NOTE 1 – BASIS OF PRESENTATION
The accompanying 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 June 30, 2019 and 2018, 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, 2018 audited financial statements. The results of operations for the three and six months ended June 30, 2019 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 and Cost 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 June 30, 2019 or December 31, 2018. The Company recorded revenues of $2,984 and $1,543 and costs of revenues totaling $4,815 and $1,379 during the six months ended June 30, 2019 and 2018. There were no accounts receivable at June 30, 2019 and December 31, 2018.
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.
Accounting Standards Adopted During the Quarter Ended June 30, 2019
The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the application date. In addition, the Company elected the available practical expedients permitted under the transaction guidance within the new standard. There was no impact from the adoption of the new standard as the Company does not currently have any operating leases.
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 no other pronouncements will have a significant effect on its financial statements.
8
ALPHA ENERGY, INC.
Notes to Unaudited Financial Statements June 30, 2019
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 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 – RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts. The Chief Financial Officer allows the use of his residence as an office for the Company at no charge.
During the three months ended June 30, 2019, the Company received no advances from AEI Acquisition Company, a majority shareholder, from its convertible credit line.
During the period ending December 31, 2018 the Company received $24,366 in short -term loans from Fidare Consulting Group, LLC. During the three months ended March 31, 2019, the Company received $23,841 in short-term advances from Fidare Consulting Group, LLC. During the three months ended June 30, 2019 the Company repaid in full the short-term loan in the amount of $48,207.
On March 27, 2019 the Company entered into a short-term Promissory Note with ZHQ Holdings (75%), LLP and Pure Oil & Gas, Inc. (25%) for $50,000. The note was due April 30, 2019 and has not been repaid. The note is secured by 50,000 shares of the Company’s common stock at $1.00 per share. The funds were used to pay Escrow Deposit on the Rogers County Project. The note is in default as of June 30, 2019 and therefore, is accruing interest at the rate of $50 per day from April 30, 2019.
NOTE 4 – DERIVATIVE LIABILITY
As discussed in Note 1, on a 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 June 30, 2019 and December 31, 2018:
Liabilities
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Fair Value at June 30, 2019
|
|
|
|
|
|
|
Derivative Liability
|
$
|
-
|
$
|
-
|
$
|
132,696
|
|
|
|
|
|
|
|
Fair Value at December 31, 2018
|
|
|
|
|
|
|
Derivative Liability
|
$
|
-
|
$
|
-
|
$
|
608,598
|
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ALPHA ENERGY, INC.
Notes to Unaudited Financial Statements June 30, 2019
NOTE 4 – DERIVATIVE LIABILITY (CONTINUED)
As of June 30, 2019, the Company had a $132,696 derivative liability balance on the balance sheet and recorded a gain from derivative liability fair value adjustment of $475,902 during the six months ended June 30, 2019.
The fair market value adjustments as of June 30, 2019 were calculated utilizing a max valuation method using the following assumptions: exercise price of $1.00, 132,696 common shares the balance can be converted into and a stock price at measurement date of $1.00.
A summary of the activity of the derivative liability for the year ended December 31, 2018 is shown below:
Balance at December 31, 2017
|
$
|
238,674
|
Derivative liabilities recorded
|
|
49,580
|
Day one loss
|
|
122,362
|
Change due to note conversion
|
|
-
|
Loss on change in derivative fair value adjustment
|
|
197,982
|
|
|
|
Balance at December 31, 2018
|
$
|
608,598
|
A summary of the activity of the derivative liability for the three months ended June 30, 2019 is shown below:
Balance at December 31, 2018
|
$
|
608,598
|
Derivative liabilities recorded
|
|
-
|
Day one loss
|
|
-
|
Change due to note conversion
|
|
-
|
Gain on change in derivative fair value adjustment
|
|
(475,902)
|
Balance at June 30, 2019
|
$
|
132,696
|
NOTE 5 – EQUITY
The Company is authorized to issue up to 10,000,000 shares of $0.0001 par value preferred stock and 65,000,000 shares of $0.0001 par value common stock.
