TRULEUM, INC. - Quarter Report: 2017 March (Form 10-Q)
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X . | Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| For the quarterly period ended March 31, 2017 |
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. | Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| For the Transition Period from ________to __________ |
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Commission File Number: 333-197642
Alpha Energy, Inc.
(Exact Name of Registrant as Specified in its Charter)
Colorado | 90-1020566 |
(State of other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
600 17th Street, 2800 South |
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Denver, CO | 80202 |
(Address of principal executive offices) | (Zip Code) |
Registrant's Phone: 303-563-5340 |
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer | . | Accelerated filer | . |
Non-accelerated filer | . | Smaller reporting company | X . |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X .
As of May 15, 2017, the issuer had 17,016,428 shares of common stock issued and outstanding.
| TABLE OF CONTENTS | Page |
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PART I – FINANCIAL INFORMATION | ||
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Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operation | 6 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 11 |
Item 4. | Controls and Procedures | 11 |
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PART II – OTHER INFORMATION | ||
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Item 1. | Legal Proceedings | 12 |
Item 1A. | Risk Factors | 12 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
Item 3. | Defaults Upon Senior Securities | 12 |
Item 4. | Submission of Matters to a Vote of Security Holders | 12 |
Item 5. | Other Information | 12 |
Item 6. | Exhibits | 12 |
| Signatures | 13 |
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ITEM 1. FINANCIAL STATEMENTS
ALPHA ENERGY, INC.
Unaudited Financial Statements
March 31, 2017
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Balance Sheets as of March 31, 2017 and December 31, 2016 (Unaudited) | 4 | |
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Statements of Operations for the three months ended March 31, 2017 and 2016 (Unaudited) | 5 | |
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Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (Unaudited) | 6 | |
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Notes to the Unaudited Financial Statements | 7 | |
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ALPHA ENERGY, INC. | ||||||
STATEMENTS OF OPERATIONS | ||||||
(UNAUDITED) | ||||||
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| Three months ended March 31, | ||||
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| 2017 |
| 2016 | ||
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Revenues | $ | 527 |
| $ | - | |
Lease operating expenses |
| 316 |
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| - | |
Gross margin |
| 211 |
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| - | |
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Operating expenses |
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| Professional services |
| 9,095 |
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| 200 |
| General and administrative |
| 2,817 |
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| 115 |
Total operating expenses |
| 11,912 |
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| 315 | |
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Loss from operations |
| (11,701) |
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| (315) | |
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Other expense |
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| Interest expense |
| (524) |
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| (312) |
Total other expense |
| (524) |
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| (312) | |
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| Provision for income taxes |
| - |
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| - |
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Net loss | $ | (12,225) |
| $ | (627) | |
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Net loss per common share, Basic and Diluted | $ | (0.00) |
| $ | (0.00) | |
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Weighted average common shares outstanding, Basic and Diluted |
| 17,016,428 |
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| 16,866,428 | |
See accompanying notes to unaudited interim financial statements.
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ALPHA ENERGY, INC. | ||||||||
STATEMENTS OF CASH FLOWS | ||||||||
(UNAUDITED) | ||||||||
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| Three months ended March 31, | |||||
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| 2017 |
| 2016 | |||
Cash flows from operating activities |
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| Net loss | $ | (12,225) |
| $ | (627) | |
| Adjustments to reconcile net loss to net cash |
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used in operating activities: | ||||||||
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| Accretion Expense |
| 16 |
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| - | |
| Changes in operating assets and liabilities: |
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| Prepaid expenses and other current assets |
| (10,247) |
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| - | |
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| Accounts payable |
| (11,470) |
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| 229 | |
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| Interest payable |
| 283 |
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| - | |
Net cash used in operating activities |
| (33,643) |
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| (398) | |||
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Cash flows from investing activities |
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| Loan to related parties |
| (445) |
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| - | |
Net cash used in investing activities |
| (445) |
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| - | |||
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Cash flows from financing activities |
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| Proceeds from notes payable |
| 56,216 |
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| - | |
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| Proceeds from related party loans |
| - |
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| 1,900 | |
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| Repayments of related parties loans |
| (18,285) |
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| - | |
Net cash provided by financing activities |
| 37,931 |
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| 1,900 | |||
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| Net change in cash |
| 3,843 |
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| 1,502 | |
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| Cash, beginning of period |
| 453 |
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| 116 | |
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| Cash, end of period | $ | 4,296 |
| $ | 1,618 | |
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Supplemental cash flow information |
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| Cash paid for interest | $ | - |
| $ | - | ||
| Cash paid for income taxes | $ | - |
| $ | - | ||
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Supplemental disclosure of non-cash financing activities |
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| Payment of expenses by related party on behalf of the Company | $ | 2,630 |
| $ | - | ||
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See accompanying notes to unaudited interim financial statements. | ||||||||
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ALPHA ENERGY, INC.
