Filing summary
Entity-name discrepancy: The request identifies Abundia Global Impact Group, Inc., but the supplied 10-Q is for Houston American Energy Corp. This summary reflects the filing provided, not the company named in the request.
Business context and reporting period
Houston American Energy Corp. is an oil and gas exploration and production company with interests in the United States and Colombia. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2018; it was filed August 14, 2018.
Financial performance and position
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Oil and gas revenue | $574,580, versus $46,275 in 2017 | $1,328,737, versus $103,908 in 2017 |
| Operating loss | $146,259, versus $469,238 in 2017 | $199,169, versus $971,752 in 2017 |
| Net loss | $146,259, versus $466,274 in 2017 | $199,169, versus $968,673 in 2017 |
| Net loss attributable to common stockholders | $208,509, versus $483,556 in 2017 | $324,269, versus $985,955 in 2017 |
| Basic and diluted loss per share | $0.00 loss, versus $0.01 loss in 2017 | $0.00 loss, versus $0.02 loss in 2017 |
For the first half, operating expenses were $1.53 million, including $485,575 of lease operating expense and severance tax, $864,359 of general and administrative expense, and $177,972 of depreciation and depletion. Revenue growth reflected higher production from two Reeves County wells that began producing in late 2017 and higher average oil and gas prices. Six-month oil and gas revenue rose about 1,179% year over year; operating losses narrowed, but the company remained loss-making.
Six-month operating cash flow was positive $42,438, compared with cash used of $743,594 in 2017. Investing activities used $195,510; financing activities provided $162,579, principally from $287,679 of net ATM stock proceeds, partly offset by $125,100 of preferred dividends. Cash increased $9,507 to $401,569 from December 31, 2017. At June 30, current assets were $730,550, current liabilities $82,507, and working capital $648,043. Total liabilities were $166,318, including $83,811 of long-term liabilities; the balance sheet reports no interest-bearing debt. Preferred stock had stated liquidation preferences totaling $2.01 million.
Net property and equipment was $6.79 million, including $2.45 million of unevaluated oil and gas properties, most of which related to Colombia. The company reported 60.45 million common shares outstanding at June 30 and 61.19 million as of August 13, 2018.
Material changes and notable items
- Net oil production for the first half increased to 13,950 barrels from 1,578; net gas production rose to 121,082 Mcf from 8,029. Average realized prices also increased: oil to $60.77 per barrel from $48.99 and gas to $3.97 per Mcf from $3.31.
- The company acquired a 12.5% working interest, subject to a proportionate 10% back-in after payout, in an approximately 650-acre Yoakum County, Texas lease block for $135,330. It drilled no wells in the first half; development spending was limited while it awaited operator proposals.
- During the first half, 800,000 common shares were sold through the ATM offering for $287,679 net. After quarter-end, another 540,000 shares were sold for $158,535 net. Preferred conversions also issued common shares.
- The board terminated Chairman, CEO and President John Boylan during the second quarter and began searching for a replacement. The filing was signed by Interim CEO and President James Schoonover, who was also principal financial officer.
- Most of the company’s 3.65 million warrants outstanding at the start of 2018 expired; 50,000 remained at June 30. A 1-million-option award to the former executive was forfeited unvested upon termination.
Outlook, risks and controls
Management said cash on hand, post-quarter ATM proceeds and revenue from Reeves County were expected to support operations for the 12 months following issuance of the financial statements. Those resources were not expected to fund the company’s share of drilling and completion costs for additional Reeves County wells; additional capital may be required for drilling, acquisitions or strategic transactions. The company had no committed source of additional funding and cautioned that financing might not be available on acceptable terms, or at all. Failure to fund its share of costs could lead to penalties, loss of interests or curtailed activity. No 2018 drilling budget was established; future activity depends on operator proposals, financing, commodity markets and other factors.
In Reeves County, a new operator took control in June, and the company was awaiting development plans. In Yoakum County, it was awaiting proposals for initial wells. In Colombia, permitting opposition delayed drilling on the Serrania concession; work on Los Picachos and Macaya was also deferred. The company reported no hedging activity and highlighted oil and gas price volatility. It expected a nearby salt-water disposal well could reduce Reeves County water-transportation costs, possibly from the fourth quarter of 2018, but gave no assurance of timing or savings.
Disclosure controls and procedures were deemed ineffective as of June 30, 2018, reflecting a lack of segregation of duties after the CFO’s 2013 departure and the CEO’s assumption of principal financial officer duties. The company relied on outside consultants and its accounting firm to assist with financial reporting. It reported no material change in internal control during the quarter. The office lease requires $567,890 of future payments through October 2022. Management reported no off-balance-sheet arrangements or third-party guarantees.
Key facts for investors to verify
- Confirm the intended issuer: the supplied filing is Houston American Energy Corp., not Abundia Global Impact Group, Inc.
- Reconcile cash at December 31, 2017: the balance sheet and cash flow statement show $392,062, while MD&A cites $396,062.
- Review the reported stock-based compensation comparison: the statements show second-quarter 2018 expense of $43,381 versus $65,835 in 2017, while MD&A says it increased 34.1% and cites $65,891 for 2017.
- Understand the relationship between $195,510 of cash used for oil and gas property investing and $152,680 of net property investment described in the notes; the cash flow statement separately reports a $42,830 change in accrued development costs.
- Assess the company’s ability to raise capital, fund operator-proposed drilling, resolve Colombia permitting issues, and address ineffective disclosure controls.