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 Mexico.
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 that now stands at one million three hundred and ten thousand Dollars ($1,310,000) (the “Purchase Price”). The Company also agrees in the Agreement to discharge a Promissory Note to ZQH in the amount of sixty thousand dollars ($60,000). Under the terms of the Agreement, after December 1, 2020 ZQH and Pure have the option to take all or part of the Purchase Price in Company stock, which for the purpose would be valued at one dollar ($1.00) per share. The Company, Pure, and ZQH have entered into various Extension Agreements, the current one of which is dated March 28th, 2021 (the “Extension Agreement”). The Extension Agreement prevents Pure and ZQH from taking stock rather than cash through June 1, 2021, in return for which Company makes a monthly interest payment to ZQH and Pure of ten thousand eighty-three and 33/100 dollars ($10,083.33), which represents 1% annual interest on the Purchase Price, compounded monthly. The Extension Agreement allows the Company to extend that period beyond June 1, 2021 under similar terms.
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 December 31, 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, the Company entered into an Option Agreement (the “Agreement”) with Progressive Well Service, LLC (“Progressive”) to acquire oil and gas assets in Logan County in Central Oklahoma (the “Coral Project”, called the “Logan 1 Project” in the Agreement). The Agreement gave 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 which exclusivity the Company issued ten thousand (10,000) shares of its common stock, such shares bearing a legend restricting sale during the Option Period. In December 2020, the Company tendered to Progressive cash payments totaling fifty thousand dollars ($50,000), by which the Company exercised its Option. Under the terms of the Agreement, Closing would then occur within one month. Before Closing, the Company and Progressive must enter a new Purchase and Sale Agreement (“PSA”) modeled after the earlier PSA Progressive and the Company 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) 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”), such payments to continue until Progressive has accrued an additional three hundred and fifty thousand dollars ($350,000). Since December 2020, the Company and Progressive have entered into various Extension Agreements, the current one being dated March 25th, 2021 (the “Extension Agreement”). The Extension Agreement extends the period by which Closing must occur through June 1, 2021, in return for which the Company makes a monthly payment of ten thousand dollars ($10,000), which sum is to be applied toward the Project Payment.
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).
On September 8, 2020, the Company entered into an Option Agreement with Kadence Petroleum, LLC. (“Kadence”) to acquire oil and gas assets in Logan County in Central Oklahoma, called the “Logan 2 Project” in the Agreement). The Agreement gives the Company until February 8, 2021 to exercise its option (the “Option Period”). During the Option Period, Kadence may not sell the Logan 2 Project to any third party. In return for this exclusivity, the Company will pay $10,000 to Brian Tribble, Managing Member of Kadence, per month until closing. At closing, Alpha shall tender to Kadence a cash payment of $350,000 (the “Project Payment”). Alpha shall agree at Closing to make a monthly payment equal to three percent (3%) of the net revenue stream from any new wells (not workovers, restarts, or recompletions) drilled in the Project area after the Closing until such time as Kadence shall have accrued $800,000 from such new wells (the “Production Payment”). Together, the Option Payment, Production Payment, and Project Payment shall satisfy the Purchase Price. On March 3, 2021, the Company amended the agreement until May 1, 2021, with a $10,000 monthly payment in January through April 2021.
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).
On December 13, 2018, the Company entered into a Letter of Intent (the “LOI”) with Chicorica, LLC. (“Chicorica”) and a Project Sale Agreement (“PSA”) on January 28, 2019. Chicorica has developed an oil and gas exploration project in northeastern New Mexico (referred to as the “Frostback Project” in the PSA; the Company refers to it as the “Rayado” Project). The Rayado Project includes several prospective areas and the Company is interested in exploring these areas and utilizing Chicorica’s seismic and other data and expertise. The Company paid ten thousand dollars ($10,000) upon signing the LOI and agreed to pay the Project Fee by August 31, 2019. The Company and Chicorica have entered into various extension agreements, the current one being dated January 4, 2021 (the “Extension Agreement”). Under the terms of the Extension Agreement, the Company may acquire access to the intellectual property owned or licensed by Chicorica for a cash payment of ninety-five thousand dollars ($95,000) on or before May 3, 2021.
