This report contains forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include, among others, the following:
Forward-looking statements are typically identified by use of terms such as “may”, “could”, “should”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “pursue”, “target” or “continue”, the negative of such terms or other comparable terminology, although some forward-looking statements may be expressed differently. The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. You should also consider carefully the statements under “Risk Factors” and other sections of this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in "Item 1A. - Risk Factors". Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
Unless specifically set forth to the contrary, when used in this Report the terms “Alpha,” "we", "our", the "Company" and similar terms refer to Alpha Energy, Inc., a Colorado corporation. In addition, when used herein and unless specifically set forth to the contrary, “2019” refers to the year ended December 31, 2019, “2018” refers to the year ended December 31, 2018.
PART I
ITEM 1. BUSINESS.
Overview
Alpha Energy, Inc. (“our”, “we”, the Company) was incorporated in September 26, 2013 in the State of Colorado. The Company was organized under the laws of the State of Colorado in September 2013 for the purpose of purchasing, developing and operating oil and gas leases. On February 23, 2018, Alpha Energy, Inc. formed a wholly owned subsidiary, Alpha Energy Texas Operating, LLC, to administer operations. We are a Houston, Texas based independent oil and natural gas company. Our business is to maximize production and cash flow from our Oklahoma properties and use that cash flow to explore, develop, exploit and acquire oil and natural gas properties across Texas, Oklahoma and New Mex.
The Company has been issued a going concern opinion and requires additional capital to fund its operations.
The Company has never declared bankruptcy nor has ever been in receivership. We have a specific business plan to purchase, develop and operate oil and gas leases. We do not intend to engage in any merger, acquisition or business reorganization with any previously identified entity. We have no plans to change our business activities or to combine with another business and are not aware of any events or circumstances that might cause us to change our plans.
Our Strategy
Our long-term business strategy is:
• Pursuing accretive, opportunistic acquisitions that meet our strategic and financial objectives. We believe that there is currently a window of opportunity for us to acquire PDP-heavy assets that also possess sizable undeveloped acreage positions from distressed and/or motivated sellers at an attractive discount to PDP PV-10 valuations. Consequently, we currently intend to focus our growth efforts on identifying, evaluating and pursuing the acquisition of such oil and natural gas properties in areas where we currently have a presence and/or specific operating expertise that will position us to enhance our expected acquisition returns through leveraging our operational experience and expertise in order to provide productivity and cost improvements, and where appropriate, increase reserves through development drilling. We may acquire individual properties or private or publicly traded companies, in each case for cash, common stock, preferred stock or a combination thereof. We believe that the ongoing low commodity price environment, and very limited sources of debt and/or equity capital available to our industry, should provide significant reserve and cash flow growth opportunity for us through potential corporate combinations that provide an attractive mix of significant cash flow and undeveloped growth potential. During 2020, we intend to continue to minimize our drilling program and pursue growth through the acquisition of PDP-heavy assets, and use excess cash flow for the reduction in borrowings outstanding under our Credit Agreement. We plan to complement that conservative drilling program on our core onshore
Enhancing our existing portfolio by dedicating the majority of our drilling capital to our existing portfolio of oil and liquids-rich opportunities. A key element of our long-term strategy is to continue to develop the oil and natural gas liquids resource potential that we believe exists in numerous formations within our various oil/liquids weighted resource plays, and where possible, to expand our presence in those plays. Due to the current superior economics of oil production, as compared to natural gas, we expect to focus on oil and liquids-weighted opportunities as we strive to transition from a heavily weighted natural gas production profile to a more balanced reserve and production profile between oil/liquids and natural gas. In response to the low commodity price environment, and the current opportunity to be an asset consolidator in the industry, we plan to limit near-term drilling capital for the foreseeable future to that necessary to fulfill leasehold commitments, preserve core acreage, and where the opportunity exists, to drill where we can add production and cash flow at attractive rates of return. We will, however, continue to evaluate high quality drilling opportunities that have the potential to add significant reserves and cash flow to our portfolio at low finding and development cost, thereby providing returns superior to those generated in the currently active unconventional resource plays.
Alpha Energy, Inc. is a development stage exploration and production company focused on oil and natural gas. The Company seeks to acquire existing reserves in oil and gas properties and to grow its reserves and production through predictable, repeatable success. Our current focus is on areas in Oklahoma, Texas, and New Mexico. Our operating team expects success through acquiring and developing known established producing properties with the intent to recomplete existing wellbores and drill new wells with modern completion technology Using extensive search capabilities incorporating ‘Big Data’ technologies analyzing extensive data libraries and historical records to evaluate opportunities. Targeting high value opportunities with low risk proven pay zones.
Oil and gas commodity pricing has stabilized under the current economic market conditions bringing the U.S. to become the top 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. 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 $55 per barrel of oil and $3.50 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.
Current Projects
On June 25th, 2020, Alpha Energy, Inc. (the “Company”) entered into a Purchase and Sale Agreement (the “Agreement”) with Pure Oil & Gas, Inc. (“Pure”) and ZQH Holding, LLC (“ZQH”) to acquire oil and gas assets in Oklahoma (as described below, the "Project") in consideration of a Purchase Price of One Million Dollars ($1,000,000.00) (the “Purchase Price”). The Company also agrees in the Agreement to discharge a Promissory Note to ZQH in the amount of $60,000. If payment in full is not tendered prior to close of business on July 31, 2020, the Purchase Price will increase by fifty thousand dollars ($50,000) per month thereafter to a maximum possible Purchase Price of one million two hundred thousand dollars ($1,200,000). If the Purchase Price and Promissory Note are not paid in full by December 1, 2020, ZQH and Pure have the Option to convert all or part of the unpaid balance to Company stock at a price of one dollar per share ($1.00/share).
Pursuant to the Agreement, the Company has taken assignment of all of ZQH and Pure’s Working Interest in the Project. The Company, ZQH, and Pure agree the sellers' combined Working Interest in the Project is 87.5%. The current Operator of the Project and owner of the residual Working Interest is Premier Gas Company, LLC (“Premier”). Under the applicable agreements for the Project, the Company intends to assert that it has the right to remove the current Operator and select a new one.
On July 6, 2020, Premier filed a mechanic’s lien against the interests of Pure, ZQH and the Company in the Project, alleging past unpaid invoices on the part of ZQH and Pure and also alleging that Alpha’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. On August 19, 2020, Premier filed a Petition against Pure, Oil & Gas, Inc, ZQH Holdings, LLC and Alpha Energy, Inc., contesting an agreement between Premier, ZQH and Pure dated September 11, 2015. The Petition is to recoup Premier’s expenses per the Mechanic’s lien of July 6, 2020. On July 23, 2020, the Company’s Attorney sent a letter to Premier requesting back up documentation for the Lien. Premier did not respond to the July 23 letter. On August 31, 2020 the Company’s Attorney sent a second letter requesting back up documentation giving Premier until September 10, 2020 to comply. As of September 15, 2020, Premier has not furnished any documentation supporting the lien.
The shallow oil and gas well project covered by the Agreement (the "Project") is located in Rogers County, Oklahoma and consists of approximately 3,429 acres of proven developed and non- developed oil and gas leases. The leases contain 126 developed oil and gas wells, 4 salt water injection wells, and well production equipment. Included is 20.5 miles of 4" gas gathering lines, 4 miles of 2" saltwater gathering lines. 2 delivery connections for natural gas sales and 1 LTX-LNG natural gas processing equipment. Since the infrastructure currently exists, it will reduce the capital necessary to increase production. Upon completion of the acquisition under the Agreement, the first objective will be to recomplete, rework and repair older equipment. Once the first phase is complete and cash flow is established, phase two will be implemented. In phase two, the Company intends to drill shallow wells in order to test formations from the Bartlesville (600') to the bottom of the Granite Wash (2,520'). The Company anticipates these operations will increase total production and add reserves.
The Company notes that the Project is included in the lands in eastern Oklahoma affected by a decision of the U.S. Supreme Court issued on July 9, 2020. In McGirt v. Oklahoma the Supreme Court held that a large portion of eastern Oklahoma reserved for the Creek Nation in the 19th century remains Indian Country for purposes of the federal Major Crimes Act. The impact of this decision on title to the lands and leases included in the Project is uncertain at this point, and the Company will continue to monitor developments concerning the effects of this decision.
On June 30, 2020, Alpha Energy, Inc. (the “Company”) entered into an Option Agreement (the “Agreement”) with Progressive Well Service, LLC. (“Progressive”) to acquire oil and gas assets in Lincoln and Logan Counties in Central Oklahoma (the “Coral Project”, called the “Logan 1 Project” in the Agreement). The Agreement gives Alpha until December 31, 2020 to exercise its option (the “Option Period”). During the Option Period, Progressive may not sell the Coral Project to any third party, in return for which exclusivity Alpha agrees to issue ten thousand (10,000) shares of its common stock, such shares to bear a legend restricting sale during the Option Period. At any time during the Option Period, Alpha may exercise its Option with a cash payment of fifty thousand dollars ($50,000.00). Upon exercising its Option, Alpha and Progressive will work diligently together to enter into a Purchase and Sale Agreement (“PSA”) modeled after the earlier PSA the parties had in place in early 2019, which lapsed due to no fault of either party. Under the new PSA, Alpha shall make a cash payment of six hundred thousand dollars ($600,000.00) to Progressive (the “Project Payment”) and guarantee to Progressive a further payment of 3% of the net revenue stream from any new wells drilled in the Coral Project (the “Production Payment”) until Progressive has received an additional three hundred and fifty thousand dollars ($350,000.00).
The Coral Project is approximately 1,100 acres of developed and undeveloped proven production in the Cherokee Uplift in central Oklahoma. This project area is very prolific and has several (up to 12) additional formations in addition to the Mississippi formation that is currently the producing formation in the 28 wells that make up this project. Logs and drilling data indicate many of these units, which are behind pipe in most wells in the Project, have productive characteristics and provide excellent recompletion targets. The engineering reserve report commissioned by Alpha identifies four behind pipe targets for immediate exploitation. The Project has numerous infill drilling opportunities in the Mississippian, three of which rank as Proven Undeveloped in the reserve report. The greatest potential in the Coral Project may be in the Woodford, a prolific producer in the nearby STACK play area. Log analysis indicates the Woodford has excellent productive characteristics; the reserve report identifies ten Probable locations that adds 1.1 million barrels of oil and over 7 billion cubic feet of natural gas in net reserves per the year-end 2019 independent engineer’s reserve report.
The Company notes that the Project is west of the lands in eastern Oklahoma affected by the decision of the U.S. Supreme Court issued on July 9, 2020, McGirt v. Oklahoma, and therefore is unaffected by that decision.
In the second phase of operations, we intend to expand into Texas and New Mexico. These projects are exploratory and could yield 20 million barrels of oil (mbo).
