Notes to Consolidated Financial Statements
Years Ended April 30, 2017 and 2016
NOTE 1 – BACKGROUND, ORGANIZATION AND BASIS OF PRESENTATION
MMEX Resources Corporation (the “Company” or “MMEX”) is a company engaged in the exploration, extraction, refining and distribution of oil, gas, petroleum products and electric power. We plan to focus on the acquisition, development and financing of oil, gas, refining and electric power projects in Texas, Peru, and other countries in Latin America using the expertise of our principals to identify, finance and acquire these projects.
MMEX was formed as a Nevada corporation in 2005. The current management team led 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 accompanying consolidated financial statements include the accounts of the following entities, all of which the Company maintains control through a majority ownership or common 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
|
As of April 13, 2016, the Company assigned AMC to an irrevocable trust (the “Trust”), whose beneficiaries are the existing shareholders of MMEX. The accounts of AMC are included in the consolidated financial statements due to the common ownership. AMC through the Trust controls the Hunza coal interest previously owned by the Company.
On September 1, 2016, the Company entered into a stock assignment agreement with LatAm Services, LLC (“LatAm”), a related party, pursuant to which the Company assigned MCCH to LatAm. The accounts of MCCH are included in the consolidated financial statements due to the common ownership. With the assignment of MMCH to LatAm, the Company exited the coal industry to focus on energy related products.
All significant inter-company transactions have been eliminated in the preparation of the consolidated financial statements.
The Company has adopted a fiscal year end of April 30.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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:
Furniture and fixtures
|
5 years
|
Machinery and equipment
|
5 years
|
Software and hardware
|
5 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.
All of the Company’s property and equipment was fully depreciated at April 30, 2017.
Derivative liabilities
In a series of subscription agreements, we have issued warrants that contain certain anti-dilution provisions that we have identified as derivatives. We have also identified the conversion feature of certain of our convertible notes payable as derivatives. 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 financial statements as reflected herein. The carrying amounts of cash, accounts payable, accrued expenses and notes 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
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
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
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:
April 30, 2017
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
6,610,001
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,610,001
|
|
April 30, 2016
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
395,619
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
395,619
|
|
Refinery startup costs
Costs incurred prior to opening the Company’s proposed crude oil refinery in Pecos County, Texas, including acquisition of refinery rights, planning, design and permitting, are recorded as startup costs and expensed as incurred.
Advertising and promotion
All costs associated with advertising and promoting products are expensed as incurred. No expenses were incurred for the years ended April 30, 2017 and 2016, respectively.
Income taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Basic and diluted 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 years ended April 30, 2017 and 2016, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share; therefore, basic net loss per share is the same as diluted net loss per share.
Stock-based compensation
Pursuant to FASB ASC 718, all share-based payments to employees, including grants of employee stock options, are recognized in the statement of operations based on their fair values. For the fiscal years ended April 30, 2017 and 2016, the Company did not record any share 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.
Uncertain tax positions
The Company has adopted FASB standards for accounting for uncertainty in income taxes. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities periodically audit the Company's income tax returns. These audits include questions regarding the Company's tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities and has not identified any uncertain tax positions requiring recognition in its consolidated financial statements.
The assessment of the Company's tax position relies on the judgment of management to estimate the exposures associated with the Company's various filing positions.
Reclassifications
Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform with the current year presentation.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-4, “Intangibles – Goodwill and Other (Topic 350): “Simplifying the Test for Goodwill Impairment.” This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In January 2017, the FASB issued ASU No. 2017-1, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
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.
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 $36,918,594 and a total stockholders’ deficit of $8,949,909 at April 30, 2017, 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, successfully complete our proposed refinery project 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 to continue as a going concern for a reasonable period of time.
Our consolidated financial statements 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
Accrued expenses (see Note 6) to related parties totaled $70,670 and $64,420 as of April 30, 2017 and 2016, respectively. Included in accrued expenses to related parties as of April 30, 2017 and 2016 is a balance payable of $31,633 to Tydus Richards, the former Chairman of our board of directors and shareholder.
See Note 6 regarding the Company’s acquisition in March 2017 of the right, title and interest in a refinery project from a related party.
On May 18, 2015, Jack W. Hanks, Bruce N. Lemons and Nabil Katabi, the three directors of the Company and certain companies under their control, entered an agreement to forgive the following indebtedness from the Company totaling $2,212,721 and contribute the amounts to capital.
|
|
Accounts
Payable
|
|
|
Accounts Payable – Related Party
|
|
|
Accrued
Expenses
|
|
|
Notes
Payable
|
|
Hanks:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
883,584
|
|
|
$
|
-
|
|
Accounts payable
|
|
|
-
|
|
|
|
8,033
|
|
|
|
-
|
|
|
|
-
|
|
Notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,337
|
|
Accrued interest payable
|
|
|
-
|
|
|
|
-
|
|
|
|
5,901
|
|
|
|
-
|
|
Lemons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued consulting fees
|
|
|
-
|
|
|
|
-
|
|
|
|
791,315
|
|
|
|
-
|
|
Notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,530
|
|
Accrued interest payable
|
|
|
-
|
|
|
|
-
|
|
|
|
9,320
|
|
|
|
-
|
|
Katabi:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
5,536
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accrued consulting fees
|
|
|
-
|
|
|
|
-
|
|
|
|
375,000
|
|
|
|
-
|
|
Notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,100
|
|
Accrued interest payable
|
|
|
-
|
|
|
|
-
|
|
|
|
4,065
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,536
|
|
|
$
|
8,033
|
|
|
$
|
2,069,185
|
|
|
$
|
129,967
|
|
On May 18, 2015, Maple Structure Holdings, LLC (“Maple Structure Holdings”), a related party controlled by Jack W. Hanks, President and CEO of the Company, converted 1,000,000 preferred shares of the Company (the “Preferred Shares”) previously transferred to Maple Structure Holdings from an unrelated party. In November 2015, the Company issued 123,283,700 shares of its common stock to Maple Structure Holdings for the conversion of the Preferred Shares with a book value of $1,000,000 and accrued dividends of $410,685 into 123,283,700 common shares of the Company at $0.01 per share. The common shares issued were valued at $1,849,256, or $0.015 per share, the market price on the date of the conversion, resulting in a loss on extinguishment of debt of $438,571.
On May 18, 2015, The Maple Gas Corporation, a related party controlled by Jack W. Hanks, converted convertible notes payable with a book value of $1,950,000 into 194,999,999 common shares of the Company at $0.01 per share. The common shares issued were valued at $0.015 per share, the market price on the date of the conversion, resulting in a loss on extinguishment of debt of $975,000. The common shares were issued in May 2016, and common stock payable included $2,925,000 at April 30, 2016 related to this transaction. The shares were issued in May 2016.
NOTE 5 –
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at April 30:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Computer software and hardware
|
|
$
|
25,023
|
|
|
$
|
25,023
|
|
Less accumulated depreciation and amortization
|
|
|
(25,023
|
)
|
|
|
(24,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
386
|
|
Depreciation and amortization expense totaled $386 and $1,947 for the years ended April 30, 2017 and 2016, respectively.
NOTE 6 –
REFINERY PROJECT
On March 4, 2017, the Company entered into an agreement with Maple Resources Corporation (“Maple”), a related party, to acquire all of Maple’s right, title and interest (the “Rights”) in plans to build a $450 million, 50,000 barrels per day capacity crude oil refinery in Pecos County, Texas (the “Refinery Transaction” or the “Refinery Project”). Pursuant to the Refinery Transaction, the Company agreed to acquire the Rights in exchange for the issuance of 7,000,000,000 Class B common shares (the “Purchased Shares”).
The Refinery Transaction provided for the Company to issue the Purchased Shares in two tranches, of which the First Tranche of 1,500,000,000 shares was issued on March 4, 2017. The Second Tranche of 5,500,000,000 shares was to be issued once the Company’s Articles of Incorporation were amended to increase the number of authorized shares of common stock. In connection with the March 2017 amendment to the Company’s Articles of Incorporation discussed in Note 12, Maple agreed to waive its right to receive the second tranche of 5,500,000,000 shares of Class B common stock. The 1,500,000,000 Class B common stock issued for the Rights were valued at $150,000 by an independent valuation firm, with the $150,000 expensed to refinery start-up costs.
Completion of the Refinery Project is subject to the receipt of required governmental permits and completion of required debt and equity financing.
