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TRULEUM, INC. - Quarter Report: 2021 September (Form 10-Q)

aphe20210930_10q.htm
 

 

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, 2021.
  
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)

 

Colorado90-1020566
(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
 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, 2021 the issuer had 18,414,428 shares of common stock issued and outstanding.

 

 

 

 

 
         TABLE OF CONTENTS Page

 

 PART I  FINANCIAL INFORMATION

 

Item 1.

Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

15

Item 4.

Controls and Procedures

15

 
PART II OTHER INFORMATION
     

Item 1.

Legal Proceedings

16

Item 1A.

Risk Factors

16

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 3.

Defaults Upon Senior Securities

16

Item 4.

Mine Safety Disclosures

16

Item 5.

Other Information

16

Item 6.

Exhibits

17

 

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

  Page(s)
Consolidated Balance Sheets (unaudited) 4
   
Consolidated Statements of Operations (unaudited) 5
   
Consolidated Statements of  Stockholders' Deficit (unaudited) 6
   
Consolidated Statements of Cash Flows (unaudited) 7
   
Notes to the Consolidated Financial Statements (unaudited) 8
 

 

3

 

 

ALPHA ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

  September 30, 2021  December 31, 2020 
         
         

Assets

        

Current assets:

        

Cash and cash equivalents

 $902  $- 

Prepaid assets and other current assets

  5,000   30,000 

Total current assets

  5,902   30,000 
         

Noncurrent assets:

        

Oil and gas property, unproved, full cost

  110,000   70,000 
         

Total assets

 $115,902  $100,000 
         

Liabilities and Stockholders' Deficit

        
         

Current liabilities:

        

Accounts payable and accrued expenses

 $510,500  $585,732 

Accounts payable and accrued expenses - related parties

  180,919   120,568 

Interest payable

  64,052   31,295 

Short term advances from related parties

  581,460   181,000 

Short term note payable

  1,210,000   1,160,000 

Derivative liability

  136,030   96,369 

Total current liabilities

  2,682,961   2,174,964 
         

Convertible credit line payable – related party, net of discount of $13,901 and $2,754, respectively

  154,427   145,574 

Asset retirement obligation

  918   862 

Total liabilities

  2,838,306   2,321,400 
         

Commitments and contingencies

          
         

Stockholders' deficit:

        

Preferred stock, 10,000,000 shares authorized:

        

Series A convertible preferred stock, $0.001 par value, 2,000,000 shares authorized and 0 shares issued and outstanding

  -   - 

Common stock, $0.001 par value, 65,000,000 shares authorized and 18,414,428 and 18,145,428 shares issued and outstanding, respectively

  18,414   18,145 

Additional paid-in capital

  2,330,366   2,061,635 

Accumulated deficit

  (5,071,184)  (4,301,180)

Total stockholders' deficit

  (2,722,404)  (2,221,400)
         

Total liabilities and stockholders' deficit

 $115,902  $100,000 

 

See accompanying notes to the unaudited consolidated financial statements.

 

4

 

 

ALPHA ENERGY, INC

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE  AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

   

Three months ended

   

Nine months ended

 
   

September 30, 2021

   

September 30, 2020

   

September 30, 2021

   

September 30, 2020

 
                                 

Oil and gas sales

  $ 2,369     $ -     $ 2,369     $ 1,217  
                                 

Lease operating expenses

    7,303       621       7,303       2,839  

Gross loss

    (4,934 )     (621 )     (4,934 )     (1,622 )
                                 

Operating expenses:

                               

Professional services

    22,793       14,875       70,355       30,508  

Board of director fees

    48,000       48,000       144,000       144,000  

General and administrative

    173,039       139,172       531,860       301,168  

Gain on settlement of accounts payable

    -       -       (120,250 )     -  

Total operating expenses

    243,832       202,047       625,965       475,676  

Loss from operations

    (248,766 )     (202,668 )     (630,899 )     (477,298 )
                                 

Other income (expense):

                               

Interest expense

    (5,219 )     (107,342 )     (114,806 )     (130,721 )

Gain on extinguishment of debt

    -       -       -       10,750  

Gain (loss) on change in fair value of derivative liabilities

    (19,200 )     (27,622 )     (24,299 )     22,252  

Total other income (expense)

    (24,419 )     (134,964 )     (139,105 )     (97,719 )
                                 

Net loss

  $ (273,185 )   $ (337,632 )   $ (770,004 )   $ (575,017 )
                                 

Loss per share:

                               

Basic

  $ (0.01 )   $ (0.02 )   $ (0.04 )   $ (0.03 )

Diluted

  $ (0.01 )   $ (0.02 )   $ (0.04 )   $ (0.03 )
                                 

Weighted average shares outstanding:

                               

Basic

    18,377,318       18,014,580       18,292,604       17,925,910  

Diluted

    18,377,318       18,014,580       18,292,604       18,074,238  

 

See accompanying notes to the unaudited consolidated financial statements.

