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, 2014 filed with the Securities and Exchange Commission (“SEC”).
Notes to Condensed Consolidated Financial Statements
Six Months Ended October 31, 2014
(Unaudited)
NOTE 1 – BACKGROUND, ORGANIZATION AND BASIS OF PRESENTATION
MMEX Resources Corporation (the “Company” or “MMEX”) was formed in the State of Nevada on May 19, 2005 as Inkie Entertainment Group, Inc. On April 6, 2016, the Company amended its articles of incorporation to change its name to MMEX Resources Corporation and to authorize the Company to issue up to 1,000,000,000 common shares and 10,000,000 preferred shares. The changes in the number of authorized shares of the Company have been given retroactive effect in the accompanying condensed consolidated financial statements. The Board of Directors of the Company has made the decision to focus efforts on the oil, gas, refining and electric power business in the United States and Latin America.
The accompanying condensed consolidated financial statements include the accounts of the following entities, all of which the Company maintains control through a majority ownership:
Name of Entity
|
|
%
|
|
Form
of Entity
|
|
State of
Incorporation
|
|
Relationship
|
|
|
|
|
|
|
|
|
|
MMEX Resources Corporation (“MMEX”)
|
|
-
|
|
Corporation
|
|
Nevada
|
|
Parent
|
MCC Merger, Inc. (“MCCM”)
|
|
100%
|
|
Corporation
|
|
Delaware
|
|
Holding Subsidiary
|
Maple Carpenter Creek Holdings, Inc. (“MCCH”)
|
|
100%
|
|
Corporation
|
|
Delaware
|
|
Subsidiary
|
Maple Carpenter Creek, LLC (“MCC”)
|
|
80%
|
|
LLC
|
|
Nevada
|
|
Subsidiary
|
Carpenter Creek, LLC (“CC”)
|
|
95%
|
|
LLC
|
|
Delaware
|
|
Subsidiary
|
Armadillo Holdings Group Corp. (“AHGC”)
|
|
100%
|
|
Corporation
|
|
British Virgin Isles
|
|
Subsidiary
|
Armadillo Mining Corp. (“AMC”)
|
|
98.6%
|
|
Corporation
|
|
British Virgin Isles
|
|
Subsidiary
|
All significant inter-company transactions have been eliminated in the preparation of the condensed 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.
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, 2014 filed with the SEC on April 15, 2016.
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.
Income or Loss Per Share
Basic 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 preferred stock and convertible debentures, were exercised or converted into common stock. For the three months and six months ended October 31, 2014 and 2013, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Therefore, basic loss per share is the same as diluted loss per share and the weighted average number of common shares outstanding was 57,188,313 for each of the three and six-month periods ended October 31, 2014 and 2013.
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 Financial Accounting Standards Board (“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.
Reclassifications
Certain amounts in the condensed consolidated financial statements for the prior year periods have been reclassified to conform with the current year presentation.
Recently Issued Accounting Pronouncements
In October 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-17, “Consolidation (Topic 810): Interests Held Through Related Parties That are Under Common Control.” This update amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In March 2016, the FASB issued ASU No. 2016-09, "Stock Compensation (Topic 718)", which is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income tax impacts, the classification on the statement of cash flows, and forfeitures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In April 2015, the FASB issued ASU No. 2015-03, "Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs." To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public companies, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 310-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” The amendments in this Update provide guidance in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company has not determined the impact of the future adoption of the provisions of ASU No. 2014-15 on its consolidated 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 $26,951,966 and a total stockholders’ deficit of $6,958,064 at October 31, 2014, and have reported negative cash flows from operations since inception. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months, and we expect to have ongoing requirements for capital investment 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 markets and the competitive environment in which we operate.
Since inception, our operations have primarily been funded through private debt and equity financing, as well as capital contributions by our subsidiaries' partners, 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, indicate that we may be unable 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
During the past few years, Tydus Richards, the former Chairman of our board of directors and shareholder, made certain payments on behalf of the Company. The Company has partially reimbursed Mr. Richards for these advances. As of October 31, 2014 and April 30, 2014, a remaining balance of $31,633 included in accrued expenses – related party remains outstanding.
On September 4, 2010, MCCH entered into an employment agreement with the Company's CEO, Jack W. Hanks, for a two-year term, automatically renewable for one-year terms thereafter, at an annual compensation of $300,000 per year.