NOTE 7 –
ACCRUED EXPENSES
Accrued expenses consisted of the following at April 30:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
$
|
30,090
|
|
|
$
|
240,309
|
|
Accrued consulting
|
|
|
75,633
|
|
|
|
75,633
|
|
Accrued interest
|
|
|
815,276
|
|
|
|
670,324
|
|
Other
|
|
|
62,541
|
|
|
|
62,541
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
983,540
|
|
|
$
|
1,048,807
|
|
NOTE 8 – NOTES PAYABLE
Notes payable, currently in default, consisted of the following at April 30:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
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 March 18, 2014, with interest at 10%
|
|
|
75,001
|
|
|
|
75,001
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
375,001
|
|
|
$
|
375,001
|
|
Accrued interest payable on notes payable, currently in default, totaled $273,870 and $236,370 at April 30, 2017 and 2016, respectively.
Convertible notes payable, currently in default, consist of the following at April 30:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Note payable to an unrelated party, maturing January 27, 2012, with interest at 25%, convertible into common shares of the Company at $3.70 per share
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Note payable to an unrelated party, maturing December 31, 2010, with interest at 10%, convertible into common shares of the Company at $1.00 per share
|
|
|
25,000
|
|
|
|
25,000
|
|
Note payable to an unrelated party, 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, convertible into common shares of the Company at $0.20 per share
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
195,000
|
|
|
|
195,000
|
|
|
|
|
|
|
|
|
|
|
Less discount
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
195,000
|
|
|
$
|
195,000
|
|
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 W. 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. This note and related accrued interest payable were extinguished subsequent to April 2017 through the issuance of Class A common shares of the Company (see Note 15).
Accrued interest payable on convertible notes payable, currently in default, totaled $190,343 and $152,165 at April 30, 2017 and 2016, respectively.
The convertible note payable as of April 30, 2017 consists of a 12% convertible note payable to JSJ Investments, Inc. in the principal amount of $145,000 and dated April 19, 2017. The note was issued at a discount, resulting in the receipt of $138,000. The Company can redeem the note at any time prior to 90 days from the issuance date at a redemption price of 120% plus accrued interest. The redemption price thereafter increases to 125%, plus accrued interest, until the 120th day from issuance. The note is due and payable on the 180th day after issuance at a redemption price of 150% plus accrued interest. The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion. Prior to the 180th day after issuance, the conversion price cannot be less than a floor of $.03 per share of common stock. The Company has identified this conversion feature as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and considering the existence of a tainted equity environment. (See Note 11). The note also contains penalty provisions in the event of our default in repayment of the note (if not converted by the holder into shares of common stock) after 180 days from issuance. The convertible note payable is recorded net of discount of $136,284 at April 30, 2017. Accrued interest payable on the convertible note payable was $524 at April 30, 2017
The Company recorded interest expense on all indebtedness, which includes amortization of debt discount on certain debt described above and accrued dividends on convertible preferred stock (Note 9), totaled $262,393 and $529,474 for the years ended April 30, 2017 and 2016, respectively.
NOTE 9 – SETTLEMENT AGREEMENT AND STIPULATION
On October 28, 2016, 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 purchased certain outstanding payables between the Company and designated vendors totaling $84,782 (the “Payables” or “Claims”) and exchanged the portion of such Payables assigned for a Settlement Amount payable in common shares of the Company.
In settlement of the Claims, the Company issued and delivered to RCP, in multiple tranches, 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. We identified this conversion feature as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and considering the existence of a tainted equity environment. (See Note 11). 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’s creditors received a total of $84,782 pursuant to the Settlement Agreement, and the Company issued to RCP a total of 489,000,000 shares of the Company’s common stock in conversion of $84,782 note principal. The Settlement Agreement was terminated in March 2017.
NOTE 10 – 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. We identified this conversion feature as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and considering the existence of a tainted equity environment. (See Note 11). 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 of April 30, 2017 and 2016, the remaining face value of the Preferred Stock was $137,500. Accrued dividends on the Preferred Stock, included in accrued interest payable, totaled $350,539 and $281,789 as of April 30, 2017 and 2016, respectively.
Subsequent to April 30, 2017, the Company entered into agreements with the holders of the convertible preferred stock to convert all outstanding preferred stock and accrued dividends into Class A common shares of the Company (see Note 15).
NOTE 11 – DERIVATIVE LIABILITIES
In a series of subscription agreements, the Company issued warrants that contain certain anti-dilution provisions that have been identified as derivatives. In addition, the Company identified the conversion feature of certain convertible notes payable and convertible preferred stock as derivatives. As of April 30, 2017, the number of warrants or common shares to be issued under these agreements is indeterminate; therefore, we have concluded that the equity environment is tainted and all additional warrants and convertible debt are included in the value of the derivative.
The Company estimates 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 years ended April 30, 2017 and 2016, we had the following activity in our derivative liabilities:
|
|
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
Warrants
|
|
|
Notes
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Increases in derivative value due to new issuances
|
|
|
1,290,874
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,290,874
|
|
Change in fair value of derivative liabilities
|
|
|
(895,255
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(895,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2016
|
|
|
395,619
|
|
|
|
-
|
|
|
|
-
|
|
|
|
395,619
|
|
Increases in derivative value to debt discount
|
|
|
-
|
|
|
|
208,782
|
|
|
|
-
|
|
|
|
208,782
|
|
Decrease in derivative value due to note conversions
|
|
|
-
|
|
|
|
(100,127
|
)
|
|
|
-
|
|
|
|
(100,127
|
)
|
Change in fair value of derivative liabilities
|
|
|
5,904,051
|
|
|
|
196,020
|
|
|
|
5,656
|
|
|
|
6,105,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2017
|
|
$
|
6,299,670
|
|
|
$
|
304,675
|
|
|
$
|
5,656
|
|
|
$
|
6,610,001
|
|
Key inputs and assumptions used in valuing the Company’s derivative liabilities as of April 30, 2017 are as follows:
|
·
|
Stock prices on all measurement dates were based on the fair market value
|
|
|
|
|
·
|
Risk-free interest rates ranging from 1.45% – 2.13%
|
|
|
|
|
·
|
The probability of future financing was estimated at 100%
|
|
|
|
|
·
|
Computed volatility estimated at 104% – 110%
|
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.
NOTE 12 – STOCKHOLDERS’ DEFICIT
Authorized Shares
On March 31, 2017, the Company amended its articles of incorporation to provide for an increase in the authorized shares of common stock from 3,000,000,000 to 5,000,000,000 shares. In addition, the articles of incorporation were amended to provide for two classes of common shares: (i) Class A Shares, having one vote per share, and (ii) Class B Shares, with 10 votes per share. All of the currently outstanding shares of common stock were reclassified as Class A Shares, except that the common shares issued in the refinery transaction discussed in Note 6 were classified as Class B Shares. Other than the provisions of the voting rights, the two classes of shares of common stock will have equal terms and conditions.
Adjustment to Outstanding Shares
During the year ended April 30, 2016, the Company cancelled 40,000 outstanding shares of its common stock, resulting in a decrease to common stock and an increase to additional paid-in capital of $39.
Related Party Debt Contributed to Capital
On May 18, 2015, Jack W. Hanks, Bruce N. Lemons and Nabil Katabi, the then three directors of the Company and certain companies under their control, entered an agreement to forgive the indebtedness from the Company totaling $2,212,721 and contribute the amounts to capital. See Note 4.
Stock Issuances
During the year ended April 30, 2017, the Company issued a total of 807,184,154 shares of its Class A common stock: 39,394,400 shares for cash of $76,369; 236,784,319 shares for common stock payable of $3,064,332; 489,000,000 shares valued at $184,909 in conversion of a convertible note payable and reduction in related derivative liabilities; 2,082,190 shares valued at $416 for accrued expenses; 28,625,000 valued at $5,725 for accounts payable; 4,298,245 shares valued at $98,535 for services and 7,000,000 shares valued at $34,300 for interest expense.
During the year ended April 30, 2016, the Company issued 123,283,700 shares of its Class A common stock to a related party pursuant to the conversion of 1,000,000 Preferred Shares with a book value of $1,000,000 and accrued dividends of $410,685 into 123,283,700 common shares of the Company at $0.01 per share. The common shares issued were valued at $1,849,256, or $0.015 per share, the market price on the date of the conversion, resulting in a loss on extinguishment of debt of $438,571.