The Company entered into a Letter of Intent with Chicorica, LLC on December 13, 2018 and extended the agreement effective April 1, 2020. 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 $85,000 with $10,000 paid on signing the LOI and $75,000 due by August 31, 2020. If the final payment is not made by January 4, 2021, the Agreement shall be terminated.
The Company entered into a Letter of Intent with Visionary Resources, LLC on January 28, 2019 and extended the agreement effective July 8, 2020. Visionary Resources has developed an oil and gas exploration project in northeastern Texas (the “Battlewagon Project”) that includes several prospective areas and Alpha is interested in exploring in these areas and utilizing Visionary’s seismic and other data and expertise. The agreement is for $200,000 with $50,000 paid on signing the LOI and $150,000 due by March 31, 2020. If the final payment is not made by January 4, 2021, the Agreement shall be terminated.
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.
Geological and geophysical
We may engage detailed geological interpretation combined with advanced seismic exploration techniques to identify the most promising drilling sites within our leases.
Geological interpretation is based upon data recovered from existing oil and gas wells in an area and other sources. Such information is either purchased from the company that drilled the wells or becomes public knowledge through state agencies after a period of years. Through analysis of rock types, fossils and the electrical and chemical characteristics of rocks from existing wells, we can construct a picture of rock layers in the area. We will have access to the well logs and decline curves from existing operating wells. Well logs allow us to calculate an original oil or gas volume in place while decline curves from production history allow us to calculate remaining proved producing reserves.
We have not purchased, leased or entered into any agreements to purchase or lease any of the equipment necessary to conduct the geological or geophysical testing referred to herein and will only be able to do so upon raising additional capital through loans or the sale of equity securities.
Market for Oil and Gas Production
The market for oil and gas production is regulated by both the state and federal governments. The overall market is mature and with the exception of gas, all producers in a producing region will receive the same price. The major oil companies will purchase all crude oil offered for sale at posted field prices. There are price adjustments for quality differences from the Benchmark. Benchmark is Saudi Arabian light crude oil employed as the standard on which OPEC price changes have been based. Quality variances from Benchmark crude results in lower prices being paid for the variant oil. Oil sales are normally contracted with a purchaser or gatherer as it is known in the industry who will pick up the oil at the well site. In some instances, there may be deductions for transportation from the well head to the sales point. At this time the majority of crude oil purchasers do not charge transportation fees unless the well is outside their service area. The service area is a geographical area in which the purchaser of crude oil will not charge a fee for picking upon the oil. The purchaser or oil gatherer as it is called within the oil industry, will usually handle all check disbursements to both the working interest and royalty owners. We will be a working interest owner. By being a working interest owner, we are responsible for the payment of our proportionate share of the operating expenses of the well. Royalty owners and overriding royalty owners receive a percentage of gross oil production for the particular lease and are not obligated in any manner whatsoever to pay for the costs of operating the lease. Therefore, we, in most instances, will be paying the expenses for the oil and gas revenues paid to the royalty and overriding royalty interests.
Gas sales are by contract. The gas purchaser will pay the well operator 100% of the sales proceeds on or about the 25th of each and every month for the previous month's sales. The operator is responsible for all checks and distributions to the working interest and royalty owners. There is no standard price for gas. Price will fluctuate with the seasons and the general market conditions. It is our intention to utilize this market whenever possible in order to maximize revenues. We do not anticipate any significant change in the manner production is purchased; however, no assurance can be given at this time that such changes will not occur.
Acquisition of Future Leases
From time to time, we have targeted properties to acquire, but we do not plan to acquire any properties until funds are available to acquire properties for exploration and development.
Competition
The oil and gas industry is highly competitive. Our competitors and potential competitors include major oil companies and independent producers of varying sizes which are engaged in the acquisition of producing properties and the exploration and development of prospects. Most of our competitors have greater financial, personnel and other resources than we do and therefore have greater leverage in acquiring prospects, hiring personnel and marketing oil and gas. In addition, larger companies operating in the same area may be willing or able to offer oil and gas at a lower price.
We compete in Texas with over 1,000 independent companies and approximately 40 significant independent operators including Marathon Oil, Houston Exploration Company and Newfield Exploration Company in addition to over 950 smaller operations with no single producer dominating the area. Major operators such as Exxon, Shell Oil, ConocoPhillips, Mobil and others that are considered major players in the oil and gas industry retain significant interests in Texas.
We believe that we can successfully compete against other independent companies by utilizing the expertise of consultants familiar with the structures to be developed, maintaining low corporate overhead and otherwise efficiently developing current lease interests.
Government Regulation
The production and sale of oil and gas is subject to regulation by state, federal and local authorities. In most areas there are statutory provisions regulating the production of oil and natural gas under which administrative agencies may set allowable rates of production and promulgate rules in connection with the operation and production of such wells, ascertain and determine the reasonable market demand of oil and gas, and adjust allowable rates with respect thereto.
The sale of liquid hydrocarbons was subject to federal regulation under the Energy Policy and Conservation Act of 1975 which amended various acts, including the Emergency Petroleum Allocation Act of 1973. These regulations and controls included mandatory restrictions upon the prices at which most domestic and crude oil and various petroleum products could be sold. All price controls and restrictions on the sale of crude oil at the wellhead have been withdrawn. It is possible, however, that such controls may be re-imposed in the future but when, if ever, such reimposition might occur and the effect thereof is unknown.
The sale of certain categories of natural gas in interstate commerce is subject to regulation under the Natural Gas Act and the Natural Gas Policy Act of 1978 ("NGPA"). Under the NGPA, a comprehensive set of statutory ceiling prices applies to all first sales of natural gas unless the gas is specifically exempt from regulation (i.e., unless the gas is deregulated). Administration and enforcement of the NGPA ceiling prices are delegated to the Federal Energy Regulatory Commission ("FERC"). In June 1986, the FERC issued Order No. 451, which in general is designed to provide a higher NGPA ceiling price for certain vintages of old gas. It is possible that we may in the future acquire significant amounts of natural gas subject to NGPA price regulations and/or FERC Order No. 451.
Our operations are subject to extensive and continually changing regulation because of legislation affecting the oil and natural gas industry is under constant review for amendment and expansion. Many departments and agencies, both federal and state, are authorized by statute to issue and have issued rules and regulations binding on the oil and natural gas industry and its individual participants. The failure to comply with such rules and regulations can result in large penalties. The regulatory burden on this industry increases our cost of doing business and, therefore, affects our profitability. However, we do not believe that we are affected in a significantly different way by these regulations than our competitors are affected.
Transportation and Production
We can make sales of oil, natural gas and condensate at market prices, which are not subject to price controls at this time. The price that we receive from the sale of these products is affected by our ability to transport and the cost of transporting these products to market. Under applicable laws, FERC regulates:
|
|
●
|
the construction of natural gas pipeline facilities, and
|
|
|
●
|
the rates for transportation of these products in interstate commerce.
|
Our possible future sales of natural gas are affected by the availability, terms and cost of pipeline transportation. The price and terms for access to pipeline transportation remain subject to extensive federal and state regulation. Several major regulatory changes have been implemented by Congress and FERC from 1985 to the present. These changes affect the economics of natural gas production, transportation and sales. In addition, FERC is continually proposing and implementing new rules and regulations affecting these segments of the natural gas industry that remain subject to FERC's jurisdiction. The most notable of these are natural gas transmission companies.
FERC's more recent proposals may affect the availability of interruptible transportation service on interstate pipelines. These initiatives may also affect the intrastate transportation of gas in some cases. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the natural gas industry. These initiatives generally reflect more light-handed regulation of the natural gas industry. The ultimate impact of the complex rules and regulations issued by FERC since 1985 cannot be predicted. In addition, some aspects of these regulatory developments have not become final but are still pending judicial and FERC final decisions. We cannot predict what further action FERC will take on these matters. However, we do not believe that any action taken will affect us much differently than it will affect other natural gas producers, gatherers and marketers with which we might compete.
Effective as of January 1, 1995, FERC implemented regulations establishing an indexing system for transportation rates for oil. These regulations could increase the cost of transporting oil to the purchaser. We do not believe that these regulations will affect us any differently than other oil producers and marketers with which we compete.
Drilling and Production.
Our anticipated drilling and production operations are subject to regulation under a wide range of state and federal statutes, rules, orders and regulations. Among other matters, these statutes and regulations govern:
|
|
●
|
the amounts and types of substances and materials that may be released into the environment;
|
|
|
●
|
the discharge and disposition of waste materials,
|
|
|
●
|
the reclamation and abandonment of wells and facility sites, and
|
|
|
●
|
the remediation of contaminated sites, and require:
|
|
|
●
|
permits for drilling operations,
|
|
|
●
|
drilling bonds, and
|
|
|
●
|
reports concerning operations.
|
Environmental Regulations
General. Our operations are affected by various state, local and federal environmental laws and regulations, including the:
|
|
●
|
Clean Air Act,
|
|
|
●
|
Oil Pollution Act of 1990,
|
|
|
●
|
Federal Water Pollution Control Act,
|
|
|
●
|
Resource Conservation and Recovery Act ("RCRA"),
|
|
|
●
|
Toxic Substances Control Act, and
|
|
|
●
|
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
|
These laws and regulations govern the discharge of materials into the environment or the disposal of waste materials, or otherwise relate to the protection of the environment. In particular, the following activities are subject to stringent environmental regulations:
|
|
●
|
drilling,
|
|
|
●
|
development and production operations,
|
|
|
●
|
activities in connection with storage and transportation of oil and other liquid hydrocarbons, and
|
|
|
●
|
use of facilities for treating, processing or otherwise handling hydrocarbons and wastes.
|
Violations are subject to reporting requirements, civil penalties and criminal sanctions. As with the industry generally, compliance with existing regulations increases our overall cost of business. The increased costs cannot be easily determined. Such areas affected include:
|
|
●
|
unit production expenses primarily related to the control and limitation of air emissions and
|
|
|
●
|
the disposal of produced water,
|
|
|
●
|
capital costs to drill exploration and development wells resulting from expenses primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes, and
|
|
|
●
|
capital costs to construct, maintain and upgrade equipment and facilities and remediate, plug and abandon inactive well sites and pits.
|
Environmental regulations historically have been subject to frequent change by regulatory authorities. Therefore, we are unable to predict the ongoing cost of compliance with these laws and regulations or the future impact of such regulations on our operations.
A discharge of hydrocarbons or hazardous substances into the environment could subject us to substantial expense, including both the cost to comply with applicable regulations pertaining to the cleanup of releases of hazardous substances into the environment and claims by neighboring landowners and other third parties for personal injury and property damage. We do not maintain insurance for protection against certain types of environmental liabilities.
The Clean Air Act requires or will require most industrial operations in the United States to incur capital expenditures in order to meet air emission control standards developed by the EPA and state environmental agencies. Although no assurances can be given, we believe the Clean Air Act requirements will not have a material adverse effect on our financial condition or results of operations.
