Our discussion includes forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
Special Note Regarding Forward-Looking Statements and Business sections in this
Annual Report. We use words such as "anticipate," "estimate," "plan," "project,"
"continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should,"
"could," and similar expressions to identify forward-looking statements.
The following discussion and analysis constitutes 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 Consolidated
Financial Statements, including the notes thereto.
Overview
Business Overview
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 production,
leveraging our history, management and business relationships from the
traditional energy sector.
Since 2021 MMEX has expanded its focus to 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 for conversion of hydrogen 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.
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Through April 30, 2022, we have had no revenues and have reported continuing
losses from operations.
Results of Operations
We recorded a net loss of $228,730 or $(0.02) per share, for fiscal year ended
April 30, 2022, compared to a net loss of $24,526,886 or $(14.23) per share, for
the fiscal year ended April 30, 2021. As discussed below, the net income or
loss for any fiscal year fluctuates materially due to non-operating gains and
losses.
Revenues
We have not yet begun to generate revenues.
General and Administrative Expenses
Our general and administrative expenses increased $426,201 to $1,293,672 for the
year ended April 30, 2022 from $867,471 for the year ended April 30, 2021. The
increase resulted from higher professional fee costs, which included increased
costs for legal, public relations, and consulting services.
Project Costs
Our project costs increased $1,458,609 to $1,637,742 for the year ended April
30, 2022 from $179,133 for the year ended April 30, 2021. The levels of
spending on our projects will vary from period to period based on availability
of financing and will be expensed as project costs are incurred. During the
year ended April 30, 2022, we obtained financing and were able to move forward
on our projects, which included incurring costs for the acquisition of rights,
planning, design and permitting.
Depreciation and Amortization Expense
Our depreciation and amortization expenses remained constant, totaling $35,877
and $34,875 for the years ended April 30, 2022 and 2021, respectively. The
expense results from the depreciation of land improvements and amortization of
land easements.
Other Income (Expense)
Our interest expense decreased $625,711 to $517,784 for the year ended April 30,
2022 from $1,143,495 for the year ended April 30, 2021. We entered into fewer
convertible debt arrangements in the current fiscal year, resulting in less
amortization of debt discount to interest expense, and our debt arrangements
during the year ended April 30, 2022 had more favorable interest rates, thus
explaining the decrease in interest expense over time.
For the years ended April 30, 2022 and 2021, we reported gains (losses) on
derivative liabilities of $3,010,042 and $(22,906,922), respectively. In a
series of subscription agreements, we issued warrants in prior years that
contained certain anti-dilution provisions that we have identified as
derivatives. We also 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 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. During the
year ended April 30, 2022 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 gain on extinguishment of debt of $243,303 for the year ended
April 30, 2022 compared to a gain on extinguishment of debt of $605,010 for the
year ended April 30, 2021. The gain on extinguishment of debt generally results
from the settlement and extinguishment of convertible notes payable and certain
accounts payable and accrued expenses and can fluctuate over time as we are able
to settle or pay off debt.
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Net Income (Loss)
As a result of the above, we reported net losses of $228,730 and $24,526,886 for
the years ended April 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
Working Capital
As of April 30, 2022, we had current assets of $184,200, comprised of cash of
$136,867 and prepaid expenses and other current assets of $47,333, and current
liabilities of $3,054,377, resulting in a working capital deficit of $2,870,177.
Sources and Uses of Cash
Our sources and uses of cash for the years ended April 30, 2022 and 2021 were as
follows:
2022 2021
Cash, Beginning of Year $ 330,449 $ 66,830
Net Cash Used in Operating Activities (3,402,572 ) (805,683 )
Net Cash Used in Investing Activities
(677,905 ) -
Net Cash Provided by Financing Activities 3,886,895 1,069,302
Cash, End of Year $ 136,867 $ 330,449
We used net cash of $3,402,572 in operating activities for the year ended April
30, 2022 as a result of our net loss of $228,730, our non-cash gains of
$3,253,345, our increase in prepaid expenses and other current assets of $9,440,
our increase in accounts payable of $116,276, and our increase in accounts
payable and accrued expenses - related parties of $156,064, partially offset by
non-cash expenses totaling $279,887, a decrease in our deposit of $900, and an
increase in accrued expenses of $80,496.
In comparison, we used net cash of $805,683 in operating activities for the year
ended April 30, 2021 as a result of our net loss of $24,526,886, our non-cash
gain of $605,010 and our increase in prepaid expenses and other current assets
of $14,748, partially offset by non-cash expenses totaling $23,402,206, and
increases in accounts payable of $3,695, accrued expenses of $756,839 and
accounts payable and accrued expenses - related parties of $178,221.
Net cash used in investing activities was $677,905, and $0 for the years ended
April 30, 2022 and 2021, respectively, comprised on the purchase of property and
equipment.
Net cash provided by financing activities was $3,886,895 for the year ended
April 30, 2022, comprised of proceeds from notes payable of $352,500, proceeds
from convertible notes payable of $233,500, proceeds from the sale of common and
series B preferred stock and warrants of $4,500,000, and proceeds from warrant
exercise of $73, partially offset by repayments of notes payable of $388,048,
repayments of convertible notes payable of $255,331, and the payment of $555,799
in offering costs.
By comparison, net cash provided by financing activities was $1,069,302 for the
year ended April 30, 2021, comprised of proceeds from notes payable of $775,000,
proceeds from convertible notes payable of $10,000, proceeds from convertible
notes payable - related parties of $163,500, proceeds from SBA bridge loan of
$10,000, and proceeds from a PPP loan payable of $150,000, partially offset by
repayments of convertible notes payable of $39,198.
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 $68,213,423 and a total stockholders' deficit of
$1,755,980 at April 30, 2022, and have reported negative cash flows from
operations since inception. In addition, as of April 30, 2022 we did not have
the cash resources to meet our operating commitments for the next twelve
months. We require capital investments to implement our business plan,
including the development of our planned hydrogen projects. Additionally, 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 markets and the competitive environment in which we operate.
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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 material 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 this Annual Report. There were
no material changes to our significant accounting policies during the year ended
April 30, 2022 and there are no policies we deem to be critical accounting
policies.
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