U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2021.
For the quarterly period ended June 30, 2022.
☐ | Transition Report under Section 13 or 15(d) of the Exchange Act |
For the Transition Period fromto |
For the Transition Period fromto
Commission File Number: 333-197642000-55586
Alpha Energy, Inc.
(Exact Name of Registrant as Specified in its Charter)
Colorado | 90-1020566 | ||
(State of other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
4162 Meyerwood Drive, Houston TX 77025
14143 Denver West Parkway, Suite 100,
Golden, CO 80401
(Address of principal executive offices) (Zip Code)
Registrant's Phone: 713-316-0061800-819-0604
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ||
☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
AsThe number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of August 3, 2021 the issuer had 18,280,428 shares of common stock issued and outstanding.18, 2022, was 18,824,106.
TABLE OF CONTENTS | Page | |
PART I – FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operation | 13 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 15 |
Item 4. | Controls and Procedures | 15 |
PART II – OTHER INFORMATION | ||
Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Mine Safety Disclosures |
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Item 5. | Other Information |
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Item 6. | Exhibits |
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ITEM 1. FINANCIAL STATEMENTS
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Page(s) | |
Consolidated Balance Sheets (unaudited) | 4 |
Consolidated Statements of Operations (unaudited) | 5 |
Consolidated Statements of | 6 |
Consolidated Statements of Cash Flows (unaudited) | 7 |
Notes to the Consolidated Financial Statements (unaudited) | 8 |
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(Unaudited) |
June 30, 2021 | December 31, 2020 | June 30, 2022 | December 31, 2021 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 124 | $ | 0 | $ | 1,092,748 | $ | 217 | ||||||||
Joint interest billing receivable | 7,890 | 0 | ||||||||||||||
Prepaid assets and other current assets | 5,000 | 30,000 | 25,000 | 23,750 | ||||||||||||
Total current assets | 5,124 | 30,000 | 1,125,638 | 23,967 | ||||||||||||
Noncurrent assets: | ||||||||||||||||
Oil and gas property, unproved, full cost | 90,000 | 70,000 | 902,089 | 145,791 | ||||||||||||
Total assets | $ | 95,124 | $ | 100,000 | $ | 2,027,727 | $ | 169,758 | ||||||||
Liabilities and Stockholders' Deficit | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 425,930 | $ | 585,732 | $ | 393,681 | $ | 270,250 | ||||||||
Accounts payable and accrued expenses - related parties | 176,079 | 120,568 | 203,484 | 228,668 | ||||||||||||
Interest payable | 60,294 | 31,295 | 79,248 | 77,563 | ||||||||||||
Short term advances from related parties | 484,344 | 181,000 | ||||||||||||||
Short term note payable | 1,210,000 | 1,160,000 | ||||||||||||||
Advances from related parties | 0 | 628,550 | ||||||||||||||
Note payable - related party | 0 | 65,000 | ||||||||||||||
Subscription liability | 1,761,570 | 0 | ||||||||||||||
Derivative liability | 101,468 | 96,369 | 341,306 | 145,041 | ||||||||||||
Convertible note payable | 1,210,000 | 1,210,000 | ||||||||||||||
Total current liabilities | 2,458,115 | 2,174,964 | 3,989,289 | 2,625,072 | ||||||||||||
Convertible credit line payable – related party, net of discount of $0 and $2,754, respectively | 148,328 | 145,574 | ||||||||||||||
Convertible credit line payable – related party, net of discount of $7,856 and $11,100, respectively | 160,472 | 157,228 | ||||||||||||||
Senior secured convertible notes payable, related party, net of discount of $172,778 | 1,147,181 | 0 | ||||||||||||||
Asset retirement obligation | 900 | 862 | 918 | 918 | ||||||||||||
Total liabilities | 2,607,343 | 2,321,400 | 5,297,860 | 2,783,218 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders' deficit: | ||||||||||||||||
Preferred stock, 10,000,000 shares authorized: | ||||||||||||||||
Series A convertible preferred stock, $0.001 par value, 2,000,000 shares authorized and 0 shares issued and outstanding | 0 | 0 | ||||||||||||||
Common stock, $0.001 par value, 65,000,000 shares authorized and 18,351,428 and 18,145,428 shares issued and outstanding, respectively | 18,351 | 18,145 | ||||||||||||||
Series A convertible preferred stock, $0.001 par value, 2,000,000 shares authorized and 0 shares issued and outstanding | 0 | 0 | ||||||||||||||
Common stock, $0.001 par value, 65,000,000 shares authorized and 18,824,106 shares issued and outstanding | 18,824 | 18,824 | ||||||||||||||
Additional paid-in capital | 2,267,429 | 2,061,635 | 2,853,634 | 2,739,634 | ||||||||||||
Accumulated deficit | (4,797,999 | ) | (4,301,180 | ) | (6,142,591 | ) | (5,371,918 | ) | ||||||||
Total stockholders' deficit | (2,512,219 | ) | (2,221,400 | ) | (3,270,133 | ) | (2,613,460 | ) | ||||||||
Total liabilities and stockholders' deficit | $ | 95,124 | $ | 100,000 | $ | 2,027,727 | $ | 169,758 |
See accompanying notes to the unaudited consolidated financial statements. |
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For the three and six months ended June 30, 2022 and 2021 | |||||||||
(Unaudited) |