RCRA is the principal federal statute governing the treatment, storage and disposal of hazardous wastes. RCRA imposes stringent operating requirements, and liability for failure to meet such requirements, on a person who is either:
|
|
●
|
a "generator" or "transporter" of hazardous waste, or
|
|
|
●
|
an "owner" or "operator" of a hazardous waste treatment, storage or disposal facility.
|
At present, RCRA includes a statutory exemption that allows oil and natural gas exploration and production wastes to be classified as nonhazardous waste. As a result, we will not be subject to many of RCRA's requirements because our operations will probably generate minimal quantities of hazardous wastes.
CERCLA, also known as "Superfund," imposes liability, without regard to fault or the legality of the original act, on certain classes of persons that contributed to the release of a "hazardous substance" into the environment. These persons include:
|
|
●
|
the "owner" or "operator" of the site where hazardous substances have been released, and
|
|
|
●
|
companies that disposed or arranged for the disposal of the hazardous substances found at the site.
|
CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. In the course of our ordinary operations, we could generate waste that may fall within CERCLA's definition of a "hazardous substance." As a result, we may be liable under CERCLA or under analogous state laws for all or part of the costs required to clean up sites at which such wastes have been disposed. Under such law we could be required to:
|
|
●
|
remove or remediate previously disposed wastes, including wastes disposed of or released by prior owners or operators,
|
|
|
●
|
clean up contaminated property, including contaminated groundwater, or
|
|
|
●
|
perform remedial plugging operations to prevent future contamination.
|
We could also be subject to other damage claims by governmental authorities or third parties related to such contamination.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. All of our reports are able to be reviewed through the SEC's Electronic Data Gathering Analysis and Retrieval System (EDGAR) which is publicly available through the SEC's website (http://www.sec.gov).
We intend to furnish to our stockholder’s annual reports containing financial statements audited by our independent certified public accountants and quarterly reports containing reviewed unaudited interim financial statements for the first three-quarters of each fiscal year. You may contact the Securities and Exchange Commission at (800) SEC-0330 or you may read and copy any reports, statements or other information that we file with the Securities and Exchange Commission at the Securities and Exchange Commission's public reference room at the following location:
Public Reference Room
100 F. Street N.W.
Washington, D.C. 2054900405
Telephone: (800) SEC-0330
Employees
As of December 31, 2019, we have one employee, our CFO/President who also serves as Chairman of the Board of Directors and have three (3) directors who are non-employee Directors. On November 1, 2018, John Lepin was hired as CFO/President. On December 4, 2019 the Company entered into an agreement with Joe Gregory as the Companies’ Agent in Oklahoma. We consider our relations with our subcontractors to be good.
Company's Office
Our offices are located at 4162 Meyerwood Drive, Houston, Texas 77025 and our telephone number is (713) 316-0061.
ITEM 1A. RISK FACTORS.
Risks Related to Our Business
We have a history of operating losses; we incurred a net loss in both fiscal year 2019 and fiscal year 2018. Our revenues are not currently sufficient to fund our operating expenses and there are no assurances we will develop profitable operations.
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.
Our auditors have raised substantial doubts as to our ability to continue as a going concern.
Our financial statements have been prepared assuming we will continue as a going concern. Since inception we have experienced recurring losses from operations, which losses have resulted in accumulated deficit of approximately $2,314,202 as of December 31, 2019. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that we will continue to incur losses in future periods until we begin reporting generating revenues. There are no assurances that we will be able to raise our revenues to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.
We have not generated minimal revenues and our ability to pay our operating expenses is dependent upon advances from related parties.
For the fiscal year ended December 31, 2019, we reported a net loss of $432,937. We had a working capital deficit of $453,454 at December 31, 2019. We have not yet begun generating revenue from our operations and are dependent upon a line of credit or other informal advances from a related party to pay our operating expenses and the continued development of our business plan. There are no assurances this related party will continue to advance funds to us that will satisfy our working capital needs until such time as we are able to raise additional capital or generate sufficient revenues to fund our operating expenses. While we seek ways to continue to operate by securing additional financing resources or alliances or other partnership agreements, we do not at this time have any commitments or agreements that provide for additional capital resources. Our financial condition and the going concern emphasis paragraph may also make it more difficult for us to maintain existing customer relationships and to initiate and secure new customer relationships.
We have historically been, and may continue to be, heavily reliant upon financing from related parties, which presents potential conflicts of interest that may adversely affect our financial condition and results of operations.
We have historically obtained financing from related parties, including major shareholders, directors and officers, in the form of debt, debt guarantees and issuances of equity securities, to finance working capital growth. These related parties have the ability to exercise significant control over our financing decisions, which may present conflicts of interest regarding the choice of parties from whom we obtain financing, as well as the terms of financing. No assurance can be given that the terms of financing transactions with related parties are or will be as favorable as those that could be obtained in arms' length negotiations with third parties.
We will need additional financing which we may not be able to obtain on acceptable terms if at all.
Our current operations are not sufficient to fund our operating expenses and we will need to raise additional working capital to continue to implement our business model, to provide funds for marketing to support our efforts to increase our revenues and for general overhead expenses, including those associated with our reporting obligations under Federal securities laws. Generally, small businesses such as ours for which there is only a limited public market for their securities face significant difficulties in their efforts to raise equity capital. While to date we have relied upon the relationships of our executive officers and shareholders in our capital raising efforts, there are no assurances that these resources will continually be available to us or provide us with sufficient funding. We do not have any commitments to provide additional capital and there are no assurances we will be able to raise capital upon terms which are favorable to our company. Even if we are able to raise capital, the structure of that capital raise could impact our company and our shareholders in a variety of ways. If we raise additional capital through the issuance of debt, this will result in interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. We cannot assure you that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all. If we do not raise funds as needed, we may not be able to continue to implement our business plan.
We are delinquent in our tax filings.
We failed to file federal tax returns for the fiscal years ended December 31, 2013 through 2019 and they are open for review by the various tax jurisdictions. We cannot assure you that we will not incur fines and penalties for failure to file our federal tax returns.
We have limited history and we cannot assure you that our business model will be successful in the future or that our operations will be profitable.
Our company was formed in 2013 but we have yet to begin generating revenues from our operations. Accordingly, investors have no operating history upon which to evaluate our business model. There can be no assurances whatsoever that we will be able to successfully implement our business model, penetrate our target markets or attain a wide following for our services. We are subject to all the risks inherent in an early stage enterprise and our prospects must be considered in light of the numerous risks, expenses, delays, problems and difficulties frequently encountered in those businesses.
Our business and stock price could be adversely affected if we are not successful in enhancing our management, systems, accounting, controls and reporting performance.
We have experienced, and may continue to experience, difficulties in implementing the management, operations and accounting systems, controls and procedures necessary to support our growth and expanded operations, as well as difficulties in complying with the accounting and reporting requirements related to our growth. With respect to enhancing our management and operations team, we may experience difficulties in finding and retaining additional qualified personnel, and if such personnel are not available locally, we may incur higher recruiting, relocation, and compensation expense. In an effort to meet the demands of our planned activities in fiscal 2020 and thereafter, we may be required to supplement our staff with contract and consultant personnel until we are able to hire new employees. We further may not be successful in our efforts to enhance our systems, accounting, controls and reporting performance. All of this may have a material adverse effect on our business, results of operations, cash flows and growth plans, on our regulatory and listing status, and on our stock price.
We will be subject to risks in connection with acquisitions, and the integration of significant acquisitions may be difficult.
Our business plan contemplates significant acquisitions of reserves, properties, prospects, and leaseholds and other strategic transactions that appear to fit within our overall business strategy, which may include the acquisition of asset packages of producing properties or existing companies or businesses operating in our industry. The successful acquisition of producing properties requires an assessment of several factors, including:
|
|
●
|
recoverable reserves;
|
|
|
●
|
future oil and natural gas prices and their appropriate differentials;
|
|
|
●
|
development and operating costs; and
|
|
|
●
|
potential environmental and other liabilities.
|
The accuracy of these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject properties that we believe to be generally consistent with industry practices. Our review will not reveal all existing or potential problems nor will it permit us to become sufficiently familiar with the properties to fully assess their deficiencies and potential recoverable reserves. Inspections may not always be performed on every well, and environmental problems are not necessarily observable even when an inspection is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of the problems. We are not entitled to contractual indemnification for environmental liabilities and acquired properties on an "as is" basis. Significant acquisitions of existing companies or businesses and other strategic transactions may involve additional risks, including:
|
|
●
|
diversion of our management's attention to evaluating, negotiating, and integrating significant acquisitions and strategic transactions;
|
|
|
●
|
the challenge and cost of integrating acquired operations, information management, and other technology systems, and business cultures with our own while carrying on our ongoing business;
|
|
|
●
|
difficulty associated with coordinating geographically separate organizations; and
|
|
|
●
|
the challenge of attracting and retaining personnel associated with acquired operations.
|
The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our business. If our senior management is not able to manage the integration process effectively, or if any significant business activities are interrupted as a result of the integration process, our business could be materially and adversely affected.
Future economic conditions in the U.S. and key international markets may materially adversely impact our operating results.
The U.S. and other world economies are slowly recovering from a global financial crisis and recession that began in 2008. Growth has resumed but is modest and at an unsteady rate. There are likely to be significant long-term effects resulting from the recession and credit market crisis, including a future global economic growth rate that is slower than in the years leading up to the crisis, and more volatility may occur before a sustainable, yet lower, growth rate is achieved. Global economic growth drives demand for energy from all sources, including fossil fuels. A lower future economic growth rate could result in decreased demand growth for our crude oil and natural gas production as well as lower commodity prices, which would reduce our cash flows from operation and our profitability.
Risks Related to the Oil and Natural Gas Industry
Estimates of oil and natural gas reserves are inherently imprecise. Any material inaccuracies in these reserve estimates or underlying assumptions will affect materially the quantities and present value of our reserves.
Estimates of proved oil and natural gas reserves and the future net cash flows attributable to those reserves are prepared by independent petroleum engineers and geologists. There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and cash flows attributable to such reserves, including factors beyond our control and that of our engineers. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. Different reserve engineers may make different estimates of reserves and cash flows based on the same available data. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to such reserves, is a function of the available data, assumptions regarding future oil and natural gas prices and expenditures for future development drilling and exploration activities, and of engineering and geological interpretation and judgment. Additionally, reserves and future cash flows may be subject to material downward or upward revisions, based upon production history, development drilling and exploration activities and prices of oil and natural gas. Actual future production, revenue, taxes, development drilling expenditures, operating expenses, underlying information, quantities of recoverable reserves and the value of cash flows from such reserves may vary significantly from the assumptions and underlying information set forth herein.
We may not realize an adequate return on wells that we drill.