For the six months ended June 30, 2019, 133,000 shares with a fair value of $536,701 were issued for stock compensation for directors and the CEO.
During the six months ended June 30, 2019, the Company issued 60,000 shares of common stock with a fair value of $60,000 for consulting services.
During the six months ending June 30, 2019, the Company sold 194,000 shares of common stock for $1.00 per share in a private placement. These shares have not yet been issued. The shares are considered issued and outstanding as of June 30, 2019 as the issuance of the shares is considered an administrative act.
On April 2, 2019 the Company entered into a six month Corporate Finance Representation Agreement with Rebus Capital Group, LLC as the Company’s corporate finance advisor. Rebus was issued 100,000 shares of common stock for services valued at $1 per share or $100,000. $50,000 of this amount was recorded as a prepaid expense and is included in current assets on the 2018 balance sheet and will be expensed in the quarter ended September 30, 2019.
NOTE 6 – NOTE PAYABLE
On March 27, 2019 the Company entered into a short-term Promissory Note with ZHQ Holdings (75%), LLP and Pure Oil & Gas, Inc (25%) for $50,000. The note is secured by 50,000 shares of the Company’s common stock at $1.00 per share. The funds were used to fund the deposit for the Purchase and Sale Agreement with Premier Gas Company, LLC (see Note 7). The note was due April 30, 2019 and has not been repaid. The note is in default as of June 30, 2019 and therefore, is accruing interest at the rate of $50 per day from April 30, 2019. Accrued interest on the note as of June 30, 2019 was $3,042.
10
ALPHA ENERGY, INC.
Notes to Unaudited Financial Statements June 30, 2019
NOTE 7 – OIL AND GAS PROPERTIES
The Company entered into a Letter of Intent with Chicorica, LLC on December 13, 2018 and extended the agreement effective August 29, 2019. Chicorica has developed an oil and gas exploration project in northeastern New Mexico (the “Frostback Project”) that includes several prospective areas and Alpha is interested in exploring in these areas and utilizing Chicorica’s seismic and other data and expertise. The agreement is for $95,000 with $10,000 paid on signing the LOI and $85,000 due by October 1, 2019. As of September 6, 2019, the Company has not made the final payment.
On March 13th, 2019, Alpha Energy, Inc. (the “Company”) entered into a Purchase and Sale Agreement (the “Agreement”) with Premier Gas Company, LLC. (“Premier”) to acquire oil and gas assets in Oklahoma in consideration of a Purchase Price of One Million Six Hundred Thousand Dollars ($1,600,000) (the “Purchase Price”) that includes a non-refundable deposit in the amount of Fifty Thousand Dollars ($50,000) (the “Deposit) through the Escrow Agent. The Deposit shall be credited against the cash portion of the Purchase Price at Closing. Although the dates on the Purchase and Sale agreements were dated January 29th, 2019, the contracts were not ultimately delivered to the company until March 13th, 2019 and the deposit was advanced to the Escrow Agent. The note payable associated with the escrow deposit is in default and the Company has recorded $70,000 of impairment of this oil and gas property.
NOTE 8 – COMMITMENTS
On January 1, 2019 the Company entered into a Consulting Services Agreement with 5 Letter J’s, LLC to facilitate a business plan for instituting a $26,500,000 capital raise through the sale of Company Class A Preferred stock. The agreement is for an initial 3-month period and can be extended perpetually. The monthly fee is $5,000 with a grant of 60,000 shares of restricted Company Common stock valued at $60,000 for the period of the agreement.
NOTE 9 – SUBSEQUENT EVENTS
On July 19, 2019, the Company sold 6,000 shares of common stock for $6,000 in a private placement. These shares have not been issued.
On August 26, 2019 AEI Acquisition Company, LLC advanced $13,000 against the Revolving Credit Line to pay professional fees.
On September 5, 2019, the Company sold 5,000 shares of common stock for $5,000 in a private placement. These shares have not been issued.
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