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, 2021 filed with the Securities and Exchange Commission (“SEC”).
The Company amended its articles of incorporation to provide for a 1 for 10,000 reverse stock split of its common shares, which was effective as of July 1, 2021. The Company has given retroactive effect to the reverse stock split for all periods presented in this report on Form 10-Q.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
Nine Months Ended January 31, 2022
(Unaudited)
NOTE 1 – BACKGROUND, ORGANIZATION AND BASIS OF PRESENTATION
MMEX Resources Corporation (the “Company” or “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 on September 23, 2010 and changed the Company’s name to MMEX Mining Corporation on February 11, 2011 and to MMEX Resources Corporation on April 6, 2016.
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.
The accompanying condensed consolidated financial statements include the accounts of the following entities, all of which the Company maintains control through a majority ownership or through common ownership:
Name of Entity | | % | | | Form of Entity | | State of Incorporation | | Relationship | |
| | | | | | | | | | |
MMEX Resources Corporation (“MMEX”) | | | - | | | Corporation | | Nevada | | Parent | |
Pecos Clean Fuels & Transport, LLC (“Pecos”) [1] | | | 100 | % | | LLC | | Texas | | Subsidiary | |
MMEX Solar Resources, LLC [2] | | | 100 | % | | LLC | | Texas | | Subsidiary | |
Texas Gulf Refining & Trading, LLC [2] | | | 100 | % | | LLC | | Texas | | Subsidiary | |
Louisiana Gulf Refining & Trading, LLC [2] | | | 100 | % | | LLC | | Louisianna | | Subsidiary | |
Rolling Stock Marine, LLC [2] | | | 100 | % | | LLC | | Texas | | Subsidiary | |
MMEX CO2 Capture, LLC [2] [3] | | | 100 | % | | LLC | | Texas | | Subsidiary | |
_____________
[1] Pecos Refining & Transport, LLC was formed in June 2017 with the Company as its sole member. Effective September 22, 2021 Pecos Refining & Transport, LLC changed its name to Pecos Clean Fuels & Transport, LLC. Pecos owns the land on which the Company’s planned hydrogen projects are to be developed.
[2] This subsidiary is currently inactive.
[3] This entity was formed on September 21, 2021
All significant inter-company transactions have been eliminated in the preparation of the consolidated financial statements.
These condensed consolidated 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, 2021 filed with the SEC on July 29, 2021.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its aforementioned subsidiaries and entities under common ownership. All significant intercompany accounts and transactions have been eliminated in consolidation. The ownership interests in subsidiaries that are held by owners other than the Company are recorded as non-controlling interest and reported in our consolidated balance sheets within stockholders’ deficit. Losses attributed to the non-controlling interest and to the Company are reported separately in our consolidated statements of operations.
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.
Property and equipment
Property and equipment is recorded at the lower of cost or estimated net recoverable amount, and is depreciated using the straight-line method over the estimated useful life of the related asset as follows:
Office furniture and equipment | 10 years |
Computer equipment and software | 5 years |
Land improvements | 15 years |
Land easements | 10 years |
The land easements owned by the Company have a legal life of 10 years.
Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments will be capitalized. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The Company will assess the recoverability of property and equipment by determining whether the depreciation and amortization of these assets over their remaining life can be recovered through projected undiscounted future cash flows. The amount of equipment impairment, if any, will be measured based on fair value and is charged to operations in the period in which such impairment is determined by management.
Derivative liabilities
The Company has issued warrants and stock options, certain of which contain anti-dilution provisions were previously identified as derivatives. In addition, the Company has previously identified the conversion feature of convertible notes payable as derivatives. The number of warrants or common shares to be issued under these agreements is indeterminate; therefore, through April 30, 2021 the Company concluded that the equity environment was tainted and all warrants, stock options and convertible debt were included in the value of the derivatives. During the nine months ended January 31, 2022 it was determined that the Company could increase their authorized common shares at any time, therefore the environment was no longer deemed to be tainted and all derivative liabilities were written off the books.
We estimate the fair value of the derivatives using multinomial lattice models that value the derivative liabilities 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.
Fair value of financial instruments
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company's consolidated financial statements as reflected herein. The carrying amounts of cash, prepaid expense and other current assets, accounts payable, accrued expenses and notes payable reported on the accompanying consolidated balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.
An entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value using a hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy prioritized the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in markets that are not active.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Our derivative liabilities are measured at fair value on a recurring basis and estimated as follows:
January 31, 2022 | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | |
Derivative liabilities | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
April 30, 2021 | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | |
Derivative liabilities | | $ | 3,010,042 | | | $ | - | | | $ | - | | | $ | 3,010,042 | |
Revenue Recognition
The Company has adopted ASC 606, Revenue from Contracts with Customers, as amended, using the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. To date, the Company has no operating revenues; therefore, there was no cumulative effect of adopting the new standard and no impact on our consolidated financial statements. The new standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.
Project costs
All project costs incurred, including acquisition of refinery rights, planning, design and permitting, have been recorded as project costs and expensed as incurred.