 

5

 

 

ALPHA ENERGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

   

Common Stock

   

Additional

   

Accumulated

   

Total

Stockholders'

 
   

Shares

   

Amount

   

Paid-in Capital

   

Deficit

   

Deficit

 
                                         

Balance, December 31, 2019

    17,822,428     $ 17,822     $ 1,738,958     $ (2,314,202 )   $ (557,422 )
                                         

Stock issued for cash

    18,000       18       17,982       -       18,000  
                                         

Stock-based compensation

    48,000       48       47,952       -       48,000  
                                         

Net loss

    -       -       -       (105,315 )     (105,315 )
                                         

Balance, March 31, 2020

    17,888,428       17,888       1,804,892       (2,419,517 )     (596,737 )
                                         

Stock issued for cash

    52,000       52       51,948       -       52,000  
                                         

Stock-based compensation

    48,000       48       47,952       -       48,000  
                                         

Net loss

    -       -       -       (132,070 )     (132,070 )
                                         

Balance, June 30, 2020

    17,988,428       17,988       1,904,792       (2,551,587 )     (628,807 )
                                         

Stock issued for settlement of accounts payable

    5,000       5       4,995       -       5,000  
                                         

Stock issued as lease acquisition cost for unproved properties

    10,000       40       9,960       -       10,000  
                                         

Stock-based compensation

    48,000       48       47,952       -       48,000  
                                         

Net loss

    -       -       -       (337,632 )     (337,632 )
                                         

Balance, September 30, 2020

    18,051,428     $ 18,081     $ 1,967,699     $ (2,889,219 )   $ (903,439 )
                                         
                                         

Balance, December 31, 2020

    18,145,428     $ 18,145     $ 2,061,635     $ (4,301,180 )   $ (2,221,400 )
                                         

Stock issued for settlement of accounts payable

    90,000       90       89,910       -       90,000  
                                         

Stock-based compensation

    48,000       48       47,952       -       48,000  
                                         

Net loss

    -       -       -       (229,780 )     (229,780 )
                                         

Balance, March 31, 2021

    18,283,428       18,283       2,199,497       (4,530,960 )     (2,313,180 )
                                         

Stock issued for cash

    5,000       5       4,995       -       5,000  
                                         

Stock-based compensation

    63,000       63       62,937       -       63,000  
                                         

Net loss

    -       -       -       (267,039 )     (267,039 )
                                         

Balance, June 30, 2021

    18,351,428       18,351       2,267,429       (4,797,999 )     (2,512,219 )
                                         

Stock-based compensation

    63,000       63       62,937       -       63,000  
                                         

Net loss

    -       -       -       (273,185 )     (273,185 )
                                         

Balance, September 30, 2021

    18,414,428     $ 18,414     $ 2,330,366     $ (5,071,184 )   $ (2,722,404 )

 

See accompanying notes to the unaudited consolidated financial statements.

 

6

 

 

ALPHA ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

  

September 30, 2021

  

September 30, 2020

 
         
         

Cash flows from operating activities:

        

Net loss

 $(770,004) $(575,017)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Stock-based compensation

  174,000   144,000 

Amortization of debt discount

  4,215   14,926 

(Gain) loss on change in fair value of derivative liabilities

  24,299   (22,252)

Gain on extinguishment of debt

  -   (10,750)

Gain on settlement of accounts payable

  (120,250)  - 

Write off of option contract associated with oil and gas properties

  85,500   - 

Asset retirement obligation expense

  56   57 

Default interest added to note payable

  50,000   100,000 

Changes in operating assets and liabilities:

        

Prepaid expenses and other current assets

  25,000   (5,000)

