TRULEUM, INC. - Quarter Report: 2020 September (Form 10-Q)

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒	Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2020
	For the quarterly period ended September 30, 2020
☐	Transition Report under Section 13 or 15(d) of the Exchange Act
	Transition Period from                        to

 

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)

 

 

4162 Meyerwood Drive, Houston TX   77025

(Address of principal executive offices) (Zip Code)

Registrant's Phone: 713-316-0061

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

	Large accelerated filer	☐	Accelerated filer	☐
			Smaller reporting
	Non-accelerated filer	☐	company	☒
			Emerging Growth
			Company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common	APHE	Other OTC

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of November 18, 2020, the issuer had 18,056,428 shares of common stock issued and outstanding.

 

 

 

 

 

		September 30, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	470			$	-
Prepaid assets			5,000				-
Total current assets			5,470				-
Noncurrent assets:
Oil and gas property, unproved, full cost			1,030,000				10,000
Total assets		$	1,035,470			$	10,000
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable		$	507,385			$	300,428
Accounts payable and accrued expenses - related party			52,088				3,687
Interest payable			28,698				33,653
Short term advance from related party			1,000				397
Short term note payable			1,160,000				50,000
Derivative liability			48,888				65,289
Current portion of convertible credit line payable – related party, net of discount of $8,321 and $0, respectively			140,007				-
Total current liabilities			1,938,066				453,454
Convertible credit line payable – related party, net of discount of $0 and $17,396, respectively			-				113,182
Asset retirement obligation			843				786
Total liabilities			1,938,909				567,422
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized and 0 shares issued and outstanding			-				-
Common stock, $0.0001 par value, 65,000,000 shares authorized and 18,051,428 and 17,822,428 shares issued and outstanding, respectively			1,807				1,783
Additional paid-in capital			1,983,973				1,754,997
Accumulated deficit			(2,889,219	)			(2,314,202	)
Total stockholders' deficit			(903,439	)			(557,422	)
Total liabilities and stockholders' deficit		$	1,035,470			$	10,000

 

		Three months ended								Nine months ended
		September 30, 2020				September 30, 2019				September 30, 2020				September 30, 2019
						As Revised								As Revised
Oil and gas sales		$	-			$	873			$	1,217			$	3,857
Lease operating expenses			621				254				2,839				5,069
Gross loss			(621	)			619				(1,622	)			(1,212	)
Operating expenses:
Professional services			14,875				5,004				30,508				29,874
Board of director fees			48,000				48,000				144,000				144,000
General and administrative			139,172				142,232				301,168				457,061
Impairment loss			-				-				-				50,000
Total operating expenses			202,047				195,236				475,676				680,935
Loss from operations			(202,668	)			(194,617	)			(477,298	)			(682,147	)
Other income (expense):
Interest expense			(107,342	)			(16,832	)			(130,721	)			(45,022	)
Gain on extinguishment of debt			-				-				10,750				-
Gain (loss) on change in fair value of derivative liabilities			(27,622	)			(4,614	)			22,252				465,575
Total other income (expense)			(134,964	)			(21,446	)			(97,719	)			420,553
Net loss		$	(337,632	)		$	(216,063	)		$	(575,017	)		$	(261,594	)
Loss per share:
Basic		$	(0.02	)		$	(0.01	)		$	(0.03	)		$	(0.01	)
Diluted		$	(0.02	)		$	(0.01	)		$	(0.03	)		$	(0.04	)
Weighted average shares outstanding:
Basic			18,014,580				17,689,993				17,925,910				17,536,065
Diluted			18,014,580				17,689,993				18,074,238				17,678,511

 

