The following discussion and analysis constitute forward-looking statements for
purposes of the Securities Act and the Exchange Act and as such involves known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements. The words "expect", "estimate", "anticipate",
"predict", "believes", "plan", "seek", "objective" and similar expressions are
intended to identify forward-looking statements or elsewhere in this report.
Important factors that could cause our actual results, performance or
achievement to differ materially from our expectations are discussed in detail
in Item 1 above. All written or oral forward-looking statements attributable to
us are expressly qualified in their entirety by such factors. We undertake no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Notwithstanding the foregoing, we are not entitled to rely on the safe harbor
for forward looking statements under 27A of the Securities Act or 21E of the
Exchange Act as long as our stock is classified as a penny stock within the
meaning of Rule 3a51-1 of the Exchange Act. A penny stock is generally defined
to be any equity security that has a market price (as defined in Rule 3a51-1) of
less than $5.00 per share, subject to certain exceptions.
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements, including the notes thereto.
Overview
Company Information and Business Plan
MMEX Resources Corporation ("MMEX") was formed as a Nevada corporation in 2005.
The current management team lead an acquisition of the Company (then named
Management Energy, Inc.) through a reverse merger completed in 2010 and
thereafter changed the Company's name to MMEX Mining Corporation.
MMEX is focused on the development, financing, construction and operation of
clean fuels infrastructure projects powered by renewable energy. We have formed
two operating sub-divisions of the Company - one sub-division to transition from
legacy refining transportation fuels by producing them as ultra clean fuels with
carbon capture or as stand-alone renewable or clean fuels projects, and the
second sub-division which plans to produce green and/or blue hydrogen with the
option of hydrogen conversion to ammonia or methanol. These two sub-divisions
will be operating respectively as Clean Energy Global, LLC and Hydrogen Global,
LLC. The planned projects are designed to be powered by solar and wind renewable
energy.
Our portfolio contains the following pipeline of planned projects:
Clean Energy Global, LLC
Project 1: Pecos Clean Fuels & Transport, LLC -Ultra Clean Fuels Refining-Pecos
County, Texas
We have teamed with Polaris Engineering to develop an ultra-clean transportation
fuel, up to 11,600 barrel per day feedrate crude oil refining facility at our
Pecos County, Texas site to produce 87° gasoline, ultra-low sulphur diesel and
low-sulphur fuel oil, utilizing the Polaris Ultra FuelsTM patented concept,
which removes over 95% emissions of a standard refinery. The planned carbon
capture features of the project will be owned, financed, constructed and
operated by an independent third-party. The Ultra FuelsTM concept, with capex
and technical details completed in the Front-End Load-2 ("FEL-2") study,
features small size facilities to take advantage of proximity to smaller markets
and/or locate directly near crude oil production areas near the Company's owned
126-acre site. Because equipment is fabricated in modular units and shipped to
site, this allows for an 18-month project completion time and more rapid
implementation than traditional facilities. The smaller size and footprint, as
well as lower emissions, also allows for faster permitting which we obtained for
this facility from the Texas Commission on Environmental Quality on February 18,
2022.
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Project 2: Arroyo Cabral, Cordoba Province Argentina Solar Power Project.
The Company along with its international partners have entered a proposal with
EPEC, the local utility in Cordoba Province to build potentially the Arroyo
Cabral 48 MWe solar park for local power demand following the Company's
completion of a confidential information memorandum and pre-feasibility study
for the project completed in June 2021. The local utility, EPEC, has proposed a
Build Own Transfer structure with EPEC contributing 15% of the project costs as
an equity contribution. The financing of the project potentially is to be
provided by the Company's international partners and other third parties.
Hydrogen Global, LLC
Project 3: Hydrogen Global- Pecos County, Texas- Green Hydrogen Project
This planned project to utilize the proprietary electrolyzer technology of
Siemens Energy, a major international technology provider to the Company, plans
to convert water to hydrogen through electrolysis. The facility will utilize
solar power, with the Company's water supply to produce up to 55 tons of
hydrogen production per day. The Company and Siemens have completed the
Front-End Engineering and Design ("FEED") study in April 2022, which outlines
the capex of the electrolyzer complex on the Company's 321-acre site. The
Company is in discussions with several renewable power developers to become the
technology provider for 160 MWe solar power component. In addition, the Company
is in discussions with two potential product off-takes (i) with a technology
provider for the Ammonia complex, for conversion of the hydrogen to ammonia to
facilitate transportation of the finished product for the export market in
either Europe or Asia and (ii) international partners to provide turn-key
mobility markets to include hydrogen fueling stations and buses utilizing
hydrogen fuel cells. The potential markets would be the major metropolitan areas
in the U.S. and Texas to include Austin, Dallas, Houston, and San Antonio.
