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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 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, 2022
OR
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the transition period from ___________ to
______________.
Commission
File Number
1-32955
HOUSTON AMERICAN ENERGY CORP.
(Exact
name of registrant as specified in its charter)
Delaware |
|
76-0675953 |
(State
or other jurisdiction
of
incorporation or organization)
|
|
(IRS
Employer
Identification
No.)
|
801 Travis Street,
Suite 1425,
Houston,
Texas
77002 |
(Address
of principal executive offices)(Zip Code) |
(713)
222-6966 |
(Registrant’s
telephone number, including area code) |
|
(Former
name, former address and former fiscal year, if changed since last
report) |
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common Stock, $0.001 par value per share |
|
HUSA |
|
NYSE American |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for 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, a smaller reporting
company or an emerging growth company. See definition of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
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 financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).Yes ☐
No ☒
As of
August 12, 2022, we had
9,928,338 shares of $0.001 par value common stock
outstanding.
HOUSTON AMERICAN ENERGY CORP.
FORM
10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM
1 |
Financial Statements |
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2020 |
|
|
1920 |
|
|
$ |
2 |
|
|
|
6,977,718 |
|
|
$ |
6,977 |
|
|
$ |
78,453,906 |
|
|
$ |
(72,021,911 |
) |
|
$ |
6,438,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash,
net |
|
|
— |
|
|
|
— |
|
|
|
2,921,620 |
|
|
|
2,922 |
|
|
|
6,572,967 |
|
|
|
— |
|
|
|
6,575,889 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,109 |
|
|
|
— |
|
|
|
15,109 |
|
Conversion of Series A Preferred Stock
to common stock |
|
|
(60 |
) |
|
|
— |
|
|
|
24,000 |
|
|
|
24 |
|
|
|
(24 |
) |
|
|
— |
|
|
|
— |
|
Redemption of Series A and Series B
Preferred Stock |
|
|
(1,860 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,967,798 |
) |
|
|
— |
|
|
|
(1,967,800 |
) |
Series A and Series B Preferred Stock
dividends paid |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(37,201 |
) |
|
|
— |
|
|
|
(37,201 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(268,476 |
) |
|
|
(268,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – March 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
9,923,338 |
|
|
|
9,923 |
|
|
|
83,036,959 |
|
|
|
(72,290,387 |
) |
|
|
10,756,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(45,344 |
) |
|
|
(45,344 |
)) |
Net income
(loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(45,344 |
) |
|
|
(45,344 |
)) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – June 30, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
9,923,338 |
|
|
$ |
9,923 |
|
|
$ |
83,036,959 |
|
|
$ |
(72,335,731 |
) |
|
$ |
10,711,151 |
|
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
HOUSTON AMERICAN ENERGY CORP.
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
1 – BASIS OF
PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
The
accompanying unaudited consolidated financial statements of Houston
American Energy Corp., a Delaware corporation (the “Company”), have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q. They do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for a
complete financial presentation. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation, have been included in
the accompanying unaudited consolidated financial statements.
Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the full
year.
These
unaudited consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial
statements and footnotes, which are included as part of the
Company’s Form 10-K for the year ended December 31,
2021.
Consolidation
The
accompanying consolidated financial statements include all accounts
of the Company and its subsidiaries (HAEC Louisiana E&P, Inc.,
HAEC Oklahoma E&P, Inc., and HAEC Caddo Lake E&P, Inc.).
All significant inter-company balances and transactions have been
eliminated in consolidation.
Liquidity and Capital Requirements
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business for the twelve-month
period following the issuance date of these consolidated financial
statements. The Company has incurred continuing losses since 2011,
including a loss of $161,195 for the six months ended June 30,
2022.
The
Company believes that it has the ability to fund, from cash on
hand, its operating costs and anticipated drilling operations for
at least the next twelve months following the issuance of these
financial statements.