As further discussed in Note 6, on March 4, 2017, the Company entered into an agreement with Maple, a related party, to acquire all of Maple’s right, title and interest in plans (the “Rights”) to build a crude oil refinery in Pecos County, Texas. The Company issued 1,500,000,000 Class B common shares to Maple to acquire the rights. The shares were valued at $150,000 by an independent valuation firm, with the $150,000 expensed to refinery start-up costs.
Common Stock Payable
During the year ended April 30, 2016, common stock payable was increased from $90,000 at April 30, 2015 to $3,395,483 at April 30, 2016: $2,925,000 for conversion of related party notes payable of $1,950,000 and loss on extinguishment of debt of $975,000; $75,000 for cash and $13,815 for services in a private placement and $291,668 in conversion of accrued expenses.
During the year ended April 30, 2017, common stock payable decreased from $3,395,483 at April 30, 2016 to $307,978 at April 30, 2017: decreased $90,000 for common stock payable to related parties forgiven and contributed to paid-in capital; decreased $3,064,332 for 236,784,319 Class A common shares issued; increased $49,741 for cash and increased $17,086 for services. Subsequent to April 30, 2017, the balance in common stock payable of $291,668 was eliminated through the issuance of Class A common shares (see Note 15).
Stock Options
On March 7, 2012, the Company issued a total of 2,000,000 stock options exercisable at $0.35 per share for a period of ten years from the date of grant. The Company did not grant any stock options during the years ended April 30, 2017 and 2016.
A summary of stock option activity during the years ended April 30, 2017 and 2016 is presented below:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2015
|
|
|
2,000,000
|
|
|
$
|
0.35
|
|
|
|
6.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Canceled / Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2016
|
|
|
2,000,000
|
|
|
$
|
0.35
|
|
|
|
5.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Canceled / Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2017
|
|
|
2,000,000
|
|
|
$
|
0.35
|
|
|
|
4.85
|
|
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 years ended April 30, 2017 and 2016 related to stock option grants. There was no unrecognized stock option expense at April 30, 2017.
Subsequent to April 30, 2017, the holders of the options surrendered them to the Company and the options were cancelled (see Note 15).
Warrants
The Company has issued warrants to non-employees for debt discounts, equity financing or other stock-based compensation. These warrants generally vest upon grant and are valued using the Black-Scholes option pricing model or multinomial lattice models that value the warrants based on a probability weighted cash flow model using projections of the various potential outcomes.
During the year ended April 30, 2016, the Company issued warrants to purchase 10,000 shares of common stock to a related party lender.
In a series of subscription agreements, during the year ended April 30, 2016, we issued 3,289,192 warrants that contain certain anti-dilution provisions that we have identified as derivatives. We estimate 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 existence of a tainted equity environment (see Note 11).
A summary of warrant activity during the years ended April 30, 2017 and 2016 is presented below:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2015
|
|
|
564,000
|
|
|
$
|
0.25
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
11,512,170
|
|
|
$
|
0.01
|
|
|
|
|
|
Canceled / Expired
|
|
|
(554,000
|
)
|
|
$
|
0.26
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, April 30, 2016
|
|
|
11,522,170
|
|
|
$
|
0.01
|
|
|
|
5.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
383,739,041
|
|
|
$
|
0.01
|
|
|
|
|
|
Canceled / Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable, April 30, 2017
|
|
|
395,261,211
|
|
|
$
|
0.01
|
|
|
|
4.90
|
|
The number of warrant shares granted during the year ended April 30, 2017 includes a total of 220,644,681 warrant shares issued to warrant holders pursuant to anti-dilution provisions.
Common Stock Reserved
At April 30, 2016, 395,261,211 shares of the Company’s common stock were reserved for issuance of outstanding warrants and 233,000,000 shares were reserved for the April 19, 2017 convertible promissory note.
NOTE 13 – 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 as of April 30, 2017 and 2016 for the minimum lease payment of $62,541 for the January 2010 payment.
NOTE 14 – INCOME TAXES
The Company accounts for income taxes in accordance with standards of disclosure propounded by the FASB, and any related interpretations of those standards sanctioned by the FASB. Accordingly, deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.
No provision for income taxes has been recorded due to the net operating loss carryforwards totaling approximately $9,016,000 as of April 30, 2017 that will be offset against future taxable income. The available net operating loss carry forwards expire in various years through 2037. No tax benefit has been reported in the financial statements because the Company believes there is a 50% or greater chance the carry forwards will expire unused. There were no uncertain tax positions taken by the Company.
The deferred tax asset and valuation account is as follows at April 30:
|
|
2017
|
|
|
2016
|
|
Deferred tax asset:
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,373,482
|
|
|
$
|
3,155,766
|
|
Valuation allowance
|
|
|
(3,373,482
|
)
|
|
|
(3,155,766
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The components of income tax expense are as follows for the years ended April 30:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Change in net operating loss benefit
|
|
$
|
217,716
|
|
|
$
|
114,935
|
|
Change in valuation allowance
|
|
|
(217,716
|
)
|
|
|
(114,935
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, all subsequent events have been reported through the filing date as set forth below.
Issuance of Class A Common Shares
Subsequent to April 30, 2017, we issued a total of 465,396,910 shares of Class A common stock: 62,846,918 shares in payment of common stock payable of $307,978; 8,000,000 shares for services valued at $136,000; 440,000 shares in settlement of accrued expenses of $44,000; 353,359,992 shares in the cashless exercise of warrants; 24,750,000 shares in settlement of preferred stock and accrued dividends payable totaling $428,707 and 16,000,000 shares in settlement of a convertible note payable and accrued interest payable totaling of $239,365.
Cashless Exercise of Warrants
In May 2017, the Company offered the holders of warrants to register the underlying Class A common shares in exchange for the warrant holders converting the warrants on a cashless, one-share for one-share basis. All but two warrant holders accepted the offer, and in May 2017, a total of 353,359,992 Class A common shares were issued to warrant holders in a cashless exercise.
Settlement of Debt
Effective June 19, 2017, the Company entered into agreements with the holders of outstanding convertible preferred stock (Note 10) pursuant to which $137,500 principal and $291,207 accrued dividends payable were extinguished through the issuance of a total of 24,750,000 shares of the Company’s Class A common stock.
Effective June 20, 2017, the Company entered into an agreement to extinguish a convertible note payable of $120,000 and $119,365 accrued interest payable through the issuance of 16,000,000 shares of the Company’s Class A common stock.
May 15, 2017 Convertible Redeemable Note
Effective May 15, 2017, we issued and delivered to Eagle Equities LLC an 8% convertible redeemable note in the principal amount of $115,000. The note was issued at a discount, resulting in our receipt of $105,000. We can redeem the note at any time prior to 90 days from the issuance date at a redemption price of 125% plus accrued interest. The redemption price thereafter increases to 135%, plus accrued interest, until the 120th day from issuance and to150%, plus accrued interest, until the 180th day from issuance. The note is due and payable on May 15, 2018. During the first 6 months the note is in effect, the holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of our common stock at a fixed price of $0.03 per share. Beginning the 6 month anniversary of the note, the holder of the note, at is option, may convert the unpaid principal of, and accrued interest on, the note into shares of our common stock a 40% discount from the average of the three lowest trading prices during the 25 days prior to conversion. The note also contains penalty provisions in the event of our default in repayment of the note (if not converted by the holder into shares of common stock) after 180 days from issuance.
May 16, 2017 Convertible Redeemable Note
Effective May 16, 2017, we issued and delivered to Crown Bridge Partners, LLC an 8% convertible redeemable note in the principal amount of $60,000. The note was issued at a discount, resulting in our receipt of $54,000. The note is due and payable on May 16, 2018. The other terms of the note are identical to the terms of the May 15, 2017 convertible redeemable note.
May 24, 2017 Convertible Redeemable Note
Effective May 24, 2017, we issued and delivered to GS Capital Partners, LLC an 8% convertible note in the principal amount of $173,000. The note was issued at a discount, resulting in our receipt of $158,000. The note is due and payable on May 24, 2018. We can redeem the note at any time prior to 60 days from the issuance date at a redemption price of 118% plus accrued interest. The redemption price thereafter increases to 125%, plus accrued interest, until the 120
th
day from issuance and then to 133%, plus accrued interest, until the 180th day from issuance. The note cannot be prepaid after the 180th day after issuance. The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of our common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion. Prior to the 180th day after issuance, the conversion price cannot be less than a floor of $.03 per share of common stock. The note also contains penalty provisions in the event of our default in repayment of the note (if not converted by the holder into shares of common stock).