		Common Stock								Additional				Accumulated				Total Stockholders'
		Shares				Amount				Paid-in Capital				Deficit				Deficit
Balance, December 31, 2018			17,217,428			$	1,722			$	1,150,059			$	(1,881,265	)		$	(729,484	)
Stock issued for cash			131,000				13				130,987				-				131,000
Stock-based compensation			108,000				11				107,989				-				108,000
Net income			-				-				-				207,136				207,136
Balance, March 31, 2019			17,456,428				1,746				1,389,035				(1,674,129	)			(283,348	)
Stock issued for cash			63,000				6				62,994				-				63,000
Stock-based compensation			148,000				15				147,985				-				148,000
Net loss			-				-				-				(252,667	)			(252,667	)
Balance, June 30, 2019			17,667,428				1,767				1,600,014				(1,926,796	)			(325,015	)
Stock issued for cash			19,000				3				18,997				-				19,000
Stock-based compensation			48,000				5				47,995				-				48,000
Net loss			-				-				-				(216,063	)			(216,063	)
Balance, September 30, 2019 - As Revised			17,734,428			$	1,775			$	1,667,006			$	(2,142,859	)		$	(474,078	)
Balance, December 31, 2019			17,822,428			$	1,783			$	1,754,997			$	(2,314,202	)		$	(557,422	)
Stock issued for cash			18,000				2				17,998				-				18,000
Stock-based compensation			48,000				5				47,995				-				48,000
Net loss			-				-				-				(105,315	)			(105,315	)
Balance, March 31, 2020			17,888,428				1,790				1,820,990				(2,419,517	)			(596,737	)
Stock issued for cash			52,000				5				51,995				-				52,000
Stock-based compensation			48,000				5				47,995				-				48,000
Net loss			-				-				-				(132,070	)			(132,070	)
Balance, June 30, 2020			17,988,428				1,800				1,920,980				(2,551,587	)			(628,807	)
Stock issued for settlement of accounts payable			5,000				1				4,999				-				5,000
Stock issued as lease acquisition cost for unproved properties			10,000				1				9,999				-				10,000
Stock-based compensation			48,000				5				47,995				-				48,000
Net loss			-				-				-				(337,632	)			(337,632	)
Balance, September 30, 2020			18,051,428			$	1,807			$	1,983,973			$	(2,889,219	)		$	(903,439	)

 

 

		September 30, 2020				September 30, 2019
						As Revised
Cash flows from operating activities:
Net loss		$	(575,017	)		$	(261,594	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation			144,000				304,000
Amortization of debt discount			14,926				29,636
Gain on change in fair value of derivative liabilities			(22,252	)			(465,575	)
Gain on extinguishment of debt			(10,750	)			-
Impairment loss			-				50,000
Asset retirement obligation expense			57				57
Default interest added to note payable			100,000				-
Changes in operating assets and liabilities:
Prepaid expenses			(5,000	)			-
Accounts payable			215,916				191,154
Accounts payable-related party			48,401				(6,579	)
Interest payable			15,795				15,386
Net cash used in operating activities			(73,924	)			(143,515	)
Cash flows from financing activities:
Payment on convertible credit line payable - related party			(4,250	)			(11,000	)
Proceeds from convertible credit line payable - related party			8,500				-
Advances from related party			1,000				-
Payments on short term advances - related party			(856	)			(53,375	)
Proceeds from sale of common stock			70,000				213,000
Net cash provided by financing activities			74,394				148,625
Net change in cash and cash equivalents			470				5,110
Cash and cash equivalents, at beginning of period			-				240
Cash and cash equivalents, at end of period		$	470			$	5,350
Supplemental disclosures of cash flow information:
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-
Supplemental disclosure of non-cash investing and financing activities:
Expenses paid on behalf of the Company by related party		$	3,959			$	42,406
Non cash short term loan payable		$	-			$	50,000
Unpaid oil and gas assets acquired		$	1,010,000			$	-
Accrued interest added to note principal		$	10,000			$	-
Debt discount from derivative liability		$	5,851			$	7,568
Stock issued for settlement of accounts payable		$	5,000			$	-
Stock issued as lease acquisition cost for unproved properties		$	10,000			$	-

 

NOTE 1 – BASIS OF PRESENTATION

 

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2019 and 2018 which are included on a Form 10-K filed on September 24, 2020. In the opinion of management, all adjustments which include normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows for the periods shown have been reflected herein. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures which would substantially duplicate the disclosures contained in the audited financial statements for the years ended December 31, 2019 and 2018 have been omitted.

 

Principles of Consolidation

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Alpha Energy Texas Operating, LLC. All intercompany transactions and balances have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.

 

Basic and Diluted Loss per share

 

Net loss per share is provided in accordance with FASB ASC 260-10, "Earnings (Loss) per Share". Basic income (loss) per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. For the three months ended September 30, 2020 and 2019, there were 148,328 and 142,446 shares issuable from convertible credit line payable which were considered for their dilutive effects but concluded to be anti-dilutive, respectively. For the nine months ended September 30, 2020 and 2019, there were 148,328 and 142,446 shares issuable from convertible credit line payable which were considered for their dilutive effects, respectively.

 

The reconciliation of basic and diluted loss per share is as follows:

 

 

 

Fair Value of Financial Instruments

 

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

 

The carrying amount of the Company’s financial instruments consisting of cash and cash equivalents, accounts payable, notes payable and convertible notes approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

 

Recently Issued Accounting Standards Not Yet Adopted

 

The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its financial statements.