The
actual timing and number of wells drilled during 2022 will be
principally controlled by the operators of the Company’s acreage,
based on a number of factors, including but not limited to
availability of financing, performance of existing wells on the
subject acreage, energy prices and industry condition and outlook,
costs of drilling and completion services and equipment and other
factors beyond the Company’s control or that of its
operators.
In
the event that the Company pursues additional acreage acquisitions
or expands its drilling plans, the Company may be required to
secure additional funding beyond our resources on hand. While the
Company may, among other efforts, seek additional funding from
“at-the-market” sales of common stock, and private sales of equity
and debt securities, it presently does not have any commitments to
provide additional funding, has less than 1
million shares of common stock available to support capital raising
efforts and there can be no assurance that the Company can secure
the necessary capital to fund its share of drilling, acquisition or
other costs on acceptable terms or at all. If, for any reason, the
Company is unable to fund its share of drilling and completion
costs, it would forego participation in one or more of such wells.
In such event, the Company may be subject to penalties or to the
possible loss of some of its rights and interests in prospects with
respect to which it fails to satisfy funding obligations and it may
be required to curtail operations and forego
opportunities.
Accounting Principles and Use of Estimates
The
consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States
of America. In preparing financial statements, management makes
informed judgments and estimates that affect the reported amounts
of assets and liabilities as of the date of the financial
statements and affect the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management
reviews its estimates, including those related to such potential
matters as litigation, environmental liabilities, income taxes and
the related valuation allowance, determination of proved reserves
of oil and gas and asset retirement obligations. Changes in facts
and circumstances may result in revised estimates and actual
results may differ from these estimates.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to a concentration
of credit risk include cash, cash equivalents and any marketable
securities (if any). The Company had cash deposits of $4,308,432 in excess of the FDIC’s
current insured limit on interest bearing accounts of $250,000
as of June 30, 2022. The Company also had cash deposits of
$5,019 in Colombian banks at June 30,
2022 that are not insured by the FDIC. The Company has not
experienced any losses on its deposits of cash and cash
equivalents.
Earnings (Loss) per Share
Basic
earnings (loss) per share is computed by dividing net loss
available to common shareholders by the weighted average common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common shares were exercised or converted
in common shares that then shared in the earnings of the Company.
In periods in which the Company reports a net loss, dilutive
securities are excluded from the calculation of diluted net loss
per share amounts as the effect would be anti-dilutive.
Recently Issued Accounting Pronouncements
The
Company does not expect the adoption of any recently issued
accounting pronouncements to have a significant impact on its
financial position, results of operations, or cash
flows.
Subsequent Events
The
Company has evaluated all transactions from June 30, 2022 through
the financial statement issuance date for subsequent event
disclosure consideration.
NOTE
2 – REVENUE FROM
CONTRACTS WITH CUSTOMERS
Disaggregation
of Revenue from Contracts with Customers
The
following table disaggregates revenue by significant product type
for the three and six-month periods ended June 30, 2022 and
2021:
SCHEDULE OF DISAGGREGATES REVENUE BY
SIGNIFICANT PRODUCT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
June 30, 2022
|
|
|
Three
Months Ended
June
30, 2021
|
|
|
Six
Months Ended
June
30, 2022
|
|
|
Six
Months Ended
June
30, 2021
|
|
Oil sales |
|
$ |
263,427 |
|
|
$ |
246,950 |
|
|
$ |
542,905 |
|
|
$ |
475,793 |
|
Natural gas sales |
|
|
119,824 |
|
|
|
29,738 |
|
|
|
191,206 |
|
|
|
99,824 |
|
Natural gas
liquids sales |
|
|
79,738 |
|
|
|
27,311 |
|
|
|
152,698 |
|
|
|
56,870 |
|
Total revenue
from customers |
|
$ |
462,989 |
|
|
$ |
303,999 |
|
|
$ |
886,809 |
|
|
$ |
632,487 |
|
There
were no
significant contract liabilities or transaction price allocations
to any remaining performance obligations as of June 30, 2022 or
2021.