June 12, 2017 Equity Purchase Agreement
On June 12, 2017, we entered into an Equity Purchase Agreement with Crown Bridge Partners, LLC (“Crown Bridge”). Pursuant to the terms of the Equity Purchase Agreement, Crown Bridge has committed to purchase up to $3,000,000 of our common stock for a period of up to 24 months commencing upon the effectiveness of a registration statement covering the resale of shares issuable to Crown Bridge under the Equity Purchase Agreement. The Equity Purchase Agreement allows us to deliver a put notice to Crown Bridge stating the dollar amount of common stock that we intend to sell to Crown Bridge on the date specified in the put notice. The amount of each put notice is limited to a formula that is equal to the lesser of (i) $100,000 or (ii) 150% of the average dollar value of the trading volume of our stock, measured at the lowest price during the trading period, for the seven days prior to the purchase of shares by Crown Bridge. The purchase price of shares issued in respect of each put notice is 80% of the average of the three lowest trading prices in the seven trading days immediately preceding the date on which the Company exercises its put right. We are required to file a registration statement with the SEC on Form S-1 within 45 days of the date of the Equity Purchase Agreement covering the resale of shares to be issued under such agreement and to use our best efforts to cause the registration statement to become effective within 90 days of such date.
In connection with the Equity Purchase Agreement, we issued to Crown Bridge, as a commitment fee, an $80,000 convertible promissory note which matures on December 12, 2017. The note bears interest at a rate of 8% per annum. We are entitled to redeem the note at a redemption price of 125% plus accrued interest during the first 90 days after issuance. The redemption price then increases to 135% until the 120th day after issuance and then increases to 150% until the 180th day after issuance, after which the date the note may not be redeemed. If the note is not redeemed or we otherwise default thereunder, Crown Bridge may convert the unpaid balance into shares of our Class A common stock at a conversion price equal to the lesser of (i) the closing price of our Class A common stock on the issuance date of the note or (ii) 60% of the average of the three lowest trading prices during the 25-day period prior to the notice of conversion.
July 7, 2017 Convertible Redeemable Note
On July 7, 2017, we completed the funding of a 12% convertible note in the principal amount of $125,000 issued to JSJ Investments Inc. The note was issued at a discount, resulting in our receipt of $118,750 of net proceeds, prior to expenses. We can redeem the note at any time prior to 90 days from the issuance date at a redemption price of 120% plus accrued interest. The redemption price thereafter increases to 125%, plus accrued interest, until the 120th day from issuance, and thereafter increases to a redemption price of 145% plus accrued interest until the 180th day after issuance and 150% plus accrued interest until the maturity date of March 30, 2018. The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of our common stock at a price of no lower than $0.03 per share of common stock until the 180th day after issuance and thereafter at a price 40% discount from the lowest trading prices during the 20 days prior to conversion. The note also contains penalty provisions in the event of our default in repayment of the note (if not converted by the holder into shares of common stock) on the maturity date of March 30, 2018.
We have agreed with JSJ Investments Inc. to use any proceeds from draws on our prospective equity line of credit or sale of assets to first repay the note we issued to JSJ Investments in April 2017 and second to repay the July 7, 2017 note.
MMEX RESOURCES CORPORATION
Condensed Consolidated Balance Sheets
|
|
October 31,
2017
|
|
|
April 30,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
50,297
|
|
|
$
|
54,513
|
|
Total current assets
|
|
|
50,297
|
|
|
|
54,513
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
101,203
|
|
|
|
-
|
|
Deposit
|
|
|
900
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
152,400
|
|
|
$
|
54,513
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
715,221
|
|
|
$
|
694,664
|
|
Accrued expenses
|
|
|
232,720
|
|
|
|
912,870
|
|
Accrued expenses – related party
|
|
|
31,633
|
|
|
|
70,670
|
|
Notes payable, currently in default
|
|
|
75,001
|
|
|
|
375,001
|
|
Convertible notes payable, currently in default, net of discount of $0 and $0 at October 31, 2017 and April 30, 2017, respectively
|
|
|
75,000
|
|
|
|
195,000
|
|
Convertible notes payable, net of discount of $628,608 and $136,284 at October 31, 2017 and April 30, 2017, respectively
|
|
|
335,062
|
|
|
|
8,716
|
|
Convertible preferred stock
|
|
|
-
|
|
|
|
137,500
|
|
Derivative liabilities
|
|
|
1,789,047
|
|
|
|
6,610,001
|
|
Total current liabilities
|
|
|
3,253,684
|
|
|
|
9,004,422
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Convertible note payable, net of discount of $181,003 at October 31, 2017
|
|
|
3,797
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,257,481
|
|
|
|
9,004,422
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Common stock; $0.001 par value:
|
|
|
|
|
|
|
|
|
Class A: 3,000,000,000 shares authorized, 1,474,263,078 and 987,616,168 shares issued and outstanding at October 31, 2017 and April 30, 2017, respectively
|
|
|
1,474,264
|
|
|
|
987,617
|
|
Class B: 2,000,000,000 shares authorized, 1,500,000,000 shares issued and outstanding at October 31, 2017 and April 30, 2017, respectively
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Common stock payable
|
|
|
-
|
|
|
|
307,978
|
|
Additional paid-in capital
|
|
|
27,395,630
|
|
|
|
25,551,533
|
|
Non-controlling interest
|
|
|
272,216
|
|
|
|
(378,443
|
)
|
Accumulated (deficit)
|
|
|
(33,747,191
|
)
|
|
|
(36,918,594
|
)
|
Total stockholders’ deficit
|
|
|
(3,105,081
|
)
|
|
|
(8,949,909
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
152,400
|
|
|
$
|
54,513
|
|
See accompanying notes to condensed consolidated financial statements.
MMEX RESOURCES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended
October 31,
|
|
|
Six Months Ended
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
132,581
|
|
|
|
102,651
|
|
|
|
470,711
|
|
|
|
126,241
|
|
Refinery start-up costs
|
|
|
165,420
|
|
|
|
-
|
|
|
|
498,531
|
|
|
|
-
|
|
Depreciation and amortization
|
|
|
417
|
|
|
|
62
|
|
|
|
707
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
298,418
|
|
|
|
102,713
|
|
|
|
969,949
|
|
|
|
126,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(298,418
|
)
|
|
|
(102,713
|
)
|
|
|
(969,949
|
)
|
|
|
(126,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(431,793
|
)
|
|
|
(80,700
|
)
|
|
|
(726,401
|
)
|
|
|
(116,939
|
)
|
Gain (loss) on derivative liabilities
|
|
|
(514,129
|
)
|
|
|
(52,587
|
)
|
|
|
3,952,554
|
|
|
|
33,108
|
|
Gain on assignment and assumption agreement
|
|
|
1,090,271
|
|
|
|
-
|
|
|
|
1,090,271
|
|
|
|
-
|
|
Gain on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
475,587
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
144,349
|
|
|
|
(133,287
|
)
|
|
|
4,792,011
|
|
|
|
(83,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(154,069
|
)
|
|
|
(236,000
|
)
|
|
|
3,822,062
|
|
|
|
(210,458
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(154,069
|
)
|
|
|
(236,000
|
)
|
|
|
3,822,062
|
|
|
|
(210,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in (income) loss of consolidated subsidiaries
|
|
|
(651,005
|
)
|
|
|
453
|
|
|
|
(650,659
|
)
|
|
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company
|
|
$
|
(805,074
|
)
|
|
$
|
(235,547
|
)
|
|
$
|
3,171,403
|
|
|
$
|
(209,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share – basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
Basic and diluted
|
|
|
1,468,936,991
|
|
|
|
376,528,409
|
|
|
|
1,396,834,000
|
|
|
|
373,973,860
|
|
Diluted
|
|
|
1,468,936,991
|
|
|
|
376,528,409
|
|
|
|
1,467,161,534
|
|
|
|
373,973,860
|
|
See accompanying notes to condensed consolidated financial statements.