On September 4, 2010, MCCH entered into a consulting agreement with Bruce N. Lemons, one of the Company's two directors, for a two-year term, automatically renewable for one-year terms thereafter, at an annual compensation of $170,000 per year.
Accrued expenses (see Note 6) to related parties totaled $1,515,767 and $1,159,608 as of October 31, 2014 and April 30, 2014, respectively.
Convertible notes payable – related party, currently in default, consisted of the following at:
|
|
October 31,
2014
|
|
|
April 30,
2014
|
|
|
|
|
|
|
|
|
Note payable to BNL Family Partners, LLC, a related
party, with interest at 15%, convertible at the option
of the holder into common shares of the Company
at a fixed conversion price of $0.025 per share
|
|
$
|
53,530
|
|
|
$
|
53,530
|
|
Note payable to BNL Family Partners, LLC, a related
party, maturing June 30, 2015, with interest at 15%,
convertible at the option of the holder into common
shares of the Company at a fixed conversion price
of $0.025 per share
|
|
|
10,000
|
|
|
|
-
|
|
Note payable to Delavega Trading Ltd., a related party,
maturing June 20, 2015, with interest at 15%,
convertible at the option of the holder into common
shares of the Company at a fixed conversion price of
$0.25 per share
|
|
|
27,100
|
|
|
|
27,100
|
|
Note payable to Maple Gas Corporation, a related party,
with interest at 15%, convertible at the option of the
holder into common shares of the Company at a fixed
conversion price of $0.025 per share
|
|
|
39,337
|
|
|
|
39,337
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
129,967
|
|
|
|
119,967
|
|
|
|
|
|
|
|
|
|
|
Less discount
|
|
|
(72
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
129,895
|
|
|
$
|
119,967
|
|
BNL Family Partners Convertible Notes
On September 15, 2012, the Corporation entered into a $4,500 convertible note agreement with BNL Family Partners, LLC, a related party. Mr. Bruce N. Lemons, a director of the Corporation, is a partner of BNL Family Partners. The note carries a 20% interest rate until maturity at September 30, 2013 and is convertible into common shares of the Company at the holder's option at $0.20 per share. The holder may accelerate repayment of the promissory notes upon the Company raising additional capital of $150,000. The computed interest of $900 was added to the balance of the note and recorded as additional debt discount. In addition, the Company issued 4,500 warrants valued at $800 using the Black-Scholes option pricing model. The value of the warrants of $800 was recorded as an increase to debt discount and to additional paid-in capital. The warrants are exercisable at an exercise price of $0.30 per common share until September 15, 2015. The note is currently in default.
On April 30, 2014, the Company converted the note payable described above and additional advances from BNL Family Partners into a single $48,130 convertible note agreement with BNL Family Partners. The holder may accelerate repayment of the promissory note upon the Corporation raising additional capital of $1,000,000. The holder may also convert the note into common shares of the Company at the holder's option at $0.025 per Common Share. As the conversion option is above the value of the stock on the date of conversion, no beneficial conversion feature was recorded with this note.
On June 20, 2014, the Company entered into a $10,000 convertible note agreement with BNL Family Partners. The note carries a 15% interest rate until maturity on June 20, 2015 and is convertible into common shares at the holder's option at $0.025 per common share. The Company issued 10,000 warrants valued at $114 using the Black-Scholes option pricing model. The value of the warrants of $114 was recorded as an increase to debt discount and to additional paid-in capital. The warrants are exercisable at an exercise price of $0.05 per common share until June 30, 2017.
Delavega Trading Ltd. Convertible Notes
On August 1, 2012, the Company entered into a $13,000 convertible note agreement with Delavega Trading Ltd., a related party. Mr. Nabil Katabi, a director of the Company, is a control person of Delavega Trading Ltd. The note carries a 20% interest rate until maturity at September 30, 2013 and is convertible into common shares of the Company at the holder's option at $0.20 per common share. The computed interest of $2,600 was added to the balance of the note and recorded as additional debt discount. In addition, the Company issued 13,000 warrants valued at $1,292 using the Black-Scholes option pricing model. The value of the warrants of $1,292 was recorded as an increase to debt discount and to additional paid-in capital. The warrants are exercisable at an exercise price of $0.30 per common share until August 1, 2015. The note is currently in default.