Basic and diluted income (loss) per share
Basic net 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 debt and convertible preferred stock, were exercised or converted into common stock. For the nine months ended January 31, 2022 and 2021 the dilutive effect of options, warrants, and convertible notes payable was 40,686,123and 0, respectively.
Employee stock-based compensation
Pursuant to FASB ASC 718, all share-based payments to employees, including grants of employee stock options, are recognized in the consolidated statement of operations based on their fair values. For the nine months ended January 31, 2022 and 2021, the Company had no stock-based compensation to employees.
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 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 consolidated financial statements for the prior-year period have been reclassified to conform with the current-year period presentation.
Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under current GAAP, there are five accounting models for convertible debt instruments. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, the FASB decided to add disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital. ASU 2020-06 will be effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of the adoption of this accounting pronouncement to 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 consolidated 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.
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 consolidated 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 consolidated 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
Accounts Payable and Accrued Expenses – Related Parties
Accounts payable and accrued expenses to related parties, consisting primarily of consulting fees and expense reimbursements payable, totaled $81,052 and $272,834as of January 31, 2022 and April 30, 2021, respectively.
Effective July 1, 2019, we entered into a consulting agreement with Maple Resources Corporation (“Maple Resources”), a related party controlled by our President and CEO, that provides for payment of consulting fees and expense reimbursement related to business development, financing and other corporate activities. Effective January 1, 2020, the Maple Resources consulting agreement was amended to provide for monthly consulting fees of $17,897and effective March 1, 2021 the Maple Resources consulting agreement was amended to provide for monthly consulting fees of $20,000. During the nine months ended January 31, 2022 and 2021, we incurred consulting fees and expense reimbursement to Maple Resources totaling $180,800and $161,073, respectively. During the nine months ended January 31, 2022 we made payments to Maple Resources of $185,899.
In addition, the consulting agreement provides for the issuance to Maple Resources of shares of our common stock each month with a value of $5,000, with the number of shares issued based on the average closing price of the stock during the prior month. In September 2021 we made a payment of $110,000 to pay for the consulting fees accrued through August 2021 under the consulting agreement, therefore $25,000was still owed as of January 31, 2022.
Amounts included in accounts payable and accrued expenses – related parties due to Maple Resources totaled $45,000($25,000 payable in stock) and $118,540($90,000payable in stock) as of January 31, 2022 and April 30, 2021, respectively, which was inclusive of accrued interest due under the convertible notes described below.
Effective October 1, 2018, we entered into a consulting agreement with Leslie Doheny-Hanks, the wife of our President and CEO, to issue shares of our common stock each month with a value of $2,500, with the number of shares issued based on the average closing price of the stock during the prior month. The related party consultant provides certain administrative and accounting services and is reimbursed for expenses paid on behalf of the Company. During the nine months ended January 31, 2022 we recorded $22,500for the amount payable in stock under the consulting agreement and recorded expense reimbursements owed to Mrs. Hanks of $22,862. In September 2021 we made a payment of $55,000to pay for the consulting fees accrued through August 2021 under the consulting agreement and made repayments of $39,374for reimbursable expenses. Amounts included in accounts payable and accrued expenses – related parties due to Mrs. Hanks totaled $14,046($12,500 payable in stock) and $63,058 ($45,000 payable in stock) as of January 31, 2022 and April 30, 2021, respectively.
Effective February 1, 2021 the Company entered into consulting agreements with three children of our President and CEO. The consulting agreements were extended by amendments as of December 31, 2021 to continue on a month to month basis. During the nine months ended January 31, 2022 we incurred $87,215for fees and expense reimbursements to the children and paid $169,215. Amounts included in accounts payable and accrued expenses – related parties due to the children totaled $8,500and $90,500as of January 31, 2022 and April 30, 2021, respectively.
Effective September 1, 2021, we entered into a consulting agreement with BNL Family Trust, a related party to Bruce Lemons, Director, to issue shares of our common stock each month with a value of $2,500, with the number of shares issued based on the average closing price of the stock during the prior month. During the nine months ended January 31, 2022 we recorded $12,500 for the amount payable in stock under the consulting agreement and made no payments, therefore the $12,500 was included in accounts payable and accrued expenses – related parties as of January 31, 2022.