Three months ended | Six months ended | |||||||||||||||||||||||||||||||
June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||
Oil and gas sales | $ | 0 | $ | 871 | $ | 0 | $ | 1,217 | $ | 5,239 | $ | 0 | $ | 5,239 | $ | 0 | ||||||||||||||||
Lease operating expenses | 0 | 1,290 | 0 | 2,218 | 47,558 | 0 | 49,434 | 0 | ||||||||||||||||||||||||
Gross loss | 0 | (419 | ) | 0 | (1,001 | ) | (42,319 | ) | 0 | (44,195 | ) | 0 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Professional services | 35,643 | 15,633 | 47,562 | 15,633 | 61,005 | 35,643 | 209,693 | 47,562 | ||||||||||||||||||||||||
Board of director fees | 48,000 | 48,000 | 96,000 | 96,000 | 36,000 | 48,000 | 84,000 | 96,000 | ||||||||||||||||||||||||
General and administrative | 129,318 | 78,695 | 358,821 | 161,996 | 215,264 | 129,318 | 364,594 | 358,821 | ||||||||||||||||||||||||
Gain on settlement of accounts payable | 0 | 0 | (120,250 | ) | 0 | 0 | 0 | 0 | (120,250 | ) | ||||||||||||||||||||||
Total operating expenses | 212,961 | 142,328 | 382,133 | 273,629 | 312,269 | 212,961 | 658,287 | 382,133 | ||||||||||||||||||||||||
Loss from operations | (212,961 | ) | (142,747 | ) | (382,133 | ) | (274,630 | ) | (354,588 | ) | (212,961 | ) | (702,482 | ) | (382,133 | ) | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest expense | (35,675 | ) | (10,898 | ) | (109,587 | ) | (23,379 | ) | (54,916 | ) | (35,675 | ) | (80,402 | ) | (109,587 | ) | ||||||||||||||||
Gain on extinguishment of debt | 0 | 10,750 | 0 | 10,750 | ||||||||||||||||||||||||||||
Gain (loss) on change in fair value of derivative liabilities | (18,403 | ) | 10,825 | (5,099 | ) | 49,874 | 14,969 | (18,403 | ) | 12,211 | (5,099 | ) | ||||||||||||||||||||
Total other income (expense) | (54,078 | ) | 10,677 | (114,686 | ) | 37,245 | (39,947 | ) | (54,078 | ) | (68,191 | ) | (114,686 | ) | ||||||||||||||||||
Net loss | $ | (267,039 | ) | $ | (132,070 | ) | $ | (496,819 | ) | $ | (237,385 | ) | $ | (394,535 | ) | $ | (267,039 | ) | $ | (770,673 | ) | $ | (496,819 | ) | ||||||||
Loss per share: | ||||||||||||||||||||||||||||||||
Basic | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||||||
Diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 18,309,939 | 17,910,296 | 18,249,450 | 17,881,087 | 18,824,106 | 18,309,939 | 18,824,106 | 18,249,450 | ||||||||||||||||||||||||
Diluted | 18,309,939 | 18,039,624 | 18,249,450 | 18,010,415 | 19,256,426 | 18,309,939 | 19,256,426 | 18,249,450 |
See accompanying notes to the unaudited consolidated financial statements. |
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(Unaudited) |
Common Stock | Additional | Accumulated | Total Stockholders' | Common Stock | Additional | Accumulated | Total Stockholders' | |||||||||||||||||||||||||||||||||
Shares | Amount | Paid-in Capital | Deficit | Deficit | Shares | Amount | Paid-in Capital | Deficit | Deficit | |||||||||||||||||||||||||||||||
Balance, December 31, 2019 | 17,822,428 | $ | 17,822 | $ | 1,738,958 | $ | (2,314,202 | ) | $ | (557,422 | ) | |||||||||||||||||||||||||||||
Stock issued for cash | 18,000 | 18 | 17,982 | 0 | 18,000 | |||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 18,824,106 | $ | 18,824 | $ | 2,739,634 | $ | (5,371,918 | ) | $ | (2,613,460 | ) | |||||||||||||||||||||||||||||
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Stock-based compensation | 48,000 | 48 | 47,952 | 0 | 48,000 | 0 | 0 | 63,000 | 0 | 63,000 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | 0 | (105,315 | ) | (105,315 | ) | - | 0 | 0 | (376,138 | ) | (376,138 | ) | ||||||||||||||||||||||||||
Balance, March 31, 2020 | 17,888,428 | 17,888 | 1,804,892 | (2,419,517 | ) | (596,737 | ) | |||||||||||||||||||||||||||||||||
Stock issued for cash | 52,000 | 52 | 51,948 | 0 | 52,000 | |||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 18,824,106 | 18,824 | 2,802,634 | (5,748,056 | ) | (2,926,598 | ) | |||||||||||||||||||||||||||||||||
Stock-based compensation | 48,000 | 48 | 47,952 | 0 | 48,000 | 0 | 0 | 51,000 | 0 | 51,000 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | 0 | (132,070 | ) | (132,070 | ) | - | 0 | 0 | (394,535 | ) | (394,535 | ) | ||||||||||||||||||||||||||
Balance, June 30, 2020 | 17,988,428 | $ | 17,988 | $ | 1,904,792 | $ | (2,551,587 | ) | $ | (628,807 | ) | |||||||||||||||||||||||||||||
Balance, June 30, 2022 | 18,824,106 | $ | 18,824 | $ | 2,853,634 | $ | (6,142,591 | ) | $ | (3,270,133 | ) | |||||||||||||||||||||||||||||
Balance, December 31, 2020 | 18,145,428 | $ | 18,145 | $ | 2,061,635 | $ | (4,301,180 | ) | $ | (2,221,400 | ) | 18,145,428 | $ | 18,145 | $ | 2,061,635 | $ | (4,301,180 | ) | $ | (2,221,400 | ) | ||||||||||||||||||
Stock issued for settlement of accounts payable | 90,000 | 90 | 89,910 | 0 | 90,000 | |||||||||||||||||||||||||||||||||||
Stock issued for settlement of liabilities | 90,000 | 90 | 89,910 | 0 | 90,000 | |||||||||||||||||||||||||||||||||||
Stock-based compensation | 48,000 | 48 | 47,952 | 0 | 48,000 | 48,000 | 48 | 47,952 | 0 | 48,000 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | 0 | (229,780 | ) | (229,780 | ) | - | 0 | 0 | (229,780 | ) | (229,780 | ) | ||||||||||||||||||||||||||
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Balance, March 31, 2021 | 18,283,428 | 18,283 | 2,199,497 | (4,530,960 | ) | (2,313,180 | ) | 18,283,428 | 18,283 | 2,199,497 | (4,530,960 | ) | (2,313,180 | ) | ||||||||||||||||||||||||||