Project 4: Hydrogen Global- Tierra del Fuego Province Argentina-Green Hydrogen
Project
On April 28, 2022, the Province of Tierra del Fuego and the Company announced
the potential joint development of a green hydrogen project in the Río Grande,
Tierra del Fuego area powered by wind energy. The Company has signed an
amendment with Siemens Energy to adapt the Green H2 electroylzer FEED Study
completed for Pecos County to this Project. In addition, the Company has a
preliminary understanding with Siemens Gamesa as the technology provider for the
wind energy. The Company estimates the land requirement of up to 10,000 hectares
for the wind farm and the Green H2 facilities. The Company is in discussions
with the same technology provider for the Ammonia complex as for Pecos County.
The potential market for the Ammonia is Europe or Asia and the project location
is ideal for ocean borne shipping east or west.
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Project 5: Hydrogen Global- Tangier Morocco- Green Hydrogen Project
The Company has identified sea-based land assets in Tangier Morocco and is in
negotiations for the supply of 160MWe of certified renewable power with local
utility. The Company has international partners with local presence in Morocco.
Tangier has developed what is now the largest trading hub in Africa with ten
major ports (https://www.marineinsight.com/know-more/10-major-ports-in-morocco/)
including multi-modal deep seaports, multiple free-zones areas with substantial
tax and trade incentives and it is located 15km from Europe ports (Spain and
Gibraltar). Tangier and the neighboring coastal area benefit from some of the
best wind conditions in the world, which can also be associated with solar power
generation. The Kingdom of Morocco is strongly pushing the use of renewable
energy and has recently issued a Green Hydrogen regulatory framework. The
principal off-take markets are the shipping and terminal companies present in
the Tangier Port Med including APM Terminals
(https://www.apmterminals.com/en/medport-tangier/about/our-terminal ), and
CGM-CMA (https://www.cma-cgm.com ).
Project 6: Hydrogen Global- Southern Coast of Peru-Green Hydrogen Project
The Company has entered advanced discussions with Peru's principal electric
power distribution company to develop potentially a Green Hydrogen project to
produce up to 55 tons per day of hydrogen, requiring 160 MWe of constant and
certified renewable power load. The Company plans to use its Siemens Energy
Electrolyzer FEED template and adapt it for Peru. The Peru distribution company
will also provide the land area as part of the transaction - approximately 5
hectares, by the sea to facilitate exports of green Hydrogen/Ammonia/Methanol to
Asia and the U.S. West Coast. Peru's mining industry with its use of heavy
extraction and transportation equipment has significant market potential for the
Company's hydrogen production.
Project 7: Hydrogen Global- Pecos County, Texas-Blue Hydrogen Project
The Company is in planning discussions with a super major oil company (the
"Super Major") to develop jointly a Blue Hydrogen project at the Company's Pecos
County, Texas site. The Project plans to utilize potentially a portion of the
Super Major's 2 billion cubic feet per day natural gas production and
transportation from the area to produce hydrogen utilizing an autothermal
reformer ("ATR") technology, In turn, the hydrogen will be used in Siemens
Energy turbines and generator sets to produce 365 MWe of electric power which
are projected to utilize initially a 75% hydrogen-25% natural gas feed and
moving to a 100% hydrogen feed, with the electric power to be marketed by the
power commodity trading desk of the Super Major. Solar and wind power will be
utilized in the ATR and under discussions with the renewable power companies
developing the Company's other solar projects in the area. The planned carbon
capture features of the project will be owned, financed, constructed and
operated by an independent third-party.
Completion of these projects is dependent upon our obtaining the necessary
capital for planning, construction and start-up costs. There is no assurance
that such financing can be obtained on favorable terms.
Results of Operations
Revenues
We have not yet begun to generate revenues.
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General and Administrative Expenses
Our general and administrative expenses decreased to $211,084 for the three
months ended January 31, 2023 from $274,407 for the three months ended January
31, 2023, which was due the conservation of cash during the period, and
increased to $1,379,285 for the nine months ended January 31, 2023 from $991,407
for the nine months ended January 31, 2022. The increase was a result of due
diligence fees incurred during the period, as well as the Company issuing
3,000,000 shares each to two entities affiliated with the Company's two board
members and a consultant and recognizing $495,000 as stock-based compensation
during the nine months ended January 31, 2023, versus no similar expense
recognized during the nine months ended January 31, 2022.
Project Costs
We expense the direct costs incurred on our projects, including acquisition of
rights, planning, design and permitting. Our project costs have decreased to
$20,520 for the three months ended January 31, 2023 from $369,950 for the three
months ended January 31, 2022 and decreased to $96,560 for the nine months ended
January 31, 2023 from $1,379,676 for the nine months ended January 31, 2022.
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.
The decrease in the current period, then, was because we did not have funding
available to invest in our projects during the current period.
Depreciation and Amortization Expense
Our depreciation and amortization expense results from the depreciation of land
improvements and amortization of land easements and totaled $9,099 and $8,888
for the three months ended January 31, 2023 and 2022, respectively, and totaled
$27,296 and $26,852 for the nine months ended January 31, 2023 and 2022,
respectively.