Convertible Notes Payable – Related Parties
Convertible notes payable – related parties consist of the following:
| | January 31, 2022 | | | April 30, 2021 | |
Convertible note payable with Maple Resources Corporation, matured December 27, 2020, with interest at 5%, convertible into common shares of the Company [1] | | $ | - | | | $ | 7,033 | |
Convertible note payable with BNL Family Trust, matured December 27, 2020, with interest at 5%, convertible into common shares of the Company [2] | | | - | | | | 10,691 | |
Convertible note payable with Maple Resources Corporation, matured February 12, 2021, with interest at 5%, convertible into common shares of the Company [3] | | | - | | | | 5,000 | |
Convertible note payable with Maple Resources Corporation, matured March 2, 2021, with interest at 5%, convertible into common shares of the Company [4] | | | - | | | | 800 | |
Convertible note payable with Maple Resources Corporation, matured May 12, 2021, with interest at 5%, convertible into common shares of the Company [5] | | | - | | | | 41,466 | |
Convertible note payable with Maple Resources Corporation, matured July 31, 2021, with interest at 5%, convertible into common shares of the Company [6] | | | - | | | | 10,000 | |
| | | | | | | | |
| | | - | | | | 74,990 | |
Less discount | | | - | | | | (235 | ) |
| | | | | | | | |
Total | | $ | - | | | $ | 74,755 | |
__________
[1] This convertible note was entered into on December 27, 2019 in exchange for cash of $5,500and financing fees of $5,500and was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. At inception the Company identified the conversion feature of the convertible note as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and assuming the existence of a tainted equity environment (see Note 10). On the effective date of the convertible note, the related party lender simultaneously submitted a notice to convert the total note principal into 1,000,000 shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the year ended April 30, 2021 shares became available to affect a partial conversion, therefore 360,682common shares were issued to extinguish $3,967 of the principal balance. During the six months ended October 31, 2021 the Company issued 639,318shares of common stock to extinguish the full principal balance of $7,033and paid $853 in cash to extinguish all of the accrued interest due under the note. The Company continued to accrue interest on the convertible note until the debt was paid in full, therefore they recorded interest expense of $135 during the nine months ended January 31, 2022. As of January 31, 2022 and April 30, 2021 accrued interest on the convertible note was $0 and $718, respectively.
[2] This convertible note was entered into on December 27, 2019 in exchange for cash of $11,000and was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. At inception the Company identified the conversion feature of the convertible note as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and assuming the existence of a tainted equity environment (see Note 10). On the effective date of the convertible note, the related party lender simultaneously submitted a notice to convert the total note principal into 1,000,000shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the year ended April 30, 2021 shares became available to affect a partial conversion, therefore 28,094common shares were issued to extinguish $309 of the principal balance. During the six months ended October 31, 2021 the Company issued 971,906shares of common stock to extinguish the full principal balance of $10,691. The Company continued to accrue interest on the convertible note until the debt was paid in full, therefore they recorded interest expense of $269 during the nine months ended January 31, 2022. As of January 31, 2022 and April 30, 2021 accrued interest on the convertible note was $1,006and $737, respectively.
[3] This convertible note was entered into on February 12, 2020 in exchange for cash of $5,000 and was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. At inception the Company identified the conversion feature of the convertible note as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and assuming the existence of a tainted equity environment (see Note 10). On the effective date of the convertible note, the related party lender simultaneously submitted a notice to convert the total note principal into 454,545shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the six months ended October 31, 2021 the Company issued 454,545shares of common stock to extinguish the full principal balance of $5,000and paid $399 in cash to extinguish all of the accrued interest due under the note. The Company continued to accrue interest on the convertible note until the debt was paid in full, therefore they recorded interest expense of $96 during the nine months ended January 31, 2022. As of January 31, 2022 and April 30, 2021 accrued interest on the convertible note was $0 and $303, respectively.
[4] This convertible note was entered into on March 2, 2020 in exchange for cash of $800 and was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. At inception the Company identified the conversion feature of the convertible note as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and assuming the existence of a tainted equity environment (see Note 10). On the effective date of the convertible note, the related party lender simultaneously submitted a notice to convert the total note principal into72,727shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the nine months ended January 31, 2022 the Company issued 72,727shares of common stock to extinguish the full principal balance of $800 and paid $55 in cash to extinguish all of the accrued interest due under the note. The Company continued to accrue interest on the convertible note until the debt was paid in full, therefore they recorded interest expense of $15 during the nine months ended January 31, 2022. As of January 31, 2022 and April 30, 2021 accrued interest on the convertible note was $0 and $40, respectively.
[5] This convertible note was entered into on May 12, 2020 in exchange for accrued consulting fees worth $41,466 and was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. At inception the Company identified the conversion feature of the convertible note as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and assuming the existence of a tainted equity environment (see Note 10). On the effective date of the convertible note, the related party lender simultaneously submitted a notice to convert the total note principal into 3,769,636shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the nine months ended January 31, 2022 the Company issued 3,769,636shares of common stock to extinguish the full principal balance of $41,466and paid $2,800 in cash to extinguish all of the accrued interest due under the note. The Company continued to accrue interest on the convertible note until the debt was paid in full, therefore they recorded interest expense of $795 during the nine months ended January 31, 2022. As of January 31, 2022 and April 30, 2021 accrued interest on the convertible note was $0 and $2,005, respectively.
[6] This convertible note was entered into on July 31, 2020 in exchange for cash of $10,000 and was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. At inception the Company identified the conversion feature of the convertible note as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and assuming the existence of a tainted equity environment (see Note 10). On the effective date of the convertible note, the related party lender simultaneously submitted a notice to convert the total note principal into 909,091shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the nine months ended January 31, 2022 the Company issued 909,091shares of common stock to extinguish the full principal balance of $10,000and paid $566 in cash to extinguish all of the accrued interest due under the note. The Company continued to accrue interest on the convertible note until the debt was paid in full, therefore they recorded interest expense of $192 during the nine months ended January 31, 2022. As of January 31, 2022 and April 30, 2021 accrued interest on the convertible note was $0 and $374, respectively.