Stock issued for cash | 5,000 | 5 | 4,995 | 0 | 5,000 | 5,000 | 5 | 4,995 | 0 | 5,000 | ||||||||||||||||||||||||||||||
Stock-based compensation | 63,000 | 63 | 62,937 | 0 | 63,000 | 63,000 | 63 | 62,937 | 0 | 63,000 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | 0 | (267,039 | ) | (267,039 | ) | - | 0 | 0 | (267,039 | ) | (267,039 | ) | ||||||||||||||||||||||||||
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Balance, June 30, 2021 | 18,351,428 | $ | 18,351 | $ | 2,267,429 | $ | (4,797,999 | ) | $ | (2,512,219 | ) | 18,351,428 | $ | 18,351 | $ | 2,267,429 | $ | (4,797,999 | ) | $ | (2,512,219 | ) |
See accompanying notes to the unaudited consolidated financial statements. |
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(Unaudited) |
June 30, 2021 | June 30, 2020 | June 30, 2022 | June 30, 2021 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss | $ | (496,819 | ) | $ | (237,385 | ) | $ | (770,673 | ) | $ | (496,819 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Stock-based compensation | 111,000 | 96,000 | 114,000 | 111,000 | ||||||||||||
Amortization of debt discount | 2,754 | 10,179 | 38,942 | 2,754 | ||||||||||||
(Gain) loss on change in fair value of derivative liabilities | 5,099 | (49,874 | ) | (12,211 | ) | 5,099 | ||||||||||
Gain on extinguishment of debt | 0 | (10,750 | ) | |||||||||||||
Gain on settlement of accounts payable | (120,250 | ) | 0 | 0 | (120,250 | ) | ||||||||||
Write off of option contract associated with oil and gas properties | 85,500 | 0 | 0 | 85,500 | ||||||||||||
Asset retirement obligation expense | 38 | 38 | 0 | 38 | ||||||||||||
Default interest added to note payable | 50,000 | 0 | 0 | 50,000 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (7,890 | ) | 0 | |||||||||||||
Prepaid expenses and other current assets | 25,000 | 0 | (1,250 | ) | 25,000 | |||||||||||
Accounts payable | 63,692 | 106,477 | 111,332 | 63,692 | ||||||||||||
Accounts payable-related party | 55,511 | 9,508 | (13,085 | ) | 55,511 | |||||||||||
Interest payable | 28,999 | 13,200 | 17,863 | 28,999 | ||||||||||||
Net cash used in operating activities | (189,476 | ) | (62,607 | ) | (522,972 | ) | (189,476 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Acquisition of oil and gas property | (756,298 | ) | 0 | |||||||||||||
Deposits for purchase of oil and gas properties | (40,000 | ) | 0 | 0 | (40,000 | ) | ||||||||||
Net cash used in investing activities | (40,000 | ) | 0 | (756,298 | ) | (40,000 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||||
Payment on convertible credit line payable - related party | 0 | (4,250 | ) | |||||||||||||
Proceeds from convertible credit line payable - related party | 0 | 3,000 | ||||||||||||||
Advances from related parties | 224,600 | 0 | 110,235 | 159,600 | ||||||||||||
Payments on short term advances - related parties | 0 | (856 | ) | |||||||||||||
Proceeds from sale of common stock | 5,000 | 70,000 | ||||||||||||||
Proceeds from note payable, related party | 0 | 65,000 | ||||||||||||||
Proceeds from senior secured convertible notes payable, related party | 499,996 | 0 | ||||||||||||||
Proceeds from the sale of common stock | 0 | 5,000 | ||||||||||||||
Proceeds from unexecuted subscription agreements | 1,761,570 | 0 | ||||||||||||||
Net cash provided by financing activities | 229,600 | 67,894 | 2,371,801 | 229,600 | ||||||||||||
Net change in cash and cash equivalents | 124 | 5,287 | 1,092,531 | 124 | ||||||||||||
Cash and cash equivalents, at beginning of period | 0 | 0 | 217 | 0 | ||||||||||||
Cash and cash equivalents, at end of period | $ | 124 | $ | 5,287 | $ | 1,092,748 | $ | 124 | ||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash paid for interest | $ | 27,834 | $ | 0 | $ | 23,596 | $ | 27,834 | ||||||||
Cash paid for income taxes | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||||||
Expenses paid on behalf of the Company by related party | $ | 13,244 | $ | 459 | $ | 0 | $ | 13,244 | ||||||||
Oil and gas payments made by related party on behalf of the Company | $ | 65,500 | $ | 1,010,000 | $ | 0 | $ | 65,500 | ||||||||
Stock issued for settlement of accounts payable | $ | 90,000 | $ | 0 | $ | 0 | $ | 90,000 | ||||||||
Accrued interest added to note principal | $ | 0 | $ | 10,000 | ||||||||||||
Debt discount from derivative liability | $ | 0 | $ | 365 | ||||||||||||
Debt discount on senior secured convertible notes payable - related party | $ | 208,476 | $ | 0 | ||||||||||||
Advances and other liabilities converted to senior secured convertible notes payable, related party | $ | 819,963 | $ | 0 |
See accompanying notes to the unaudited consolidated financial statements. |
ALPHA ENERGY, INC.Alpha Energy, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 20202021 and 20192020 which are included on the Form 10-K filed on April 29, 2021.4, 2022. In the opinion of management, all adjustments which include normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows for the periods shown have been reflected herein. The results of operations for the three and six months ended June 30, 20212022 are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the years ended December 31, 20202021, and 20192020 have been omitted.