Drilling for oil and gas involves numerous risks, including the risk that we will not encounter commercially productive oil or gas reservoirs. The wells we drill or participate in may not be productive, and we may not recover all or any portion of our investment in those wells. The seismic data and other technologies we use do not allow us to know conclusively prior to drilling a well that crude oil or natural gas is present or may be produced economically. The costs of drilling, completing, and operating wells are often uncertain, and drilling operations may be curtailed, delayed, or canceled as a result of a variety of factors including, without limitation:
|
|
●
|
unexpected drilling conditions;
|
|
|
●
|
pressure or irregularities in formations;
|
|
|
●
|
equipment failures or accidents;
|
|
|
●
|
fires, explosions, blowouts, and surface cratering;
|
|
|
●
|
marine risks such as capsizing, collisions, or adverse weather conditions; and
|
|
|
●
|
increase in the cost of, or shortages or delays in the availability of, drilling rigs and equipment.
|
Future drilling activities may not be successful, and, if unsuccessful, this failure could have an adverse effect on our future results of operations and financial condition. While all drilling, whether developmental or exploratory, involves these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons.
Oil and gas prices fluctuate due to a number of uncontrollable factors, creating a component of uncertainty in our development plans and overall operations. Declines in prices adversely affect our financial results and rate of growth in proved reserves and production.
Oil and gas markets are very volatile, and we cannot predict future oil and natural gas prices. The prices we receive for our oil and natural gas production heavily influence our revenue, profitability, access to capital and future rate of growth. The prices we receive for our production depend on numerous factors beyond our control. These factors include, but are not limited to, changes in global supply and demand for oil and gas, the actions of the Organization of Petroleum Exporting Countries, the level of global oil and gas exploration and production activity, weather conditions, technological advances affecting energy consumption, domestic and foreign governmental regulations and tax policies, proximity and capacity of oil and gas pipelines and other transportation facilities.
Discoveries or acquisitions of additional reserves are needed to avoid a material decline in reserves and production.
The production rate from oil and gas properties generally declines as reserves are depleted, while related per-unit production costs generally increase as a result of decreasing reservoir pressures and other factors. Therefore, unless we add reserves through exploration and development activities or, through engineering studies, identify additional behind-pipe zones, secondary recovery reserves, or tertiary recovery reserves, or acquire additional properties containing proved reserves, our estimated proved reserves will decline materially as reserves are produced. Future oil and gas production is, therefore, highly dependent upon our level of success in acquiring or finding additional reserves on an economic basis. Furthermore, if oil or gas prices increase, our cost for additional reserves could also increase.
Our business involves many operating risks that may result in substantial losses for which insurance may be unavailable or inadequate.
Our operations will be subject to hazards and risks inherent in drilling for oil and gas, such as fires, natural disasters, explosions, formations with abnormal pressures, casing collapses, uncontrollable flows of underground gas, blowouts, surface cratering, pipeline ruptures or cement failures, and environmental hazards such as natural gas leaks, oil spills and discharges of toxic gases. Any of these risks can cause substantial losses resulting from injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution and other environmental damages, regulatory investigations and penalties, suspension of our operations and repair and remediation costs. In addition, our liability for environmental hazards may include conditions created by the previous owners of properties that we purchase or lease. We expect to maintain insurance coverage against some, but not all, potential losses. Losses could occur for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could harm our financial condition and results of operation.
Our industry is subject to extensive environmental regulation that may limit our operations and negatively impact our production. As a result of increased enforcement of existing regulations and potential new regulations following the Gulf of Mexico oil spill, the costs for complying with government regulation could increase.
Extensive federal, state, and local environmental laws and regulations in the United States affect all of our operations. Environmental laws to which we are subject in the U.S. include, but are not limited to, the Clean Air Act and comparable state laws that impose obligations related to air emissions, the Resource Conservation and Recovery Act of 1976 ("RCRA"), and comparable state laws that impose requirements for the handling, storage, treatment or disposal of solid and hazardous waste from our facilities, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and comparable state laws that regulate the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or at locations to which our hazardous substances have been transported for disposal, and the Clean Water Act, and comparable state laws that regulate discharges of wastewater from our facilities to state and federal waters. Failure to comply with these laws and regulations or newly adopted laws or regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations or imposing additional compliance requirements on such operations. Certain environmental laws, including CERCLA and analogous state laws, impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances or hydrocarbons have been disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Environmental legislation may require that we do the following:
|
|
●
|
acquire permits before commencing drilling;
|
|
|
●
|
restrict spills, releases or emissions of various substances produced in association with our operations;
|
|
|
●
|
limit or prohibit drilling activities on protected areas such as wetlands or wilderness areas;
|
|
|
●
|
take reclamation measures to prevent pollution from former operations;
|
|
|
●
|
take remedial measures to mitigate pollution from former operations, such as plugging abandoned wells and remedying contaminated soil and groundwater; and
|
|
|
●
|
take remedial measures with respect to property designated as a contaminated site.
|
There is inherent risk of incurring environmental costs and liabilities in connection with our operations due to our handling of natural gas and other petroleum products, air emissions and water discharges related to our operations, and historical industry operations and waste disposal practices. The costs of any of these liabilities are presently unknown but could be significant. We may not be able to recover all or any of these costs from insurance. In addition, we are unable to predict what impact the Gulf oil spill will have on independent oil and gas companies such as our company.
The effects of future environmental legislation on our business are unknown but could be substantial.
Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Changes in, or enforcement of, environmental laws may result in a curtailment of our production activities, or a material increase in the costs of production, development drilling or exploration, any of which could have a material adverse effect on our financial condition and results of operations or prospects. In addition, many countries, as well as several states in the United States have agreed to regulate emissions of "greenhouse gases." Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning natural gas, are greenhouse gases. Regulation of greenhouse gases could adversely impact some of our operations and demand for products in the future.
Should we fail to comply with all applicable FERC administered statutes, rules, regulations and orders, we could be subject to substantial penalties and fines.
Under the Energy Policy Act of 2005, the Federal Energy Regulatory Commission, or FERC, has authority to impose penalties for violations of the Natural Gas Act, up to $1 million per day for each violation and disgorgement of profits associated with any violation. FERC has recently proposed and adopted regulations that may subject our facilities to reporting and posting requirements. Additional rules and legislation pertaining to these and other matters may be considered or adopted by FERC from time to time. Failure to comply with FERC regulations could subject us to civil penalties.
Proposed federal, state, or local regulation regarding hydraulic fracturing could increase our operating and capital costs.
Several proposals are before the U.S. Congress that, if implemented, would either prohibit or restrict the practice of hydraulic fracturing or subject the process to regulation under the Safe Drinking Water Act. Several states are considering legislation to regulate hydraulic fracturing practices that could impose more stringent permitting, transparency, and well construction requirements on hydraulic fracturing operations or otherwise seek to ban fracturing activities altogether. In addition, some municipalities have significantly limited or prohibited drilling activities and/or hydraulic fracturing, or are considering doing so. We routinely use fracturing techniques in the U.S. to expand the available space for natural gas and oil to migrate toward the wellbore. It is typically done at substantial depths in very tight formations.
Although it is not possible at this time to predict the final outcome of the legislation regarding hydraulic fracturing, any new federal, state, or local restrictions on hydraulic fracturing that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions in the U.S.
Risks Related to the Ownership of Our Securities
Outstanding notes and warrants may adversely affect us in the future and cause dilution to existing shareholders.
We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of our present shareholders. We are currently authorized to issue 65,000,000 shares of common stock and 10,000,000 shares of Series A convertible preferred stock with such designations, preferences and rights as determined by our Board of Directors. As of December 31, 2019, 17,822,428 shares of our Common Stock and no shares of our Series A convertible preferred stock are outstanding.
Any further issuances that should be authorized and issued by the Company, and the conversion and exercise of any Preferred Stock and Warrants, respectively, will increase the number of shares of common stock outstanding, which will have a dilutive effect on our existing shareholders.
Substantial stock ownership by our affiliates may limit the ability of our non-affiliate shareholders to influence the outcome of director elections and other matters requiring shareholder approval.
As of the date of this Report, and until they submit the required stock power necessary to cancel their shares or otherwise dispose of same, AEI Acquisition Company. LLC owns approximately 92.69% of the Company's currently outstanding common stock and therefore may have a significant influence in the election of our directors and, therefore, our policies and direction. This concentration of voting power could have the effect of delaying or preventing a change in control or discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market price of our common stock or prevent our shareholders from realizing a premium over the market price for their shares of common stock.
There is a lack of liquidity for our common stock.
There is currently only a limited public market for the Company's Common Stock and there can be no assurance that a more robust trading market will develop further or be maintained in the future.
Our common stock is a "penny stock" and may be difficult to sell.
The SEC has adopted regulations which generally define a "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, it may be designated as a "penny stock" according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.
The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.
Penny stocks are frequent targets of fraud or market manipulation. Patterns of fraud and abuse include:
|
|
●
|
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
|
|
|
●
|
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
|
|
|
●
|
“Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
|
|
|
●
|
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
|
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
Our management is aware of the abuses that have occurred historically in the penny stock market.
Our stock price is volatile, which could adversely affect your investment.
Our stock price, like that of other oil and gas companies, is highly volatile. Our stock price may be affected by such factors as:
|
|
●
|
product development announcements by us or our competitors;
|
|
|
●
|
regulatory matters;
|
|
|
●
|
announcements in the software community;
|
|
|
●
|
intellectual property and legal matters; and
|
|
|
●
|
broader industry and market trends unrelated to our performance
|
In addition, if our revenues or operating results in any period fail to meet the investment community's expectations, there could be an immediate adverse impact on our stock price.
Our publicly filed reports are subject to review by the SEC, and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of the company's common stock.
The reports of publicly traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company's reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. We could be required to modify, amend or reformulate information contained in prior filings as a result of an SEC review. Any modification, amendment or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of the Company's common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. DESCRIPTION OF PROPERTY.
Corporate Office
Our principal executive offices are located at 4162 Meyerwood Drive, Houston, TX 77025.
ITEM 3. LEGAL PROCEEDINGS.
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:
|
|
●
|
For three consecutive years, Lopez and LBB “engaged in a pattern of improper professional conduct as auditors”;
|
|
|
●
|
Lopez failed to exercise due professional care in performing his audit work; and
|
|
|
●
|
Lopez and LBB committed “multiple instances of highly unreasonable conduct in circumstances that warranted heightened scrutiny.”
|
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 4. MINE SAFETY DISCLOSURES.
Not applicable to our operations.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES.
Market Information.
Our common stock is not yet quoted. Without an active public trading market, a stockholder may not be able to liquidate their shares. If a market does develop, the price for our securities may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Factors we discuss in this report, including the many risks associated with an investment in our securities, may have a significant impact on the market price of our common stock.