Other Contractual Agreements
Maple Resources granted BNL Family Trust (“BNL”), a related party to Mr. Lemons, an option to purchase 1,000,000 shares of common stock from Maple Resources at a price of $0.20per share. The option expires in March 2022. Beneficial ownership of Messrs. Hanks and. Lemons give effect to the exercise of such option.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
| | January 31, 2022 | | | April 30, 2021 | |
| | | | | | |
Office furniture and equipment | | $ | 13,864 | | | $ | 13,864 | |
Computer equipment and software | | | 10,962 | | | | 10,962 | |
Refinery land | | | 312,485 | | | | 67,088 | |
Refinery land improvements | | | 462,112 | | | | 452,005 | |
Refinery land easements | | | 37,015 | | | | 37,015 | |
| | | 836,438 | | | | 580,934 | |
Less accumulated depreciation and amortization | | | (135,617 | ) | | | (108,765 | ) |
| | | | | | | | |
| | $ | 700,821 | | | $ | 472,169 | |
On May 20, 2021, we entered into a Purchase and Sale Agreement to acquire 323.841 acres of land in, or near, Pecos County, Texas, which closed on July 27, 2021. We paid a total of $245,397 for the acquisition.
Depreciation and amortization expense totaled $26,852 and $26,156 for the nine months ended January 31, 2022 and 2021, respectively.
NOTE 6 – ACCRUED EXPENSES
Accrued expenses consisted of the following at:
| | January 31, 2022 | | | April 30, 2021 | |
| | | | | | |
Accrued payroll | | $ | 30,090 | | | $ | 30,090 | |
Accrued consulting | | | 18,000 | | | | 60,000 | |
Accrued interest and penalties | | | 706,168 | | | | 623,085 | |
Other | | | 94,174 | | | | 94,174 | |
| | | | | | | | |
| | $ | 848,432 | | | $ | 807,349 | |
NOTE 7 – NOTES PAYABLE
Note Payable, Currently in Default
Note payable, currently in default, consists of the following at:
| | January 31, 2022 | | | April 30, 2021 | |
| | | | | | |
Note payable to an unrelated party, matured March 18, 2014, with interest at 10% | | $ | 75,001 | | | $ | 75,001 | |
| | | | | | | | |
| | $ | 75,001 | | | $ | 75,001 | |
Notes Payable
Notes payable consist of the following at:
| | January 31, 2022 | | | April 30, 2021 | |
Note payable to an unrelated party with an issue date of February 22, 2021 with interest at 10% [1] $250,000 draw on March 5, 2021 | | $ | 250,000 | | | $ | 250,000 | |
$200,000 draw on March 26, 2021 | | | 200,000 | | | | 200,000 | |
Note payable to an unrelated party with an issue date of March 8, 2021 with interest at 10% [2] | | | 75,000 | | | | 75,000 | |
Note payable to an unrelated party with an issue date of March 11, 2021 with interest at 10% [3] | | | 250,000 | | | | 250,000 | |
| | | | | | | | |
Total | | $ | 775,000 | | | $ | 775,000 | |
_____________
[1] Effective February 22, 2021 the Company entered into a promissory note with GS Capital Partners, LLC, with a principal amount of $1,000,000, which is subject to drawdown requests by the Company. The maturity date of the note is the earlier of (i) December 31, 2021 or (ii) the consummation by the Company of an equity or equity-based financing providing net proceeds to the Company sufficient to retire the outstanding indebtedness under the note. The note has an interest rate of ten percent per annum from the date of each drawdown. On June 21, 2021 the Company received $200,000 from a draw on the note, however, repaid the amount in full on July 20, 2021.
[2] Effective March 8, 2021 the Company entered into a promissory note with JSJ Investments, Inc with a principal amount of $75,000. The maturity date of the note is March 8, 2022 and the note has an interest rate of 10% per annum from the date of funding. This note was paid in full in February 2022, see Note 13.
[3] Effective March 11, 2021 the Company entered into a promissory note with Vista Capital Investments, Inc with a principal amount of $250,000. The maturity date of the note is March 11, 2022 and the note has an interest rate of 10% per annum from the date of funding. This note was partially repaid in February 2022, see Note 13.