Accounts payable

  152,778   215,916 

Accounts payable-related party

  60,351   48,401 

Interest payable

  32,757   15,795 

Net cash used in operating activities

  (281,298)  (73,924)
         

Cash flows from investing activities:

        

Deposits for purchase of oil and gas properties

  (60,000)  - 

Net cash used in investing activities

  (60,000)  - 
         

Cash flows from financing activities:

        

Payment on convertible credit line payable - related party

  -   (4,250)

Proceeds from convertible credit line payable - related party

  20,000   8,500 

Advances from related parties

  317,200   1,000 

Payments on short term advances - related parties

  -   (856)

Proceeds from sale of common stock

  5,000   70,000 

Net cash provided by financing activities

  342,200   74,394 
         

Net change in cash and cash equivalents

  902   470 
         

Cash and cash equivalents, at beginning of period

  -   - 
         

Cash and cash equivalents, at end of period

 $902  $470 
         

Supplemental disclosures of cash flow information:

        

Cash paid for interest

 $27,834  $- 

Cash paid for income taxes

 $-  $- 
         

Supplemental disclosure of non-cash investing and financing activities:

        

Expenses paid on behalf of the Company by related party

 $17,760  $3,959 

Oil and gas payments made by related party on behalf of the Company

 $65,500  $1,010,000 

Stock issued for settlement of accounts payable

 $90,000  $5,000 

Accrued interest added to note principal

 $-  $10,000 

Debt discount from derivative liability

 $15,362  $5,851 

Stock issued as lease acquisition cost for unproved properties

 $-  $10,000 

 

See accompanying notes to the unaudited consolidated financial statements.

 

7

 

 

ALPHA ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

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 consolidated financial statements and notes thereto for the years ended December 31, 2020, and 2019 which are included on the Form 10-K filed on April 29, 2021. 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, 2021 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 consolidated financial statements for the years ended December 31, 2020, and 2019 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 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 and nine months ended September 30, 2021 and for the three months ended 2020, there were 168,328 and 148,328 shares issuable from the convertible credit line payable which were considered for their dilutive effects but were determined to be anti-dilutive due to the Company's net loss, respectively.

 

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

 

  

Three months ended

  

Nine months ended

 
  

September 30, 2021

  

September 30, 2020

  

September 30, 2021

  

September 30, 2020

 
                 

Basic net loss

 $(273,185) $(337,632) $(770,004) $(575,017)

Add back: Gain on change in fair value of derivative liabilities

  -   -   -   (22,252)

Diluted net loss

 $(273,185) $(337,632) $(770,004) $(597,269)
                 

Basic and dilutive shares:

                

Weighted average basic shares outstanding

  18,377,318   18,014,580   18,292,604   17,925,910 

Shares issuable from convertible credit line payable

  -   -   -   148,328 

Dilutive shares

  18,377,318   18,014,580   18,292,604   18,074,238 
                 

Loss per share:

                

Basic

 $(0.01) $(0.02) $(0.04) $(0.03)

Diluted

 $(0.01) $(0.02) $(0.04) $(0.03)

 

8

 

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. 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 there are no recently issued accounting pronouncements that will have a significant effect on its financial statements.

 

 

Reclassification

 

 

Certain reclassifications may have been made to our prior year’s financial statements to conform to our current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.

 

9

 
 

 

 

NOTE 2 GOING CONCERN

 

The Company’s interim unaudited consolidated 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 minimal cash or other current assets, and does not have an established ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. 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  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. In the course of performing its due diligence procedures, the Company discovered that Kadence did not have title to the properties in the agreement. The Company had advanced $85,500 in option payments through  September 30, 2021. The agreement is cancelled, and the Company wrote off the $85,500 as of  September 30, 2021.

 

During the nine months ended September 30, 2021, the Company paid $60,000 in Option Payments to Progressive Well Services in connection with its Option Agreement dated June 30, 2020 to acquire oil and gas assets in Logan County, Oklahoma. The Option Agreement has been extended to October 31, 2021.

 

 

 

NOTE 4 RELATED PARTY TRANSACTIONS

 

The Company received advances from related parties totaling $400,460 and $1,014,959 during the nine months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021 and 2020, these advances included payments of $17,760 and $3,959 for expenses paid on behalf of the Company and $65,500 and $1,010,000 for unpaid oil and gas assets acquired, respectively. The advances from related parties are not convertible, bear no interest and are due on demand. As of September 30, 2021, and December 31, 2020, there was $581,460 and $181,000 of short-term advances due to related parties, respectively.