Principles of Consolidation
Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Alpha Energy Texas Operating, LLC. All intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.
Basic and Diluted Loss per share
Net loss per share is provided in accordance with FASB ASC 260-10, "Earnings“Earnings (Loss) per Share"Share”. Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. For the three and six months ended June 30, 2022 and 2021,there were 263,992 and 0 shares issuable from the senior secured convertible notes payable and 168,328 and 148,328 shares issuable from the convertible credit line payable which were considered for their dilutive effects but concludedwere determined to be anti-dilutive. Foranti-dilutive due to the three and six months ended June 30, 2020, there were 129,328 shares issuable from convertible credit line payable which were considered for their dilutive effect.Company’s net loss, respectively.
The reconciliation of basic and diluted loss per share is as follows:
Three months ended | Six months ended | Three months ended | Six months ended | |||||||||||||||||||||||||||||
June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||
Basic net loss | $ | (267,039 | ) | $ | (132,070 | ) | $ | (496,819 | ) | $ | (237,385 | ) | $ | (394,535 | ) | $ | (267,039 | ) | $ | (770,673 | ) | $ | (496,819 | ) | ||||||||
Add back: Gain on change in fair value of derivative liabilities | 0 | (10,825 | ) | 0 | (49,874 | ) | ||||||||||||||||||||||||||
Add back: (Gain) loss on change in fair value of derivative liabilities | (14,969 | ) | 18,403 | (12,211 | ) | 5,099 | ||||||||||||||||||||||||||
Diluted net loss | $ | (267,039 | ) | $ | (142,895 | ) | $ | (496,819 | ) | $ | (287,259 | ) | $ | (409,504 | ) | $ | (248,636 | ) | $ | (782,884 | ) | $ | (491,720 | ) | ||||||||
Basic and dilutive shares: | ||||||||||||||||||||||||||||||||
Weighted average basic shares outstanding | 18,309,939 | 17,910,296 | 18,249,450 | 17,881,087 | 18,824,106 | 18,309,939 | 18,824,106 | 18,249,450 | ||||||||||||||||||||||||
Shares issuable from convertible credit line payable | 0 | 129,328 | 0 | 129,328 | 168,328 | 0 | 168,328 | 0 | ||||||||||||||||||||||||
Shares issuable from senior secured convertible notes payable | 263,992 | 0 | 263,992 | 0 | ||||||||||||||||||||||||||||
Dilutive shares | 18,309,939 | 18,039,624 | 18,249,450 | 18,010,415 | 19,256,426 | 18,309,939 | 19,256,426 | 18,249,450 | ||||||||||||||||||||||||
Loss per share: | ||||||||||||||||||||||||||||||||
Basic | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||||||
Diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) |
Fair Value of Financial Instruments
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
The carrying amount of the Company’s financial instruments consisting of cash and cash equivalents, accounts payable, notes payable and convertible notes approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Reclassification
Certain reclassifications may have been made to our prior year’s financial statements to conform to our current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.
Recently Issued Accounting Standards Not Yet Adopted
The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that there are no recently issued accounting pronouncements that will have a significant effect on its financial statements.
Reclassification
Certain reclassifications may have been made to our prior year’s financial statements to conform to our current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.
NOTE 2 – GOING CONCERN
The Company’s interim unaudited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company does not have anyhas minimal cash or other current assets norand does itnot have an established ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – OIL AND GAS PROPERTIES
On September 8,June 30, 2020, the Company entered into an Optionoption Agreement with Kadence Petroleum, LLC.Progressive Well Service, LLC (“Kadence”Progressive”) to acquire oil and gas assets in Lincoln and Logan CountyCounties in Central Oklahoma, called Oklahoma. On March 9, 2022, the “LoganCompany closed on the acquisition of 34 well bores and related assets under the PSA with cash payments of $726,298. The Company is entitled to receive the proceeds of production from 2January 1, 2022 Project” inunder the Agreement. During due diligence it was discovered that Kadence did not have titleterms of the PSA and Progressive is required to operate the properties inand transfer ownership and royalty decks to Company following a one-month transition period. Under the agreement. The Company had advanced $85,500 in option payments through June 30, 2021. The agreement is cancelled, and the Company wrote off the $85,500 asPSA we are obligated to make a further payment of June 30, 2021.three (3%) percent of the net revenue from new wells drilled until Progressive receives an additional $350,000.
The Company entered into a Letter of Intent with Chicorica, LLC on December 13, 2018 and extended the agreement through March 4, 2022. On March 1, 2022, the Company entered into an extension agreement with Chicorica to extend the Closing through August 5, 2022. In return, the Company must pay $30,000 by April 1, 2022, $35,000 by July 8, 2022 and $30,000 by August 5, 2022. During the six months ended June 30, 2021,2022, the Company paid $70,000 in Option Payments$30,000 related to Progressive Well Services in connection with its Option Agreement dated June 30, 2020 to acquire oil and gas assets in Logan County, Oklahoma. The Option Agreement has been extended to August 31, 2021.
the extension agreement.
NOTE 4 – RELATED PARTY TRANSACTIONS
Advances from Related Party
The Company received advances from related partiesAEI Management, Inc., a Company owned by a significant shareholder, totaling $224,600$88,956 and $0$133,844 during the six months ended June 30, 20212022 and 2020,2021, respectively. The advances from related parties are not convertible, bear no interestunsecured, non-interest bearing and are duepayable on demand. During the six months ended June 30, 2021,2022, the Company repaid $10,000 of the advances and converted $413,206 of advances to a related party paid $13,244 of expenses on behalfsenior secured convertible note due February 24, 2024.
The Company received advances from Jay Leaver, President of the Company, totaling $31,280 and $65,500 for unpaid oil $104,500 during the six months ended June 30, 2022 and gas assets acquired. 2021, respectively. The advances are unsecured, non-interest bearing and is payable on demand. During the six months ended June 30, 2022, the Company converted $325,580 of advances to a senior secured convertible note due February 24, 2024.