On December 17, 2012, the Company entered into a $6,500 convertible note agreement with Delavega Trading Ltd. The note carries a 20% interest rate until maturity at December 17, 2013 and is convertible into common shares of the Company at the holder's option at $0.20 per common share. The computed interest of $1,300 was added to the balance of the note and recorded as additional debt discount. In addition, the Company issued 6,500 warrants valued at $549 using the Black-Scholes oprtion pricing model. The value of the warrants of $549 was recorded as an increase to debt discount and to additional paid-in capital. The warrants are exercisable at an exercise price of $0.30 per common share until December 17, 2015. The note is currently in default.
On April 30, 2014, the Company converted the notes payable described above and associated accrued interest to and additional advances from Delavega Trading Ltd. into a single $27,100 convertible note agreement with Delavega Trading Ltd. The holder may accelerate repayment of the promissory note upon the Company raising additional capital of $1,000,000. The holder may also convert the note into common shares of the Company at the holder's option at $0.025 per Common Share. As the conversion option was above the value of the stock on the date of conversion, no beneficial conversion feature was recorded with this note.
Maple Gas Advances
During the year ended April 30, 2014, Maple Gas Corporation, a related party owned by Mr. Jack W. Hanks, a director and officer of the Company, advanced funds or incurred expenses on behalf of the Company. On April 30, 2014, the Company entered into a $39,337 convertible note agreement with Maple Gas Corporation for the total advances to that date. The note carries a 15% interest rate. The holder may accelerate repayment of the promissory note upon the Company raising additional capital of $1,000,000. The holder may also convert the note into common shares of the Company at the holder's option at $0.025 per common share. As the conversion option was above the value of the stock on the date of conversion, no beneficial conversion feature was recorded with this note.
The debt discount resulting from interest and the value of warrants computed at the inception of the convertible notes payable – related party is amortized over the term of the notes as additional interest expense. During the three months ended October 31, 2014 and 2013, debt discount amortized to interest expense totaled $29 and $0, respectively. During the six months ended October 31, 2014 and 2013, debt discount amortized to interest expense totaled $42 and $0, respectively. As of October 31, 2014, the debt discount had a balance of $72.
The above convertible notes payable – related party were subsequently forgiven, with the obligations contributed to capital – see Note 12.
NOTE 5 –
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
|
|
October 31,
2014
|
|
|
April 30,
2014
|
|
|
|
|
|
|
|
|
Computer software and hardware
|
|
$
|
25,023
|
|
|
$
|
25,023
|
|
Less accumulated depreciation and amortization
|
|
|
(20,187
|
)
|
|
|
(17,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,836
|
|
|
$
|
7,338
|
|
Depreciation and amortization expense totaled $1,251 and $1,250 for the three months ended October 31, 2014 and 2013, respectively, and $2,502 for each of the six months ended October 31, 2014 and 2013.
NOTE 6 –
ACCRUED EXPENSES
Accrued expenses consisted of the following at:
|
|
October 31,
2014
|
|
|
April 30,
2014
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
$
|
973,798
|
|
|
$
|
725,817
|
|
Accrued consulting
|
|
|
1,260,054
|
|
|
|
1,083,616
|
|
Accrued dividend
|
|
|
360,685
|
|
|
|
310,685
|
|
Accrued interest
|
|
|
402,956
|
|
|
|
373,154
|
|
Other
|
|
|
62,541
|
|
|
|
62,541
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,060,034
|
|
|
$
|
2,555,813
|
|
NOTE 7 – NOTES PAYABLE
Notes payable, currently in default, consist of the following at:
|
|
October 31,
2014
|
|
|
April 30,
2014
|
|
|
|
|
|
|
|
|
Note payable to an unrelated party, maturing July 15, 2010, with interest at 10%
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Note payable to an unrelated party, maturing December 31, 2010, with interest at 10%
|
|
|
25,000
|
|
|
|
25,000
|
|
Note payable to an unrelated party, maturing January 27, 2012, with interest at 25%
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
375,000
|
|
|
$
|
375,000
|
|
Accrued interest payable on notes payable, currently in default, totaled $214,602 and $193,977 at October 31, 2014 and April 30, 2014, respectively.