 

As of September 30, 2021 there was $180,919 of accounts payable related parties which consisted of $170,984 due to Leaverite Exploration for Interim President Jay Leaver, $4,145 due to CFO John Lepin and $5,790 due to Staley Engineering LLC for consulting services.

 

As of December 31, 2021 there was $120,568 of accounts payable related parties which consisted of $110,894 due to Leaverite Exploration for Interim President Jay Leaver, $3,884 due to CFO John Lepin and $5,790 due to Staley Engineering LLC for consulting services.

 

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 $0.001 par value preferred stock and 65,000,000 shares of $0.001 par value common stock.

 

The Company compensates each of its directors with 4,000 shares of common stock each month. During the nine months ended September 30, 2021 and 2020, the Company issued 144,000 shares of common stock valued at $144,000.

 

During the nine months ended September 30, 2021, the Company issued 90,000 shares of common stock with a fair value of $90,000 to settle accounts payable of $210,250. The Company recognized a gain of $120,250 on settlement of accounts payable.

 

10

 

During the nine months ended September 30, 2021 and 2020, the Company sold 5,000 and 70,000 shares of the common stock for total proceeds of $5,000 and $70,000, respectively.

 

On April 1, 2021, the Company entered into a month-to-month consulting agreement with Kelloff Oil & Gas, LLC for consulting services that includes cash compensation of $10,000 and the issuance of 5,000 shares of common stock per month. The Company may terminate the agreement at any with a ten-day notice. During the nine months ended September 30, 2021, the Company issued 30,000 common shares and recognized $30,000 of stock-based compensation related to the agreement.

 

 

 

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 September 25, 2020, the Company entered into a Purchase and Sale Agreement (“PSA”) with Pure and ZQH to acquire oil and gas assets in Oklahoma (the “Rogers Project”) in consideration of a purchase price of $1,000,000. 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 year ended December 31, 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 December 31, 2020, the Company recognized $200,000 of default interest that was added to the principal and made payments of $100,000 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%. During the nine months ended September 30, 2021, the the Company recognized $50,000 of default interest that was added to the principal of the note payable. As of September 30, 2021, the note payable balance was $1,210,000 with accrued interest of $56,073. 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 September 1, 2021, in return for which Company makes a monthly interest payment to ZQH and Pure of $10,083, which represents 1% annual interest on the Purchase Price, compounded monthly. The Extension Agreement allows the Company to extend that period beyond September 1, 2021 under similar terms. No further Extension Agreement has been entered into to date.

 

The Company has determined via an independent land title company that substantially no asset exists at the “Rogers Project” in Rogers County, Oklahoma, which was the subject of the PSA of 87.5% Working Interest in June 2020 (see above). The Company alerted the Sellers, Pure and ZQH of our due diligence findings and informed them that we would cease payments under the terms of the agreement and do not intend to pay the full cash value contemplated under the PSA. The owners of Pure and ZQH have retained legal counsel and written a letter dated September 1, 2021 demanding that the Company pay the amounts owed. On October 19, 2021, counsel for the Company has responded, demanding that they retract their demand. 

 

 

 

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. In 2019, the Company recognized an additional debt discount of $7,568. During the nine months ended September 30, 2020, the Company received $8,500 in cash proceeds from the credit line and recognized an additional debt discount of $5,851. During the nine months ended September 30, 2021 and 2020, the Company amortized $2,754 and $14,926 of the discount as interest expense, respectively. As of September 30, 2021, and December 31, 2020, the unamortized discount was $0 and $2,754, respectively. See discussion of derivative liability in Note 8 – Derivative Liability.

 

On June 1, 2021, the Company entered into a new convertible credit line agreement to borrow up to $1,500,000. The new convertible line agreement supersedes the original note dated September 1, 2017 and matures on June 1, 2023. 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 $4.00. 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 evaluated the new convertible credit line for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt modification as the borrowing capacity under the new credit line is greater than the borrowing capacity under the original credit line. There were no fees paid to the creditor and no unamortized deferred costs on the original credit line. Accordingly, no expense was recognized in connection with the transaction.