As of June 30, 2021,2022 and December 31, 2020,2021, there was $484,344$0 and $181,000$628,550 of short-term advances due to related parties, respectively.
Accounts Payable and Accrued Expenses - Related Parties
As of June 30, 20212022, andthere was $203,484 of accounts payable related parties which consisted of $203,484 due to Leaverite Exploration, Inc. d/b/a Leaverite Consulting (“Leaverite Exploration”), a corporation wholly-owned by our President, Jay Leaver pursuant to a consulting agreement.
As of December 31, 2020,2021, there was $176,079 and $120,568$228,668 of accounts payable $170,985related parties which consisted of $203,484 due to Leaverite Exploration, for Interim President Jay Leaver, $5,094$4,394 due to former CFO John Lepin, in accrued expenses$10,000 due Kelloff Oil &Gas, LLC, a limited liability company and $110,904$5,790 due Leaverite Exploration for Interim President Jay Leaver, $3,884 due CFO John Lepin in accrued expenses, $5,780to Staley Engineering LLC for consulting Services due to related parties, respectively.services.
Notes Payable - Related Party
On December 3, 2020, the Company executed a promissory note for $65,000 with the Jay Leaver, our President. The Chief Financial Officer allows unsecured note matured three years from date of issuance and bore interest at a rate of 5% per annum. As of December 31, 2021, the usenote payable had unpaid accrued interest in the amount of $13,003. On February 23, 2022, the promissory note was amended to a principal amount of $406,750, which includes the original $65,000 plus additional advances of $325,580, and accrued interest of $16,170. An additional $110,235 was advanced during the six months ended June 30, 2022 maturing February 23, 2025. In February 2022, Mr. Leaver advanced an additional $500,000 to the Company. On February 25, 2022, Mr. Leaver’s $406,750 promissory note and $500,000 advance were assigned to 20 Shekels, Inc, a corporation wholly-owned by Marshwiggle, LLC, a limited liability company jointly owned by Mr. Leaver and his residence as an officespouse and on February 25, 2022 the Company issued $906,750 of its secured senior secured convertible notes due February 24, 2024, bearing interest at a rate of 7.25% per annum (the “7.25% Note”) in exchange for the Companyprior obligations. The 7.25% Note is convertible into shares of the Company’s Common Stock at $5.00 per share. See Note no7 charge.
– Senior Secured Convertible Notes Payable.
NOTE 5 – COMMON STOCK
The Company is authorized to issue up to75,000,000 shares of its capital stock, consisting of 10,000,000 shares of $0.001preferred stock, par value preferred stock$0.001 per share, and 65,000,000 shares of $0.001common stock, par value common stock.$0.001 per share.
The Company compensates each of its directors with 4,000 shares of common stock each month. During the six months ended June 30, 20212022, and 2020,the Company recorded stock compensation of $84,000 for directors which was recorded in additional paid in capital, but has not recorded the share compensation as issued 96,000 sharesand outstanding as of common stock valued at $96,000.
the date hereof
During the six months ended June 30, 2021,2022, the Company issued 90,000 sharesrecorded stock compensation in the amount of common stock with a fair value of $90,000 to settle accounts payable of $210,250. The Company recognized a gain of $120,250 on settlement of accounts payable.$30,000 for Kelloff Oil & Gas, LLC.
During the six months ended June 30, 2021 and 2020, the Company sold 5,000 and 70,000 shares of the common stock for total proceeds of $5,000 and $70,000, respectively.
On April 1, 2021,2022, the Company entered into a month-to-month consulting agreement with Kelloff Oil & Gas, LLC for consulting services that includesreceived cash compensationproceeds of $10,000 and the issuance of 5,000 shares of$1,761,570 from investor subscriptions to purchase common stock at a purchase price of $1.00 per month. The Company may terminate the agreement at any withshare recorded as a ten-day notice. During the six months ended June 30, 2021, the Company issued 15,000 common shares and recognized $15,000 of stock-based compensation related to the agreement.current liability.
NOTE 6 – NOTE PAYABLE
On March 30, 2019, the Company executed a promissory note for $50,000 to ZQH (75%) and Pure (25%). The due date of the note is April 30, 2019 and has an interest rate of $50 per day. The note is for an escrow payment made directly to Premier Gas Company, LLC to hold the Purchase and Sale Agreement dated January 29, 2019. The note is secured by 50,000 shares of the Company’s common stock at $1 per share. On June 25, 2020, the Company entered into a Purchase and Sale Agreement with Pure and ZQH to acquire oil and gas assets in Oklahoma in consideration of a purchase price of $1,000,000. In connection with the purchase, the $50,000 note and accrued interest of $10,000 was added to the purchase price resulting in a total note payable balance of $1,060,000. During the year ended December 31, 2020, $10,750 of accrued interest which was previously outstanding was discharged and recorded as a gain on extinguishment of debt. The note payable of $1,060,000 was due to be paid on or before July 31, 2020 but remains outstanding to date. The balance of the note will increase by $50,000 per month thereafter up to a maximum amount of $200,000 through December 1, 2020. As of December 31, 2020, the Company recognized $200,000 of default interest that was added to the principal and made payments of $100,000 for a total payable of $1,160,000. If the purchase price is not fully paid on or before December 1, 2020, ZQH and Pure have the option to convert the balance outstanding into the Company’s common stock at a conversion price of $1.00 per share and the note will also be subject to a monthly interest of 1%. During the six months ended June 30, 2021, the Company recognized $50,000 of default interest that was added to the principal of the note payable. As of June 30, 2021, the note payable balance was $1,210,000 with accrued interest of $60,294. The Company, Pure, and ZQH have entered into various Extension Agreements, the current one of which is dated March 28th,2021 (the “Extension Agreement”). The Extension Agreement prevents Pure and ZQH from taking stock rather than cash through June 1, 2021, in return for which Company makes a monthly interest payment to ZQH and Pure of $10,083, which represents 1% annual interest on the Purchase Price, compounded monthly. The Extension Agreement allows the Company to extend that period beyond June 1, 2021 under similar terms. No further Extension Agreement has been entered into.