Notes to Unaudited Financial Statements
March 31, 2017
NOTE 1 – BASIS OF PRESENTATION
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.
The accompanying unaudited interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of March 31, 2017, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted. It is suggested that these unaudited interim financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2016 audited financial statements. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the operating results for the full year.
Related party policy
In accordance with ASC 850, the Company discloses: the nature of the related party relationship(s) involved; a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Revenue recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
NOTE 2 – GOING CONCERN
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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ALPHA ENERGY, INC.
Notes to Unaudited Financial Statements
March 31, 2017
NOTE 3 – COMMON STOCK WARRANTS
Through the year ended December 31, 2014, the Company issued warrants in connection with common stock issued for cash. The following table summarizes all stock warrant activity for the three months ended March 31, 2017:
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Outstanding, December 31, 2016 |
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| 240,000 |
| $ | 0.125 |
Granted |
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| - |
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| - |
Exercised |
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| - |
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| - |
Forfeited |
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Expired |
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| (220,000) |
| $ | 0.125 |
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Outstanding, March 31, 2017 |
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| 20,000 |
| $ | 0.125 |
The weighted average remaining contractual life of options outstanding as of March 31, 2017 and December 31, 2016, was approximately 0.15 and 0.20 years, respectively. The exercise price of these options was $0.125 and the intrinsic value of the options as of March 31, 2017 and December 31, 2016 is $0, respectively.
NOTE 4 – RELATED PARTY TRANSATIONS
During the three months ended March 31, 2017, the Company made repayments on related party loans payable of $18,285. During the three months ended March 31, 2017, a significant shareholder made payments of $2,630 for expenses on behalf of the Company. The advances are unsecured, non-interest bearing and due on demand. There was $2,200 and $17,855 due to related parties as of March 31, 2017 and December 31, 2016, respectively.
During the three months ended March 31, 2017, the Company made advances to related party of $455. The advances are unsecured, non-interest bearing and due on demand. There was $455 and $0 due from related party as of March 31, 2017 and December 31, 2016, respectively.
NOTE 5 – NOTES PAYABLE
On February 1, 2017, the Company executed a promissory note for $56,216. The note bears simple interest at a rate of 3.75%, is not convertible to equity of the Company and is due on February 1, 2018. There was $56,216 of principal and $283 of accrued interest due on the note at March 31, 2017.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); finding suitable merger or acquisition candidates; expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company.
These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this Filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
General Business Development
The Company was formed on September 26, 2013 in the State of Colorado.
Business Strategy
The Company was incorporated in September 2013. Our business model is to purchase or trade stock for oil and gas properties to be held as long term assets. Oil and gas commodity pricing has stabilized under the current economic market conditions bringing the U.S. to become the number one producer in the world. The momentum to drill using enhanced drilling technology in previously undeveloped areas assures the continued value of these properties. Our lean operating structure positions us well to compete in this very competitive market. Our strategy is to acquire producing properties that the Company can operate which have proven un-drilled locations available for further development. At this time the Company is reviewing several properties but have no contractual commitments to date. Our management’s years of experience and knowledge of the oil and gas industry leads us to believe that there are an abundance of good drilling prospects available that have either been overlooked or are not big enough for the larger companies. In the process of identifying these drilling prospects, the Company will utilize the expertise of existing management and employ the highest caliber contract engineering firms available to further evaluate the properties. To qualify for acquisition, the calculated cash flow after taxes and operating expenses, including ten percent (10%) interest per year, will recover the acquisition cost in 22 to 30 months. The cash flow calculation will be based conservatively on $51 per barrel of oil and $2.89 per MCF of gas. In addition, the selection criteria will require the life of current producing wells to be 7 years or longer and the field must have a minimum total life of 15 years.