 

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On August 8, 2021, the Company received $20,000 in cash proceeds from the credit line. During the nine months ended September 30, 2021, the Company recognized an additional debt discount of $15,362 and amortized $1,461 of the discount as interest expense, leaving an unamortized discount of $13,901 as of September 30, 2021. The outstanding principal balance on the convertible credit line as of September 30, 2021 amounted to $168,328.

 

 

 

NOTE 8 DERIVATIVE LIABILITY

 

As discussed in Note 1, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s financial liabilities, measured at fair value on a recurring basis, as of September 30, 2021 and December 31, 2020:

 

   

Level 1

   

Level 2

   

Level 3

   

Fair Value at

September 30,

2021

 

Liabilities:

                               

Derivative liability

  $ -     $ -     $ 136,030     $ 136,030  

 

 

   

Level 1

   

Level 2

   

Level 3

   

Fair Value at

December 31,

2020

 

Liabilities:

                               

Derivative liability

  $ -     $ -     $ 96,369     $ 96,369  

 

 

Utilizing Level 3 Inputs, the Company recorded a loss on fair market value adjustments related to convertible credit line payable for the nine months ended September 30, 2021 of $24,299. The fair market value adjustments as of September 30, 2021 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.00, computed volatility of 202% and discount rate of 0.28%.

 

A summary of the activity of the derivative liability is shown below at September 30, 2021:

 

 

Balance at December 31, 2020

  $ 96,369  

Debt discount on convertible credit line payable

    15,362  

Loss on change in derivative fair value adjustment

    24,299  

Balance at September 30, 2021

  $ 136,030  

 

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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.

 

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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 one of the top the number one producers 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.

 

The company is actively pursuing acquisition of additional properties in Oklahoma, Texas and New Mexico.

 

Liquidity and Capital Resources

 

As of September 30, 2021, we had total current assets of $5,902 and total current liabilities of $2,682,961.

 

The Company used $281,298 of cash in operating activities during the nine months ended September 30, 2021, compared to $73,924 used in operations during the same period in 2020. Net cash used in operating activities during the nine months ended September 30, 2021 was mainly comprised of our $770,004 net loss during the period, adjusted by a non-cash charges of $120,250 gain on settlement of accounts payable, $24,299 for loss on change in fair value of derivative liabilities, stock-based compensation of $174,000, amortization of debt discounts of $4,215, write off of option contract associated with oil and gas properties of $85,500, default interest added to note payable of $50,000, asset retirement obligations expense of $56 and changes in operating assets and liabilities of $270,886. Net cash used in operating activities during the nine months ended September 30, 2020 was mainly comprised of our $575,017 net loss during the period, adjusted by a non-cash charges of $22,252 for gain on change in fair value of derivative liabilities, $10,750 gain on extinguishment of debt, stock compensation of $144,000, amortization of debt discounts of $14,926, asset retirement obligation expense of $57, default interest added to note payable of $100,000 and changes in operating assets and liabilities of $275,112. 

 

The Company used cash of $60,000 for investing activities during the nine months ended September 30, 2021 which consisted of a $60,000 deposit for oil and gas properties.

 

The Company generated cash of $342,200 from financing activities during the nine months ended September 30, 2021 which consisted of $317,200 in proceeds from advances from related parties, $20,000 in proceeds from the convertible credit line payable, related party and $5,000 in proceeds from the sale of common stock. The Company generated cash of $74,394 from financing activities during the nine months ended September 30, 2020 which consisted of $70,000 in proceeds from the sale of common stock, $8,500 proceeds from the convertible credit line – related party, $1,000 advances from related party, $856 payments on short term advances – related party and $4,250 payments on convertible credit line payable - related party.

 

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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 unaudited consolidated financial statements for additional information.

 

Results of Operations

 

We generated revenues of $2,369 and $0 during the three months ended September 30, 2021 and 2020, respectively. Total operating expenses were $243,832 during the three months ended September 30, 2021 compared to $202,047 during the same period in 2020. The increase in operating expenses was due to a $33,867 increase in general and administrative expenses and an increase of $7,918 in professional fees.

 

We generated revenues of $2,369 and $1,217 during the nine months ended September 30, 2021 and 2020, respectively. Total operating expenses were $625,965 during the nine months ended September 30, 2021 compared to $475,676 during the same period in 2020. The increase in operating expenses was due to an increase in general and administrative expenses of $230,692, increase in professional fees of $39,847 which were offset by a gain on settlement of accounts payable of $120,250.