NOTE
3 – OIL AND GAS
PROPERTIES
During
the six months ended June 30, 2022, the Company invested $14,162,
net, for the acquisition and development of oil and gas properties,
consisting of cost of development of U.S. properties, net,
principally attributable to final expenses related to the plugging
and abandonment of the Lou Brock well. The full amount invested was
capitalized to oil and gas properties subject to
amortization.
The
Company also invested $248,282
in Hupecol Meta relating to drilling operations in Colombia and
acquisition of additional interest in Hupecol Meta, reflected in
the cost method investment asset. During the six months ended June
30, 2022, Hupecol Meta drilled a vertical test well in the Venus
Exploration Area of the larger CPO-11 block in Colombia.
During
the three and six months ended June 30, 2022, the Company recorded
depletion expense of $51,501 and $109,740, respectively. During the three
and six months ended June 30, 2021, the Company recorded depletion
expense of $26,271 and $58,635, respectively.
Geographical
Information
The
Company currently has properties in two geographical areas, the
United States and Colombia. Revenues for the six months ended June
30, 2022 and long lived assets (net of depletion, amortization, and
impairments) as of June 30, 2022 attributable to each geographical
area are presented below:
SCHEDULE OF REVENUES AND LONG LIVED ASSETS
ATTRIBUTABLE TO GEOGRAPHICAL AREA
|
|
Six Months Ended June 30, 2022 |
|
|
As of June 30, 2022 |
|
|
|
Revenues |
|
|
Long
Lived Assets, Net |
|
United States |
|
$ |
886,809 |
|
|
$ |
2,369,054 |
|
Colombia |
|
|
— |
|
|
|
2,343,126 |
|
Total |
|
$ |
886,809 |
|
|
$ |
4,712,180 |
|
NOTE
4 – STOCK-BASED
COMPENSATION EXPENSE
In
2008, the Company adopted the Houston American Energy Corp. 2008
Equity Incentive Plan (the “2008 Plan”). The terms of the 2008
Plan, as amended in 2012 and 2013, allow for the issuance of up to
480,000
shares of the Company’s common stock pursuant to the grant of stock
options and restricted stock.
In
2017, the Company adopted the Houston American Energy Corp. 2017
Equity Incentive Plan (the “2017 Plan”). The terms of the 2017
Plan, allow for the issuance of up to 400,000
shares of the Company’s common stock pursuant to the grant of stock
options and restricted stock.
In
2021, the Company adopted the Houston American Energy 2021 Equity
Incentive Plan (the “2021 Plan” and, together with the 2008 Plan
and the 2017 Plan, the “Plans”). The terms of the 2021 Plan allow
for the issuance of up to 500,000
shares of the Company’s common stock pursuant to the grant of stock
options and restricted stock.
Persons
eligible to participate in the Plans are key employees, consultants
and directors of the Company.
The
Company periodically grants options to employees, directors and
consultants under the Plans and is required to make estimates of
the fair value of the related instruments and recognize expense
over the period benefited, usually the vesting period.
Stock
Option Activity
A
summary of stock option activity and related information for the
six months ended June 30, 2022 is presented below:
SUMMARY OF STOCK OPTION
ACTIVITY
|
|
Options |
|
|
Weighted-Average Exercise Price |
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2022 |
|
|
990,173 |
|
|
$ |
3.38 |
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited / expired |
|
|
(48,696 |
) |
|
|
20.63 |
|
|
|
|
|
Outstanding at June 30, 2022 |
|
|
941,477 |
|
|
$ |
2.49 |
|
|
$ |
2,052,817 |
|
Exercisable at June 30, 2022 |
|
|
791,481 |
|
|
$ |
2.63 |
|
|
$ |
1,629,817 |
|
During
the three and six months ended June 30, 2022, the Company
recognized $25,520 and $111,005, respectively, of
stock-based compensation expense attributable to the amortization
of stock options. As of June 30, 2022, total unrecognized
stock-based compensation expense related to non-vested stock
options was approximately $30,364.
The unrecognized expense is expected to be recognized over a
weighted average period of
0.06 years and the weighted average remaining contractual
term of the outstanding options and exercisable options at June 30,
2022 is
6.57 years and
6.10 years, respectively.