 

Revision of Prior Period Financial Statements

 

In 2020, the Company identified errors in account balances in the Form 10Q filed for the nine months period ended September 30, 2019. The following accounts were deemed to contain errors: accounts payable, derivative liability, common stock, additional paid in capital, operating expenses, interest expense and loss on derivative liabilities. The errors resulted from incorrect recording of stock-based compensation and overstatements of derivative liability and amortization of debt discount.

 

Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously issued financial statements, and as such no restatement was necessary. Correcting prior period financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior period financial statements. Accordingly, the misstatements were corrected in the consolidated balance sheet as of September 30, 2019 and the consolidated statements of operations for the three and nine months ended September 30, 2019 and cash flows for the nine months ended September 30, 2019.

 

 

The tables below summarize previously reported amounts and the adjusted presentation of the consolidated balance sheet and consolidated statements of operations and cash flows for the affected periods:

 

ALPHA ENERGY, INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

 

ALPHA ENERGY, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

 

 

 

ALPHA ENERGY, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

 

 

 

ALPHA ENERGY, INC.

STATEMENT OF CASH FLOWS

(Unaudited)

 

 

 

 

 

NOTE 2 – GOING CONCERN

 

The Company’s interim unaudited financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company does not have sufficient cash or other current assets, nor does it have an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 – OIL AND GAS PROPERTIES

 

On June 25, 2020, the Company entered into a Purchase and Sale Agreement with Pure Oil & Gas, Inc. (“Pure”) and ZQH Holding, LLC (“ZQH”) to acquire oil and gas assets in Rogers County Oklahoma (the “Project”) in consideration of a purchase price of $1,000,000. Pursuant to the agreement, the Company has taken assignment of all of ZQH and Pure's working interest in the Project and has recognized a note payable to ZQH and Pure as of September 30, 2020 of $1,060,000 consisting of the purchase price of $1,000,000 and the principal and accrued interest on an existing note totaling to $60,000. (See Note 6). The Company, ZQH, and Pure agreed that 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.

 

On July 6, 2020, Premier filed a mechanic’s lien in Rogers County alleging past unpaid invoices and also claiming incorrectly that Alpha’s ownership is 75% rather than 87.5%. No documentation has been provided Alpha of any past due invoices by Premier, Pure, or ZQH, and we intend to contest the lien vigorously.

 

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 with Progressive Well Service, LLC to acquire oil and gas assets in Lincoln and Logan Counties in Central Oklahoma (the “Coral Project”, called the “Logan 1 Project” in the Agreement). The agreement gives the Company until December 31, 2020 to exercise its option (the “option Period”). During the option Period, Progressive may not sell the Coral Project to any third party. In return for this exclusivity, the Company issued 10,000 shares of its common stock with a fair value of $10,000, such shares to bear a legend restricting sale during the option Period. At any time during the option Period, the Company may exercise its option with a cash payment of $50,000. At closing the Company shall make a cash payment of $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”) until Progressive has received an additional $350,000.

 

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 per month. The Company paid $10,000 to Brian Tribble, Managing Member of Kadence, through AEI Acquisition, LLC revolving credit note, on September 18, 2020. 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 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.

 

 

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

The Company received advances from related parties totaling $1,000 and $0 and repaid advances from related parties totaling $856 and $53,375 during the nine months ended September 30, 2020 and 2019, respectively. The advances from related parties are not convertible, bear no interest and are due on demand. During the nine months ended September 30, 2020 and 2019, a related party paid $3,959 and $42,406 of expenses on behalf of the Company, respectively. There was $1,000 and $397 due to related parties as of September 30, 2020 and December 31, 2019, respectively. The Chief Financial Officer allows the use of his residence as an office for the Company at no charge.

 

NOTE 5 – COMMON STOCK

 

The Company is authorized to issue up to 10,000,000 shares of $0.0001 par value preferred stock and 65,000,000 shares of $0.0001par value common stock.

 

The Board of Directors authorized the Company to sell 1,300,000 shares of common stock at $1.00 per share to raise working capital.

 

During the nine months ended September 30, 2020 and 2019 , the Company sold 70,000 and 213,000 shares of common stock for total proceeds of $70,000 and $213,000, respectively.

 

During the nine months ended September 30, 2020, the Company issued 10,000 shares of common stock with a fair value of $10,000 for lease acquisition cost for unproved properties.