The ability of individual stockholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state.
|
|
|
High
|
|
|
Low
|
|
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
$
|
4.89
|
|
|
$
|
4.25
|
|
|
June 30, 2018
|
|
$
|
4.89
|
|
|
$
|
4.25
|
|
|
September 30, 2018
|
|
$
|
8.00
|
|
|
$
|
2.00
|
|
|
December 31, 2018
|
|
$
|
6.50
|
|
|
$
|
6.50
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
$
|
6.00
|
|
|
$
|
6.00
|
|
|
June 30, 2019
|
|
$
|
7.20
|
|
|
$
|
6.00
|
|
|
September 30, 2019
|
|
$
|
5.00
|
|
|
$
|
5.00
|
|
|
December 31, 2019
|
|
$
|
5.00
|
|
|
$
|
4.40
|
|
The sale price of our common stock as reported on the OTC Pink Market was $4.40 on December 31, 2019. As of December 31, 2019, there were approximately 43 recorded owners of our common stock.
Dividend Policy
The payment of dividends is subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid or declared any dividends upon our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, do not anticipate paying any dividends upon our common stock in the foreseeable future.
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:
|
|
•
|
our financial condition;
|
|
|
•
|
earnings;
|
|
|
•
|
need for funds;
|
|
|
•
|
capital requirements;
|
|
|
•
|
prior claims of preferred stock to the extent issued and outstanding; and
|
|
|
•
|
other factors, including any applicable laws.
|
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
Securities Authorized for Issuance under Equity Compensation Plans
We currently do not maintain any equity compensation plans.
Recent Sales of Unregistered Securities
We have no recent sales of unregistered securities.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to a smaller reporting company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operation for 2019 and 2018 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.
Overview and Outlook
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 will position us well to compete in this very competitive market. Our strategy is to acquire producing properties, which have proven un-drilled locations available for further development. There is 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 staff 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 $55 per barrel of oil and $3.50 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.
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. Our auditors have expressed a going concern opinion which raises substantial doubt about the Company’s ability to continue as a going concern.
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America (U.S. GAAP) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established 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.
Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the Business paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds and funds from the sale of shares of stock to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
Results of Operations
For the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
During the years ended December 31, 2019 and 2018, the Company had minimal revenues from its operating activities. In part, because such activities were focused on identifying potential opportunities and properties.
During the year ended December 31, 2019, the Company recognized a net loss of $432,937 compared to $1,500,410 for the year ended December 31, 2018. The decrease of $1,067,473 was primarily a result of decreases in director fees of $688,199, increases in derivative liabilities of $753,863, consulting fees of $281,750, and impairment of $50,000.
Liquidity and Capital Resources
As of December 31, 2019, the Company had no current assets and total noncurrent assets of $10,000 consisting of G&G costs. As of December 31, 2019, the Company had total current liabilities of $453,454 which includes $190,546 in accounts payable, $113,569 in accrued officer salaries, $65,289 in derivative liability, $33,653 in interest payable, $50,000 in a short-term loan and a short-term advance from related party of $397. The Company had a working capital deficit of $453,454.
During the year ended December 31, 2019, the Company used cash of $151,997 in our operations compared to $64,767 during the year ended December 31, 2018. No cash was provided or used by investing activities during the year ended December 31, 2019. During the year ended December 31, 2019, the Company received funds of $151,757 from our financing activities compared to $73,946 during the year ended December 31, 2018. Net cash decreased $240 for the year ended December 31, 2019, and decreased $821 for the year ended December 31, 2018.
At various times during the year ended December 31, 2019, AEI Acquisition Company, LLC, a related party, advanced funds to the Company for operating expenses. During the year ended December 31, 2019, the Company made payments on advances from related party of $53,375 and received a net amount of $49,580 during the year ended December 31, 2018. During 2018, Fidare, a related party, advanced the Company $24,366. This advance bears no interest and is due on demand. During the year ended December 31, 2019, a related party paid $42,406 of expenses on behalf of the Company.
In summary, our cash flows were as follows:
|
|
|
Fiscal Year Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net cash used in operating activities
|
|
$
|
(151,997
|
)
|
|
$
|
(64,767
|
)
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
Net cash provided by financing activities
|
|
|
151,757
|
|
|
|
73,946
|
|
|
Net change in cash and cash equivalents
|
|
|
(240
|
)
|
|
|
(821
|
)
|
|
Cash and cash equivalents, beginning of year
|
|
|
240
|
|
|
|
1,061
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
-
|
|
|
$
|
240
|
|
Short Term
On a short-term basis, the Company has not generated any revenue or revenues sufficient to cover operations. Based on prior history, the Company will continue to have insufficient revenue to satisfy current and recurring liabilities as the Company continues exploration activities.
Capital Resources
Other than the targeted acquisitions, the Company has no material commitments for capital expenditures within the next year, however if operations are commenced, substantial capital will be needed to pay for participation, investigation, exploration, acquisition and working capital.
Need for Additional Financing
The Company does not have capital sufficient to meet its cash needs. The Company will have to seek loans or equity placements to cover such cash needs. Once exploration commences, its needs for additional financing is likely to increase substantially.
No commitments to provide additional funds have been made by the Company's management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow us to cover the Company's expenses as they may be incurred.
The Company will need substantial additional capital to support its proposed future petroleum exploration operations. The Company has no revenues. The Company has no committed source for any funds as of the date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised when needed, the Company may not be able to carry out its business plan, may never achieve sales or royalty income, and could fail in business as a result of these uncertainties.
Decisions regarding future participation in exploration wells or geophysical studies or other activities will be made on a case-by-case basis. The Company may, in any particular case, decide to participate or decline participation. If participating, the Company may pay its proportionate share of costs to maintain the Company's proportionate interest through cash flow or debt or equity financing. If participation is declined, the Company may elect to farm-out, non-consent, sell or otherwise negotiate a method of cost sharing in order to maintain some continuing interest in the prospect.
Off Balance Sheet Arrangements
None
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with a maturity of three months or less and deposits in money market funds that are readily convertible to cash to be cash equivalents. Cash and cash equivalents were primarily concentrated in one financial institution at December 31, 2019 and 2018. The Company periodically assesses the financial condition of its financial institutions and considers any possible credit risk to be minimal.
Income taxes
The Company accounts for income taxes under ASC 740 "Income Taxes" which codified SFAS 109, "Accounting for Income Taxes" and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No.109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Fair Value of Financial Instruments
The Company follows the authoritative accounting guidance for measuring fair value of assets and liabilities in its financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The Company is able to classify fair value balances based on the observability of these inputs. The authoritative guidance for fair value measurements establishes three levels of the fair value hierarchy, defined as follows:
|
•
|
Level 1: Unadjusted, quoted prices for identical assets or liabilities in active markets.
|
|
|
|
|
•
|
Level 2: Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly for substantially the full term of the asset or liability.
|
|
|
|
|
•
|
Level 3: Significant, unobservable inputs for use when little or no market data exists, requiring a significant degree of judgment.
|
The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements. Depending on the particular asset or liability, input availability can vary depending on factors such as product type, longevity of a product in the market and other particular transaction conditions. In some cases, certain inputs used to measure fair value may be categorized into different levels of the fair value hierarchy. For disclosure purposes under the accounting guidance, the lowest level that contains significant inputs used in the valuation should be chosen.
Impairment of Long-Lived Assets
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 years ended December 31, 2019 and 2018, the Company evaluated the future production of its leases through the termination of each lease. The Company entered into an escrow agreement for $50,000 with Premier Gas Company, LLC on April 30, 2019. The escrow payment was to hold a purchase and sale agreement dated January 29, 2019. The agreement was not completed and the previously capitalized payment was impaired in June 2019. During the year ended December 31, 2018, there was no impairment recorded.
Use of Estimates
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s periodic filings with the Securities and Exchange Commission include, where applicable, disclosures of estimates, assumptions, uncertainties and markets that could affect the financial statements and future operations of the company.
Full Cost
We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.
Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.
We assess all items classified as unevaluated property on at least an annual basis for inclusion in the amortization base. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and are then subject to amortization.
Capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proven reserves would significantly change.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
Report of Report of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018
|
F-2
|
|
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018
|
F-3
|
|
Consolidated Statement of Changes in Stockholders' Deficit for the years ended December 31, 2019 and 2018
|
F-4
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
|
F-5
|
|
Notes to Consolidated Financial Statements
|
F-6 – F-18
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Alpha Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Alpha Energy, Inc. and its subsidiary (collectively, the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2020.
Houston, Texas
September 24, 2020
ALPHA ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
240
|
|
|
Total current assets
|
|
|
-
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Assets:
|
|
|
|
|
|
|
|
|
|
Oil and gas property, unproved, full cost
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
10,000
|
|
|
$
|
10,240
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
300,428
|
|
|
$
|
55,568
|
|
|
Accounts payable and accrued expenses - related party
|
|
|
3,687
|
|
|
|
6,579
|
|
|
Interest payable
|
|
|
33,653
|
|
|
|
11,479
|
|
|
Short term advance from related party
|
|
|
397
|
|
|
|
24,366
|
|
|
Short term note payable
|
|
|
50,000
|
|
|
|
-
|
|
|
Derivative liability
|
|
|
65,289
|
|
|
|
549,919
|
|
|
Total current liabilities
|
|
|
453,454
|
|
|
|
647,911
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible credit line payable – related party, net of discount of $17,396 and $49,343, respectively
|
|
|
113,182
|
|
|
|
91,103
|
|
|
Asset retirement obligation
|
|
|
786
|
|
|
|
710
|
|
|
Total Liabilities
|
|
|
567,422
|
|
|
|
739,724
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized and 0 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock, $0.0001 par value, 65,000,000 shares authorized and 17,822,428 and 17,217,428 shares issued and outstanding, respectively
|
|
|
1,783
|
|
|
|
1,722
|
|
|
Additional paid-in capital
|
|
|
1,754,997
|
|
|
|
1,150,059
|
|
|
Accumulated deficit
|
|
|
(2,314,202
|
)
|
|
|
(1,881,265
|
)
|
|
Total Stockholders' Deficit
|
|
|
(557,422
|
)
|
|
|
(729,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
10,000
|
|
|
$
|
10,240
|
|
See accompanying notes to the consolidated financial statements.
ALPHA ENERGY, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Year Ended
December 31, 2019
|
|
|
Year Ended
December 31, 2018
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
4,278
|
|
|
$
|
2,346
|
|
|
Lease operating expenses
|
|
|
7,239
|
|
|
|
2,678
|
|
|
Gross loss
|
|
|
(2,961
|
)
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
34,874
|
|
|
|
41,698
|
|
|
Board of directors fees
|
|
|
192,000
|
|
|
|
880,199
|
|
|
General and administrative
|
|
|
583,611
|
|
|
|
239,988
|
|
|
Impairment loss
|
|
|
50,000
|
|
|
|
-
|
|
|
Total operating expenses
|
|
|
860,485
|
|
|
|
1,161,885
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(863,446
|
)
|
|
|
(1,162,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(61,689
|
)
|
|
|
(76,528
|
)
|
|
Gain (loss) on change in fair value of derivative liabilities
|
|
|
492,198
|
|
|
|
(261,665
|
)
|
|
Total other income (expense)
|
|
|
430,509
|
|
|
|
(338,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(432,937
|
)
|
|
$
|
(1,500,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.09
|
)
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,594,220
|
|
|
|
17,066,576
|
|
|
Diluted
|
|
|
17,724,798
|
|
|
|
17,066,576
|
|
See accompanying notes to the consolidated financial statements.
