14,352 |
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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.
We used net cash of $72,478 in operating activities for the three months ended July 31, 2020 as a result of our net income of $403,520, non-cash expenses totaling $124,146, decrease in prepaid expenses and other current assets of $7,223, and increases in accounts payable of $39,214, accrued expenses of $431,286 and accounts payable and accrued expenses – related party of $109,485, partially offset by non-cash gain of $1,187,352.
Net cash used in investing activities for the three months ended July 31, 2021 was $245,397, comprised of the purchase of land during the period. We had no net cash provided by or used in investing activities for the three months ended July 31, 2020.
Net cash provided by financing activities for the three months ended July 31, 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.
Net cash provided by financing activities for the three months ended July 31, 2020 was $20,000, comprised of proceeds from convertible notes payable - related party of $10,000 and proceeds from an SBA express bridge loan of $10,000.
Going Concern Uncertainty
Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $65,693,402 and a total stockholders’ deficit of $785,369 at July 31, 2021, and have reported negative cash flows from operations since inception. While we have received debt and equity funding during the period and have cash on hand of $1,732,229 at July 31, 2021, we still have a working capital deficit of $1,495,117. 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. Finally, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established 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.
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The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies
Our results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, investments, intangible assets, income taxes, financing operations, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For further information on our significant accounting policies see the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 30, 2021 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, 2021.
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 not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Securities Exchange Act”) is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our condensed consolidated financial statements included in this quarterly report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:
| 1. | As of July 31, 2021, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. |
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| 2. | As of July 31, 2021, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. |
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| 3. | As of July 31, 2021, we did not establish a formal written policy for the approval, identification and authorization of related party transactions. |
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| 4. | As of July 31, 2021, we had no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to ensure that all transactions are accounted for accurately and in a timely manner. |
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of July 31, 2021, based on the criteria established in “2013 Internal Control-Integrated Framework” issued by the COSO.
(b) Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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
During the three months ended July 31, 2021, the Company issued a total of 449,568 shares of its common stock: 170,000 shares for cash of $3,000,000; 11,814 shares valued at $42,531 in conversion of convertible notes principal of $40,000, accrued interest payable of $2,027 and payment of fees of $504; 17,754 shares issued pursuant to the rounding of fractional shares in connection with our reverse stock split; and 250,000 shares issued for the exercise of prefunded warrants. The Company also recognized $349,150 in offering costs.
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 Labels 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, 2021 | 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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