Convertible Note Payable, Currently in Default
Convertible notes payable, currently in default, consist of the following at:
| | January 31, 2022 | | | April 30, 2021 | |
Note payable to an unrelated party, matured December 31, 2010, with interest at 10%, convertible into common shares of the Company [1] | | $ | 50,000 | | | $ | 50,000 | |
Note payable to an unrelated party, matured January 27, 2012, with interest at 25%, convertible into common shares of the Company [2] | | | 25,000 | | | | 25,000 | |
Note payable to an accredited investor, maturing January 31, 2020, with interest at 10%, convertible into common shares of the Company at a defined variable exercise price [3] | | | - | | | | 91,331 | |
Note payable to an individual, maturing December 27, 2020, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [4] | | | - | | | | 10,000 | |
Note payable to an individual, maturing December 27, 2020, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [5] | | | - | | | | 9,719 | |
Note payable to an individual, maturing January 22, 2021, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [6] | | | - | | | | 6,500 | |
Note payable to an individual, maturing May 14, 2021, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [7] | | | - | | | | 34,000 | |
Note payable to an individual, maturing September 9, 2021, with interest at 5%, convertible into common shares of the Company at a defined variable exercise price [8] | | | - | | | | 9,225 | |
| | | | | | | | |
| | | 75,000 | | | | 235,775 | |
Less discount | | | - | | | | - | |
| | | | | | | | |
Total | | $ | 75,000 | | | $ | 235,775 | |
____________
[1] On March 8, 2010, the Company closed a note purchase agreement with an accredited investor pursuant to which the Company sold a $50,000 convertible note in a private placement transaction. In the transaction, the Company received proceeds of $35,000 and the investor also paid $15,000 of consulting expense on behalf of the Company. The convertible note was due and payable on December 31, 2010 with an interest rate of 10% per annum. The note is convertible at the option of the holder into our common stock at a fixed conversion price of $3.70, subject to adjustment for stock splits and combinations.
[2] On January 28, 2011 and February 1, 2011, the Company closed a Convertible Note Agreement totaling $514,900 in principal amount of 25% Convertible Note (the "Notes") due on the first anniversary of the date of the Note, to a group of institutional and high net worth investors. The Notes are convertible into the Company's common stock at the holders' option at $1.00 per common share. All but $25,000 of the promissory notes plus interest were paid in full on March 23, 2011.
[3] Effective January 31, 2019, the Company issued and delivered to Auctus Fund, LLC (“Auctus”) a 10% convertible note in the principal amount of $125,000. The Company received net proceeds of $112,250 after payment of $12,750 of the fees and expenses of the lender and its counsel. Auctus, on or following the 180th calendar day after the issuance date of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of common stock a 40% discount to the lowest trading price during the 20 days prior to the date the notice of conversion is received by the Company. The note matured on January 31, 2020 and was in default as of April 30, 2020. The Company could redeem the note at redemption prices ranging from 120% to 135% during the first 180 days after issuance. The Company could not redeem the note after 180 days from the issuance date. The note had a principal balance of $125,000 as of April 30, 2019. During year ended April 30, 2020, Auctus converted principal of $33,669 into common shares of the Company, resulting in a principal balance of $91,331 as of April 30, 2020. During the year ended April 30, 2021 there was no activity on the note so the balance remained unchanged. During the nine months ended on January 31, 2022 this note was paid in full.
[4] Effective December 27, 2019 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $10,000 in payment of accrued fees of $10,000 that was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. On the effective date of the convertible note, the lender simultaneously submitted a notice to convert the total note principal into shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the nine months ended January 31, 2022 the Company issued 909,091 shares of common stock to extinguish the full principal balance of $10,000 and paid $863 in cash to extinguish all of the accrued interest due under the note.
[5] Effective December 27, 2019 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $10,000 in payment of accrued fees of $10,000 that was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. On the effective date of the convertible note, the lender simultaneously submitted a notice to convert the total note principal into shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the year ended April 30, 2021 shares became available to affect a partial conversion, therefore common shares were issued to extinguish $281 of the principal balance. During the nine months ended January 31, 2022 the Company issued 883,551 shares of common stock to extinguish the full principal balance of $9,719 and paid $856 in cash to extinguish all of the accrued interest due under the note.
[6] Effective January 22, 2020 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $6,500 in exchange for cash. The note was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. On the effective date of the convertible note, the lender simultaneously submitted a notice to convert the total note principal into shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the nine months ended January 31, 2022 the Company issued 590,909 shares of common stock to extinguish the full principal balance of $6,500 and paid $538 in cash to extinguish all of the accrued interest due under the note.
[7] Effective May 14, 2020 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $34,000 in payment of accrued fees of $34,000 that was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. On the effective date of the convertible note, the lender simultaneously submitted a notice to convert the total note principal into shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the nine months ended January 31, 2022 the Company issued 3,090,909 shares of common stock to extinguish the full principal balance of $34,000 and paid $2,287 in cash to extinguish all of the accrued interest due under the note.
[8] Effective September 9, 2020 the Company issued and delivered to a consultant a 5% convertible note in the principal amount of $10,000 in exchange for cash. The note was convertible into common shares of the Company at a conversion price equal to 110% of the lowest price at which the shares of common stock were issued by the Company during the twenty prior trading days, including the day upon which a notice of conversion is received by the Company. On the effective date of the convertible note, the lender simultaneously submitted a notice to convert the total note principal into shares of the Company’s common stock. The conversions were not completed, and the shares were not issued, due to a lack of sufficient shares of common stock at the time the conversion was requested. During the year ended April 30, 2021 shares became available to affect a partial conversion, therefore common shares were issued to extinguish $775 of the principal balance. During the nine months ended January 31, 2022 the Company issued 838,591 shares of common stock to extinguish the full principal balance of $9,225 and paid $505 in cash to extinguish all of the accrued interest due under the note.