NOTE 7–CONVERTIBLE CREDIT LINE PAYABLE AND SENIOR SECURED CONVERTIBLE NOTES PAYABLE – RELATED PARTY
On September 1, 2017, the Company entered into a convertible credit line agreement to borrow up to $500,000. On the same date, the outstanding balance on a note payable of $87,366 was exchanged as a draw on the credit line. The loan modification is considered substantial under ASC 470-50. The outstanding balance accrues interest at a rate of 7% per annum and the outstanding balance is convertible to common stock of the Company at the lesser of the close price of the common stock as quoted on the OTCBB on the day interest is due and payable immediately preceding the conversion or $1.50. The Company analyzed the conversion options in the convertible line of credit for derivative accounting consideration under ASC 815, Derivative and Hedging, and determined that the transaction does qualify for derivative treatment. The Company measured the derivative liability and recorded a debt discount of $87,366 upon initial measurement. In 2019, the Company recognized an additional debt discount of $7,568. During the six months ended June 30, 2021 and 2020, the Company amortized $2,754 and $10,179 of the discount as interest expense, respectively. As of June 30, 2021 and December 31, 2020, the unamortized discount was $0 and $2,754, respectively. See discussion of derivative liability in Note 8 – Derivative Liability.Convertible Credit Line Payable
On June 1, 2021, the Company entered into a new convertible credit line agreement to borrow up to $1,500,000. The new convertible line agreement supersedes the original note dated$1,500,000 and matures on SeptemberJune 1, 2017.2023. The outstanding balance accrues interest at a rate of 7% per annum and the outstanding balance is convertible to common stock of the Company at the lesser of the close price of the common stock as quoted on the OTCBB on the day interest is due and payable immediately preceding the conversion or $4.00. The Company analyzed the conversion optionsoption in the convertible line of credit for derivative accounting consideration under ASC 815, Derivative and Hedging, and determined that the transaction does qualify for derivative treatment.
The Company evaluated the new convertible credit line for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt modification as the borrowing capacity under the new credit line is greater than the borrowing capacity under the original credit line. There were no fees paid to the creditor and no unamortized deferred costs on the original credit line. Accordingly, no expense was recognized in connection with the transaction. On August 8, 2021, the Company received $20,000 in cash proceeds from the credit line. During the six months ended June 30, 20212022, the Company amortized $3,244 of the discount as interest expense. As of June 30, 2022, and 2020,December 31, 2021, the Company recorded $0unamortized discount was $7,856 and $4,250 in cash payment to the$11,100, respectively. The outstanding principal balance on the convertible credit line respectively.as of June 30, 2022 and December 31, 2021 amounted to $168,328. See discussion of derivative liability in Note 8 – Derivative Liability.
Senior Secured Convertible Notes Payable
On February 25, 2022, the Company entered into secured senior secured convertible note for the purchase and sale of convertible promissory notes (“Convertible Note”) in the principal amount of $5,000,000. The Senior Convertible Note is convertible at any time after the date of issuance into shares of the Company’s common stock at a fixed conversion price of $5.00 per share. Upon conversion of the convertible note into the Company’s common stock, the noteholder would be issued 1,000,000 shares of the Company’s common stock. Interest on the Convertible Note shall be paid to the investors at a rate of 7.25% per annum, paid on a quarterly basis, and the maturity date of the Convertible Note is two years after the issuance date. The Convertible Note purports to be secured by certain oil and gas leases, lands, minerals and other properties of the Company, subject to prior liens and security interests. See Note 4 – Related Party Transactions. $413,206 from a related party were exchanged for a Convertible Note. Due to the variable conversion price in the convertible credit line, this fixed senior secured convertible note is treated as derivatives due to possibility of insufficient shares available at conversion to settle the notes. The day one derivative liability was $65,262, which was recorded as a discount on the senior secured convertible notes payable. During the six months ended June 30, 2022, the Company amortized $11,175 of the discount as interest expense. As of June 30, 2022, the unamortized discount was $54,087. The outstanding principal balance on the convertible credit line as of June 30, 2022 amounted to $413,206. See discussion of derivative liability in Note 8 – Derivative Liability.
On February 25, 2022, Mr. Leaver assigned a $406,750 promissory note and advances of $500,000 to 20 Shekels, an affiliated Company. On the same day, the assigned promissory note and advance totaling $906,750 were transferred into a secured senior secured convertible note. The convertible note bears interest at 7.25% and matures on February 25, 2024. The note is convertible into shares of the Company at $5.00 per share. Due to the variable convertible credit line, this fixed senior secured convertible note are treated as derivatives due to possibility of insufficient shares available at conversion to settle the notes. The day one derivative liability was $143,214, which was recorded as a discount on the senior secured convertible notes payable. During the six months ended June 30, 2022, the Company amortized $24,523 of the discount as interest expense. As of June 30, 2022, the unamortized discount was $118,691. The outstanding principal balance on the convertible credit line as of June 30, 2022 amounted to $906,753. See discussion of derivative liability in Note 8 – Derivative Liability.
As of June 30, 2022, the senior secured convertible notes payable balance, net of discount was $1,147,181 with accrued interest of $8,878.