MMEX RESOURCES CORPORATION
Condensed Consolidated Statements of Stockholders’ Deficit and Members’ Interests
Six Months Ended October 31, 2017
(Unaudited)
|
|
Class A Common Stock
|
|
|
Class B Common Stock
|
|
|
Common Stock
|
|
|
Additional Paid-in
|
|
|
Non-Controlling
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Payable
|
|
|
Capital
|
|
|
Interest
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2017
|
|
|
987,616,168
|
|
|
$
|
987,617
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
307,978
|
|
|
$
|
25,551,533
|
|
|
$
|
(378,443
|
)
|
|
$
|
(36,918,594
|
)
|
|
$
|
(8,949,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock payable
|
|
|
62,846,918
|
|
|
|
62,847
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(307,978
|
)
|
|
|
245,131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Services
|
|
|
19,250,000
|
|
|
|
19,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
207,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
227,125
|
|
Accrued expenses
|
|
|
440,000
|
|
|
|
440
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,400
|
|
Cashless exercise of warrants
|
|
|
353,359,992
|
|
|
|
353,360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,552,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,906,006
|
|
Settlement of preferred stock
|
|
|
24,750,000
|
|
|
|
24,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175,726
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,476
|
|
Settlement of debt
|
|
|
26,000,000
|
|
|
|
26,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
208,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
234,800
|
|
Assignment and assumption agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(550,041
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(550,041
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
650,659
|
|
|
|
3,171,403
|
|
|
|
3,822,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2017
|
|
|
1,474,263,078
|
|
|
$
|
1,474,264
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
-
|
|
|
$
|
27,395,630
|
|
|
$
|
272,216
|
|
|
$
|
(33,747,191
|
)
|
|
$
|
(3,105,081
|
)
|
See accompanying notes to condensed consolidated financial statements.
MMEX RESOURCES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended October 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss) attributable to the Company
|
|
$
|
3,171,403
|
|
|
$
|
(209,543
|
)
|
Non-controlling interest in income (loss) of consolidated subsidiaries
|
|
|
650,659
|
|
|
|
(915
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
707
|
|
|
|
386
|
|
Stock-based compensation
|
|
|
227,125
|
|
|
|
47,254
|
|
Convertible note payable issued for commitment fee
|
|
|
80,000
|
|
|
|
-
|
|
Interest expense added to convertible note principal
|
|
|
38,247
|
|
|
|
-
|
|
Gain on derivative liabilities
|
|
|
(3,952,554
|
)
|
|
|
(33,108
|
)
|
Gain on assignment and assumption agreement
|
|
|
(1,090,271
|
)
|
|
|
-
|
|
Gain on extinguishment of debt
|
|
|
(475,587
|
)
|
|
|
-
|
|
Amortization of debt discount
|
|
|
475,143
|
|
|
|
-
|
|
Increase in deposits
|
|
|
(900
|
)
|
|
|
-
|
|
Increase in liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
135,039
|
|
|
|
90,766
|
|
Accrued expenses
|
|
|
67,433
|
|
|
|
71,955
|
|
Net cash used in operating activities
|
|
|
(673,556
|
)
|
|
|
(33,205
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(101,910
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(101,910
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
771,250
|
|
|
|
-
|
|
Proceeds from common stock payable
|
|
|
-
|
|
|
|
32,384
|
|
Net cash provided by financing activities
|
|
|
771,250
|
|
|
|
32,384
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(4,216
|
)
|
|
|
(821
|
)
|
Cash at the beginning of the period
|
|
|
54,513
|
|
|
|
1,030
|
|
Cash at the end of the period
|
|
$
|
50,297
|
|
|
$
|
209
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
|
-
|
|
|
|
-
|
|
Common stock for common stock payable
|
|
|
307,978
|
|
|
|
2,935,000
|
|
Settlement of convertible preferred stock and accrued interest for common stock
|
|
|
200,476
|
|
|
|
-
|
|
Common stock and additional paid-in capital for derivative liabilities in cashless exercise of warrants
|
|
|
1,906,006
|
|
|
|
-
|
|
Common stock for accrued expenses
|
|
|
4,400
|
|
|
|
-
|
|
Settlement of convertible notes payable and accrued interest for common stock
|
|
|
124,800
|
|
|
|
-
|
|
Derivative liabilities for debt discount
|
|
|
1,043,220
|
|
|
|
-
|
|
Accrued interest payable added to convertible note principal
|
|
|
8,723
|
|
|
|
-
|
|
See accompanying notes to condensed consolidated financial statements.
MMEX RESOURCES CORPORATION
Notes to Condensed Consolidated Financial Statements
Six Months Ended October 31, 2017
(Unaudited)
NOTE 1 – BACKGROUND, ORGANIZATION AND BASIS OF PRESENTATION
MMEX Resources Corporation (the “Company” or “MMEX”) is a company engaged in the exploration, extraction, refining and distribution of oil, gas, petroleum products and electric power. We plan to focus on the acquisition, development and financing of oil, gas, refining and electric power projects in Texas, Peru, and other countries in Latin America using the expertise of our principals to identify, finance and acquire these projects. On August 30, 2017, the Company announced it has secured permit approval from the Texas Commission on Environmental Quality (TCEQ) to build a 10,000 barrel-per-day (BPD) crude distillation unit near Fort Stockton, Texas.
MMEX was formed as a Nevada corporation in 2005. The current management team led 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 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
|
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
|
As of April 13, 2016, the Company assigned AMC to an irrevocable trust (the “Trust”), whose beneficiaries are the existing shareholders of MMEX. The accounts of AMC are included in the consolidated financial statements for all periods presented due to the common ownership. AMC through the Trust controls the Hunza coal interest previously owned by MMEX.
On September 1, 2016, the Company entered into a stock assignment agreement with LatAm Services, LLC (“LatAm”), whose members are officers and directors of the Company, pursuant to which LatAm acquired MCCH, a wholly owned subsidiary of the Company, and MCC and CC, majority owned subsidiaries of MCCH. On September 18, 2017, the Company, the members of LatAm and William B. Short (“Short”), an unrelated individual, entered into an Assignment and Assumption Agreement pursuant to which Short acquired MCCH, MCC and CC from LatAm (Note 11). The accounts of MCCH, MCC and CC are included in the consolidated financial statements through September 18, 2017 due to the common ownership of LatAm. With the acquisition of these subsidiaries by LatAm, and subsequently by Short, MMEX has exited the Hunza coal project to focus on energy related projects under its new business plan.
All significant inter-company transactions have been eliminated in the preparation of the 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, 2017 filed with the SEC on July 28, 2017.
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.
Derivative liabilities
In a series of subscription agreements, we have issued warrants that contain certain anti-dilution provisions that we have identified as derivatives. We have also identified the conversion feature of certain of our convertible notes payable as derivatives. 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.
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
|
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.
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 financial statements as reflected herein. The carrying amounts of cash, accounts payable, accrued expenses and notes 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:
October 31, 2017
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,789,047
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,789,047
|
|
April 30, 2017
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
6,610,001
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,610,001
|
|
Refinery start-up costs
Costs incurred prior to opening the Company’s proposed crude oil refinery in Pecos County, Texas, including acquisition of refinery rights, planning, design and permitting, are recorded as start-up costs and expensed as incurred.
Basic and diluted 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 three months ended October 31, 2017 and 2016 and the six months ended October 31, 2016, potential dilutive shares had an anti-dilutive effect and were not included in the calculation of diluted net loss per common shares; therefore, basic net loss per share is the same as diluted net loss per share. For the six months ended October 31, 2017, diluted weighted average number of common shares outstanding included 635,701 common shares issuable for in-the-money warrants using the treasury stock method and 69,691,833 common shares issuable for convertible debt.
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 prior year periods have been reclassified to conform with the current year periods presentation.
Recently Issued Accounting Pronouncements
In July 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception.” Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, “Distinguishing Liabilities from Equity,” because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
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 $33,747,191 and a total stockholders’ deficit of $3,105,081 at October 31, 2017, 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
Accrued expenses (see Note 7) to related parties totaled $31,633 and $70,670 as of October 31, 2017 and April 30, 2017, respectively.
NOTE 5 –
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
|
|
October 31,
2017
|
|
|
April 30,
2017
|
|
|
|
|
|
|
|
|
Office furniture and equipment
|
|
$
|
13,363
|
|
|
$
|
454
|
|
Computer equipment and software
|
|
|
26,287
|
|
|
|
24,569
|
|
Less accumulated depreciation and amortization
|
|
|
(22,493
|
)
|
|
|
(25,023
|
)
|
|
|
|
17,157
|
|
|
|
-
|
|
Land
|
|
|
84,046
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,203
|
|
|
$
|
-
|
|
On July 28, 2017, the Company acquired 126 acres of land located near Fort Stockton, Texas for $67,088. This 126 acre parcel is part of the 476 acre tract on which the Company intends to build a crude oil refinery. The Company also subsequently acquired certain easements related to the land parcel for $16,958.