As of
June 30, 2022, there were 236,000 shares of
common stock available for issuance pursuant to future stock or
option grants under the Plans.
Stock-Based
Compensation Expense
The
following table reflects total stock-based compensation recorded by
the Company for the six months ended June 30, 2022 and
2021:
SCHEDULE OF STOCK-BASED
COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
Stock-based compensation
expense included in general and administrative expense |
|
$ |
111,005 |
|
|
$ |
15,109 |
|
Earnings per share effect of
share-based compensation expense – basic and diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
NOTE
5 – CAPITAL
STOCK
Series
A Convertible Preferred Stock
During
the six months ended June 30, 2021, the Company paid dividends on
Series A Convertible Preferred Stock in the amount of $20,501.
In
February 2021, 60 shares of Series A
Preferred Stock were converted into 24,000 shares
of common stock, and the Company redeemed all remaining shares of
Series A Preferred Stock for cash paid of $1.07 million
plus accrued dividends.
Series
B Convertible Preferred Stock
During
the six months ended June 30, 2021, the Company paid dividends on
Series B Convertible Preferred Stock in the amount of $16,700.
In
February 2021, the Company redeemed all remaining shares of Series
B Preferred Stock for cash paid of $0.9 million
plus accrued dividends.
Warrants
A
summary of warrant activity and related information for 2022 is
presented below:
SUMMARY OF WARRANT ACTIVITY
|
|
Warrants |
|
|
Weighted-Average
Exercise Price |
|
|
Aggregate
Intrinsic Value |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2022 |
|
|
98,400 |
|
|
$ |
2.63 |
|
|
|
|
|
Issued |
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Expired |
|
|
(4,000 |
) |
|
|
6.88 |
|
|
|
|
|
Outstanding at June 30, 2022 |
|
|
94,400 |
|
|
$ |
2.46 |
|
|
$ |
201,072 |
|
Exercisable at June 30, 2022 |
|
|
94,400 |
|
|
$ |
2.46 |
|
|
$ |
201,072 |
|
NOTE
6 – EARNINGS PER
COMMON SHARE
Earnings
(loss) per common share-basic is calculated by dividing net income
(loss) by the weighted average number of shares of common stock
outstanding during the period. Net income (loss) per common
share-diluted assumes the conversion of all potentially dilutive
securities and is calculated by dividing net (loss) income by the
sum of the weighted average number of shares of common stock, as
defined above, outstanding plus potentially dilutive securities.
Net (loss) income per common share-diluted considers the impact of
potentially dilutive securities except in periods in which there is
a loss because the inclusion of the potential common shares, as
defined above, would have an anti-dilutive effect.
The
calculation of earnings per share for the periods indicated below
were as follows:
SCHEDULE OF EARNINGS PER
SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,365 |
|
|
$ |
(45,344 |
) |
|
$ |
(161,195 |
) |
|
$ |
(313,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to
Series A and B preferred shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(37,201 |
) |
Net income
(loss) attributable to common shareholders |
|
$ |
4,365 |
|
|
$ |
(45,344 |
) |
|
$ |
(161,195 |
) |
|
$ |
(351,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares –
basic |
|
|
9,923,338 |
|
|
|
9,923,338 |
|
|
|
9,923,338 |
|
|
|
9,412,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock
equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and warrants |
|
|
455,953 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares – diluted |
|
|
10,379,291 |
|
|
|
9,923,338 |
|
|
|
9,923,338 |
|
|
|
9,412,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share –
basic |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
Earnings (loss) per share –
diluted |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
For
the three and six months ended June 30, 2022 and 2021, the
following and warrants and options to purchase shares of common
stock were excluded from the computation of diluted net loss per
share, as the inclusion of such shares would be
anti-dilutive:
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER
SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Stock warrants |
|
|
— |
|
|
|
98,400 |
|
|
|
94,400 |
|
|
|
98,400 |
|
Stock
options |
|
|
74,000 |
|
|
|
726,177 |
|
|
|
990,177 |
|
|
|
726,177 |