 

During the nine months ended September 30, 2020, the Company issued 5,000 shares of common stock with a fair value of $5,000 to settle outstanding accounts payable balance.

 

The Company compensates each of its directors with 4,000 shares of common stock each month. During each of the nine months ended September 30, 2020 and 2019, the Company issued 144,000 shares of common stock valued at $144,000.

During the nine months ended September 30,2019, the Company issued 160,000 shares of common stock with a fair value of $160,000 for consulting services.

 

NOTE 6 – NOTE PAYABLE

 

On March 30, 2019, the Company executed a promissory note for $50,000 to ZQH (75%) and Pure (25%). The due date of the note is April 30, 2019 and has an interest rate of $50 per day. The note is for an escrow payment made directly to Premier Gas Company, LLC to hold the Purchase and Sale Agreement dated January 29, 2019. The note is secured by 50,000 shares of the Company’s common stock at $1 per share. On June 25, 2020, the Company entered into a Purchase and Sale Agreement with Pure. and ZQH to acquire oil and gas assets in Oklahoma in consideration of a purchase price of $1,000,000. (See Note 3). In connection with the purchase, the $50,000 note and accrued interest of $10,000 was added to the purchase price resulting in a total note payable balance of $1,060,000. During the nine months ended September 30, 2020, $10,750 of accrued interest which was previously outstanding was discharged and recorded as a gain on extinguishment of debt. The note payable of $1,060,000 was due to be paid on or before July 31, 2020 but remains outstanding to date. The balance of the note will increase by $50,000 per month thereafter up to a maximum amount of $200,000 through December 1, 2020. As of September 30, 2020, the Company recognized $100,000 of default interest that was added to the principal for a total payable of $1,160,000. If the purchase price is not fully paid on or before December 1, 2020, ZQH and Pure have the option to convert the balance outstanding into the Company’s common stock at a conversion price of $1.00 per share and the note will also be subject to a monthly interest of 1%.

 

NOTE 7 – CONVERTIBLE CREDIT LINE PAYABLE – RELATED PARTY

 

On September 1, 2017, the Company entered into a convertible credit line agreement to borrow up to $500,000. On the same date, the outstanding balance on a note payable of $87,366 was exchanged as a draw on the credit line. The loan modification is considered substantial under ASC 470-50. The outstanding balance accrues interest at a rate of 7% per annum and the outstanding balance is convertible to common stock of the Company at the lesser of the close price of the common stock as quoted on the OTCBB on the day interest is due and payable immediately preceding the conversion or $1.50. The Company analyzed the conversion options in the convertible line of credit for derivative accounting consideration under ASC 815, Derivative and Hedging, and determined that the transaction does qualify for derivative treatment. The Company measured the derivative liability and recorded a debt discount of $87,366 upon initial measurement. During the year ended December 31, 2019, the Company recognized an additional debt discount of $7,568 and amortized $39,514 of the discount as interest expense leaving an unamortized discount of $17,396 as of December 31, 2019. During the nine months ended September 30, 2020, the Company recognized an additional debt discount of $5,851 nd amortized $14,926 of the discount as interest expense leaving an unamortized discount of $8,321 as of September 30, 2020. See discussion of derivative liability in Note 8 – Derivative Liability.

 

During the nine months ended September 30, 2020 and 2019, the Company received $8,500 and $0 in cash proceeds from the credit line and made $4,250 and $11,000 in cash payments to the outstanding balance on the credit line, respectively. The outstanding principal balance on the convertible credit line as of September 30, 2020 amounted to $148,328.

 

 

 

NOTE 8 – DERIVATIVE LIABILITY

 

As discussed in Note 1, on a recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s liabilities measured at fair value as of September 30, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

Utilizing Level 3 Inputs, the Company recorded fair market value adjustments related to convertible credit line payable for the nine months ended September 30, 2020 and 2019 of $22,252 and $465,575, respectively. The fair market value adjustments as of September 30, 2020 and 2019 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.00, computed volatility 132% and 138% and discount rate 0.11% and 1.63%, respectively.

 

A summary of the activity of the derivative liability is shown below at September 30, 2020:

 

 

 

NOTE 9 – SUBSEQUENT EVENTS

 

Subsequent to September 30, 2020, the Company sold 5,000 shares of the common stock for cash proceeds of $5,000.

 

Subsequent to September 30, 2020, the Company received a short term related party loan of $40,000 for working capital. The unsecured loan is non-interest bearing, has no specific terms for repayment and payable on demand.