Depreciation and amortization expense totaled $417 and $62 for the three months ended October 31, 2017 and 2016, respectively, and $707 and $386 for the six months ended October 31, 2017 and 2016, respectively.
NOTE 6 –
REFINERY PROJECT
On March 4, 2017, the Company entered into an agreement with Maple Resources Corporation (“Maple”), a related party, to acquire all of Maple’s right, title and interest (the “Rights”) in plans to build a $450 million, 50,000 barrels per day capacity crude oil refinery in Pecos County, Texas (the “Refinery Transaction” or the “Refinery Project”). Pursuant to the Refinery Transaction, the Company agreed to acquire the Rights in exchange for the issuance of 1,500,000,000 Class B common shares. The 1,500,000,000 Class B common stock issued for the Rights were valued at $150,000 by an independent valuation firm, with the $150,000 expensed to refinery start-up costs.
Completion of the Refinery Project is subject to the receipt of required governmental permits and completion of required debt and equity financing.
NOTE 7 –
ACCRUED EXPENSES
Accrued expenses consisted of the following at:
|
|
October 31,
2017
|
|
|
April 30,
2017
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
$
|
30,090
|
|
|
$
|
30,090
|
|
Accrued consulting
|
|
|
31,633
|
|
|
|
75,633
|
|
Accrued interest
|
|
|
140,089
|
|
|
|
815,276
|
|
Other
|
|
|
62,541
|
|
|
|
62,541
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
264,353
|
|
|
$
|
983,540
|
|
NOTE 8 – NOTES PAYABLE
Notes payable, currently in default, consist of the following at:
|
|
October 31,
2017
|
|
|
April 30,
2017
|
|
|
|
|
|
|
|
|
Note payable to an unrelated party, maturing March 18, 2014, with interest at 10%
|
|
$
|
75,001
|
|
|
$
|
75,001
|
|
Note payable to an unrelated party, maturing July 15, 2010, with interest at 10%, extinguished pursuant to Assignment and Assumption Agreement (Note 11)
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75,001
|
|
|
$
|
375,001
|
|
Accrued interest payable on notes payable, currently in default, totaled $34,634 and $273,870 at October 31, 2017 and April 30, 2017, respectively.
Convertible notes payable, currently in default, consist of the following at:
|
|
October 31,
2017
|
|
|
April 30,
2017
|
|
|
|
|
|
|
|
|
Note payable to an unrelated party, maturing January 27, 2012, with interest at 25%, convertible into common shares of the Company at $3.70 per share
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Note payable to an unrelated party, maturing December 31, 2010, with interest at 10%, convertible into common shares of the Company at $1.00 per share
|
|
|
25,000
|
|
|
|
25,000
|
|
Note payable to an unrelated party, maturing March 1, 2013, with interest at 1.87% per month, convertible into common shares of the Company at $0.20 per share, repaid in June 2017
|
|
|
-
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,000
|
|
|
$
|
195,000
|
|
Effective June 20, 2017, the Company entered into an agreement to extinguish the $120,000 convertible note payable and $119,365 accrued interest payable through the issuance of 16,000,000 shares of the Company’s Class A common stock, recognizing a gain on extinguishment of debt of $114,565.
Accrued interest payable on convertible notes payable, currently in default, totaled $80,366 and $190,343 at October 31, 2017 and April 30, 2017, respectively.
Convertible notes payable consist of the following at:
|
|
October 31,
2017
|
|
|
April 30,
2017
|
|
Note payable to an accredited investor, maturing May 15, 2018, with interest at 8%, convertible into common shares of the Company at a defined variable exercise price
|
|
$
|
115,000
|
|
|
$
|
-
|
|
Note payable to an accredited investor, maturing May 16, 2018, with interest at 8%, convertible into common shares of the Company at a defined variable exercise price
|
|
|
60,000
|
|
|
|
-
|
|
Note payable to an accredited investor, maturing May 24, 2018, with interest at 8%, convertible into common shares of the Company at a defined variable exercise price
|
|
|
173,000
|
|
|
|
-
|
|
Note payable to an accredited investor, maturing December 12, 2017, with interest at 8%, convertible into common shares of the Company at a defined variable exercise price
|
|
|
80,000
|
|
|
|
-
|
|
Note payable to an accredited investor, maturing March 30, 2018, with interest at 12%, convertible into common shares of the Company at a defined variable exercise price
|
|
|
125,000
|
|
|
|
-
|
|
Note payable to an accredited investor, maturing June 1, 2018, with interest at 12%, convertible into common shares of the Company at a defined variable exercise price
|
|
|
115,000
|
|
|
|
-
|
|
Note payable to an accredited investor, maturing June 20, 2018, with interest at 12%, convertible into common shares of the Company at a defined variable exercise price
|
|
|
123,500
|
|
|
|
-
|
|
Note payable purchased by an accredited investor pursuant to a Convertible Note Purchase and Assignment Agreement, maturing April 19, 2018, with a one-time interest charge of 12%, convertible into common shares of the Company at a defined variable exercise price
|
|
|
172,170
|
|
|
|
-
|
|
Note payable to an accredited investor, maturing October 19, 2017, with interest at 12%, convertible into common shares of the Company at a defined variable exercise price, extinguished pursuant to a Convertible Note Purchase and Assignment Agreement
|
|
|
-
|
|
|
|
145,000
|
|
Total
|
|
|
963,670
|
|
|
|
145,000
|
|
Less discount
|
|
|
(628,608
|
)
|
|
|
(136,284
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
335,062
|
|
|
$
|
8,716
|
|
Effective April 19, 2017 the Company issued and delivered to JSJ Investments, Inc. a 12% convertible note payable to JSJ Investments, Inc. (“JSJ”) in the principal amount of $145,000. The note was issued at a discount, resulting in the receipt of $138,000. The Company can redeem the note at any time prior to 90 days from the issuance date at a redemption price of 120% plus accrued interest. The redemption price thereafter increases to 125%, plus accrued interest, until the 120th day from issuance. The note is due and payable on the October 19, 2017 at a redemption price of 150% plus accrued interest. The holder of the note, at its option, may convert the unpaid principal balance and accrued interest into shares of the Company’s Class A common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion. Prior to the 180th day after issuance, the conversion price cannot be less than a floor of $.03 per share of common stock. The note also contains penalty provisions in the event of default in repayment of the note (if not converted by the holder into shares of common stock) after 180 days from issuance. Pursuant to a Convertible Note Purchase and Assignment Agreement dated October 16, 2017 Vista Capital Investments, LLC (“Vista”) purchased from JSJ the convertible note with a principal balance of $145,000 and $8,723 accrued interest payable. No gain or loss was recognized on this transaction.
Effective May 15, 2017, the Company issued and delivered to Eagle Equities LLC an 8% convertible redeemable note in the principal amount of $115,000. The note was issued at a discount, resulting in the receipt of $105,000. The Company can redeem the note at any time prior to 90 days from the issuance date at a redemption price of 125% plus accrued interest. The redemption price thereafter increases to 135%, plus accrued interest, until the 120th day from issuance and to 150%, plus accrued interest, until the 180th day from issuance. The note is due and payable on May 15, 2018. During the first 6 months the note is in effect, the holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s Class A common stock at a fixed price of $0.03 per share. Beginning the 6 month anniversary of the note, the holder of the note, at is option, may convert the unpaid principal and accrued interest into shares of the Company’s Class A common stock a 40% discount from the average of the three lowest trading prices during the 25 days prior to conversion. The note also contains penalty provisions in the event of default in repayment of the note (if not converted by the holder into shares of common stock) after 180 days from issuance.
Effective May 16, 2017, the Company issued and delivered to Crown Bridge Partners, LLC (“Crown Bridge”) an 8% convertible redeemable note in the principal amount of $60,000. The note was issued at a discount, resulting in the receipt of $54,000. The note is due and payable on May 16, 2018. The other terms of the note are identical to the terms of the May 15, 2017 convertible redeemable note described above.