Convertible Notes Payable
Current convertible notes payable consisted of the following at:
| | January 31, 2022 | | | April 30, 2021 | |
Note payable to an accredited investor issued for extension fees, due March 31, 2022, with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [1] | | $ | 200,000 | | | $ | 200,000 | |
Note payable to an accredited investor issued for extension fees, due March 31, 2022, with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [2] | | | 90,000 | | | | 90,000 | |
Note payable to an accredited investor, maturing December 31, 2020 with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [3] | | | - | | | | 80,000 | |
Note payable to an accredited investor issued for extension fees, maturing August 31, 2020 with interest at 18%, convertible into common shares of the Company at a defined variable exercise price [4] | | | - | | | | 80,000 | |
Note payable to an accredited investor issued for extension fees, maturing March 26, 2022 with interest at 10%, convertible into common shares of the Company at a defined variable exercise price [5] | | | - | | | | 82,000 | |
Total | | | 290,000 | | | | 532,000 | |
Less discount | | | - | | | | (133,944 | ) |
| | | | | | | | |
Net | | $ | 290,000 | | | $ | 398,056 | |
_____________
[1] Effective March 31, 2020, the Company issued and delivered to GS an 18% convertible note in the principal amount of $200,000. The note was issued to GS in consideration for GS extending the maturity date of other convertible notes payable to GS to November 30, 2020. The extension fee was payable in cash at the earlier of (1) in connection with, and at the time of repayment of the Notes, or (2) on November 20, 2020, however, on December 31, 2021 GS agreed to extend the due date of this note, along with the $90,000 note dated February 4, 2020 (see [2] below), to March 31, 2022 in exchange for $15,000, which was recorded as interest expense during the nine months ending January 31, 2022. GS, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion (with a floor of $3.00 per share during the first six months after issuance.)
[2] Effective February 4, 2020, the Company issued and delivered to GS an 18% convertible note in the principal amount of $90,000. The note was issued to GS in consideration for GS extending the maturity date of other convertible notes payable to GS to February 4, 2020. The extension fee was payable in cash at the earlier of (1) in connection with, and at the time of repayment of the Notes, or (2) on November 20, 2020, however, on December 31, 2021 GS agreed to extend the due date of the note, along with the $200,000 note dated March 31, 2020 (see [1] above), to March 31, 2022 in exchange for $15,000, which was recorded as interest expense during the nine months ending January 31, 2022. GS, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion (with a floor of $3.00 per share during the first six months after issuance.)
[3] Effective December 15, 2020, the Company entered into a fourth amendment to certain convertible notes with GS ($110,000 note dated September 13, 2018, $70,000 note dated September 18, 2018, $600,000 note dated October 5, 2018, and $110,000 note dated February 20, 2019) to extend the notes due dates from December 20, 2020 to December 31, 2020. In conjunction with the extension, the Company entered into an 18% convertible note in the principal amount of $80,000. The note was issued at a discount and the Company received net proceeds of $75,000 after an original issue discount of $5,000. GS, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion (with a floor of $3.00 per share during the first six months after issuance). In June of 2021 the Company issued 11,814 common shares to convert $40,000 worth of principal and $2,027 worth of accrued interest under the terms of the agreement. In September of 2021 the Company entered into a settlement agreement with GS where 108,878 common shares were issued to convert the remaining $40,000 worth of principal and $2,462 worth of accrued interest under the terms of the agreement and $4,584 worth of accrued interest was forgiven and recorded as a gain on extinguishment of liabilities.
[4] Effective December 31, 2020, the Company entered into a fifth amendment to certain convertible notes with GS ($110,000 note dated September 13, 2018, $70,000 note dated September 18, 2018, $600,000 note dated October 5, 2018, and $110,000 note dated February 20, 2019) to extend the notes due dates from December 31, 2020 to August 31, 2021. In exchange for the extension, the aggregate principal amounts of the notes increased by $80,000. GS, at its option, could convert the unpaid principal balance of, and accrued interest on, the note into shares of common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion (with a floor of $3.00 per share during the first six months after issuance). During the nine months ended January 31, 2022, GS forgave the $80,000 note and $11,993 of its related accrued interest, therefore $91,993 was recorded as a gain on extinguishment of liabilities.
[5] Effective March 26, 2021, the Company issued and delivered to GS a 10% convertible note in the principal amount of $82,000. The note was issued at a discount and the Company received net proceeds of $78,500 after payment of $3,500 of fees and expenses of the lender and its counsel. During the first 180 days, GS, at its option, could convert the unpaid principal balance of, and accrued interest on, the note into shares of common stock at a price of $0.015 per share and thereafter at 34% discount from the lowest trading price during the 15 days prior to conversion. The Company could redeem the note at redemption prices ranging from 110% to 118% during the first 180 days after issuance. During the nine months ended January 31, 2022, the Company repaid this note in full.
