ITEM 1. FINANCIAL STATEMENTS
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 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 six months ended June 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 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 six months ended June 30, 2021, there were 148,328 shares issuable from convertible credit line payable which were considered for their dilutive effects but concluded to be anti-dilutive. For the three and six months ended June 30, 2020, there were 129,328 shares issuable from convertible credit line payable which were considered for their dilutive effect.
The reconciliation of basic and diluted loss per share is as follows:
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Three months ended
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Six months ended
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June 30, 2021
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June 30, 2020
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June 30, 2021
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June 30, 2020
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|
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Basic net loss
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$
|
(267,039
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)
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$
|
(132,070
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)
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|
$
|
(496,819
|
)
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|
$
|
(237,385
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)
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Add back: Gain on change in fair value of derivative liabilities
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|
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-
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|
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(10,825
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)
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|
|
-
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|
|
|
(49,874
|
)
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Diluted net loss
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$
|
(267,039
|
)
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|
$
|
(142,895
|
)
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|
$
|
(496,819
|
)
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|
$
|
(287,259
|
)
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|
|
|
|
|
|
|
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Basic and dilutive shares:
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Weighted average basic shares outstanding
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18,309,939
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|
|
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17,910,296
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|
|
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18,249,450
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|
|
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17,881,087
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Shares issuable from convertible credit line payable
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|
-
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|
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129,328
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|
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-
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|
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129,328
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|
Dilutive shares
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|
|
18,309,939
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|
|
|
18,039,624
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|
|
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18,249,450
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|
|
|
18,010,415
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|
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Loss per share:
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Basic
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$
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(0.01
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)
|
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$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
Diluted
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$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
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.
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 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 – 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. During due diligence it was discovered that Kadence did not have title to the properties in the agreement. The Company had advanced $85,500 in option payments through June 30, 2021. The agreement is cancelled, and the Company wrote off the $85,500 as of June 30, 2021.
During the six months ended June 30, 2021, the Company paid $70,000 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 August 31, 2021.
NOTE 4 – RELATED PARTY TRANSACTIONS
The Company received advances from related parties totaling $224,600 and $0 during the six months ended June 30, 2021 and 2020, respectively. The advances from related parties are not convertible, bear no interest and are due on demand. During the six months ended June 30, 2021, a related party paid $13,244 of expenses on behalf of the Company and $65,500 for unpaid oil and gas assets acquired. As of June 30, 2021, and December 31, 2020, there was $484,344 and $181,000 of short-term advances due to related parties, respectively.
As of June 30, 2021 and December 31, 2020, there was $176,079 and $120,568 of accounts payable, $170,985 due Leaverite Exploration for Interim President Jay Leaver, $5,094 due CFO John Lepin in accrued expenses and $110,904 due Leaverite Exploration for Interim President Jay Leaver, $3,884 due CFO John Lepin in accrued expenses, $5,780 Staley Engineering LLC for consulting Services due to related parties, 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 $0.001 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 six months ended June 30, 2021 and 2020, the Company issued 96,000 shares of common stock valued at $96,000.
During the six months ended June 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.
During the six months ended June 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 six months ended June 30, 2021, the Company issued 15,000 common shares and recognized $15,000 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 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. 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 six months ended June 30, 2021, the Company recognized $50,000 of default interest that was added to the principal of the note payable. As of June 30, 2021, the note payable balance was $1,210,000 with accrued interest of $60,294. The Company, Pure, and ZQH have entered into various Extension Agreements, the current one of which is dated March 28th, 2021 (the “Extension Agreement”). The Extension Agreement prevents Pure and ZQH from taking stock rather than cash through June 1, 2021, in return for which Company makes a monthly interest payment to ZQH and Pure of $10,083, which represents 1% annual interest on the Purchase Price, compounded monthly. The Extension Agreement allows the Company to extend that period beyond June 1, 2021 under similar terms. No further Extension Agreement has been entered into.
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 six months ended June 30, 2021 and 2020, the Company amortized $2,754 and $10,179 of the discount as interest expense, respectively. As of June 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. 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.
During the six months ended June 30, 2021 and 2020, the Company recorded $0 and $4,250 in cash payment to the outstanding balance on the credit line, respectively.
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 June 30, 2021 and December 31, 2020:
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Level 1
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Level 2
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Level 3
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Fair Value at
June 30,
2021
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Liabilities:
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|
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|
|
|
|
|
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|
|
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|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
101,468
|
|
|
$
|
101,468
|
|
|
|
Level 1
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|
|
Level 2
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|
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Level 3
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Fair Value at
December 31, 2020
|
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Liabilities:
|
|
|
|
|
|
|
|
|
|
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|
|
|
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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 six months ended June 30, 2021 of $5,099. The fair market value adjustments as of June 30, 2021 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.00, computed volatility of 145% and 37% and discount rate of 0.25% and 0.16%, respectively.
A summary of the activity of the derivative liability is shown below at June 30, 2021:
Balance at December 31, 2020
|
|
$
|
96,369
|
|
Loss on change in derivative fair value adjustment
|
|
|
5,099
|
|
Balance at June 30, 2021
|
|
$
|
101,468
|
|