Other Income (Expense)
Our interest expense includes interest accrued on debt, amortization of debt
discount and penalties assessed on debt. Interest expense totaled $67,177 and
$49,566 for the three months ended January 31, 2023 and 2022, respectively and
totaled $193,190 and $311,821 for the nine months ended January 31, 2023 and
2022, respectively. The decrease in interest expense for the nine months is due
to lower levels of new non-related party convertible debt in the current period
as a result of debt being paid off or converted into shares common stock.
Additionally, the lower levels of debt also resulted in less amortization of
debt discount to interest expense and less loan penalties incurred in the
period.
We reported gains on derivative liabilities of $0 and $3,010,042 for the nine
months ended January 31, 2023 and 2022, 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 large gain in the prior period.
We reported a net gain (loss) on extinguishment of liabilities of $16,540 and
$233,303 for the nine months ended January 31, 2023 and 2022, respectively, and
$0 and $96,993 for the three months ended January 31, 2023 and 2022,
respectively. The larger gain in the prior period was mostly due to our loan
from the Small Business Administration being forgiven along the forgiveness of a
convertible note, versus smaller loan amounts being forgiven in the current
period.
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Net Income (Loss)
As a result of the above, we reported net income (loss) of $(307,880) and
$(605,818) for the three months ended January 31, 2023 and 2022, respectively
and $(1,679,791) and $533,589 for the nine months ended January 31, 2023 and
2022, respectively.
Deemed Dividend
Effective June 7, 2022 we reduced the conversion price of our Series B preferred
stock from $0.10 to $0.05. This resulted in the recognition of a deemed
dividend of $2,534,402 during the nine months ended January 31, 2023 in order to
account for the change in fair value of the Series B preferred stock.
Net Income (Loss) Attributable to Common Shareholders
As a result of the deemed dividend, our net loss attributed to common
shareholders was $(4,214,193) for the nine months ended January 31, 2023. We
had no similar activity during the nine months ended January 31, 2022 or the
three months ended January 31, 2023 and 2022, therefore net income (loss)
attributed to the Company was the same as net income (loss) of $533,589,
$(307,880), and $(605,818), respectively.
Liquidity and Capital Resources
Working Capital
As of January 31, 2023, we had current assets of $32,351, comprised only of cash
and prepaid expenses, and current liabilities of $3,841,267, resulting in a
working capital deficit of $3,808,916.
Sources and Uses of Cash
Our sources and uses of cash for the six months ended January 31, 2023 and 2022
were as follows:
2023 2022
Cash, beginning of period $ 136,867 $ 330,449
Net cash used in operating activities (619,849 ) (2,946,469 )
Net cash used in investing activities
- (255,504 )
Net cash provided by financing activities 490,500 3,767,370
Cash, end of period $ 7,518 $ 895,846
We used net cash of $619,849 in operating activities for the nine months ended
January 31, 2023 as a result of our net loss of $1,679,791, offset by non-cash
net expense totaling $559,468, an increase in prepaid expenses of $22,500, and
increases in accounts payable, accrued expenses, and accounts payable and
accrued expenses - related party of $477,974.
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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.
Net cash used in investing activities for the nine months ended January 31, 2023
was $0 compared to $255,504 for the nine months ended January 31, 2022 which was
comprised of the purchase of land and costs incurred for land improvements
during the period.
Net cash provided by financing activities for the nine months ended January 31,
2023 was $490,500, comprised of proceeds of $502,500 from convertible notes
payable and $41,209 from the sale of common stock, offset by offering costs of
$12,000 and repayments of convertible notes payable of $41,209.
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.
Going Concern Uncertainty
Our financial statements are prepared using accounting principles generally
accepted in the United States of America applicable to a going concern, which
contemplate the realization of assets and liquidation of liabilities in the
normal course of business. We have incurred continuous losses from operations,
have an accumulated deficit, and have reported negative cash flows from
operations since inception. Additionally, we have a working capital deficit,
therefore there is a question of whether or not we have the cash resources to
meet our operating commitments for the next twelve months and have, or will
obtain, sufficient capital investments to implement our business plan. Our
ability to continue as a going concern must be considered in light of the
problems, expenses and complications frequently encountered by entrance into
established and emerging markets and the competitive environment in which we
operate.
Since inception, our operations have primarily been funded through private debt
and equity financing, and we expect to continue to seek additional funding
through private or public equity and debt financing. Our ability to continue as
a going concern is dependent on our ability to generate sufficient cash from
operations to meet our cash needs and/or to raise funds to finance ongoing
operations and repay debt. However, there can be no assurance that we will be
successful in our efforts to raise additional debt or equity capital and/or that
our cash generated by our operations will be adequate to meet our needs. These
factors, among others, raise substantial doubt that we will be able to continue
as a going concern for a reasonable period of time.
The financial statements do not include any adjustments that might result from
the outcome of any uncertainty as to the Company's ability to continue as a
going concern. The financial statements also do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
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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, 2022 filed with the SEC and Note 2 to our condensed
consolidated financial statements included in this quarterly report. There were
no changes to our significant accounting policies during the nine months ended
January 31, 2023.
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