|
Total |
|
|
74,000 |
|
|
|
824,577 |
|
|
|
1,084,577 |
|
|
|
824,577 |
|
NOTE
7 - COMMITMENTS AND
CONTINGENCIES
Lease
Commitment
The
Company leases office facilities under an operating lease agreement
that expires October 31,
2025. During the three and six months ended June 30, 2022,
the operating cash outflows related to operating lease liabilities
totaled $21,560
and $43,121,
respectively, and the expense for the right of use asset for
operating leases totaled $15,940 and
$30,169,
respectively. As of June 30, 2022, the Company’s operating lease
had a weighted-average remaining term of 3.3
years and a weighted average discount rate of 12%. As of June 30,
2022, the lease agreement requires future payments as
follows:
SCHEDULE OF FUTURE PAYMENTS UNDER LEASE
AGREEMENT
Year |
|
Amount |
|
2022 |
|
|
43,253 |
|
2023 |
|
|
87,288 |
|
2024 |
|
|
88,801 |
|
2025 |
|
|
75,051 |
|
Total future lease payments |
|
|
294,393 |
|
Less: imputed
interest |
|
|
53,145 |
|
Present value of future operating
lease payments |
|
|
241,248 |
|
Less: current
portion of operating lease liabilities |
|
|
61,098 |
|
Operating lease
liabilities, net of current portion |
|
$ |
180,150 |
|
Right of use assets |
|
$ |
242,338 |
|
Total
base rental expense was $22,161 and $30,048 for the three months ended
June 30, 2022 and 2021, respectively, and $46,836 and $60,180
for the six months ended June 30, 2022 and 2021, respectively. The
Company does not have any capital leases or other operating lease
commitments.
ITEM
2 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |
Forward-Looking
Information
This
Form 10-Q quarterly report of Houston American Energy Corp. (the
“Company”) for the six months ended June 30, 2022, contains certain
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, which are intended to
be covered by the safe harbors created thereby. To the extent that
there are statements that are not recitations of historical fact,
such statements constitute forward-looking statements that, by
definition, involve risks and uncertainties. In any forward-looking
statement, where we express an expectation or belief as to future
results or events, such expectation or belief is expressed in good
faith and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will be
achieved or accomplished.
The
actual results or events may differ materially from those
anticipated and as reflected in forward-looking statements included
herein. Factors that may cause actual results or events to differ
from those anticipated in the forward-looking statements included
herein include the Risk Factors described in Item 1A herein and in
our Form 10-K for the year ended December 31, 2021.
Readers
are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date
hereof. We believe the information contained in this Form 10-Q to
be accurate as of the date hereof. Changes may occur after that
date, and we will not update that information except as required by
law in the normal course of our public disclosure
practices.
Additionally,
the following discussion regarding our financial condition and
results of operations should be read in conjunction with the
financial statements and related notes contained in Item 1 of Part
1 of this Form 10-Q, as well as the Risk Factors in Item 1A and the
financial statements in Item 7 of Part II of our Form 10-K for the
fiscal year ended December 31, 2021.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America. We believe
certain critical accounting policies affect the more significant
judgments and estimates used in the preparation of our financial
statements. A description of our critical accounting policies is
set forth in our Form 10-K for the year ended December 31, 2021. As
of, and for the six months ended, June 30, 2022, there have been no
material changes or updates to our critical accounting
policies.
Unevaluated
Oil and Gas Properties
Unevaluated
oil and gas properties not subject to amortization, include the
following at June 30, 2022:
|
|
June 30, 2022 |
|
Acquisition costs |
|
$ |
143,847 |
|
Development and
evaluation costs |
|
|
2,199,279 |
|
Total |
|
$ |
2,343,126 |
|
The
carrying value of unevaluated oil and gas prospects above was
primarily attributable to properties in the South American country
of Colombia. We are maintaining our interest in these
properties.
