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ALPHA ENERGY, INC.

Notes to Unaudited Financial Statements

September 30, 2017

NOTE 1 – BASIS OF PRESENTATION

The purposeaccompanying unaudited interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of September 30, 2017, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted. It is suggested that these unaudited interim financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2016 audited financial statements. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the operating results for the full year.

Related party policy

In accordance with ASC 850, the Company discloses: the nature of the related party relationship(s) involved; a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Revenue recognition

The Company records revenues from the sales of natural gas and crude oil when the production is produced and sold, and also when collectability is ensured. The Company may in the future have an interest with other producers in certain properties, in which case the Company will use the sales method to account for gas imbalances. Under this method, revenue will be recorded on the basis of natural gas actually sold by the Company. The Company also reduces revenue for other owners’ natural gas sold by the Company that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company’s remaining over- and under-produced gas balancing positions are considered in the Company’s proved oil and natural gas reserves. The Company had no gas imbalances at September 30, 2017 or December 31, 2016.

Impairment

The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period. During the year ended December 31, 2016, the Company evaluated the future production of its leases through the termination of each lease. Through its analysis, the Company determined the present value of future production was less than the carrying value of the leases on the balance sheet. The Company recorded an impairment loss of $35,432 during the years ended December 31, 2016. The Company performed an additional analysis during the nine months ended September 30, 2017 and determined its proved and unproved properties were fully impaired and recorded an impairment loss of $11,250 during the nine months ended September 30, 2017.

Derivative Liabilities

The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair market values of derivative liabilities over the life of the convertible notes.

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NOTE 2 – GOING CONCERN

The Company’s interim unaudited 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 has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of issuance of this Amendment No.report. 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 – COMMON STOCK WARRANTS

Through the year ended December 31, 2014, the Company issued warrants in connection with common stock issued for cash. The following table summarizes all stock warrant activity for the nine months ended September 30, 2017:

The weighted average remaining contractual life of options outstanding as of September 30, 2017 and December 31, 2016, was approximately 0.00 and 0.20 years, respectively. The exercise price of these options was $0.125 and the intrinsic value of the options as of September 30, 2017 and December 31, 2016 is $0.00, respectively.

NOTE 4 – RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2017, the Company borrowed $8,031 and made repayments on short term related party loans payable of $18,736. During the nine months ended September 30, 2017, a significant shareholder made payment of $2,630 for expenses on behalf of the Company. The advances are non-interest bearing and due on demand. There was $9,780 and $17,855 due to related parties as of September 30, 2017 and December 31, 2016, respectively.

During the nine months ended September 30, 2017, the Company made advances to related parties of $445 which were repaid during the same period. The advances are non-interest bearing and due on demand. There was $0 due from related parties as of September 30, 2017 and December 31, 2016, respectively.

Fred Ziegler, who is the spouse of our President, Karen Ziegler, is an unpaid consultant for the Company. Although uncompensated and not having direct ownership of stock, he has the ability to exercise significant influence over the Company given the personal relationship with one of our officers.

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During the nine months ended September 30, 2017, the majority owners of the Company sold their stock in a private transaction to AEI Acquisition Company, LLC. Immediately after the close of the transaction, AEI Acquisition Company owned 85% of the issued and outstanding shares of the Company.

During the nine months ended September 30, 2017, the Company converted existing notes payable due to AEI Acquisition Company of $87,366 to a convertible credit line. SeeNote 6 – Convertible Credit Line Payable – Related Party.

NOTE 5 – NOTES PAYABLE

On February 1, 2017, the Company executed a promissory note for $56,216. The note bears simple interest at a rate of 3.75%, is not convertible to equity of the Company and is due on February 1, 2018. During the three months ended June 30, 2017, the Company received additional advances of $7,600. During the three months ended September 30, 2017, the Company made repayments of $2,000 and received additional advances of $23,550. On September 1, 2017, the outstanding balance of $87,366 on the note payable was converted to a convertible credit line payable as discussed inNote 6 – Convertible Credit Line Payable – Related Party.

NOTE 6 – CONVERTIBLE CREDIT LINE 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. During the nine months ended September 30, 2017, the Company amortized $4,640 of the discount as interest expense leaving an unamortized discount of $82,726 as of September 30, 2017. See discussion of derivative liability inNote 7 – Derivative Liability

The Company made payments of $2,000 on the credit line at September 30, 2017. There was $85,366 of principal and $1,686 of accrued interest outstanding as of September 30, 2017. As of September 30, 2017 there was an unamortized debt discount of $82,726 resulting in a net balance represented on the balance sheet of $2,640.

NOTE 7 – DERIVATIVE LIABILITY

As discussed in Note 1, on Form 10–Q/Aa recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s liabilities measured at fair value as of September 30, 2017 and December 31, 2016:

As of September 30, 2017, the Company had a $156,504 derivative liability balance on the balance sheet and recorded a loss from derivative liability fair value adjustment of $66,226 during the three and nine months, respectively ended September 30, 2017. The Company assessed its outstanding convertible credit line payable as summarized inNote 6 – Convertible Credit Line Payable- Related Partyand determined certain convertible credit lines payable with variable conversion features contain embedded derivatives and are therefore accounted for at fair value underASC 920, Fair Value Measurements and DisclosuresandASC 825, Financial Instruments.

