Business context and reporting period
Entity mismatch: The request identifies Abundia Global Impact Group, Inc., but the supplied Form 10-Q is for Houston American Energy Corp. This summary reflects the supplied filing, an unaudited report for the quarter and six months ended June 30, 2016.
The company is an oil and gas exploration and production business with U.S. producing wells and undeveloped properties in Colombia. It drilled no wells in the first half of 2016.
Financial performance and condition
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Oil and gas revenue | $33,887 | $82,147 |
| Operating loss | $492,202 | $835,613 |
| Net loss | $490,406 | $829,857 |
| Basic and diluted loss per share | $0.01 | $0.02 |
| Operating cash flow | Not separately presented | $(713,669) |
For the six months, operating expenses were $917,760, including $831,135 of general and administrative expense, $37,361 of lease operating expense and severance tax, and $49,264 of depreciation and depletion. No oil and gas impairment was recorded in 2016; the comparable 2015 six-month period included a $677,051 impairment charge. The filing does not report a gross or operating margin.
At June 30, 2016, cash was $1,248,762, down from $2,123,520 at year-end 2015; working capital was $1,504,078. Total assets were $4,694,884 and total liabilities were $58,488, including $25,538 for plugging and abandonment. The company reported no debt. First-half investing cash use was $71,010 and financing cash use was $90,079, for treasury-share purchases. Cash declined by $874,758 during the half.
Material changes versus comparable periods
- First-half revenue fell 62% from $216,093 in 2015; second-quarter revenue fell 70.3% from $114,122. Management attributed the declines to lower commodity prices and reduced production. First-half oil and gas prices and production volumes were lower year over year.
- First-half net loss narrowed to $829,857 from $1,538,872 in 2015, principally reflecting the absence of the prior-year impairment charge and lower depletion, partly offset by higher G&A.
- First-half G&A increased 13.4% to $831,135; second-quarter G&A increased 72% to $474,865. Management cited higher consulting fees and a prior-year reversal of over-accrued legal fees.
- First-half operating cash use improved from $1,199,917 in 2015, but cash and working capital both declined from December 31, 2015.
- The planned $1 million investment for a 12.5% interest in Tamboran Resources was terminated effective June 30, 2016 after a closing condition was not met.
Outlook, risks and unusual items
- Going concern: Continuing losses, negative operating cash flow, declining cash, low commodity prices and financial commitments related to Colombian properties raise substantial doubt about the company’s ability to continue as a going concern. Management may seek financing or divest assets; success is not assured.
- Colombia: Local opposition and permitting delays have stalled drilling at the Serrania concession. The company shelved 2016 drilling plans absent a near-term resolution; work on Los Picachos and Macaya is also expected to be deferred. The company was reassessing plans after a peace accord announcement, but the filing gives no assurance of permit approval or development.
- Funding and strategy: The company had no budgeted capital expenditures for the rest of 2016 at the filing date, but spending could change if permits are resolved. Cash might not fund operations and commitments; financing may be required, with no assurance it can be obtained on acceptable terms. The board is exploring strategic alternatives, including transactions that could be dilutive; no transaction is assured.
- Commodity exposure: Oil and gas prices are volatile, and the company reported that it had not historically hedged production.
- Controls: Management concluded disclosure controls were ineffective as of June 30, 2016, citing lack of segregation of duties following the CFO’s 2013 departure. Third-party consultants and the accounting firm were assisting with financial reporting.
- Other items: $944,001 of cash deposits exceeded the FDIC-insured limit cited in the filing. Office lease payments remaining were $88,497. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the filing belongs to the intended company: the supplied document names Houston American Energy Corp., not Abundia Global Impact Group, Inc.
- Review the going-concern qualification, cash runway, operating commitments and any subsequent financing or asset-sale developments.
- Check for updates on Colombian permitting, concession rights and drilling plans.
- Assess the status, terms and potential dilution of any strategic transaction or capital raise.
- Reconcile apparent MD&A inconsistencies: second-quarter 2015 lease operating expense is stated as $30,376 in one passage versus $30,735 in the financial statements; a first-half 2016 regional table states total lease operating expense of $67,361 versus $37,361 in the financial statements.