On January 28, 2019, the Company entered into a Project Sale Agreement (the “PSA”) with Visionary Resources, LLC. (“Visionary”). Visionary has developed an oil and gas exploration project in northwestern Texas (the “Battlewagon Project”). The Battlewagon Project includes several prospective areas and the Company is interested in exploring these areas and utilizing Visionary’s geophysical and other data and expertise. The Company agreed to pay the Project Fee of two hundred thousand dollars ($200,000) by March 31, 2020. The Company and Visionary have entered into various extension agreements, the current one being dated January 4, 2021 (the “Extension Agreement”). Under the terms of the Extension Agreement, the Company may acquire access to the intellectual property owned or licensed by Visionary for a cash payment of two hundred thousand dollars ($200,000) on or before May 3, 2021.
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.
Production and Reserve Overview
The Company engaged Liquid Gold Technologies, lnc (LGT) to evaluate and deliver a Certified SEC Reserves and Valuation Report of the Rogers County Project. On March 10, 2021, but effective December 31, 2020, LGT delivered the report, of which, a full copy is attached and incorporated herein. LGT used their interpretations of the Company's supplied data and the definitions and disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released June 14, 2009 in the Federal Register (SEC regulations), to determine the Project contains Proven net reserves (all non-producing or undeveloped) of 345,110 mcf of gas and 866,340 barrels of oil/condensate with an SEC PV10% of $10,286,180. In addition, the Project contains additional Probable net reserves (all non-producing or undeveloped) of 271,910 mcf of gas and 194,500 barrels of oil/condensate with an additional SEC PV10% of $2,427,660. PV10% as of December 31, 2020 was based on SEC prices of $39.54 per barrel of oil and $1.985 per mmbtu of natural gas as calculated by LGT.
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
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, knowledge of the oil and gas industry, and existing networks provide access to both marketed and off-market acquisition opportunities. The Company anticipates evaluating many potential acquisitions; however, to qualify for acquisition, the calculated cash flow after taxes and operating expenses will recover the acquisition cost in under 30 months. The cash flow calculation will be based on NYMEX pricing of $55 per barrel of oil and $2.50 per MCF of gas. In addition, the selection criteria will require the life of current producing wells to be seven years or longer and the field must have a minimum total life of 15 years.
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:
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the construction of natural gas pipeline facilities, and
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the rates for transportation of these products in interstate commerce.
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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:
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the amounts and types of substances and materials that may be released into the environment;
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the discharge and disposition of waste materials,
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the reclamation and abandonment of wells and facility sites, and
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the remediation of contaminated sites, and require:
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permits for drilling operations,
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drilling bonds, and
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reports concerning operations.
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Environmental Regulations
General. Our operations are affected by various state, local and federal environmental laws and regulations, including the:
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Clean Air Act,
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Oil Pollution Act of 1990,
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Federal Water Pollution Control Act,
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Resource Conservation and Recovery Act ("RCRA"),
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Toxic Substances Control Act, and
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Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
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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:
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drilling,
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development and production operations,
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activities in connection with storage and transportation of oil and other liquid hydrocarbons, and
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use of facilities for treating, processing or otherwise handling hydrocarbons and wastes.
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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:
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unit production expenses primarily related to the control and limitation of air emissions and
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the disposal of produced water,
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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
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capital costs to construct, maintain and upgrade equipment and facilities and remediate, plug and abandon inactive well sites and pits.
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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:
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a "generator" or "transporter" of hazardous waste, or
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an "owner" or "operator" of a hazardous waste treatment, storage or disposal facility.
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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:
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the "owner" or "operator" of the site where hazardous substances have been released, and
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companies that disposed or arranged for the disposal of the hazardous substances found at the site.
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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:
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remove or remediate previously disposed wastes, including wastes disposed of or released by prior owners or operators,
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clean up contaminated property, including contaminated groundwater, or
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perform remedial plugging operations to prevent future contamination.