Effective May 24, 2017, the Company issued and delivered to GS Capital Partners, LLC an 8% convertible note in the principal amount of $173,000. The note was issued at a discount, resulting in the receipt of $158,000. The note is due and payable on May 24, 2018. The Company can redeem the note at any time prior to 60 days from the issuance date at a redemption price of 118% plus accrued interest. The redemption price thereafter increases to 125%, plus accrued interest, until the 120th day from issuance and then to 133%, plus accrued interest, until the 180th day from issuance. The note cannot be prepaid after the 180th day after issuance. The holder of the note, at its option, may convert the unpaid principal balance and accrued interest into shares of the Company’s Class A common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion. Prior to the 180th day after issuance, the conversion price cannot be less than a floor of $.03 per share of common stock. The note also contains penalty provisions in the event of default in repayment of the note (if not converted by the holder into shares of common stock). The Company entered into an amendment of the note with GS Capital which extends the redemption period of the note by an additional 75 days, during which period the redemption premium will be 47%.
On June 12, 2017, the Company entered into an Equity Purchase Agreement with Crown Bridge. Pursuant to the terms of the Equity Purchase Agreement, Crown Bridge has committed to purchase up to $3,000,000 of our common stock for a period of up to 24 months commencing upon the effectiveness of a registration statement covering the resale of shares issuable to Crown Bridge under the Equity Purchase Agreement. The Equity Purchase Agreement allows the Company to deliver a put notice to Crown Bridge stating the dollar amount of common stock that it intends to sell to Crown Bridge on the date specified in the put notice. The amount of each put notice is limited to a formula that is equal to the lesser of (i) $100,000 or (ii) 150% of the average dollar value of the trading volume of the Company’s stock, measured at the lowest price during the trading period, for the seven days prior to the purchase of shares by Crown Bridge. The purchase price of shares issued in respect of each put notice is 80% of the average of the three lowest trading prices in the seven trading days immediately preceding the date on which the Company exercises its put right. The Company is required to file a registration statement with the SEC on Form S-1 within 45 days of the date of the Equity Purchase Agreement covering the resale of shares to be issued under such agreement and to use its best efforts to cause the registration statement to become effective within 90 days of such date.
In connection with the Equity Purchase Agreement, the Company issued to Crown Bridge, as a commitment fee, an $80,000 convertible promissory note which matures on December 12, 2017. The note bears interest at a rate of 8% per annum. The Company is entitled to redeem the note at a redemption price of 125% plus accrued interest during the first 90 days after issuance. The redemption price then increases to 135% until the 120th day after issuance and then increases to 150% until the 180th day after issuance, after which the date the note may not be redeemed. If the note is not redeemed or the Company is otherwise in default, Crown Bridge may convert the unpaid balance into shares of the Company’s Class A common stock at a conversion price equal to the lesser of (i) the closing price of the Company’s Class A common stock on the issuance date of the note or (ii) 60% of the average of the three lowest trading prices during the 25-day period prior to the notice of conversion.
On July 7, 2017, the Company issued and delivered to JSJ a second 12% convertible note payable to JSJ in the principal amount of $125,000. The note was issued at a discount, resulting in the receipt of $118,750. The Company can redeem the note at any time prior to 90 days from the issuance date at a redemption price of 120% plus accrued interest. The redemption price thereafter increases to 125%, plus accrued interest, until the 120th day from issuance, and thereafter increases to a redemption price of 145% plus accrued interest until the 180th day after issuance and 150% plus accrued interest until the maturity date of March 30, 2018. The holder of the note, at its option, may convert the unpaid principal balance and accrued interest into shares of the Company’s Class A common stock at a price of no lower than $0.03 per share of common stock until the 180th day after issuance and thereafter at a price 40% discount from the lowest trading prices during the 20 days prior to conversion. The note also contains penalty provisions in the event of default in repayment of the note (if not converted by the holder into shares of common stock) on the maturity date of March 30, 2018. The Company agreed with JSJ to use any proceeds from draws on our prospective equity line of credit or sale of assets to first repay the note issued to JSJ in April 2017 and second to repay the July 7, 2017 note.
On September 7, 2017, the Company completed the funding of a 12% convertible note in the principal amount of $115,000 issued to Auctus Fund, LLC. The Company received $105,000 of note proceeds after payment of $10,000 of the fees and expenses of the lender and its counsel. The Company can redeem the note at any time prior to 90 days from the issuance date at a redemption price of 125% plus accrued interest. The redemption price thereafter increases to 135%, plus accrued interest, until the 180th day after issuance. The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a price equal to the lesser of (i) the lowest trading price during the previous 25 trading day period ending on the latest complete trading day prior to the date of the note and (ii) 55% of the average of the two lowest trading prices for the Company’s common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. The note also contains penalty provisions in the event of default in repayment of the note (if not converted by the holder into shares of common stock) on the maturity date of June 1, 2018.
On September 18, 2017, the Company completed the funding of a 12% convertible note in the principal amount of $123,500 issued to Power Up Lending Group Ltd (“Power Up”). The Company received $112,500 of note proceeds after payment of $11,000 of the fees and expenses of the lender and its counsel. The Company can redeem the note at any time prior to 30 days from the issuance date at a redemption price of 120% plus accrued interest. The redemption price thereafter increases by an additional 5% each 30 days thereafter until the 180th day after issuance (at which date the note cannot thereafter be prepaid). The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a price equal to 61% of the average of the two lowest trading prices for the Company’s common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date. The note also contains penalty provisions in the event of default in repayment of the note (if not converted by the holder into shares of common stock) on the maturity date of June 20, 2018.
Pursuant to a Convertible Note Purchase and Assignment Agreement dated October 16, 2017 Vista Capital Investments, LLC (“Vista”) purchased from JSJ the April 19, 2017 convertible note with a principal balance of $145,000 and $8,723 accrued interest payable. The Company issued a replacement convertible note to Vista dated October 16, 2017 in the principal amount of $153,723, maturing on April 19, 2017. No gain or loss was recognized on this transaction. A one-time 12% interest charge of $18,447 was added to the note principal. The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 40% discount from the lowest trading price during the 20 days prior to conversion. The Company may prepay the note at a 45% redemption premium during the first 90 days after issuance.
The long-term convertible note payable at October 31, 2017 is comprised of a convertible note issued to Vista by the Company on October 19, 2017 in the principal amount of $184,800, less discount of $181,003. The Company issued and delivered to Vista a convertible note in the original maximum principal amount of $550,000 (consisting of an initial advance of $165,000 on such date and possible future advances). The initial advance was issued at a discount, resulting in the receipt of $160,000, $65,000 of which was paid to JSJ as a prepayment penalty for the first JSJ note purchased by Vista. A one-time 12% interest charge of $19,800 was added to the note principal. The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 40% discount from the lowest trading price during the 25 days prior to conversion. The Company may prepay the note at a 45% redemption premium during the first 90 days after issuance. The maturity date for each advance is two years from the date of advance.
Accrued interest payable on convertible notes payable totaled $25,089 and $524 at October 31, 2017 and April 30, 2017, respectively.
The Company has identified the conversion feature of its convertible notes payable as a derivative and estimated the fair value of the derivative using a multinomial lattice model simulation and considering the existence of a tainted equity environment (see Note 10).
NOTE 9 – CONVERTIBLE PREFERRED STOCK
As of April 30, 2017, the Company had $137,500 face value of Armadillo Mining Corporation preferred stock issued in June 2011 to two unrelated parties, with accrued dividends payable of $350,539. The preferred stock carried a 25% cumulative dividend and had a mandatory redemption feature on December 31, 2011 at a price of $1.25 per share.
Effective June 19, 2017, the Company entered into agreements with the holders of the outstanding convertible preferred stock pursuant to which $137,500 principal, $359,957 accrued dividends payable and $4,571 derivative liabilities were extinguished through the issuance of a total of 24,750,000 shares of the Company’s Class A common stock, recognizing a gain on extinguishment of debt of $302,595.
In connection with the settlement of the preferred stock on June 19, 2017, the Company issued 11,250,000 shares of its Class A common stock to a non-related consultant. The shares were valued at $91,125, based on the closing market price of the stock on the date of issuance, and included in general and administrative expenses. No gain or loss was recorded on the settlement.