ALPHA ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Total Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
17,016,428
|
|
|
$
|
1,702
|
|
|
$
|
101,378
|
|
|
$
|
(380,855
|
)
|
|
$
|
(277,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
201,000
|
|
|
|
20
|
|
|
|
1,048,681
|
|
|
|
-
|
|
|
|
1,048,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,500,410
|
)
|
|
|
(1,500,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 - As Restated
|
|
|
17,217,428
|
|
|
|
1,722
|
|
|
|
1,150,059
|
|
|
|
(1,881,265
|
)
|
|
|
(729,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash
|
|
|
228,000
|
|
|
|
23
|
|
|
|
227,977
|
|
|
|
-
|
|
|
|
228,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
377,000
|
|
|
|
38
|
|
|
|
376,961
|
|
|
|
-
|
|
|
|
376,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(432,937
|
)
|
|
|
(432,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
17,822,428
|
|
|
$
|
1,783
|
|
|
$
|
1,754,997
|
|
|
$
|
(2,314,202
|
)
|
|
$
|
(557,422
|
)
|
See accompanying notes to the consolidated financial statements.
ALPHA ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Year Ended
December 31, 2019
|
|
|
Year Ended
December 31, 2018
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(432,937
|
)
|
|
$
|
(1,500,410
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
377,000
|
|
|
|
1,042,701
|
|
|
Amortization of debt discount
|
|
|
39,514
|
|
|
|
68,242
|
|
|
(Gain) loss on change in fair value of derivative liabilities
|
|
|
(492,198
|
)
|
|
|
261,665
|
|
|
Impairment loss
|
|
|
50,000
|
|
|
|
-
|
|
|
Asset retirement obligation expense
|
|
|
76
|
|
|
|
75
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Account receivable
|
|
|
-
|
|
|
|
1,285
|
|
|
Accounts payable
|
|
|
287,266
|
|
|
|
40,809
|
|
|
Accounts payable-related party
|
|
|
(2,892)
|
|
|
|
12,579
|
|
|
Interest Payable
|
|
|
22,174
|
|
|
|
8,287
|
|
|
Net cash used in operating activities
|
|
|
(151,997
|
)
|
|
|
(64,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
Deposit for purchase of oil and gas properties
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible credit line payable - related party
|
|
|
-
|
|
|
|
49,580
|
|
|
Payment on convertible credit line payable - related party
|
|
|
(22,868
|
)
|
|
|
-
|
|
|
Advances from related party
|
|
|
-
|
|
|
|
24,366
|
|
|
Payments on short term advances - related party
|
|
|
(53,375
|
)
|
|
|
-
|
|
|
Proceeds from sale of common stock
|
|
|
228,000
|
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
151,757
|
|
|
|
73,946
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(240
|
)
|
|
|
(821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at beginning of period
|
|
|
240
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of period
|
|
$
|
-
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued for settlement of accrued Board of Director fees
|
|
$
|
-
|
|
|
$
|
6,000
|
|
|
Debt discount on convertible credit line payable related party
|
|
$
|
7,568
|
|
|
$
|
49,580
|
|
|
Non cash short term loan payable
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
Expenses paid on behalf of the Company by related party
|
|
$
|
42,406
|
|
|
$
|
-
|
|
See accompanying notes to the consolidated financial statements.
ALPHA ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Nature of Business and Trade Name
The Company was incorporated in the State of Colorado on September 26, 2013 for the purpose of acquiring and executing on oil and gas leases. The Company has realized limited revenues from its planned business activities.
A summary of significant accounting policies of Alpha Energy, Inc. (“we”, “our”, the Company) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.
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. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of Presentation and 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.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all short-term debt securities purchased with maturity of three months or less to be cash equivalents.
Revenue and Cost Recognition
Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard, we recognize revenues when the following criteria are met: (i) persuasive evidence of a contract with a customer exists, (ii) identifiable performance obligations under the contract exist, (iii) the transaction price is determinable for each performance obligation, (iv) the transaction price is allocated to each performance obligation, and (v) the performance obligations are satisfied. We derive all of our revenues from oil and gas production.
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 December 31, 2019 or 2018. The Company recorded revenues of $4,278 and $2,346 and costs of revenues totaling $7,239 and $2,678 during the years ended December 31, 2019 and 2018, respectively. There was $0 of accounts receivable at December 31, 2019 and 2018.
Basic and Diluted Loss per share
Net loss per share is provided in accordance with FASB ASC 260-10, "Earnings (Loss) per 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 year ended December 31, 2019, there were 130,578 shares issuable from convertible credit line payable that were considered for their dilutive effects. For the year ended December 31, 2018, there were 93,631 shares issuable from convertible credit line payable which were considered for their dilutive effects but concluded to be anti-dilutive.
The reconciliation of basic and diluted loss per share is as follows:
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss
|
|
$
|
(432,937
|
)
|
|
$
|
(1,500,410
|
)
|
|
Add back: Gain on change in fair value of derivative liabilities
|
|
|
(492,198
|
)
|
|
|
-
|
|
|
Diluted net loss
|
|
$
|
(925,135
|
)
|
|
$
|
(1,500,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive shares:
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
17,594,220
|
|
|
|
17,066,576
|
|
|
Shares issuable from convertible credit line payable
|
|
|
130,578
|
|
|
|
-
|
|
|
Dilutive shares
|
|
|
17,724,798
|
|
|
|
17,066,576
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.09
|
)
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.09
|
)
|
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 on a recurring basis. 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.
Oil and natural gas properties
We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.
Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.
We assess all items classified as unevaluated property on at least an annual basis for inclusion in the amortization base. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and are then subject to amortization.
Capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to prove reserves would significantly change.
Concentrations of Risk
The Company has interest in three separate oil and gas leases, all of which are located in the state of Colorado. Environmental and regulatory factors within the state beyond the control of the Company may limit the Company’s future production of all its leases.
The Company has a single buyer for the gas produces from one of its leases. The loss of this buyer would have a material adverse impact on our business.
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 proven 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 years ended December 31, 2019 and 2018, the Company evaluated the future production of its leases through the termination of each lease. The Company entered into an escrow agreement for $50,000 with Premier Gas Company, LLC on April 30, 2019. The escrow payment was to hold a purchase and sale agreement dated January 29, 2019. The agreement was not completed and the previously capitalized payment was impaired in June 2019. During the year ended December 31, 2018, there was no impairment recorded.
Asset retirement obligation
We record the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived asset and the cost is subsequently allocated to expense using a systematic and rational method. We record an asset retirement obligation to reflect our legal obligations related to future plugging and abandonment of our oil and natural gas wells and gathering systems. We estimate the expected cash flow associated with the obligation and discount the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary. We evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), we will update our assessment accordingly. Additional retirement obligations increase the liability associated with new oil and natural gas wells and gathering systems as these obligations are incurred. The Company had accrued an asset retirement obligation liability totaling $786 and $710 as of December 31, 2019 and 2018, respectively.
Income Taxes
The Company accounts for income taxes under ASC 740 "Income Taxes" which codified SFAS 109, "Accounting for Income Taxes" and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No.109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company adopted this standard as of January 1, 2019. The adoption of this standard did not have an impact on the Company’s financial statements due to the lack of lease agreements for the Company at this time. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Restatement
In 2020, the Company identified errors in account balances in the Form 10K filed for the year ended December 31, 2018. The following accounts were deemed to contain errors: accounts payable, derivative liability, common stock, additional paid in capital, operating expenses, interest expense and loss on derivative liabilities. The errors resulted from incorrect recording of stock-based compensation and overstatements of derivative liability and amortization of debt discount.
The tables below summarize previously reported amounts and the restated presentation of the consolidated balance sheet, consolidated statement of operations and consolidated statement of cash flows for the affected year:
ALPHA ENERGY, INC.
BALANCE SHEET
|
|
|
December 31, 2018
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
240
|
|
|
$
|
-
|
|
|
$
|
240
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Current Assets
|
|
|
240
|
|
|
|
-
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas property, unproved, full cost
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
Total Assets
|
|
$
|
10,240
|
|
|
$
|
-
|
|
|
$
|
10,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
550,848
|
|
|
$
|
(495,280
|
)
|
|
$
|
55,568
|
|
|
Accounts payable related party
|
|
|
-
|
|
|
|
6,579
|
|
|
|
6,579
|
|
|
Interest payable
|
|
|
11,479
|
|
|
|
-
|
|
|
|
11,479
|
|
|
Short term advance from related party
|
|
|
24,366
|
|
|
|
-
|
|
|
|
24,366
|
|
|
Derivative liability
|
|
|
608,598
|
|
|
|
(58,679
|
)
|
|
|
549,919
|
|
|
Total current liabilities
|
|
|
1,195,291
|
|
|
|
(547,380
|
)
|
|
|
647,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible credit line payable - related party
|
|
|
110,952
|
|
|
|
(19,849
|
)
|
|
|
91,103
|
|
|
Asset retirement obligation
|
|
|
710
|
|
|
|
-
|
|
|
|
710
|
|
|
Total liabilities
|
|
|
1,306,953
|
|
|
|
(567,229
|
)
|
|
|
739,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common stock, $0.0001 par value; 65,000,000 shares authorized; 17,217,428 issued and outstanding at December 31, 2018
|
|
|
1,714
|
|
|
|
8
|
|
|
|
1,722
|
|
|
Additional paid in capital
|
|
|
607,806
|
|
|
|
542,253
|
|
|
|
1,150,059
|
|
|
Accumulated deficit
|
|
|
(1,906,233
|
)
|
|
|
24,968
|
|
|
|
(1,881,265
|
)
|
|
Total stockholder deficit
|
|
|
(1,296,713
|
)
|
|
|
567,229
|
|
|
|
(729,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
10,240
|
|
|
$
|
-
|
|
|
$
|
10,240
|
|
ALPHA ENERGY, INC.