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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, 2020, we have one employee, John Lepin, our CFO, who also serves as Chairman of the Board of Directors and have three (3) Directors who are non-employee. On June 1, 2020, the Company contracted with Leaverite Consulting to engage Jay Leaver as Interim 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 office is 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 2020 and fiscal year 2019. 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 $4,301,180 as of December 31, 2020. 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 generated minimal revenues and our ability to pay our expenses is dependent upon advances from related parties.
For the fiscal year ended December 31, 2020, we reported a net loss of $1,986,978. We had a working capital deficit of $2,144,964 at December 31, 2020. We have generated minimal 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 2020 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 2021 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:
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recoverable reserves;
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future oil and natural gas prices and their appropriate differentials;
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development and operating costs; and
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potential environmental and other liabilities.
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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:
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diversion of our management's attention to evaluating, negotiating, and integrating significant acquisitions and strategic transactions;
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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;
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difficulty associated with coordinating geographically separate organizations; and
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the challenge of attracting and retaining personnel associated with acquired operations.
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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.
The COVID-19 pandemic has resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil throughout the world and has created significant volatility, uncertainty and turmoil in the oil and gas industry. This has led to a significant global oversupply of oil and a subsequent substantial decrease in oil prices. While global oil producers, including the Organization of Petroleum Exporting Countries (“OPEC”) and other oil producing nations reached an agreement to cut oil production in April 2020, downward pressure on, and volatility in, commodity prices has remained and could continue for the foreseeable future, particularly given concerns over available storage capacity for oil, which have negatively affected and are expected to continue to negatively affect our cash flow, liquidity and financial position. Oil prices are expected to continue to be volatile as a result of these events and the ongoing COVID-19 pandemic, and as changes in oil inventories, oil demand and economic performance are reported. We cannot predict when, or to what extent, the negative effects of COVID-19 on the world and domestic economies, and on our industry and Company, will improve, or when oil prices will improve and stabilize.
Prices fluctuate and decline based on factors beyond our control. Factors that can cause price fluctuations and declines include:
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Overall economic and market conditions, domestic and global.
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The impact of the COVID-19 pandemic, including reduced demand for oil and natural gas, economic slowdown, governmental actions and stay-at-home orders.
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The domestic and foreign supply of oil and natural gas.
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The level of consumer product demand.
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The cost of exploring for, developing, producing, refining and marketing oil, natural gas and NGLs.
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Adverse weather conditions, natural disasters, climate change and health emergencies and pandemics.
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The price and availability of competitive fuels such as LNG, heating oil and coal, and alternative fuels.
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Political and economic conditions in the Middle East and other oil and natural gas producing regions.
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The ability of the members of OPEC and other oil exporting nations to agree to and maintain oil price and production controls.
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Domestic and foreign governmental regulations, including temporary orders limiting economic activity.
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Special taxes on production or the loss of tax credits and deductions.
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Technological advances affecting energy consumption and sources of energy supply.
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Access to pipelines and gas processing plants and other capacity constraints or production disruptions.
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The effects of energy conservation efforts, including by virtue of shareholder activism or activities of non-governmental organizations.
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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:
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unexpected drilling conditions;
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pressure or irregularities in formations;
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equipment failures or accidents;
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fires, explosions, blowouts, and surface cratering;
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marine risks such as capsizing, collisions, or adverse weather conditions; and
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increase in the cost of, or shortages or delays in the availability of, drilling rigs and equipment.
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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:
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acquire permits before commencing drilling;
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restrict spills, releases or emissions of various substances produced in association with our operations;
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limit or prohibit drilling activities on protected areas such as wetlands or wilderness areas;
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take reclamation measures to prevent pollution from former operations;
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take remedial measures to mitigate pollution from former operations, such as plugging abandoned wells and remedying contaminated soil and groundwater; and
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take remedial measures with respect to property designated as a contaminated site.
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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 preferred stock with 2,000,000 shares designated as Series A convertible preferred stock with such designations, preferences and rights as determined by our Board of Directors. As of December 31, 2020, 18,145,428 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 88.44% 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:
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Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
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Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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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:
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product development announcements by us or our competitors;
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regulatory matters;
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announcements in the software community;
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intellectual property and legal matters; and
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broader industry and market trends unrelated to our performance
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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.