Convertible notes payable, currently in default, consist of the following at:
|
|
October 31,
2014
|
|
|
April 30,
2014
|
|
|
|
|
|
|
|
|
Note payable to an accredited investor, maturing July 31,
2013, with interest at 10%, convertible at the option
of the holder into common shares of the Company at
a fixed conversion price of $0.20 per share, secured
with 2,995,000 common shares of the Company
|
|
$
|
1,650,000
|
|
|
$
|
1,650,000
|
|
Note payable to an accredited investor, maturing
October 31, 2013, with interest at 20%, convertible at
the option of the holder into common shares of the
Company at a fixed conversion price of $0.20 per
share
|
|
|
120,000
|
|
|
|
120,000
|
|
Note payable to an accredited investor, maturing
February 1, 2014, with interest at 20%, convertible
upon default at the option of the holder into common
shares of the Company at a fixed conversion price of
$0.20 per share
|
|
|
180,000
|
|
|
|
180,000
|
|
Note payable to an accredited investor, maturing
March 1, 2013, with interest at 1.87% per month,
secured with 900,000 common shares of the Company
owned by the president and CEO of the Company
|
|
|
120,000
|
|
|
|
120,000
|
|
Note payable to an unrelated party, maturing March 18,
2014, with interest at 10%
|
|
|
75,001
|
|
|
|
75,001
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,145,001
|
|
|
|
2,145,001
|
|
|
|
|
|
|
|
|
|
|
Less discount
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
2,145,001
|
|
|
$
|
2,145,001
|
|
On April 25, 2012, four prior convertible notes payable to an accredited investor were combined into a new $1,500,000 note. The note was due and payable on July 31, 2013. The note bears interest at 10% due at maturity. The computed interest of $150,000 was added to the balance of the note and recorded as additional debt discount. The note is convertible at the option of the holder into shares of the Company’s common stock at a fixed conversion price of $0.20 per share. The note was subsequently transferred to a related party and converted to common shares of the Company – see Note 12.
On August 15, 2012, the Company entered into a $100,000 convertible note agreement with an accredited investor. The note is subject to a 20% placement fee payable to the holder irrespective of the date redeemed, matures on October 31, 2013 and is convertible at the option of the holder into shares of the Company’s common stock at a fixed conversion price of $0.20 per share. The note is currently in default. The computed interest of $20,000 was added to the balance of the note and recorded as additional debt discount. In addition, the Company issued 120,000 warrants valued at $14,232 using the Black-Scholes option pricing model. The value of the warrants of $14,232 was recorded as an increase to debt discount and to additional paid-in capital. The warrants are exercisable at an exercise price of $0.30 per common share until August 15, 2015. The note was subsequently transferred to a related party and converted to common shares of the Company – see Note 12.
On February 1, 2013, the Company entered into a $150,000 convertible note agreement with an unrelated party. The note was due and payable on February 1, 2014, is currently in default and carries an interest rate of 20%. The note is convertible upon default at the option of the holder into shares of the Company’s common stock at a fixed conversion price of $0.20 per share. The computed interest of $30,000 was added to the balance of the note and recorded as additional debt discount. In addition, the Company issued 150,000 warrants valued at $16,103 using the Black-Scholes option pricing model. The value of the warrants of $16,103 was recorded as an increase to debt discount and to additional paid-in capital. The warrants are exercisable at an exercise price of $0.20 per common share on or before three years from the repayment or conversion date. The note was subsequently transferred to a related party and converted to common shares of the Company – see Note 12.
On January 2, 2013, the Company closed a note purchase agreement with an accredited investor pursuant to which the Company sold a $120,000 note in a private placement transaction. The note was due and payable on March 1, 2013, is currently in default and carries a monthly interest rate of 1.87%. The note purchase agreement included the issuance of 300,000 shares of the Company’s common stock. The note is secured with 900,000 shares of the Company’s common stock owned by Jack Hanks, the Company’s President and CEO. The 300,000 shares were valued at $0.10 per share, the closing price of the Company’s common stock on January 2, 2013, and recorded as a $30,000 increase to debt discount and an increase to common stock payable.
The Company allocated the proceeds from the issuance of the notes to the warrants when applicable and to the notes based on their estimated fair market values at the date of issuance using the Black-Scholes option pricing model. The debt discount resulting from interest and the value of warrants computed at the inception of the notes payable is amortized over the term of the notes as additional interest expense and was fully amortized as of April 30, 2014.