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In the first phase we intend on concentrating on prospects in eastern Colorado, western Kansas and southern Wyoming. The depth of the wells in the target areas average from 1500 ft. for the Niobrara formation to a total depth of 5800 ft. for the Topeka, Heebner, Lansing-Kansas City, Marmaton, Cherokee, Atoka, Morrow, Mississippian, Spergen, and Osage formations. By concentrating our initial efforts on shallower prospects we minimize drilling and operating costs. As we grow we plan to expand into the Front Range (Northern Front Range Outcrop) and Denver Basin Province (D-J Basin, Wattenberg) of Colorado and into western Kansas (Hugoton Embayment Anadarko Basin – Central Kansas Uplift). The wells in these areas range from 4,000 ft. to 10,000 ft. Such wells are more expensive to drill and operate, but also offer bigger returns. Some of the formations in these areas are the Sussex, Niobrara, Codell, J Sand and the D Sand formations. The Company intends to develop prospects and intends to obtain partners to participate in the costs of drilling or acquisitions with the Company serving as the designated Operator. The Company intends to also retain a royalty or working interest in the wells drilled or acquired.
The Company has engaged in verbal negotiations for acquisition of oil and gas leases located in Northern and eastern Colorado basin and intends to engage in additional negotiations in the future.
In the second phase of operations, we intend to expand into Oklahoma, Texas, and eastern Kansas. We intend to place a great deal of emphasis on natural gas production and the transportation of natural gas. We believe natural gas will be the fuel of the future for automobiles, trucks and buses because of the clean-air standards that are proposed and will soon be going into effect, and now is an ideal time to acquire natural gas assets due to the current pricing matrix. The Company also plans on acquiring field transportation and short haul lines as part of our future business plan expansion. Acquiring these types of company lines, specifically in the areas where the company will have production located, will be advantageous due to savings in internal transportation costs, and the profitability margins of operating the lines and marketing natural gas. Managing the transportation system, in conjunction with field operations, will enhance cash flow. After obtaining the transportation lines, we hope to then develop our own end-users for natural gas. This will further enhance the profit margin of the company.
Liquidity and Capital Resources
As of March 31, 2017, we had $4,296 in cash, total current assets of $14,988 and total current liabilities of $62,170. Current assets consisted of $4,296 in cash, $10,247 of prepaid expenses and $445 in a loan to a related party. Current liabilities consisted mainly of $3,471 of accounts payable and $56,216 of current related party notes payable.
The Company used $33,643 of cash in operating activities during the three months ended March 31, 2017 compared to $398 used in operations during the same period in 2016. Net cash used during the three months ended March 31, 2017 consisted of a net loss of $12,225, non-cash expenses of $16 and net changes in working capital of $21,434.
The Company used $445 of cash in investing activities during the three months ended March 31, 2017 as an advance to a related party. There was no cash used in or provided by investing activities during the three months ended March 31, 2016.
The Company generated cash of $37,931 from financing activities during the three months ended March 31, 2017 which consisted of proceeds from notes payable of $56,216 and repayments of related party loans of $18,285. The Company generated cash of $1,900 during the three months ended March 31, 2016 which consisted of advances from related parties of $1,900.
Going Concern
The future of our company is dependent upon its ability to obtain financing and upon future profitable operations. Management has plans to seek additional capital through a private placement and public offering of its common stock, if necessary. See note 2 to the financial statements for additional information.
Results of Operations
We generated revenues of $527 and $0 during the three months ended March 31, 2017 and 2016. Revenues consist of gross proceeds from the sale of oil and gas produced from proved leases. Total operating expenses were $315 during the three months ended March 31, 2016 compared to $11,912 during the same period in 2017. The increase in operating expenses is the result of timing of professional services rendered in conjunction with reporting requirements. These were incurred during the three months ended March 31, 2017 but not during the three months ended March 31, 2016.
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CRITICAL ACCOUNTING POLICIES
In Financial Reporting release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), the Securities and Exchange Commission suggested that companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: non-cash compensation valuation that affects the total expenses reported in the current period and the valuation of shares and underlying mineral rights acquired with shares. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to market risk related to interest rates or foreign currencies.
CONTROLS AND PROCEDURES
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of March 31, 2017, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), who concluded, that because of the material weakness in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective as of March 31, 2017.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 1A. RISK FACTORS
There has been no material changes in the risk factors set forth in the Company’s Form 10K for the period ended December 31, 2016.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities during the covered time period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are included or incorporated by reference as exhibits to this report:
Exhibit Number |
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31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) REPORTS ON FORM 8-K
None.
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SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 2, 2017
| Alpha Energy, Inc. |
| Registrant |
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Date: May 15, 2017 | By:/s/Karen Ziegler |
| Karen Ziegler Chief Executive Officer |
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