Filing and reporting period
Filing identity: The supplied filing is Houston American Energy Corp.’s Form 10-Q, not a filing for Abundia Global Impact Group, Inc. It reports unaudited results for the quarter ended March 31, 2017; comparisons are with the quarter ended March 31, 2016 unless stated otherwise.
Financial performance and condition
- Revenue: Oil and gas revenue was $57,633, up 19% from $48,260. Higher realized prices—oil up 29% and natural gas up 46%—more than offset lower production volumes. Production was 876 barrels of oil and 4,590 Mcf of gas.
- Expenses and loss: Operating expenses were $560,147 versus $391,671. General and administrative expense rose 46% to $519,297; lease operating expense rose to $23,154 from $10,388. Net loss increased to $502,399 from $339,451. Basic and diluted loss per share was $0.01 in both periods.
- Cash flow: Operating activities used $361,938, compared with $295,045 used a year earlier. Investing activities used $997,985, primarily for Reeves County acreage. Preferred-stock financing provided $1.2 million. Cash decreased by $159,923 during the quarter to $321,249.
- Liquidity and debt: Working capital was $211,619, down from $423,795 at December 31, 2016. Total liabilities were $175,132, including $28,002 for plugging and abandonment; management stated the company had no debt. Cash and working capital remain limited relative to planned drilling and operating needs.
- Assets and equity: Total assets were $3.80 million, including $3.44 million of net property and equipment. Shareholders’ equity was $3.62 million. The company had 51,277,388 common shares outstanding as of May 12, 2017.
- Margins: Operating and net results were losses; the filing does not present a margin measure.
Material changes and developments
- Revenue improved on commodity pricing, while natural production decline and no new production limited volumes. Operating costs and the net loss increased, principally due to higher G&A.
- The company invested approximately $986,000 in Reeves County, Texas acreage and reported a 25% working interest in two lease blocks covering approximately 717 acres, subject to stated pooling and back-in arrangements.
- It issued $1.2 million of 12% Series A convertible preferred stock in January. In May, after quarter-end, it raised $909,600 through Series B preferred stock and warrants. Both preferred series carry a $1,000-per-share liquidation preference and are convertible into common stock; Series A converts at $0.20 per share and Series B at $0.36. The Series B warrants cover up to 3,001,680 shares at $0.43 per share and expire after nine months.
- The company canceled 892,557 treasury shares. It granted options for 1.2 million shares in March, exercisable at $0.30 per share, with varying vesting terms.
Outlook, risks, and other notable items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, negative operating cash flow, declining cash, low commodity prices, and property-related financial commitments. Additional financing or asset divestitures may be needed; success is not assured.
- Drilling plans: A horizontal Wolfcamp A well on the Reeves County acreage was spud in early May 2017. The company estimated its share of first-well drilling costs at $0.7 million and budgeted approximately $2.55 million for drilling and completing two wells in the remainder of 2017. The post-quarter financing was expected to cover first-well drilling, but not completion or the second well; further funding is required unless warrants are exercised or other resources become available. Management cautioned that warrant exercise is uncertain.
- Operational and commodity risks: Colombian drilling remains delayed by permitting opposition; work on other Colombian concessions was also deferred. The company warned that unsuccessful or underperforming wells, inability to fund commitments, or continued weak prices could sustain losses, jeopardize going-concern status, or require asset sales. It reported no historical hedging of oil and gas prices.
- Commitments and compensation: A new office lease runs through October 2022, with stated future payments totaling $720,130. CEO compensation includes a $250,000 annual salary, part of which is deferred until the compensation committee determines the company can pay. The newly hired business-development officer was terminated in May, and that officer’s options expired unvested.
- Controls: Management concluded disclosure controls were ineffective at March 31, 2017 because of a lack of segregation of duties following the CFO’s departure; the company relied on outside consultants and its accounting firm for reporting assistance.
Key facts for investors to verify
- Confirm the issuer identity: the document is for Houston American Energy Corp., despite the request naming Abundia Global Impact Group, Inc.
- Assess whether available cash, the May financing, and any warrant proceeds can fund planned well completion, the second well, and ongoing operations.
- Track Reeves County drilling results, production timing, actual company working interests and costs, and the status of Colombian permits.
- Review the filing’s capital-investment figures: the oil-and-gas-properties note reports $999,093 capitalized to unevaluated properties, while MD&A reports $992,093; reconcile these amounts with the stated $997,985 investment.
- Evaluate potential dilution and obligations from preferred-stock conversion rights, warrants, stock options, deferred compensation, and the extended lease.
- Monitor remediation of the disclosed ineffective disclosure controls and the company’s going-concern risks.