NOTE 8 – CONVERTIBLE PREFERRED STOCK
Preferred Stock – Mandatory Redemption Right
On March 22, 2011, the Company issued 1,000,000 shares of Series A Preferred Stock (the “Preferred Stock”) to an unrelated party in exchange for an investment of $1,000,000. The shares may be converted into the Company’s common shares at $0.40 per common share. The Preferred Stock carry a 10% cumulative dividend and have a mandatory redemption feature on the earlier of March 1, 2016 or on a change of control transaction. The Company is required to redeem the shares at a liquidation value of $1.00 per share plus any accrued and unpaid dividends. Due to the mandatory redemption feature, the Company recorded the investment as a liability under ASC Subtopic 480-10.
The Company recorded the intrinsic value of the beneficial conversion of $1,000,000 as debt discount and will amortize the discount through the mandatory redemption feature date of March 1, 2016. During the three months ended October 31, 2014 and 2013, amortization of debt discount to interest expense totaled $62,020 and $35,245, respectively. During the six months ended October 31, 2014 and 2013, amortization of debt discount to interest expense totaled $115,868 and $65,845, respectively. The investment is collateralized with a security interest in 2,500,000 shares of the Company’s common stock.
Loan costs of $50,000 incurred on the issuance of the Preferred Stock were recorded as deferred loan costs and will be amortized by the effective interest method. The Company recorded amortization on loan costs in the amount of $2,500 for each of the three months ended October 31, 2014 and 2013 and $5,000 for each of the six months ended October 31, 2014 and 2013, respectively. Unpaid dividends payable on the Preferred Stock totaled $360,685 and $310,685 at October 31, 2014 and April 30, 2014, respectively.
On August 15, 2012, the Company amended the Preferred Stock agreement and lowered the conversion rate provided from $0.40 per common share to $0.20 per common share. The amendment generated a $302,694 fair value adjustment that was recorded as additional interest and increased additional paid in capital.
The Preferred Stock and related accrued dividends were subsequently transferred to a related party and converted into common shares of the Company – see Note 12.
Convertible Preferred Stock, Currently in Default
On June 30, 2011, the Company issued 360,000 shares of Armadillo Mining Corporation Preferred Stock to five unrelated parties in exchange for an investment of $360,000. The Preferred Stock carry a 25% cumulative dividend and have a mandatory redemption feature on December 31, 2011 at a price of $1.25 per share. In addition, the Company issued 360,000 warrants to purchase shares of the Company’s common stock at an exercise price of $0.60 per share on or before three years from the repayment or conversion date.
On January 6, 2012, three unrelated parties converted their Preferred Stock and accrued dividends of $312,500 into 2,983,293 shares of the Company’s common stock at a price of $.10475 per share. As the conversion took place at below the market price and not within the terms of the agreement on the date of conversion, a loss of $75,328 was recorded. As of October 31, 2014 and April 30, 2014, the remaining face value of the Preferred Stock was $137,500. Accrued dividends on the Preferred Stock totaled $178,665 and $144,289 as of October 31, 2014 and April 30, 2014, respectively.
The Company recorded interest expense, which includes amortization of debt discount on certain debt described above, totaling $131,002 and $155,216 for the three months ended October 31, 2014 and 2013, respectively, and totaled $253,532 and $390,283 for the six months ended October 31, 2014, respectively.
NOTE 9 – STOCKHOLDERS’ DEFICIT
Authorized Shares
Pursuant to amendments to its articles of incorporation (Note 12), the Company increased its authorized shares to 1,000,000,000 common shares and 10,000,000 preferred shares and subsequently increased its authorized common shares to 3,000,000,000 shares. The increase in authorized shares has been given retroactive effect in the accompanying condensed consolidated financial statements for all periods presented.
Stock Issuances
During the six months ended October 31, 2014, the Company did not issue any shares of its common or preferred stock.
Stock Options
On March 7, 2012, three directors of the Company (the "Optionees") received a total of 2,000,000 unvested stock options exercisable at $0.35 per share for common stock of the Company: after service of one year, 50% will be vested, and after service of the second year the remaining 50% will become vested; with an actual term of ten years from the date of grant. The Company did not grant any stock options during the six months ended October 31, 2014.
The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of its stock options, which value is amortized to stock-based compensation expense over the vesting period of the options. No stock-based compensation expense was recorded during the three months and six months ended October 31, 2014 and 2013 related to stock option grants. There was no unrecognized stock option expense at October 31, 2014.