STATEMENT OF OPERATIONS
|
|
|
For the year ended December 31,
|
|
|
|
|
2018
|
|
|
|
|
|
|
2018
|
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas Sales
|
|
$
|
2,346
|
|
|
$
|
-
|
|
|
$
|
2,346
|
|
|
Lease operating expenses
|
|
|
2,677
|
|
|
|
1
|
|
|
|
2,678
|
|
|
Gross margin
|
|
|
(331
|
)
|
|
|
(1
|
)
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
41,698
|
|
|
|
-
|
|
|
|
41,698
|
|
|
Board of directors fees
|
|
|
826,640
|
|
|
|
53,559
|
|
|
|
880,199
|
|
|
General and administrative
|
|
|
239,988
|
|
|
|
-
|
|
|
|
239,988
|
|
|
Total operating expenses
|
|
|
1,108,326
|
|
|
|
53,559
|
|
|
|
1,161,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,108,657
|
)
|
|
|
(53,560
|
)
|
|
|
(1,162,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(96,377
|
)
|
|
|
19,849
|
|
|
|
(76,528
|
)
|
|
Gain (loss) on change in fair value of derivative liabilities
|
|
|
(320,344
|
)
|
|
|
58,679
|
|
|
|
(261,665
|
)
|
|
Total other expense
|
|
|
(416,721
|
)
|
|
|
78,528
|
|
|
|
(338,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,525,378
|
)
|
|
$
|
24,968
|
|
|
$
|
(1,500,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weight average shares common share outstanding, basic and diluted
|
|
|
17,066,576
|
|
|
|
|
|
|
|
17,066,576
|
|
ALPHA ENERGY, INC.
STATEMENT OF CASH FLOWS
|
|
|
For the year ended December 31,
|
|
|
|
|
2018
|
|
|
|
|
|
|
2018
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Cash flows from operation activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,525,378
|
)
|
|
$
|
24,968
|
|
|
$
|
(1,500,410
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
506,440
|
|
|
|
536,261
|
|
|
|
1,042,701
|
|
|
Amortization of debt discount
|
|
|
88,091
|
|
|
|
(19,849
|
)
|
|
|
68,242
|
|
|
(Gain) loss on change in fair value of derivative liabilities
|
|
|
320,344
|
|
|
|
(58,679
|
)
|
|
|
261,665
|
|
|
Asset retirement obligation expense
|
|
|
75
|
|
|
|
-
|
|
|
|
75
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,285
|
|
|
|
-
|
|
|
|
1,285
|
|
|
Accounts payable
|
|
|
536,089
|
|
|
|
(495,280
|
)
|
|
|
40,809
|
|
|
Accounts payable related party
|
|
|
-
|
|
|
|
12,579
|
|
|
|
12,579
|
|
|
Interest payable
|
|
|
8,287
|
|
|
|
-
|
|
|
|
8,287
|
|
|
Net cash used in operating activities
|
|
|
(64,767
|
)
|
|
|
-
|
|
|
|
(64,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit for purchase of oil and gas properties
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
Net cash used in investing activities
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible credit line payable – related party
|
|
|
49,580
|
|
|
|
-
|
|
|
|
49,580
|
|
|
Advances from related party
|
|
|
24,366
|
|
|
|
-
|
|
|
|
24,366
|
|
|
Net cash provided by financing activities
|
|
|
73,946
|
|
|
|
-
|
|
|
|
73,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(821
|
)
|
|
|
-
|
|
|
|
(821
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,061
|
|
|
|
-
|
|
|
|
1,061
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
240
|
|
|
$
|
-
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount on convertible credit line payable – related party
|
|
$
|
49,580
|
|
|
$
|
-
|
|
|
$
|
49,580
|
|
|
Common stock issued for settlement of accrued Board of Directors fees
|
|
$
|
-
|
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
NOTE 2 – GOING CONCERN
The Company's financial statements are prepared using accounting principles generally accepted 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. However, the Company does not have significant cash or other current assets, nor does it have an established 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 for a period of twelve months from the date of issuance of this report.
Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the Business paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing, making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with oil and gas exploration. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds and funds from the sale of shares of stock to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
NOTE 3 – OIL AND GAS PROPERTY
The Company entered into a Letter of Intent with Chicorica, LLC on December 13, 2018 and extended the agreement effective January 4, 2021.
The Company entered into an escrow agreement for $50,000 with Premier Gas Company, LLC on April 30, 2019. The escrow payment was to hold a purchase and sale agreement dated January 29, 2019. The agreement was not completed and the previously capitalized payment was impaired in June 2019.
Oil and gas properties at December 31, 2019 and 2018 consisted of the following:
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Account
|
|
12/31/2018
|
|
|
Additions
|
|
|
Impairment
|
|
|
12/31/2019
|
|
|
Leasehold Improvements - Chicorica, LLC
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,000
|
|
|
Leasehold Developed - Premier Gas Company, LLC
|
|
|
-
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
Total O&G related assets
|
|
$
|
10,000
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
10,000
|
|
NOTE 4 – INCOME TAXES
The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.
FASB ASC 740 requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded.
The total deferred tax asset was approximately $221,507 and $93,835 as of December 31, 2019 and 2018, respectively, which is calculated by multiplying a 25.63% estimated tax rate by the cumulative net operating loss (NOL) of approximately $864,247 and $366,112, respectively.
Due to the enactment of the Tax Reform Act of 2017, we have calculated our deferred tax assets using an estimated corporate tax rate of 25.63%. US Tax codes and laws may be subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets and liabilities.
The Company is subject to United States federal income taxes at an approximate rate of 21% and state income taxes at an approximate rate of 4.63%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
The net deferred tax assets consist of the following:
|
|
|
2019
|
|
|
2018
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
222,000
|
|
|
$
|
94,000
|
|
|
Valuation allowance
|
|
|
(222,000
|
)
|
|
|
(94,000
|
)
|
|
Net deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income taxes computed at the statutory rate is as follows:
|
|
|
2019
|
|
|
2018
|
|
|
Tax benefit at effective rate
|
|
$
|
127,600
|
|
|
$
|
50,200
|
|
|
Change in valuation allowance
|
|
|
(127,600
|
)
|
|
|
(50,200
|
)
|
|
Provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has an operating loss carry forward of approximately $864,000, which expires commencing in 2034.
NOTE 5 – COMMON STOCK
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 $0.0001par value common stock.
The Board of Directors authorized the Company to sell 750,000 shares of common stock at $1.00 per share to raise working capital. During 2019, the Company sold 228,000 shares of the common stock for total proceeds of $228,000.
The Company compensates its each directors with 4,000 shares of common stock each month. During 2019 and 2018, the Company issued 192,000 and 176,000 shares of common stock valued at $192,000 and $886,200, respectively, as board of director compensation.
The Company pays its CFO a yearly bonus of 25,000 shares of common stock. During 2019 and 2018, the Company issued 25,000 shares of common stock to the CFO with fair values of $25,000 and $162,500, respectively.
In 2019, the Company entered into an agreement with a consultant for corporate finance representation. The consultant received 100,000 shares of common stock valued at $100,000 for payment.
In 2019, the Company entered into an agreement with a consultant to facilitate growth strategies for the Company. The consultant received 60,000 shares of common stock valued at $60,000 for payment.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company received advances from related parties totaling $0 and $24,366 and repaid $53,375 and $0 during the years ended December 31, 2019 and 2018, respectively. The advances from related parties are not convertible, bear no interest and are due on demand. There was $397 and $24,366 due to related parties as of December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, a related party paid $42,206 of expenses on behalf of the Company.
NOTE 8 – NOTES PAYABLE
On March 30, 2019, the Company executed a promissory note for $50,000 to ZHQ Holdings, LLP (75%) and Pure Oil & Gas, Inc (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. As of December 31, 2019, the note is outstanding with accrued interest of $12,050.
NOTE 9 – 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 year ended December 31, 2018, the Company recognized an additional debt discount of $49,580 and amortized $68,242 of the discount as interest expense leaving an unamortized discount of $49,343 as of December 31, 2018. During the year ended December 31, 2019, the Company recognized an additional debt discount of $7,568 and amortized $39,514 of the discount as interest expense leaving an unamortized discount of $17,396 as of December 31, 2019. See discussion of derivative liability in Note 10 – Derivative Liability.
During the year ended December 31, 2019, the Company recorded $13,000 in non-cash increase to the outstanding balance on the credit line. The advances were made directly to settle outstanding liabilities of the Company. The Company repaid $22,868 during the year resulting in $130,578 of principal and $10,124 of accrued interest outstanding as of December 31, 2019. As of December 31, 2019, there was an unamortized debt discount of $17,396 resulting in a net balance represented on the balance sheet of $113,182.
During the year ended December 31, 2018, the Company received $49,580 in cash proceeds from the credit line. The Company had $140,446 of principal and $11,479 of accrued interest outstanding as of December 31, 2018. As of December 31, 2018, there was an unamortized debt discount of $49,343 resulting in a net balance represented on the balance sheet of $91,103.
The maturity date on the credit line was extended from March 1, 2019 to March 1, 2021.
NOTE 10 – 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 derivative liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value at
December 31, 2018
|
|
|
Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Derivative Liability
|
|
|
-
|
|
|
|
-
|
|
|
$
|
549,919
|
|
|
$
|
549,919
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value at
December 31, 2019
|
|
|
Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Derivative Liability
|
|
|
-
|
|
|
|
-
|
|
|
$
|
65,289
|
|
|
$
|
65,289
|
|
As of December 31, 2019, and 2018, the Company had a $65,289 and $549,919 derivative liability balance on the consolidated balance sheets, respectively and recorded a gain from derivative liability fair value adjustment of $492,198 and a loss of $156,394 during the years ended December 31, 2019 and 2018, respectively. The Company assessed its outstanding convertible credit line payable as summarized in Note 9 – Convertible Credit Line Payable- Related Party and determined certain convertible credit lines payable with variable conversion features contain embedded derivatives and are therefore accounted for at fair value under ASC 920, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments.
Utilizing Level 3 inputs, the Company recorded fair market value adjustments related to convertible notes payable for the year ended December 31, 2018 of $156,394. The derivative liabilities were initially measured at $105,271. An additional debt discount of $49,580 was recorded during the year ended December 31, 2018, using the following assumptions: exercise price of $1.50, 33,053 common share equivalents, and a weighted average fair value of the common stock of $5.20 per share. The fair market value adjustments as of December 31, 2018 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.50, computed volatility of 162%, discount rate of 2.48%, 93,630 common share equivalents, and a fair value of the common stock of $6.50 per share.
Utilizing Level 3 inputs, the Company recorded fair market value adjustments related to convertible notes payable for the year ended December 31, 2019 of $492,198. An additional debt discount of $7,568 was recorded during the year ended December 31, 2019 using the following assumptions: exercise price of $1.50, 13,000 common share equivalents, and a fair value of the common stock of $1.00 per share. The fair market value adjustments as of December 31, 2019 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.50, computed volatility of 124%, discount rate of 1.59%, 130,578 common share equivalents, and a fair value of the common stock of $1.00 per share.
A summary of the activity of the derivative liability is shown below:
|
Balance at December 31, 2017
|
|
$
|
238,674
|
|
|
Derivative liabilities recorded
|
|
|
49,580
|
|
|
Day one loss
|
|
|
105,271
|
|
|
Loss on change in derivative fair value adjustment
|
|
|
156,394
|
|
|
Balance at December 31, 2018
|
|
$
|
549,919
|
|
|
Derivative liabilities recorded
|
|
|
7,568
|
|
|
Gain on change in derivative fair value adjustment
|
|
|
(492,198
|
)
|
|
Balance at December 31, 2019
|
|
$
|
65,289
|
|
NOTE 11 – COMMITMENTS
Effective November 1, 2018, the Company entered into an employment contract with the President and CFO of the Company. The President will receive an annual salary of $120,000, increasing 10% per year for five years. In addition, the employee will receive $750 per month for health insurance, will receive a year-end bonus of 25,000 shares of the Company stock and will receive a .03125% overriding royalty interest in each future producing well. As of December 31, 2019 and 2018, the Company had $158,078 and $185,537 accrued related to this contract, respectively.
