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.
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
· Purchase additional acreage allowing us to develop additional megawatts of
solar power for distribution to our projects in West Texas.
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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
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
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.
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
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
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
Liquidity and Capital Resources
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:
Cash, beginning of period $ 330,449 $ 66,830
Net cash used in operating activities (826,842 ) (72,478 )
Net cash used in investing activities (245,397 )
Net cash provided by financing activities 2,474,019 20,000
Cash, end of period $ 1,732,229 $ 14,352
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
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.
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