A summary of stock option activity during the six months ended October 31, 2014 is presented below:
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Shares
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|
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Weighted Average
Exercise Price
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|
|
Weighted Average
Remaining Contractual Life (Years)
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|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2014
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|
|
2,000,000
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|
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$
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0.35
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|
|
8.83
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|
|
|
|
|
|
|
|
|
|
|
|
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Granted
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|
-
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|
|
|
-
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|
|
|
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Canceled / Expired
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|
|
-
|
|
|
|
-
|
|
|
|
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Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, October 31, 2014
|
|
|
2,000,000
|
|
|
$
|
0.35
|
|
|
8.33
|
|
Warrants
The Company has issued warrants to non-employees for either debt discounts or stock-based compensation. These warrants generally vested upon grant and were valued using the Black-Scholes option pricing model. During the quarter ended July 31, 2014, the Company issued warrants to purchase 10,000 shares of common stock to a related party lender.
A summary of warrant activity during the six months ended October 31, 2014 is presented below:
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Shares
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|
|
Weighted Average
Exercise Price
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|
|
Weighted Average
Remaining Contractual Life (Years)
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|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2014
|
|
|
32,865,345
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|
|
$
|
0.33
|
|
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
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|
10,000
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|
|
$
|
0.05
|
|
|
|
|
Canceled / Expired
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|
|
-
|
|
|
|
-
|
|
|
|
|
Exercised
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|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, October 31, 2014
|
|
|
32,875,345
|
|
|
$
|
0.33
|
|
|
0.92
|
|
Common Stock Reserved
At October 31, 2014, 49,350,984 shares of the Company’s common stock were reserved: 16,485,639 for debt conversion purposes and 32,875,345 for issuance of outstanding warrants.
NOTE 10 – NON-CONTROLLING INTERESTS
On September 23, 2010, the Company, through a reverse merger, acquired 100% of the outstanding shares of Maple Carpenter Creek Holdings, Inc., ("MCCH"), a holding Company, with an 80% interest in Maple Carpenter Creek, LLC ("MCC"), which in turn owned a 95% interest in the subsidiary, Carpenter Creek, LLC ("CC"), and a 98.12% interest in Armadillo Holdings Group Corp. ("AHGC"), which in turn owned an 80% interest in Armadillo Mining Corp. ("AMC"). The non-controlling interest of 1.88% in AHGC was acquired by MCCH on December 21, 2010 in exchange for 31,334 shares of the Company’s common stock resulting in 100% ownership of AHGC. On March 22, 2011, AHGC acquired 14.6% of AMC and on April 30, 2012, an additional 4% interest for a total of 98.6% based upon agreement with the minority interest holder to reduce their interest based upon proportionate share of additional capital contributed to AMC.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Legal
There were no legal proceedings against the Company.
Operating Lease Commitments
The Company acquired the Bolzer Lease pursuant to a September 23, 2010 merger. Subsequently, notice of termination on this lease effective April 26, 2010 was provided by previous management. The Company has recorded an accrued expense for the minimum lease payment of $62,541 for the January 2010 payment.
NOTE 12 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, all subsequent events have been reported through the filing date as set forth below.
Convertible Notes Payable – Related Parties
In May 2015, BNL Family Partners, Delavega Trading Ltd. and Maple Gas Corporation, related parties (see Note 4) agreed to forgive certain indebtedness. The reduction of the notes payable and related accrued interest payable was recorded as a contribution to capital.
Transfer of Coal Assets
As of April 30, 2014, the Company had interests in coal prospects in Colombia, South America. As of May 18, 2015, the Board of Directors of the Company approved a transfer its coal assets in Colombia to a trust for the benefit of its existing shareholders with an effective date as of April 13, 2016. The shareholders of the Company have the same allocated share ownership interests in the trust that they had in the Company as of the effective date of the transfer, which is as of April 13, 2016. In addition, the shareholders of the Company have the same ownership interests in the Company subject to the dilution by the acquisition of Maple Structure Holdings, LLC of the purchase of the Preferred Shares and selected debt of the Company, and then the subsequent conversion of those Instruments into equity in the Company at US$0.01 per share. That conversion results in a substantial dilution of existing shareholders including majority shareholder ownership. See below for details of the dilution.
Amendment of Articles of Incorporation
As of April 6, 2016, the Company amended its articles of incorporation to change its corporate name from MMEX Mining Corporation to MMEX Resources Corporation and to increase its authorized shares to 1,000,000,000 common shares and 10,000,000 preferred shares.
As of November 29, 2016, the Company amended its articles of incorporation to increase its authorized common shares to 3,000,000,000 shares.
