TRULEUM, INC. - Quarter Report: 2020 March (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 March 31, 2020

 

☐	Transition Report under Section 13 or 15(d) of the Exchange Act   For the 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 incorporation or organization)	(I.R.S. Employer 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 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                         ☐
Non-accelerated filer       ☐	Smaller reporting 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 4, 2020, the issuer had 18,056,428 shares of common stock issued and outstanding.

 

 

 

 

 

		March 31, 2020				December 31, 2019
Assets
Noncurrent assets:
Oil and gas property, unproved, full cost		$	10,000			$	10,000
Total assets		$	10,000			$	10,000
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable		$	366,059			$	300,428
Accounts payable and accrued expenses - related party			5,461				3,687
Interest payable			40,403				33,653
Short term advance from related party			856				397
Short term note payable			50,000				50,000
Derivative liability			26,240				65,289
Current portion of convertible credit line payable – related party, net of discount of $11,665			116,913				-
Total current liabilities			605,932				453,454
Convertible credit line payable – related party, net of discount of $17,396			-				113,182
Asset retirement obligation			805				786
Total liabilities			606,737				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 17,888,428 and 17,822,428 shares issued and outstanding, respectively			1,790				1,783
Additional paid-in capital			1,820,990				1,754,997
Accumulated deficit			(2,419,517	)			(2,314,202	)
Total stockholders' deficit			(596,737	)			(557,422	)
Total liabilities and stockholders' deficit		$	10,000			$	10,000

 

		March 31, 2020				March 31, 2019
						As Revised
Oil and gas sales		$	346			$	2,270
Lease operating expenses			928				2,902
Gross loss			(582	)			(632	)
Operating expenses:
Professional services			-				13,908
Board of director fees			48,000				48,000
General and administrative			83,301				166,849
Total operating expenses			131,301				228,757
Loss from operations			(131,883	)			(229,389	)
Other income (expense):
Interest expense			(12,481	)			(12,608	)
Gain on change in fair value of derivative liabilities			39,049				449,133
Total other income			26,568				436,525
Net income (loss)		$	(105,315	)		$	207,136
Income (loss) per share:
Basic		$	(0.01	)		$	0.01
Diluted		$	(0.01	)		$	(0.01	)
Weighted average shares outstanding:
Basic			17,851,879				17,297,372
Diluted			17,980,457				17,433,818

 

		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 - As Revised			17,456,428			$	1,746			$	1,389,035			$	(1,674,129	)		$	(283,348	)
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	)

 

		March 31, 2020				March 31, 2019
						As Revised
Cash flows from operating activities:
Net income (loss)		$	(105,315	)		$	207,136
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation			48,000				108,000
Amortization of debt discount			5,731				9,879
Gain on change in fair value of derivative liabilities			(39,049	)			(449,133	)
Asset retirement obligation expense			19				19
Changes in operating assets and liabilities:
Accounts payable			66,090				16,118
Accounts payable-related party			1,774				(6,579	)
Interest Payable			6,750				2,729
Net cash used in operating activities			(16,000	)			(111,831	)
Cash flows from financing activities:
Payment on convertible credit line payable - related party			(2,000	)			(4,000	)
Advances from related party			-				23,841
Payments on short term advances - related party			-				(30,875	)
Proceeds from sale of common stock			18,000				131,000
Net cash provided by financing activities			16,000				119,966
Net change in cash and cash equivalents			-				8,135
Cash and cash equivalents, at beginning of period			-				240
Cash and cash equivalents, at end of period		$	-			$	8,375
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		$	459			$	-
Non cash short term loan payable		$	-			$	50,000

 

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 months ended March 31, 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 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 Income (Loss) per share

 

Net income (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 income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive income (loss) per share excludes all potential common shares if their effect is anti-dilutive. For the three months ended March 31, 2020 and 2019, there were 128,578 and 136,446 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 three months ended March 31, 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 March 31, 2019 and consolidated statements of operations and cash flows for the three months ended March 31, 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 period:

 

ALPHA ENERGY, INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

 

ALPHA ENERGY, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

 

 

 

ALPHA ENERGY, INC.

CONSOLIDATED 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 any cash or other current assets, nor does it have an established 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 – RELATED PARTY TRANSACTIONS

 

The Company received advances from related parties totaling $0 and $23,841 and repaid $0 and $30,875 during the three months ended March 31, 2020 and 2019, respectively. The advances from related parties are not convertible, bear no interest and are due on demand. During the three months ended March 31, 2020, a related party paid $459 of expenses on behalf of the Company.

 

There was $856 and $397 due to related parties as of March 31, 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 4 – COMMON STOCK

 

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

 

The Board of Directors authorized the Company to sell 750,000 shares of common stock at $1.00 per share to raise working capital.

 

During the quarter ended March 31, 2020, the Company sold 18,000 shares of the common stock for total proceeds of $18,000.

 

The Company compensates each of its directors with 4,000 shares of common stock each month. During each of the quarters ended March 31, 2020 and 2019, the Company issued 48,000 shares of common stock valued at $48,000.

During the quarter ended March 31, 2019, the Company issued 60,000 shares of common stock with a fair value of $60,000 for consulting services.