Recent
Developments
Equity
Investment
In
2019, we acquired a 2% interest in Hupecol Meta, LLC (“Hupecol
Meta”) (the “Hupecol Meta Acquisition”), which interest was
subsequently increased on multiple occasions, including the
acquisition, during the six months ended June 30, 2022, of an
additional interest (1%) in Hupecol Meta for $100,000.
Hupecol
Meta holds a working interest in the 639,405 gross acre CPO-11
block in the Llanos Basin in Colombia, comprised of the 69,128 acre
Venus Exploration Area and 570,277 acres, which was 50% farmed out
by Hupecol Meta. As of June 30, 2022, through our ownership
interest in Hupecol Meta, we held an approximately 11% interest in
the Venus Exploration Area and approximately 5.5% interest in the
remainder of the block.
Drilling
Activity
During
the six months ended June 30, 2022, Hupecol Meta drilled the Bugalu
1, a vertical test well in the Venus Exploration Area of the CPO-11
block in Colombia. At June 30, 2022, drilling operations on the
Bugalu 1 had been completed, production casing was run and the well
was awaiting testing. A directional well from a second site in the
Venus Exploration Area commenced drilling in July 2022. No drilling
operations were conducted on our U.S. properties during the six
months ended June 30, 2022.
During
the six months ended June 30, 2022, our capital investment
expenditures totaled $262,444, principally relating to final
expenses associated with the plugging and abandonment of the Lou
Brock well ($14,162) and investments in our cost method investment
in Hupecol Meta ($148,282)(excluding $100,000 investment to
increase our equity interest in Hupecol Meta).
Colombian
Elections
In
June 2022, Colombia elected as its President, leftist candidate,
Gustavo Petro. President-elect Petro has publicly vowed to wind
down fossil fuel production in Colombia and end fracking in
Colombia as part of a plan to transition to renewable green energy.
While the President-elect’s proclamations are openly hostile to the
oil and gas industry and appear to bar grants of future oil and gas
contracts, those proclamations appear to honor existing oil and gas
contracts. Moreover, the President-elect’s proclamations do not
appear to be supported by the Colombian lawmakers which may make it
difficult for the President-elect to effectively carry out his
proclamations. Nonetheless, hostility from the executive branch may
make the climate for drilling wells on existing acreage more
challenging than is already the case.
Results
of Operations
Oil
and Gas Revenues. Total oil and gas revenues increased 52% to
$462,989 in the three months ended June 30, 2022, compared to
$303,999 in the three months ended June 30, 2021. Oil and gas
revenues increased 40% to $886,809 for the six months ended June
30, 2022, compared to $632,487 in the six months ended June 30,
2021. The increase in revenue was due to (i) increased natural gas
production volumes, up 59% and 38% for the three and six-month
periods, respectively, partially offset by a decline in oil
production, down 38% and 34% for the three and six-month periods,
respectively, and (ii) improved commodity pricing, including 71%
and 153% increases in crude oil prices and natural gas prices,
respectively, realized during the three-month period and 73% and
39% increases in crude oil prices and natural gas prices,
respectively, realized during the six-month period.
The
following table sets forth the gross and net producing wells, net
oil and gas production volumes and average hydrocarbon sales prices
for the quarter and six months ended June 30, 2022 and
2021:
|
|
Six Months Ended
June 30 |
|
|
Three Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Gross producing wells |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
Net producing wells |
|
|
0.68 |
|
|
|
0.68 |
|
|
|
0.68 |
|
|
|
0.68 |
|
Net oil production (Bbl) |
|
|
5,478 |
|
|
|
8,295 |
|
|
|
2,438 |
|
|
|
3,901 |
|
Net gas production (Mcf) |
|
|
35,542 |
|
|
|
25,738 |
|
|
|
18,250 |
|
|
|
11,447 |
|
Average sales price – oil (per barrel) |
|
$ |
99.11 |
|
|
|
57.36 |
|
|
$ |
108.05 |
|
|
$ |
63.30 |
|
Average sales price – natural gas (per Mcf) |
|
$ |
5.38 |
|
|
|
3.88 |
|
|
$ |
6.57 |
|
|
$ |
2.60 |
|
The
change in production volumes was primarily attributable to our
Reeves County wells being put on gas lift during the second half of
2021, partially offset by natural declines in
production.