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Utilizing Level 3 Inputs, the Company recorded fair market value adjustments related to Alpha Energy, Inc.’s quarterly report on Form 10–Qconvertible notes payable for the three months ended September 30, 2017 of $66,226 and fair value adjustments related to the convertible notes payable for the nine months ended September 30, 2017 of $66,226, respectively. The derivative liability was initially measured at $90,278, resulting in a loss on initial measurement of $2,912, on September 1, 2017 using the following assumptions: exercise price of $1.50, 58,244 common shares the balance can be converted into shares and a stock price at measurement date of $1.55. The fair market value adjustments as of September 30, 2017 were calculated utilizing a max valuation method using the following assumptions: exercise price of $1.50, 56,911 common shares the balance can be converted into and a stock price at measurement date of $2.75.

A summary of the activity of the derivative liability is shown below:

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10-Q 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. All 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 matters 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 beyond 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 or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the 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, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.

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 the number one producer 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.

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In the first phase we intend on concentrating on prospects in eastern Colorado, western Kansas and southern Wyoming. The depth of the wells in the target areas average from 1500 ft. for the Niobrara formation to a total depth of 5800 ft. for the Topeka, Heebner, Lansing-Kansas City, Marmaton, Cherokee, Atoka, Morrow, Mississippian, Spergen, and Osage formations. By concentrating our initial efforts on shallower prospects we minimize drilling and operating costs. As we grow we plan to expand into the Front Range (Northern Front Range Outcrop) and Denver Basin Province (D-J Basin, Wattenberg) of Colorado and into western Kansas (Hugoton Embayment Anadarko Basin – Central Kansas Uplift). The wells in these areas range from 4,000 ft. to 10,000 ft. Such wells are more expensive to drill and operate, but also offer bigger returns. Some of the formations in these areas are the Sussex, Niobrara, Codell, J Sand and the D Sand formations. The Company intends to develop prospects and intends to obtain partners to participate in the costs of drilling or acquisitions with the Company serving as the designated Operator. The Company intends to also retain a royalty or working interest in the wells drilled or acquired.

The Company has engaged in verbal negotiations for acquisition of oil and gas leases located in Northern and eastern Colorado basin and intends to engage in additional negotiations in the future.

In the second phase of operations, we intend to expand into Oklahoma, Texas, and eastern Kansas. We intend to place a great deal of emphasis on natural gas production and the transportation of natural gas. We believe natural gas will be the fuel of the future for automobiles, trucks and buses because of the clean-air standards that are proposed and will soon be going into effect, and now is an ideal time to acquire natural gas assets due to the current pricing matrix. The Company also plans on acquiring field transportation and short haul lines as part of our future business plan expansion. Acquiring these types of company lines, specifically in the areas where the company will have production located, will be advantageous due to savings in internal transportation costs, and the profitability margins of operating the lines and marketing natural gas. Managing the transportation system, in conjunction with field operations, will enhance cash flow. After obtaining the transportation lines, we hope to then develop our own end-users for natural gas. This will further enhance the profit margin of the company.

In December of 2016 alpha energy purchased the following lease from McCartney engineering:

The lease is located in Yuma county Colorado and consists of 480 acres, we have a 100% WI and 80% NRI the formation which the wells are in is the Niabrara formation at a depth of 2800 ft. There is one producing well and one cased well. The producing well will need to have some smaller tubing ran in and possibly a small pump to increase the gas production. This well has produced for over 15 years. The cased well will need to be fracked and tubing run in it and put on line.

With the lease we also obtained the seismic work that has been done which indicates that there should be 3 possibly four new sites that we intend to produce at about the rate between 40 and 50 mcfpd. These wells have a life expectancycy of over 30 years. All these wells would be at about the 2800 ft in depth range and all will have to be fracked.

The cost of the wells should be less than $90,000 per well.

On April 20, 2016, the Company entered into a lease extension agreement with a related party to extend the term of the lease for a period of three years for consideration of $10 cash. The original lease was entered into on October 1, 2013 and set to expire on October 1, 2016. The extension is under the same terms as the original lease agreement and will expire on October 1, 2019.

Liquidity and Capital Resources

As of September 30, 2017, we had $17,117 in cash, total current assets of $18,060 and total current liabilities of $184,089 creating a working capital deficit of $166,029. Current liabilities consisted primarily of $16,119 of accounts payable and $156,504 of current derivative liability.

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 financial statements for additional information.

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Results of Operations

We did not generate revenues during the three or nine months ended September 30, 2016. Revenue for the three and nine months ended September 30, 2017 were $955 and $2,383. Total operating expenses were $9,665 during the three months ended September 30, 2016 filedcompared to $21,460 during the same period in 2017. The increase is the result of fees associated with the acquisition and upkeep of our leases. Total operating expenses were $18,230 during the nine months ended September 30, 2016 compared to $68,795 for the same period in 2017. The increase is the result of incurring of fees associated with the acquisition and upkeep of our leases that did not exist during the nine months ended September 30, 2016 and due to impairment of our oil and gas properties.

CRITICAL ACCOUNTING POLICIES

In Financial Reporting release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), the Securities and Exchange Commission suggested that companies provide additional disclosure and commentary on November 18, 2016 (the “Form 10–Q”), is solely to furnish Exhibit 101their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the Form 10–Qportrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: non-cash compensation valuation that affects the total expenses reported in accordancethe current period and the valuation of shares and underlying mineral rights acquired with Rule 405shares. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not exposed to market risk related to interest rates or foreign currencies.

CONTROLS AND PROCEDURES

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Regulation S–T.Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of March 31, 2015, 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), who concluded, that because of the material weakness in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective as of September 30, 2017.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

No other changesChanges in Internal Control over Financial Reporting