NOTE 87 – DERIVATIVE LIABILITY
As discussed in Note 1, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s financial liabilities, measured at fair value on a recurring basis, as of June 30, 20212022 and December 31, 2020:2021:
Level 1 | Level 2 | Level 3 | Fair Value at June 30, 2021 | Level 1 | Level 2 | Level 3 | Fair Value at June 30, 2022 | |||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Derivative liability | $ | 0 | $ | 0 | $ | 101,468 | $ | 101,468 | $ | 0 | $ | 0 | $ | 341,306 | $ | 341,306 |
Level 1 | Level 2 | Level 3 | Fair Value at December 31, 2020 | |||||||||||||
Liabilities: | ||||||||||||||||
Derivative liability | $ | 0 | $ | 0 | $ | 96,369 | $ | 96,369 |
Level 1 | Level 2 | Level 3 | Fair Value at December 31, 2021 | |||||||||||||
Liabilities: | ||||||||||||||||
Derivative liability | $ | 0 | $ | 0 | $ | 145,041 | $ | 145,041 |
Utilizing Level 3 Inputs, the Company recorded a lossgain on fair market value adjustments related to convertible credit line payable and senior secured notes payable for the six months ended June 30, 20212022 of $5,099.$12,211. The fair market value adjustments as of June 30, 20212022 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.00 - $5.00, computed volatility of 145% and 37%247% - 274% and discount rate of 0.25% and 0.16%, respectively.2.80% - 2.92%.
A summary of the activity of the derivative liability is shown below at June 30, 2021:2022:
Balance at December 31, 2020 | $ | 96,369 | ||
Loss on change in derivative fair value adjustment | 5,099 | |||
Balance at June 30, 2021 | $ | 101,468 |
Balance at December 31, 2021 | $ | 145,041 | ||
Debt discount on senior secured notes payable | 208,476 | |||
Gain on change in derivative fair value adjustment | (12,211 | ) | ||
Balance at June 30, 2022 | $ | 341,306 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-QThe discussion and analysis below includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Allcertain forward-looking statements other than statements of historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); finding suitable merger or acquisition candidates; expansion and growth of the Company's business and operations; and other such mattersthat are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks, and uncertainties including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyondas described in “Risk Factors” in our Annual Report on Form 10-K for the control of the Company.
These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this Filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition oryear ended December 31, 2021, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for its limited history; (ii) the Company's businessthis fiscal year and growth strategies; and, (iii) the Company's financing plans. Investors are cautionedperiods that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results mayfollow to differ materially from those projectedexpressed in theor implied by those forward-looking statements. Readers are cautioned that forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to,contained in this Quarterly Report on Form 10-Q should be read in conjunction with our disclosure under the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.heading “Disclosure Regarding Forward-Looking Statements” below.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
General Business Development
The Company was formed on September 26, 2013 in the State of Colorado.
Business Strategy
The Company was incorporated in September 2013. Our business model is to purchase or trade stock for oil and gas properties to be held as long-term assets. Oil and gas commodity pricing has stabilized under the current economic market conditions bringing the U.S. to become one of the top the number one producers in the world. The momentum to drill using enhanced drilling technology in previously undeveloped areas assures the continued value of these properties. Our lean operating structure positions us well to compete in this very competitive market. Our strategy is to acquire producing properties that the Company can operate which have proven un-drilled locations available for further development. At this time the Company is reviewing several properties but have no contractual commitments to date. Our management’s years of experience and knowledge of the oil and gas industry leads us to believe that there are an abundance of good drilling prospects available that have either been overlooked or are not big enough for the larger companies. In the process of identifying these drilling prospects, the Company will utilize the expertise of existing management and employ the highest caliber contract engineering firms available to further evaluate the properties. To qualify for acquisition, the calculated cash flow after taxes and operating expenses, including ten percent (10%) interest per year, will recover the acquisition cost in 22 to 30 months. The cash flow calculation will be based conservatively on $51 per barrel of oil and $2.89 per MCF of gas. In addition, the selection criteria will require the life of current producing wells to be 7 years or longer and the field must have a minimum total life of 15 years.
The company is actively pursuing acquisition of additional properties in Oklahoma, Texas and New Mexico.
Liquidity and Capital Resources
As of June 30, 2021,2022, we had total current assets of $5,124$1,125,638 and total current liabilities of $2,458,115.$3,989,289.
The Company used $189,476$522,971 of cash in operating activities during the six months ended June 30, 2021,2022, compared to $62,607$189,476 used in operations during the same period in 2020.2021. Net cash used in operating activities during the six months ended June 30, 2022 was mainly comprised of our $770,673 net loss during the period, adjusted by a non-cash charges of $12,211 for gain on change in fair value of derivative liabilities, stock-based compensation of $114,000, amortization of debt discounts of $38,943 and changes in operating assets and liabilities of $106,971. Net cash used in operating activities during the six months ended June 30, 2021 was mainly comprised of our $496,819 net loss during the period, adjusted by a non-cash charges of $120,250 gain on settlement of accounts payable, $5,099 for loss on change in fair value of derivative liabilities, stock-based compensation of $111,000, amortization of debt discounts of $2,754, write off of option contract associated with oil and gas properties of $85,500, default interest added to note payable of $50,000, asset retirement obligations expense of $38$19 and changes in operating assets and liabilities of $173,202. Net
The Company used cash used in operatingof $756,298 for investing activities during the six months ended June 30, 2020 was mainly comprised2022 which consisted of our $237,385 net loss during$756,298 for the period, adjusted by a non-cash chargesacquisition of $49,874 for gain on change in fair value of derivative liabilities, $96,000 of stock compensation, amortization of debt discounts of $10,179, asset retirement obligations expense of $38, gain on extinguishment of debt of $10,750oil and changes in operating assets and liabilities of $129,185.
gas property. The Company used cash of $40,000 for investing activities during the six months ended June 30, 2021 which consisted of a $40,000 deposit2022 related to deposits for oil and gas properties.