The
change in average oil sales price realized reflects a spike in
global energy prices attributable to global supply uncertainty
arising from the Russian invasion of Ukraine.
All
oil and gas sales revenues are attributable to U.S.
operations.
Lease
Operating Expenses. Lease operating expenses increased 63% to
$150,485 during the three months ended June 30, 2022, from $92,531
during the three months ended June 30, 2021. Lease operating
expenses increased 20% to $311,757 during the six months ended June
30, 2022, from $258,745 during the six months ended June 30, 2021.
The increase in lease operating expenses was attributable to rework
and equipment costs.
All
lease operating expenses are attributable to U.S.
operations.
Depreciation
and Depletion Expense. Depreciation and depletion expense was
$51,501 and $26,271 for the three months ended June 20, 2022 and
2021, respectively, and $109,740 and $58,635 for the six months
ended June 30, 2022 and 2021, respectively. The change in
depreciation and depletion was due to the increase in the depletable
base.
General
and Administrative Expenses (excluding stock-based
compensation). General and administrative expense increased 1%
to $233,376 during the three months ended June 30, 2022, from
$231,328 during the three months ended June 30, 2021 and decreased
17% to $517,991 during the six months ended June 30, 2022, from
$624,979 during the six months ended June 30, 2021. The decrease in
general and administrative expenses was primarily attributable to
higher professional fees
during the 2021 period related to the two ATM offerings and
redemption of preferred stock.
Stock-Based
Compensation. Stock-based compensation increased to $25,520
during the three months ended June 30, 2022, from $0 during the
three months ended June 30, 2021 and increased 635% to $111,005
during the six months ended June 30, 2022, from $15,109 during the
six months ended June 30, 2021. The increase was attributable to
the timing of option grants
and vesting.
Financial
Condition
Liquidity
and Capital Resources. At June 30, 2022, we had a cash balance
of $4,602,772 and working capital of $4,852,063, compared to a cash
balance of $4,894,577 and working capital of $5,052,685 at December
31, 2021.
Cash
Flows. Operating activities used $29,361 during the six months
ended June 30, 2022, compared to $527,759 used during the six
months ended June 30, 2021. The change in operating cash flow was
primarily attributable to increased revenues and a resulting
decrease in net loss during the six-months ended June 30,
2022.
Investing
activities used $262,444 during the six months ended June 30, 2022,
compared to $166,949 used during the six months ended June 30,
2021. The change in funds used by investing activities is
principally attributable to higher investments in Hupecol Meta LLC
and investments in plugging and abandonment of our Lou Brock
well.
Financing
activities provided $0 during the six months ended June 30, 2022,
compared to $4,570,888 provided during the six months ended June
30, 2021. Cash provided by financing activities during the six
months ended June 30, 2021 was attributable to funds received from
two at-the-market common stock offerings ($6,575,889), partially
offset by cash used to pay dividends on preferred stock ($37,201)
and to redeem all remaining outstanding shares of preferred stock
($1,967,800)
Long-Term
Liabilities. At June 30, 2022, we had long-term liabilities of
$252,056, compared to $279,953 at December 31, 2021. Long-term
liabilities at June 30, 2022 and December 31, 2021, consisted of a
reserve for plugging costs and the long-term lease
liability.
Capital
and Exploration Expenditures and Commitments. Our principal
capital and exploration expenditures relate to ongoing efforts to
acquire, drill and complete prospects, in particular our Permian
Basin acreage and our CPO-11 Colombian acreage. Hupecol Meta
drilled a vertical test well in the Venus Exploration Area on the
CPO-11 block during the six months ended June 30, 2022 and, in July
2022, Hupecol Meta commenced drilling operations on a directional
well on the block. The actual timing and number of well operations
undertaken during 2022, in Colombia and the Permian Basin, will be
principally controlled by the operators of our acreage, based on a
number of factors, including but not limited to availability of
financing, performance of existing wells on the subject acreage,
energy prices and industry condition and outlook, costs of drilling
and completion services and equipment, ability to secure necessary
permits and other factors beyond our control or that of our
operators.