Transfer and Conversion of Preferred Shares
On October 7, 2015, The Company transferred 1,000,000 Preferred Shares from William D. Gross to Maple Structure Holdings, LLC, a related party controlled by Mr. Jack W. Hanks, a director and officer of the Company.
On November 10, 2015, Maple Structure Holdings converted the 1,000,000 Preferred Shares with a book value of $1,000,000 and accrued dividends of $232,837 into 123,283,700 common shares of the Company at $0.01 per share. The issuance of the common shares to Maple Structure Holdings was approved by the Company’s Board of Directors Resolution dated May 18, 2015.
On November 11, 2015, Maple Structure Holdings transferred a total of 70,890,440 shares to the following entities: (i) AAM Investments, LLC- 27,546,375 shares; (ii) The Maple Gas Corporation- 28,091,350 shares; and (iii) Delavega Trading LTD- 15,252,715 shares. All of the foregoing entities are related parties to the Directors of the Company.
Transfer and Conversion of Notes Payable in Default
On October 9, 2014, the convertible notes payable in default of $1,650,000, $120,000 and $180,000 (Note 7) were assigned to The Maple Gas Corporation, a related party. On May 2, 2016, The Maple Gas Corporation converted the notes into 195,000,000 common shares of the Company at $0.01 per share. The issuance of the common shares to Maple Structure Holdings was approved by the Company’s Board of Directors Resolution dated May 18, 2015.
The common shares were issued to the following entities: (i) Maple Structure Holdings-82,875,000 shares; (ii) The Maple Gas Corporation-44,431,151 shares; Enzamora LTD-24,124,688 shares; and BNL Family Trust-43,569,160 shares. All of the foregoing entities are related parties to the Directors of the Company.
Subsequent Financings
As the Company continues to expand its business and implement its business strategy, its current monthly cash flow requirements will exceed its near term cash flow from operations. In order to fund its development costs, the Company initiated in fiscal year 2016 a private placement to qualified investors for cash and services. Through the date of the filing of this report, $122,142 cash and $60,000 in services had been received, including $52,142 cash from related parties, for a total of 15,153,824 common shares of the Company and a total of 18,039,413 warrants. The warrants entitle the investors to purchase common shares at an exercise price of $0.01 per share for a 5-year period. The private placement is ongoing and only a portion of the common shares of the Company and warrants have been issued. On July 12, 2016, 1,096,397 shares of the Company’s common stock were issued to one of the investors.
Settlement Agreement and Stipulation
On October 28, 2016, MMEX Resources Corporation (the “Company) entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Rockwell Capital Partners, Inc. (“RCP”). Pursuant to the Settlement Agreement, as amended, RCP has purchased certain outstanding payables between the Company and designated vendors totaling $109,391 (the “Payables” or “Claims”) and will exchange the portion of such Payables assigned for a Settlement Amount payable in common shares of the Company.
In settlement of the Claims, the Company shall issue and deliver to RCP, in one or more tranches as necessary, shares of the Company’s common stock (“Common Stock”), subject to adjustment and ownership limitations as set forth in the Settlement Agreement, sufficient to satisfy the Claims amount at a 50% discount to market based on the market price during the valuation period as defined in the Settlement Agreement. The Company also issued 7,000,000 shares of Common Stock as a settlement fee on October 31, 2016.
On October 28, 2016, a circuit court in Florida issued an order confirming the fairness of the terms of the Settlement Agreement within the meaning of exemption from registration provided by Section 3(a) (10) of the Securities Act of 1933.
The Company issued the following shares of its common stock to RCP in settlement of Claims: 10,000,000 shares on November 3, 2016, 15,000,000 shares on November 4, 2016, 18,000,000 shares on November 10, 2016, 18,000,000 shares on November 16, 2016, 14,000,000 shares on November 21, 2016, 22,000,000 shares on November 28, 2016 and 22,000,000 shares on November 30, 2016.
Other Subsequent Events
As of April 13, 2016, the Company assigned AMC to an irrevocable trust (the " MMEX Trust"), whose beneficiaries are the existing shareholders of the Company. AMC through the MMEX Trust controls the Colombia Hunza coal interest previously owned by the Company.
As of June 29, 2016, the Board of Directors executed a Board Resolution that the Directors of the Company may be two directors pursuant to the By-Laws of the Company. As of June 29, 2016, Nabil Katabi resigned as a director of the Company.