 

During March 2019, the Company sold 131,000 shares of common stock for $1 per share in a private placement for total proceeds of $131,000.

 

NOTE 5 – NOTE PAYABLE

 

On March 30, 2019, the Company executed a promissory note for $50,000 to ZHQ Holdings, LLP (75%) and Pure Oil & Gas, Inc (25%). The due date of the note is April 30, 2019 and has an interest rate of $50 per day. The note is for an escrow payment made directly to Premier Gas Company, LLC to hold the Purchase and Sale Agreement dated January 29, 2019. The note is secured by 50,000 shares of the Company’s common stock at $1 per share. As of March 31, 2020, the note is outstanding with accrued interest of $16,550.

 

 

 

NOTE 6 – 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 three months ended March 31, 2020, the Company amortized $5,731 of the discount as interest expense leaving an unamortized discount of $11,665 as of March 31, 2020. See discussion of derivative liability in Note 7 – Derivative Liability.

 

During the three months ended March 31, 2020 and 2019, the Company recorded $2,000 and $4,000 in cash payment to the outstanding balance on the credit line, respectively.

 

NOTE 7 – 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 March 31, 2020 and December 31, 2019:

 

 

 

 

 

Utilizing Level 3 Inputs, the Company recorded fair market value adjustments related to convertible credit line payable for the three months ended March 31, 2020 and 2019 of $39,049 and $449,133, respectively. The fair market value adjustments as of March 31, 2020 and 2019 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.00, computed volatility of 54% and 162% and discount rate of 0.17% and 2.27, respectively.

 

A summary of the activity of the derivative liability is shown below at March 31, 2020:

 

 

 

NOTE 8 – SUBSEQUENT EVENTS

 

On June 1, 2020, the Company entered an agreement with Jay Leaver, dba Leaverite Consulting, to be retained as President of the Company at a salary of $10,000 per month. Mr. Leaver is also President of Chicorica, LLC and Visionary Resources, LLC (Battlewagon Project) which the Company has ongoing contracts with for exploration projects.

 

On June 1, 2020, the Company entered into an agreement with Conner Staley and Staley Consulting, LLC, to be retained as Chief Operating Officer for his expertise in oil and gas exploration. The compensation is based on an hourly rate of $200 plus expenses.

 

On June 25, 2020, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with Pure Oil & Gas, Inc. (“Pure”) and ZQH Holding, LLC (“ZQH”) to acquire oil and gas assets in Oklahoma (the "Project") in consideration of a purchase price of $1,000,000 (the “Purchase Price”). The Company also agrees in the Agreement to discharge a promissory note to ZQH in the amount of $50,000 plus $10,000 interest (see Note 5). The payment in full was not tendered prior to close of business on July 31, 2020. As of July 31, 2020, the Purchase Price will increase by $50,000 per month thereafter to a maximum possible Purchase Price of $1,200,000. If the Purchase Price and promissory note are not paid in full by December 1, 2020, ZQH and Pure have the option to convert all or part of the unpaid balance to the Company’s stock at a price of $1.00 per share.

 

 

Pursuant to the Agreement, the Company has taken assignment of all of ZQH and Pure's working interest in the Project. Company, ZQH, and Pure agree the sellers' combined working interest in the Project is 87.5%. The current operator of the Project and owner of the residual working interest is Premier Gas Company, LLC (“Premier”).

 

On July 6, 2020, Premier filed a mechanic’s lien against the interests of Pure, ZQH and the Company in the Project, alleging past unpaid invoices on the part of ZQH and Pure and also alleging that the Company’s ownership is 75% rather than 87.5%. No documentation has been provided to Alpha by ZQH, Pure, or Premier of any unpaid invoices. The Company intends to contest the lien vigorously.

 

On June 30, 2020, the Company entered into an Option Agreement (the “Agreement”) with Progressive Well Service, LLC. (“Progressive”) to acquire oil and gas assets in Lincoln and Logan Counties in Central Oklahoma (the “Coral Project”, called the “Logan 1 Project” in the Agreement). The Agreement gives the Company until December 31, 2020 to exercise its option (the “Option Period”). During the Option Period, Progressive may not sell the Coral Project to any third party. In return for this exclusivity, the Company is to issue 10,000 shares of its common stock, such shares to bear a legend restricting sale during the Option Period. At any time during the Option Period, the Company may exercise its Option with a cash payment of $50,000.

 

On September 8, 2020, the Company entered into an Option Agreement (the “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 December 31, 2020 to exercise its option (the “Option Period”). During the Option Period, Progressive may not sell the Logan 2 Project to any third party. In return for this exclusivity, the Company paid $10,000 to Brian Tribble, Managing Member of Kadence, through AEI Acquisition, LLC revolving credit note, on September 18, 2020.

 

Subsequent to March 31, 2020, the Company sold 57,000 shares of the common stock for total proceeds of $57,000, issued 96,000 shares to compensates its directors and issued 15,000 shares to settle accounts payable. On August 6, 2020, the Board authorized an additional 550,000 shares of common stock for sale at $1.00 per share bringing the total to 1,300,000 shares.