In
addition to possible operations on our existing acreage holdings,
we continue to evaluate drilling prospects in which may acquire an
interest and participate.
During
the six months ended June 30, 2022, we invested $262,444 for the
acquisition and development of oil and gas properties, consisting
of drilling and development operations in the U.S ($14,162),
principally relating to final expenses related to the plugging and
abandonment of the Lou Brock well, and investments in Hupecol Meta
($248,282), including $100,000 paid to increase our ownership
interest in Hupecol Meta. The $14,162 invested in U.S. operations
was capitalized to oil and gas properties subject to amortization.
The $248,282 invested in Hupecol Metal was capitalized to our
investment in Hupecol Meta.
As
our allocable share of well costs will vary depending on the timing
and number of wells drilled as well as our working interest in each
such well and the level of participation of other interest owners,
we have not established a drilling budget but will budget on a
well-by-well basis as our operators propose wells.
We
believe that we have the ability, through our cash on-hand, to fund
operations and our cost for all planned wells expected to be
drilled during 2022.
In
the event that we pursue additional acreage acquisitions or expand
our drilling plans, we may be required to secure additional funding
beyond our resources on hand. While we may, among other efforts,
seek additional funding from “at-the-market” sales of common stock,
and private sales of equity and debt securities, we presently have
less than 1 million authorized shares of common stock available for
issuance to support equity capital raises and we have no
commitments to provide additional funding, and there can be no
assurance that we can secure the necessary capital to fund our
share of drilling, acquisition or other costs on acceptable terms
or at all. If, for any reason, we are unable to fund our share of
drilling and completion costs and fail to satisfy commitments
relative to our interest in our acreage, we may be subject to
penalties or to the possible loss of some of our rights and
interests in prospects with respect to which we fail to satisfy
funding commitments and we may be required to curtail operations
and forego opportunities.
Off-Balance
Sheet Arrangements
We
had no off-balance sheet arrangements or guarantees of third party
obligations at June 30, 2022.
Inflation
We
believe that inflation has not had a significant impact on
operations since inception.
ITEM
3 |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
Commodity
Price Risk
The
price we receive for our oil and gas production heavily influences
our revenue, profitability, access to capital and future rate of
growth. Crude oil and natural gas are commodities and, therefore,
their prices are subject to wide fluctuations in response to
relatively minor changes in supply and demand. Historically, the
markets for oil and gas have been volatile, and these markets will
likely continue to be volatile in the future. The price we receive
for production depends on numerous factors beyond our
control.
We
have not historically entered into any hedges or other transactions
designed to manage, or limit, exposure to oil and gas price
volatility.
ITEM
4 |
CONTROLS AND PROCEDURES |
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and the participation of our management, including
our principal executive officer and principal financial officer, we
conducted an evaluation as of June 30, 2022 of the effectiveness of
the design and operation of our disclosure controls and procedures,
as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based on this
evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and
procedures were not effective as of June 30, 2022. Such conclusion
reflects the 2013 departure of our chief financial officer and
assumption of duties of principal financial officer by our chief
executive officer and the resulting lack of segregation of duties.
Until we are able to remedy these material weaknesses, we are
relying on third party consultants and our SEC consultant to assist
with financial reporting.
Changes
in Internal Control over Financial Reporting
No
change in our internal control over financial reporting (as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934)
occurred during the quarter ended June 30, 2022 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by
the undersigned thereunto duly authorized.
|
HOUSTON
AMERICAN ENERGY CORP. |
Date:
August 15, 2022 |
|
|
|
By: |
/s/
John Terwilliger |
|
|
John
Terwilliger |
|
|
CEO
and President (Principal Executive Officer and Principal Financial
Officer) |
Houston American Energy (AMEX:HUSA)
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