In addition to the Convertible Notes outstanding as of January 31, 2022 and April 30, 2021, as noted above, effective June 22, 2021, the Company issued and delivered to GS a 10% convertible note in the principal amount of $82,000. The note was issued at a discount and the Company received net proceeds of $78,500 after payment of $3,500 of fees and expenses of the lender and its counsel. During the first 180 days, GS, at its option, could convert the unpaid principal balance of, and accrued interest on,the note into shares of common stock at a price of $0.015 per share and thereafter at 34% discount from the average of the two lowest trading prices during the 15 prior trading days including the day of conversion. The Company could redeem the note at redemption prices ranging from 110% to 118% during the first 180 days after issuance. During the nine months ended January 31, 2022, the Company repaid this note in full.
NOTE 8 – PPP LOANS PAYABLE
With an effective date of January 25, 2021, a loan to the Company was approved under the terms and conditions of the Paycheck Protection Program of the United States Small Business Administration (“SBA”) and the CARES Act (2020) (H.R. 748) (15 U.S.C. 636 et seq.) (“the Act”) in the amount of $150,000 and was funded on January 26, 2020. During the nine months ended January 31, 2022, Company was notified that its loan was forgiven pursuant to the provisions of the Act, therefore $150,000 was recorded as a gain on extinguishment of liabilities.
NOTE 9 – SBA BRIDGE LOAN PAYABLE
On July 14, 2020, the Company received $10,000 pursuant to the SBA’s Express Bridge Loan Pilot Program. This program allows small businesses who have a business relationship with an SBA Express Lender to access up to $25,000 quickly. The funds were advanced to the Company since it had applied for an Economic Injury Disaster Loan (“EIDL”). The loan had a balance of $10,000 as of January 31, 2022.
NOTE 10 – DERIVATIVE LIABILITIES
In a series of subscription agreements, the Company issued warrants in prior years that contain certain anti-dilution provisions that have previously been identified as derivatives. In addition, the Company previously identified the conversion feature of certain convertible notes payable and convertible preferred stock as derivatives. The number of warrants or common shares to be issued under these agreements is indeterminate; therefore, through April 30, 2021 the Company concluded that the equity environment was tainted and all warrants, stock options and convertible debt were included in the value of the derivatives. During the three months ended July 31, 2021, it was determined that the Company could increase their authorized common shares at any time, based on an agreement of the majority of voters to do so when needed, therefore the environment was no longer deemed to be tainted and all derivative liabilities were written off the books.
The Company estimated the fair value of the derivative liabilities at the issuance date and at each subsequent reporting date, using a multinomial lattice model simulation. The model is based on a probability weighted discounted cash flow model using projections of the various potential outcomes.
During the nine months ended January 31, 2022, we had the following activity in our derivative liabilities:
| | Options and | | | Convertible | | | | |
| | Warrants | | | Notes | | | Total | |
| | | | | | | | | |
Balance, April 30, 2021 | | $ | 235,902 | | | $ | 2,774,140 | | | $ | 3,010,042 | |
Change in fair value of derivative liabilities | | | (235,902 | ) | | | (2,774,140 | ) | | | (3,010,042 | ) |
| | | | | | | | | | | | |
Balance, January 31, 2022 | | $ | - | | | $ | - | | | $ | - | |
NOTE 11 – STOCKHOLDERS’ DEFICIT
Authorized Shares
As of April 30, 2021, the Company had authorized 11,000,000 shares of capital stock, consisting of 10,000,000 shares of common stock and 1,000,000 shares of preferred stock. However, on August 16, 2021, the Company approved an amendment to its Articles of Incorporation to increase the number of its authorized shares of common stock from 10,000,000 to 200,000,000. Shareholders owning in excess of 50.1% of the outstanding shares of voting common stock of the Company executed a written consent approving the amendment. As of January 31, 2022, the Company had authorized 201,000,000 shares of capital stock, consisting of 200,000,000 shares of common stock and 1,000,000 shares of preferred stock.
Common Stock
During the nine months ended January 31, 2022, the Company issued a total of 15,843,721 shares of its common stock: 170,000 shares (plus 3,580,000 prefunded warrants and 2,575,500 warrants, see Warrants below) for cash of $3,000,000; 6,433,743 shares valued at $154,437 in conversion of convertible notes principal of $149,444, accrued interest payable of $4,490 and payment of fees of $504; 6,817,224 shares valued at $74,989 in conversion of related party convertible notes principal; 17,754 shares issued pursuant to the rounding of fractional shares in connection with our reverse stock split; and 2,405,000 shares issued for the exercise of prefunded warrants. In conjunction with the stock and warrants issued for cash, the Company also issued 337,500 warrants to the placement agent (see Warrants below) and recognized $349,150 in out-of-pocket offering costs.
During the nine months ended January 31, 2021, the Company issued a total of 409,652 shares of its common stock in conversion of convertible notes principal of $230,504, accrued interest payable of $21,311, and conversion fees of $1,336. Settlement of derivative liabilities in the debt conversions totaled $90,019. No gain or loss was recorded since the debt conversions were completed within the terms of the underlying agreements.
Series A Preferred Stock
The Series A preferred stock has no redemption, conversion or dividend rights; however, the holders of the Series A preferred stock, voting separately as a class, has the right to vote on all shareholder matters equal to 51% of the total vote.