 

Off-Balance sheet arrangements

 

As of September 30, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. Our accounting policies are described in Note 1 to our audited consolidated financial statements for 2020 appearing in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Smaller reporting companies are not required to provide information required by this Item.

 

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 September 30, 2021, 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). Based on that evaluation, they have concluded that, as of September 30, 2021, the  disclosure controls and procedures are not effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

15

 

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On July 6, 2020, Premier Gas Company, LLC filed a mechanic’s lien against the interests of Pure, ZQH and the Company in the Rogers County 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 25, 2021, the Company determined via an independent land title company that substantially no asset exists at the “Rogers Project” in Rogers County, Oklahoma, which was the subject of a Purchase and Sale Agreement (“PSA”) and Assignment of 87.5% Working Interest in June 2020. The Company alerted the Seller, Pure Oil Company (“Pure”) and ZQH Holdings, LLC (“ZQH”) of our due diligence findings and informed them that we would cease payments under the terms of the Agreement and do not intend to pay the full cash value contemplated under the PSA. The owners of Pure and ZQH have retained legal counsel and written a letter dated 9/1/21 demanding that the company pay the amounts owed. On October 19, 2021, counsel for the Company has responded, demanding that they retract their demand. 

 

On July 22, 2020, the Company filed a lawsuit in Texas State Court against its predecessor auditor, LBB & Associates and Vine Advisors, LLP, and their principal, Carlos Lopez, seeking damages up to $1,000,000.

 

In March 6, 2020, the Company was informed by the United States Securities and Exchange Commission that (a) Lopez and LBB were investigated by the SEC through an Order Instituting Administrative Proceedings; (b) Lopez and LBB ultimately agreed to the imposition of remedial sanctions against them by the SEC; and (c) Lopez had been suspended from appearing or practicing before the SEC for a period of at least two years (the “Suspension Order”) beginning on February 6, 2020. A copy of the Suspension Order can be found on the SEC’s website.

 

The Suspension Order finds, among other things, that:

 

For three consecutive years, Lopez and LBB “engaged in a pattern of improper professional conduct as auditors”

 

Lopez failed to exercise due professional care in performing his audit work; and

 

Lopez and LBB committed “multiple instances of highly unreasonable conduct in circumstances that warranted heightened scrutiny.”

 

The Suspension Order and the predecessor auditor’s failure to disclose it or the SEC investigation when it was occurring has had very damaging repercussions for the Company. Due to the misdeeds of Lopez, LBB, and Vine, the Company is now obligated to spend substantial amounts to re-audit the filings that Lopez, LBB, and Vine handled. Also, the Company is obligated to undertake this re-audit for 2018 since it can no longer trust the work of someone who admittedly “engaged in a pattern of improper professional conduct” and committed “multiple instances of highly unreasonable conduct in circumstances that warranted heightened scrutiny.”

 

Upon discovery of the misdeeds of Lopez, LBB, and Vine, the Company notified the predecessor auditors of their claims. The predecessor auditors have ignored the Company’s communications and failed to respond or even return the Company’s work papers and property.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in the risk factors set forth in the Company’s Form 10K for the period ended December 31, 2020.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable to our operations.

 

ITEM 5. OTHER INFORMATION

 

None.

 

16

 

ITEM 6. EXHIBITS

 

The following documents are included or incorporated by reference as exhibits to this report:

 

  Exhibit  
  Number Description
  31.1 Centification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as a adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2 Centification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as a adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1 Centification 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.
  32.2 Centification 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.

 

101.INS** Inline XBRL Instance
101.SCH** Inline XBRL Taxonomy Extension Schema
101.CAL** Inline XBRL Taxonomy Extension Calculation
101.DEF** Inline XBRL Taxonomy Extension Definition
101.LAB** Inline XBRL Taxonomy Extension Labels
101.PRE** Inline XBRL Taxonomy Extension Presentation
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
   
** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections

 

17

 

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: November 10, 2021

 

 

Alpha Energy, Inc.

 

  Registrant  

 

 

 

 

 

By:

/s/ John Lepin

 

 

 

John Lepin, Principal Executive

 

 

 

Officer, Principal Financial Officer

 

    and Director  

 

18