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.
· 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 powered by solar
energy:
Project 1: A clean fuels 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 Plus with carbon capture 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. The
proposed distribution network of liquid and gaseous 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 $274,407 for the three
months ended January 31, 2022 from $190,681 for the three months ended January
31, 2021 and increased to $991,407 for the nine months ended January 31, 2022
from $553,356 for the nine months ended January 31, 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 to $369,950 for the three months ended January 31,
2022 from $38,700 for the three months ended January 31, 2021 and increased to
$1,379,676 for the nine months ended January 31, 2022 from $128,385 for the nine
months ended January 31, 2021. We expense the direct costs incurred on our
projects, including acquisition of rights, planning, design and permitting.
During the nine months ended January 31, 2022 we entered into, and paid for,
planning and design contracts for our project development. 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.
Depreciation and Amortization Expense
Our depreciation and amortization expense results from the depreciation of land
improvements and amortization of land easements and totaled to $8,888 and $8,718
for the three months ended January 31, 2022 and 2021, respectively. The
depreciation and amortization was $26,852 and $26,156 for the nine months ended
January 31, 2022 and 2021, respectively.
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Other Income (Expense)
Our interest expense includes interest accrued on debt, amortization of debt
discount and penalties assessed on debt. Interest expense totaled $49,566 and
$206,522 for the three months ended January 31, 2022 and 2021, respectively, and
totaled $311,821 and $931,665 for the nine months ended January 31, 2022 and
2021, 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.
We reported gains (losses) on derivative liabilities of $0 and $(69,867) for the
three months ended January 31, 2022 and 2021, respectively and $3,010,042 and
$1,219,856 for the nine months ended January 31, 2022 and 2021, respectively. We
had previously identified the variable conversion feature of certain convertible
notes payable as derivatives. We estimated the fair value of the derivatives
using multinomial lattice models that value the warrants based on a probability
weighted cash flow model using projections of the various potential outcomes.
These estimates are based on multiple inputs, including the market price of our
stock, interest rates, our stock price volatility and management's estimates of
various potential equity financing transactions. These inputs were subject to
significant changes from period to period and to management's judgment;
therefore, the estimated fair value of the derivative liabilities would
fluctuate from period to period, and the fluctuation has been material. During
the nine months ended January 31, 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 net gain on extinguishment of liabilities of $96,993 and $233,303
for the three and nine months ended January 31, 2022, respectively, which could
be explained by the fact that our loan from the Small Business Administration
was forgiven, a convertible note was forgiven, and we had other vendors forgive
us for amounts owing. We reported no gain or loss on extinguishment of
liabilities for the three or nine months ended January 31, 2021.
Net Income (Loss)
As a result of the above, we reported net income (loss) of $(605,818) and
$(514,458) for the three months ended January 31, 2022 and 2021, respectively,
and $533,589 and $(419,706) for the nine months ended January 31, 2022 and 2021,
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 January 31, 2022, we had current assets of $955,729, comprised of cash and
prepaid expenses, and current liabilities of $2,720,275, resulting in a working
capital deficit of $1,764,546.
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Sources and Uses of Cash
Our sources and uses of cash for the nine months ended January 31, 2022 and 2021
were as follows:
2022 2021
Cash, beginning of period $ 330,449 $ 66,830
Net cash used in operating activities (2,946,469 ) (264,272 )
Net cash used in investing activities
(255,504 ) -
Net cash provided by financing activities 3,767,370 255,000
Cash, end of period $ 895,846 $ 57,558
We used net cash of $2,946,469 in operating activities for the nine months ended
January 31, 2022 as a result of our net income of $533,589, non-cash expenses
totaling $104,674 and increases in accrued expenses of $62,653. This was offset
by our non-cash gains of $3,243,345, increase in our prepaid expenses and other
current assets of $21,990, a decrease in accounts payable of $190,268 and a
decrease in accounts payable and accrued expenses - related party of $191,782.
We used net cash of $264,272 in operating activities for the nine months ended
January 31, 2021 as a result of non-cash expenses totaling $307,601, decrease in
prepaid expenses and other current assets of $23,145, and increases in accounts
payable of $138,960, accrued expenses of $620,805 and accounts payable and
accrued expenses - related party of $284,779, partially offset by our net loss
of $419,706 and a non-cash gain of $1,219,856.
Net cash used in investing activities for the nine months ended January 31, 2022
was $255,504, comprised of the purchase of land and costs incurred for land
improvements during the period. We had no net cash provided by or used in
investing activities for the nine months ended January 31, 2021.
Net cash provided by financing activities for the nine months ended January 31,
2022 was $3,767,370, comprised of proceeds from notes payable of $200,000,
proceeds from convertible notes payable of $78,500, proceeds from the sale of
our common stock of $3,000,000, and proceeds from the sale of our series B
preferred stock of $1,500,000. This was offset by repayments of notes payable of
$200,000, repayments of convertible notes payable of $255,331, and offering
costs incurred of $555,799.
Net cash provided by financing activities for the nine months ended January 31,
2021 was $255,000, comprised of proceeds from convertible notes payable of
$75,000, proceeds from convertible notes payable - related party of $20,000,
proceeds from PPP loans of $150,000, 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 $67,451,104 and a total stockholders' deficit of
$1,062,825 at January 31, 2022, 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 $895,846 at January 31, 2022, we
still have a working capital deficit of $1,764,546. 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.
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Since inception, our operations have primarily been funded through private debt
and equity financing, and we expect to continue to seek additional funding
through private or public equity and debt financing. Our ability to continue as
a going concern is dependent on our ability to generate sufficient cash from
operations to meet our cash needs and/or to raise funds to finance ongoing
operations and repay debt. However, there can be no assurance that we will be
successful in our efforts to raise additional debt or equity capital and/or that
our cash generated by our operations will be adequate to meet our needs. These
factors, among others, raise substantial doubt that we will be able to continue
as a going concern for a reasonable period of time.
The financial statements do not include any adjustments that might result from
the outcome of any uncertainty as to the Company's ability to continue as a
going concern. The financial statements also do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
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 nine months ended
January 31, 2022.
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