During the nine months ended January 31, 2022 and 2021 the Company did not issue any shares of its preferred stock.
Series B Preferred Stock
The Series B preferred stock has a stated value equal to $1,000, has no redemption or voting rights, and are entitled to receive dividends on preferred stock equal, on an as-of-converted-to-common-stock basis, to and in the same form as the dividends paid on shares of the common stock. The Series B preferred stock is convertible, at the option of the holder, into the number of shares of common stock determined by dividing the stated value of such share of Preferred Stock by the Conversion Price of $0.10, subject to adjustment.
During the nine months ended January 31, 2022 the Company designated 1,500 shares of preferred stock as Series B and issued 1,500 shares of Series B preferred stock (plus 31,975,000 warrants, see Warrants below) for cash of $1,500,000. In conjunction with the stock issued for cash, the Company also issued 1,350,000 warrants to the placement agent (see Warrants below) and recognized $206,650 in out-of-pocket offering costs.
Warrants
The Company has issued warrants in prior years to investors in a series of subscription agreements in equity financings or for other stock-based compensation. Certain of the warrants contain anti-dilution provisions that the Company has previously identified as derivatives. The Company estimates 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 and considering the previous existence of a tainted equity environment (see Note 10).
A summary of warrant activity during the nine months ended January 31, 2022 is presented below:
| | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | |
| | | | | | | | | | | | |
Outstanding, April 30, 2021 | | | 107,991 | | | $ | 1.00 | | | | 0.91 | |
Granted | | | 42,923,352 | | | $ | 0.11 | | | | | |
Cancelled / Expired | | | (2,575,500 | ) | | $ | 0.80 | | | | | |
Exercised | | | (2,405,000 | ) | | $ | 0.00 | | | | | |
| | | | | | | | | | | | |
Outstanding, January 31, 2022 | | | 38,050,843 | | | $ | 0.08 | | | | 4.64 | |
During the nine months ended January 31, 2022 the Company granted 529,852 warrants issued to warrant holders pursuant to anti-dilution provisions, 6,493,000 warrants issued in conjunction with the sale of common stock (see Common Stock above), and 33,325,000 warrants issued in conjunction with the sale of Series B preferred stock (see Series B Preferred Stock above). As the fair value of the warrants granted would have had a net zero impact to equity (increasing additional paid in capital and recording offering costs for the same amount), the Company did not break out or complete a separate valuation of the warrants granted in association with either capital raise.
Of the 6,493,000 warrants granted with the sale of common stock, 3,580,000 were prefunded, therefore have a zero exercise price and no expiration. The remaining warrants have a 5 year life and 2,575,500 of the warrants were issued with a $0.80 exercise price while the other 337,500 were issued with a $1.00 exercise price. During the nine months ended January 31, 2022, the Company modified the terms of the 2,575,500 warrants which resulted in the exercise price changing from $0.80 to $0.0001. The Company accounted for this modification as a cancellation of the previous award and issuance of a new award in its place, however, as there was no change in the fair value as a result of the modification, no additional expense was recorded on the Company’s books.
Of the 33,325,000 warrants granted with the sale of Series A preferred stock, 14,399,500 have an exercise price of $0.0001, 17,575,500 have an exercise price of $0.10, and 1,350,000 have an exercise price of $0.125. All 33,325,000 warrants were granted with a 5 year life.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Legal
In the ordinary course of business, we may be, or have been, involved in legal proceedings from time to time. During the nine months ended January 31, 2022 we were not involved in any material legal proceedings.
NOTE 13 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, there have been no subsequent events that are required to be reported through the filing date of these consolidated financial statements other than those stated below.
On February 22, 2022 the Company made a payment of $82,212 ($70,000 of principal and $7,212 of accrued interest) to JSJ Investments, Inc. to pay their March 8, 2021 promissory note in full.
On February 23, 2022 the Company made a payment of $136,952 ($113,048 of principal and $23,904 of accrued interest) to Vista Capital Investments, LLC and replaced their original March 11, 2021 note with a note for the remaining $136,952 principal still owed. The new note is due on December 31, 2022 and incurs interest at 10% per annum.
On February 28, 2022 the Company closed a Purchase and Sale Agreement to acquire 632 acres of land in Pecos County, Texas. The Company paid a total of $281,143 in cash (this was in addition to the $25,700 paid prior to closing for deposits on the purchase) and entered into a promissory note to pay the remaining $102,500 due for the acquisition. The promissory note has an interest rate of 10% per annum and the Company is to begin making monthly payments of $3,309, starting on April 1, 2023, until the note and accrued interest is paid in full.
On March 3, 2022 the Company issued a promissory note to Sabby Volatility Warrant Master Fund, Ltd. for $165,000 in full satisfaction of liquidated damages owed pursuant to a Registration Rights Agreement dated December 22, 2021. The note incurs interest at 5% per annum and is due on February 28, 2023.
Subsequent to January 31, 2022 the Company issued 500,000 shares of common stock for the exercise of prefunded warrants.