NOTE 10 – DERIVATIVE LIABILITIES
In a series of subscription agreements, the Company issued warrants that contain certain anti-dilution provisions that have been identified as derivatives. In addition, the Company identified the conversion feature of certain convertible notes payable and convertible preferred stock as derivatives. As of October 31, 2017, the number of warrants or common shares to be issued under these agreements is indeterminate; therefore, the Company concluded that the equity environment is tainted and all additional warrants and convertible debt are included in the value of the derivative.
The Company estimates 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 six months ended October 31, 2017, we had the following activity in our derivative liabilities:
|
|
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
Warrants
|
|
|
Notes
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2017
|
|
$
|
6,299,670
|
|
|
$
|
304,675
|
|
|
$
|
5,656
|
|
|
$
|
6,610,001
|
|
New issuances of debt
|
|
|
-
|
|
|
|
1,043,220
|
|
|
|
-
|
|
|
|
1,043,220
|
|
Debt conversions and warrant exercises
|
|
|
(1,906,006
|
)
|
|
|
-
|
|
|
|
(5,614
|
)
|
|
|
(1,911,620
|
)
|
Change in fair value of derivative liabilities
|
|
|
(3,982,685
|
)
|
|
|
30,173
|
|
|
|
(42
|
)
|
|
|
(3,952,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2017
|
|
$
|
410,979
|
|
|
$
|
1,378,068
|
|
|
$
|
-
|
|
|
$
|
1,789,047
|
|
Key inputs and assumptions used in valuing the Company’s derivative liabilities as of October 31, 2017 are as follows:
|
·
|
Stock prices on all measurement dates were based on the fair market value
|
|
·
|
Risk-free interest rates ranging from 1.38% – 1.721%
|
|
·
|
The probability of future financing was estimated at 100%
|
|
·
|
Computed volatility ranging from 114% to 118%
|
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.
NOTE 11 – ASSIGNMENT AND ASSUMPTION AGREEMENT
On September 1, 2016, the Company entered into a stock assignment agreement with LatAm Services, LLC (“LatAm”), whose members are officers and directors of the Company, pursuant to which LatAm acquired MCCH, a wholly owned subsidiary of the Company, and MCC and CC, majority owned subsidiaries of MCCH (see Note 1). On September 18, 2017, the Company, the members of LatAm and William B. Short (“Short”), an unrelated individual, entered into an Assignment and Assumption Agreement pursuant to which Short acquired the member interests in LatAm, thereby acquiring all the assets and assuming all the liabilities of MCCH, MCC and CC. Prior to the Assignment and Assumption Agreement with Short on September 18, 2017, the accounts of MCCH, MCC and CC were consolidated with those of the Company and its other subsidiaries. The following is a summary of the accounts purchased or assumed by Short (there was no book value to the assets):
Liabilities assumed:
|
|
|
|
Accounts payable
|
|
$
|
95,655
|
|
Accrued expenses
|
|
|
254,575
|
|
Note payable, currently in default
|
|
|
300,000
|
|
Total liabilities assumed
|
|
|
650,230
|
|
Additional paid- in capital
|
|
|
550,041
|
|
Total
|
|
|
1,200,271
|
|
Value of common shares issued
|
|
|
(110,000
|
)
|
|
|
|
|
|
Gain
|
|
$
|
1,090,271
|
|
Short agreed to assume all liabilities and hold the Company harmless from any and all liabilities (contingent or otherwise). In consideration therefor, the Company issued Short 10,000,000 shares of its Class A common stock, valued at $110,000, or $0.011 per share, equal to the market value of the stock on the date of the agreement, which amount was recorded as reduction in the gain recognized. With the acquisition of these subsidiaries by LatAm and subsequently by Short, MMEX has exited the Hunza coal project to focus on energy related projects under its new business plan.
NOTE 12 – STOCKHOLDERS’ DEFICIT
Authorized Shares
On March 31, 2017, the Company amended its articles of incorporation to provide for an increase in the authorized shares of common stock from 3,000,000,000 to 5,000,000,000 shares. In addition, the articles of incorporation were amended to provide for two classes of common shares: (i) Class A Shares, having one vote per share, and (ii) Class B Shares, with 10 votes per share. All of the currently outstanding shares of common stock were reclassified as Class A Shares, except that the common shares issued in the refinery transaction discussed in Note 6 were classified as Class B Shares. Other than the provisions of the voting rights, the two classes of shares of common stock will have equal terms and conditions.
Stock Issuances
During the six months ended October 31, 2017, the Company issued a total of 486,646,910 shares of its Class A common stock: 62,846,918 shares for common stock payable of $307,978; 29,250,000 shares for services valued at $337,125; 440,000 shares valued at $4,400 in payment of accrued expenses of $44,000 resulting in a gain on extinguishment of debt of $39,600; 353,359,992 shares in the cashless exercise of warrants and extinguishment of derivative liabilities of $1,906,006; 24,750,000 shares valued at $200,476 in the extinguishment of preferred stock of $137,500, accrued interest payable of $359,957 and derivative liabilities of $5,614 resulting in a gain on extinguishment of debt of $302,595 and 16,000,000 shares valued at $124,800 in the extinguishment of a convertible note payable of $120,000 and accrued interest payable of $119,365 resulting in a gain on extinguishment of debt of $114,565.
Stock Options
On March 7, 2012, the Company issued a total of 2,000,000 stock options exercisable at $0.35 per share for a period of ten years from the date of grant. The Company did not grant any stock options during the six months ended October 31, 2017.
A summary of stock option activity during the six months ended October 31, 2017 is presented below:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2017
|
|
|
2,000,000
|
|
|
$
|
0.35
|
|
|
|
4.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Canceled / Expired
|
|
|
(2,000,000
|
)
|
|
$
|
0.35
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, October 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Effective June 1, 2017, the holders of the options surrendered them to the Company and the options were cancelled.
Warrants
The Company has issued warrants 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 identified as derivatives. We estimate 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 existence of a tainted equity environment (see Note 10).
A summary of warrant activity during the six months ended October 31, 2017 is presented below:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2017
|
|
|
395,261,211
|
|
|
$
|
0.01
|
|
|
|
4.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
8,871,602
|
|
|
$
|
0.01
|
|
|
|
|
|
Canceled / Expired
|
|
|
(210,000
|
)
|
|
$
|
0.01
|
|
|
|
|
|
Exercised
|
|
|
(353,360,492
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, October 31, 2017
|
|
|
50,562,321
|
|
|
$
|
0.01
|
|
|
|
4.40
|
|
The warrant shares granted during the six months ended October 31, 2017 are comprised of warrant shares issued to warrant holders pursuant to anti-dilution provisions.
The 353,359,992 warrant shares exercised were pursuant to the cashless exercise of warrants and extinguishment of derivative liabilities of $1,906,006.
Common Stock Reserved
At October 31, 2017, 50,562,321 shares of the Company’s Class A common stock were reserved for issuance of outstanding warrants and 1,207,443,384 shares of the Company’s Class A common stock were reserved for convertible notes payable.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Legal
There were no legal proceedings against the Company.
NOTE 14 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, all subsequent events have been reported through the filing date as set forth below.
Subsequent to October 31, 2017, the Company issued a total of 118,484,723 shares of its Class A common stock in consideration for the conversion of note payable principal totaling $585,170 and accrued interest payable of $17,106.
On November 15, 2017, the Company issued and delivered to Power Up an 8% convertible note in the principal amount of $111,773. The note was issued at a discount, resulting in the Company’s receipt of $100,000. The holder of the note, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock (i) during the first 180 days, at a price of $.03 per share of common stock and (ii) thereafter at a 40% discount from the average of the three lowest trading price during the 25 days prior to conversion. The Company may prepay the note at a 18% redemption premium during the first 60 days after issuance, increasing to 25% after 120 days from issuance and 33% after 180 days from issuance. The note also contains penalty provisions in the event of our default in repayment of the note (if not converted by the holder into shares of common stock) on the maturity date of November 14, 2018.
On December 14, 2017, the Company received proceeds of $100,000 from a second advance
under
the Vista Capital Investments, LLC 12% convertible note, which as an original maximum principal amount of $550,000
. The terms of the second advance are the same as those for the initial advance, with a maturity date two years from the date of the advance.
On January 8, 2018,
our
board of directors agreed to amend the articles of incorporation
of the Company
to increase the number of authorized shares of Class A common stock from 3,000,000,000 to 10,000,000,000, subject to the required approval of the stockholders.
PART II — INFORMATION NOT REQUIRED IN THE PROSPECTUS