The Company generated cash of $2,371,801 from financing activities during the six months ended June 30, 2022 which consisted of $110,235 in proceeds from advances from related parties, $499,996 from senior secured convertible notes payable from related party and $1,761,570 in proceeds from unexecuted subscription agreements. The Company generated cash of $229,600 from financing activities during the six months ended June 30, 2021 which consisted of $224,600 in proceeds from$159,600 advances from related partiesparty, $65,00 of proceeds from note payable, related party and $5,000 in proceeds from the sale of common stock. The Company generated cash of $67,894 from financing activities during the six months ended June 30, 2020, which consisted of $70,000 in proceeds from the sale of common stock, $3,000 in proceeds from convertible credit line related party which was offset by $4,250 repayment on convertible credit line payable - related party and $856 in repayments of short term advances related parties.
Going Concern
The future of our company is dependent upon its ability to obtain financing and upon future profitable operations. Management has plans to seek additional capital through a private placement and public offering of its common stock, if necessary. See Note 2 to the unaudited consolidated financial statements for additional information.
Results of Operations
We generated revenue of $5,239 and $0 during the three months ended June 30, 2022 and 2021, respectively. Lease operating expenses were $47,558 and $0 during the three months ended June 30, 2022 and 2021, respectively. The increase in lease operating expenses was due to an increase in geological expenses. Total operating expenses were $312,269 during the three months ended June 30, 2022 compared to $212,961 during the same period in 2021. The increase in operating expenses was due to a $25,362 increase in professional fees and $85,946 increase in general and administrative expenses which were offset by $12,000 decrease in board of director fees.
We generated revenues of $0$5,239 and $1,217$0 during the six months ended June 30, 20212022 and 2020, respectively. Total2021. Lease operating expenses were $382,133$49,434 and $0 during the six months ended June 30, 2022 and 2021, respectively. The increase in lease operating expenses was due to an increase in geological expenses. Total operating expenses were $658,287 during the six months ended June 30, 2022 compared to $273,629$382,133 during the same period in 2020.2021. The increase in operating expenses werewas due to an increase in general and administrative expenses of $196,825,a $162,131 increase in professional fees of $31,929and $5,773 increase in general administrative expenses which were offset by $12,000 decrease in board of director fees and a $120,250 gain on settlement of accounts payable of $120,250.
We generated revenues of $0 and $871 during the three months ended June 30, 2021 and 2020, respectively. Total operating expenses were $212,961 during the three months ended June 30, 2020 compared to $142,328 during the same period in 2020. The increase in operating expenses were due to an increase in general and administrative expenses of $50,623 and an increase in professional fees of $20,010.2021.
Off-Balance sheet arrangements
As of June 30, 2021,2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. Our accounting policies are described in Note 1 to our audited consolidated financial statements for 20202021 appearing in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide information required by this Item.Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
AsThe Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act. The Company and its subsidiaries have carried out evaluations of the effectiveness of their disclosure controls and procedures as required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of June 30, 2021, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer). Based on that evaluation, they have concluded that, as of June 30, 2021, the disclosure controls and procedures are not effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.Act.
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Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 6, 2020, Premier Gas Company, LLC filed a mechanic’s lien against the interests of Pure, ZQH and the Company in the Rogers County Project, alleging past unpaid invoices on the part of ZQH and Pure and also alleging that the Company’s ownership is 75% rather than 87.5%. No documentation has been provided to Alpha by ZQH, Pure, or Premier of any unpaid invoices. The Company intends to contest the lien vigorously.None.
On July 22, 2020, the Company filed a lawsuit in Texas State Court against its predecessor auditor, LBB & Associates and Vine Advisors, LLP, and their principal, Carlos Lopez, seeking damages up to $1,000,000.
In March 6, 2020, the Company was informed by the United States Securities and Exchange Commission that (a) Lopez and LBB were investigated by the SEC through an Order Instituting Administrative Proceedings; (b) Lopez and LBB ultimately agreed to the imposition of remedial sanctions against them by the SEC; and (c) Lopez had been suspended from appearing or practicing before the SEC for a period of at least two years (the “Suspension Order”) beginning on February 6, 2020. A copy of the Suspension Order can be found on the SEC’s website.
The Suspension Order finds, among other things, that:
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The Suspension Order and the predecessor auditor’s failure to disclose it or the SEC investigation when it was occurring has had very damaging repercussions for the Company. Due to the misdeeds of Lopez, LBB, and Vine, the Company is now obligated to spend substantial amounts to re-audit the filings that Lopez, LBB, and Vine handled. Also, the Company is obligated to undertake this re-audit for 2018 since it can no longer trust the work of someone who admittedly “engaged in a pattern of improper professional conduct” and committed “multiple instances of highly unreasonable conduct in circumstances that warranted heightened scrutiny.”
Upon discovery of the misdeeds of Lopez, LBB, and Vine, the Company notified the predecessor auditors of their claims. The predecessor auditors have ignored the Company’s communications and failed to respond or even return the Company’s work papers and property.
ITEM 1A. RISK FACTORS
You should carefully consider the factors discussed below in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which could materially affect our business, financial position, or future results of operations. The risks described below in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially, adversely affect our business, financial position, or future results of operations. There have been no material changes in the risk factors set forth in the Company’s Form 10K for the period ended December 31, 2020.2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the 3 months ended June 30, 2021, the Company sold 5,000 shares of its common stock at $1.00 per share. The stock is unissued at this date. See Item 1, Note 5 and Item 1, Note 6.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our operations.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following documents are included or incorporated by reference as exhibits to this report: Exhibit
Number Ddescription
Exhibit Number | Description | |
31.1 |
31.2 | ||
32.1 | ||
32.2 | ||
101.INS** | Inline XBRL Instance |
101.SCH** | Inline XBRL Taxonomy Extension Schema |
101.CAL** | Inline XBRL Taxonomy Extension Calculation |
101.DEF** | Inline XBRL Taxonomy Extension Definition |
101.LAB** | Inline XBRL Taxonomy Extension Labels |
101.PRE** | Inline XBRL Taxonomy Extension Presentation |
104 | Cover Page Interactive Data File |
** XBRL | information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 9, 202118, 2022
Alpha Energy, Inc. | ||||
By: |
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Officer, Principal Financial Officer
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