NOTE 12 – SUBSEQUENT EVENTS
On June 1, 2020, The Company entered an agreement with Jay Leaver, dba Leaverite Consulting, to be retained as President of the Company at a salary of $10,000 per month. Mr. Leaver is also President of Chicorica, LLC and Visionary Resources, LLC (Battlewagon Project) which the Company has ongoing contracts with for exploration projects.
On June 25th, 2020, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with Pure Oil & Gas, Inc. (“Pure”) and ZQH Holding, LLC (“ZQH”) to acquire oil and gas assets in Oklahoma (as described below, the "Project") in consideration of a purchase price of $1,000,000 (the “Purchase Price”). The Company also agrees in the Agreement to discharge a promissory note to ZQH in the amount of $50,000 (see Note 7). If payment in full is not tendered prior to close of business on July 31, 2020, the Purchase Price will increase by $50,000 per month thereafter to a maximum possible Purchase Price of $1,200,000. If the Purchase Price and promissory note are not paid in full by December 1, 2020, ZQH and Pure have the option to convert all or part of the unpaid balance to the Company’s stock at a price of $1.00 per share.
Pursuant to the Agreement, the Company has taken assignment of all of ZQH and Pure's Working Interest in the Project. Company, ZQH, and Pure agree the sellers' combined Working Interest in the Project is 87.5%. The current operator of the Project and owner of the residual Working Interest is Premier Gas Company, LLC (“Premier”).
On July 6, 2020, Premier filed a mechanic’s lien against the interests of Pure, ZQH and the Company in the 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.
On June 30, 2020, the Company entered into an Option Agreement (the “Agreement”) with Progressive Well Service, LLC. (“Progressive”) to acquire oil and gas assets in Lincoln and Logan Counties in Central Oklahoma (the “Coral Project”, called the “Logan 1 Project” in the Agreement). The Agreement gives the Company until December 31, 2020 to exercise its option (the “Option Period”). During the Option Period, Progressive may not sell the Coral Project to any third party. In return for this exclusivity, the Company is to issue 10,000 shares of its common stock, such shares to bear a legend restricting sale during the Option Period. At any time during the Option Period, the Company may exercise its Option with a cash payment of $50,000.
During 2020 the company sold 50,000 shares of the common stock. On August 6, 2020 the Board authorized an additional 550,000 shares of common stock for sale at $1.00 per share bringing the total to 1,300,000 shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
We have had no disagreements with our independent auditor on accounting or financial disclosures.
ITEM 9A (T). CONTROLS AND PROCEDURES.
Our Principal Executive Officer and Principal Financial Officer, John Lepin, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the year end covered by this Report. Based on that evaluation, they have concluded that, as of December 31, 2019, our disclosure controls and procedures are designed at a reasonable assurance level and 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.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.
Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO" 2013). Based upon this evaluation, management concluded that our internal controls over financial reporting were not effective as of December 31, 2019.
Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified:
|
|
☐
|
Lack of appropriate segregation of duties,
|
|
|
☐
|
Lack of controls over proper maintenance of records,
|
|
|
☐
|
Lack of control procedures that include multiple levels of supervision and review, and
|
|
|
☐
|
There is an overreliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material, nonstandard transactions.
|
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only the management's report in this annual report.
Implemented or Planned Remedial Actions in response to the Material Weaknesses
We will continue to strive to correct the above noted weakness in internal control once we have adequate funds to do so. We believe appointing a director who qualifies as a financial expert will improve the overall performance of our control over our financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company’s management, including the principal executive officer and principal financial officer, do not expect that its disclosure controls or internal controls will prevent all errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The names of our director and executive officers as of December 31, 2019 and their ages, positions, and biographies are set forth below. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Executive Officers
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
John Lepin
|
|
72
|
|
Director, CFO/President
|
|
|
|
|
|
|
|
Lacey Kellogg
|
|
52
|
|
Director
|
|
|
|
|
|
|
|
Richard M. Nummi
|
|
51
|
|
Director
|
|
|
|
|
|
|
|
Robert J. Flynn, Jr.
|
|
72
|
|
Director
|
Directors, Executive Officers, Promoters and Control Persons
John Lepin, MBA, has over 30 years of experience in accounting, taxation, and management. He has experience in all areas of oil & gas accounting, start-up operations and general management. Prior to joining Alpha Energy, Inc., he consulted with private and public companies. He started his career at Ladd Petroleum, a subsidiary of General Electric and has held controller positions with KC Resources, Royale Energy, Blue Dolphin Energy, Aurora Oil & Gas and Patara Oil & Gas and served as CFO of Grand Gulf Energy.
Lacie Kellogg. Ms. Kellogg has 29 years of accounting experience 24 of which are in the Oil and Gas industry. Her experience is in the areas of Financial Reporting both public and private, domestic and international, Operations Accounting and Software Implementation. Lacie earned her BBA from the University of Houston and has worked with Carrizo Oil and Gas, Aurora Oil & Gas, an Australian based company, and as a private consultant in the energy field. She is a member of COPAS and is active in the local chapter.
Richard M. Nummi, Eaq., has over two decades of professional compliance and regulatory experience. He has been counsel to the Securities and Exchange Commission serving as senior counsel to the office of compliance inspections and examinations where his was quite extensive. Through the years he has headed compliance departments for many financial service entities of significance including Morgan Stanley, Jefferson Pilot, Kemper and others.
Robert J. Flynn, Jr., Esq., is a graduate of Georgetown University School of Foreign Services (B.S.F.S.), a graduate of Georgetown Law Center (J.D.) and a graduate of George Washington National Law Center (L.L.M.). He is a member of the District of Columbia Bar since 1969 and has practiced law both in the District of Columbia and elsewhere since that time.
Family Relationships
There are no family relationships among any of our officers or directors.
Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by Nevada law.
Limitation of Liability of Directors
Pursuant to the Colorado Statutes, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director's liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.
Involvement in Certain Legal Proceedings
No Executive Officer or Director of the Corporation has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him/her from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.
No Executive Officer or Director of the Corporation has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.
No Executive Officer or Director of the Corporation is the subject of any pending legal proceedings.
Audit Committee and Financial Expert
We do not have an Audit Committee. Our directors perform functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditor's independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.
We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of our start-up operations, we believe the services of a financial expert are not warranted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires our executive officers and directors, and persons who beneficially own more than ten percent of an issuer's common stock, which has been registered under Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with the SEC. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and Directors, we believe that as of the date of this filing they were all current in their filings.
Corporate Governance
Nominating Committee
We do not have a Nominating Committee or Nominating Committee Charter. Our Board of Directors perform the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are an initial-stages operating company with limited operations and resources.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation
Summary Compensation Table
The following table sets forth certain information concerning the annual compensation of our Principal Executive Officer and our other executive officers during the last two fiscal years.
|
Name &
Principal
Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-equity
incentive plan
compensation
|
|
|
Nonqualified
deferred
compensation
earnings
|
|
|
All Other
Compensation
|
|
|
Total
Compensation
|
|
|
John Lepin,
|
|
2018
|
|
|
21,500
|
|
|
|
|
|
|
|
404,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,300
|
|
|
|
446,580
|
|
|
CFO, Director
|
|
2019
|
|
|
122,000
|
|
|
|
-
|
|
|
|
49,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,000
|
|
|
|
180,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lacey Kellogg,
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
225,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,600
|
|
|
Director
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Nummi,
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
125,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,200
|
|
|
Director
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
|
Robert J. Flynn, Jr.,
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
66,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,690
|
|
|
Director
|
|
2019
|
|
|
|
|
|
|
-
|
|
|
|
24,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
|
FORMER OFFICERS & DIRECTORS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Devlin Jr.,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dir.
|
|
2018
|
|
|
-
|
|
|
|
-
|
|
|
|
16,680
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,680
|
|
|
David E. Anderson,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
2018
|
|
|
-
|
|
|
|
-
|
|
|
|
155,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,800
|
|
Outstanding Equity Awards at Fiscal Year End.
There were 169,000 shares of common stock due Directors outstanding as of December 31, 2019.
Board Committees
We do not currently have any committees of the Board of Directors. Additionally, due to the nature of our intended business, the Board of Directors does not foresee a need for any committees in the foreseeable future.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of December 31, 2019, certain information with respect to the beneficial ownership of shares of our common stock by: (i) each person known to us to be the beneficial owner of more than five percent (5%) of our outstanding shares of common stock, (ii) each director or nominee for director of our Company, (iii) each of the executives, and (iv) our directors and executive officers as a group. Unless otherwise indicated, the address of each shareholder is c/o our company at our principal office address:
|
Beneficial Owner
|
|
Address
|
|
Percent of
Class (**)
|
|
|
Number of Shares
Beneficially Owned (*)
|
|
|
AEI Acquisition, LLC
|
|
2600 E. Southlake Blvd.,
Suite 120-366
Southlake, TX. 76092
|
|
|
91.34
|
%
|
|
|
15,880,201
|
|
|
John Lepin, CFO, President
Chairman of the Board
|
|
4162 Meyerwood Dr
Houston, TX 77025
|
|
|
0.006
|
%
|
|
|
174,000
|
|
(*) Beneficial ownership is determined in accordance with the rules of the SEC which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities. Unless otherwise indicated, voting and investment power are exercised solely by the person named above or shared with members of such person’s household. This includes any shares such person has the right to acquire within 60 days.
(**) Percent of class is calculated on the basis of the number of shares outstanding on December 31, 2019 (17,822,428)
Changes in Control
There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPNDENCE.
Director Independence
We currently do not have any independent directors, as the term "independent" is defined in Section 803A of the NYSE Amex LLC Company Guide. Since the OTC Markets does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of "independence" as defined under the rules of the New York Stock Exchange ("NYSE") and American Stock Exchange ("Amex").
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
(1) AUDIT FEES
The audit fees charged by Malone Bailey, LPP for the years ended December 31, 2018 and 2019 were $4,000 and $22,000, respectively
The audit fees charged by LBB & Associates Ltd., LLP, our predecessor auditor, for year ended December 31, 2018 and 2019 were $12,000 and $12,250, respectively.
(2) AUDIT-RELATED FEES
None.
(3) TAX FEES
None.
(4) ALL OTHER FEES
None.
(5) AUDIT COMMITTEE POLICIES AND PROCEDURES.
We do not have an audit committee. Our Board acts in total as the audit committee
(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
Not applicable.