ABUNDIA GLOBAL IMPACT GROUP, INC. quarterly report, Q2 FY2019

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Business context and reporting period

The supplied filing is Houston American Energy Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019—not a filing identified in its text as Abundia Global Impact Group, Inc. Houston American is an oil and gas company with U.S. and Colombian properties; reported revenue came entirely from U.S. operations. The filing was signed August 13, 2019.

Financial performance and position

  • Revenue: Second-quarter 2019 oil and gas revenue was $209,193, down 64% from $574,580 in Q2 2018. First-half revenue was $459,913, down 65% from $1,328,737.
  • Profit/loss: Q2 net loss was $482,423, versus $146,259 a year earlier; first-half net loss was $722,043, versus $199,169. Loss attributable to common shareholders was $540,023 for Q2 and $837,243 for the first half, after preferred dividends. Reported loss per share was $0.01 for both periods in 2019.
  • Operating costs and margins: First-half operating expenses were $1,183,844, including $344,096 of lease operating expense and severance tax, $655,601 of general and administrative expense, and $184,146 of depreciation and depletion. The filing does not report a gross-margin measure.
  • Cash flow: First-half cash used in operations was $399,852, compared with $42,438 provided in 2018. Investing used $51,967; financing used $59,130. Cash fell $510,949 to $244,753.
  • Liquidity: Current assets were $390,810 and current liabilities $196,100, yielding reported working capital of $194,710. At December 31, 2018, working capital was $648,043.
  • Debt and obligations: The filing reports no conventional borrowings. Total liabilities were $506,609, including $361,080 of operating lease liabilities and a $40,501 plugging-and-abandonment reserve. Lease liabilities were recognized following adoption of the new lease standard.
  • Equity and dilution: Shareholders’ equity was $6,937,664. Common shares outstanding were 62,705,240 at June 30; 280,100 shares were issued during the first half. Preferred stock had a stated aggregate liquidation preference of $1.92 million.

Material changes versus the prior comparable period

  • Revenue declined amid lower production from Reeves County wells, lower realized commodity prices, and reduced Crown Paper royalties. First-half net oil production fell to 5,621 barrels from 13,950; natural gas production fell to 49,155 Mcf from 121,082. First-half realized oil price was $50.76 per barrel versus $60.77, and gas price was $3.08 per Mcf versus $3.97.
  • First-half operating loss increased to $723,931 from $199,169. Lease operating expense declined 29% to $344,096, while G&A declined 24% to $655,601 using the financial-statement comparative of $864,359.
  • Cash from operations deteriorated, and working capital declined from $648,043 at year-end 2018 to $194,710 at June 30, 2019.
  • Houston American adopted the lease accounting standard effective January 1, 2019, recording an initial right-of-use asset and lease liability of approximately $357,985.

Outlook, risks, and unusual items

  • The Frost #1H well in Yoakum County began production June 5, 2019 while unloading frac fluid. Management expected production to increase in Q3 and forecast higher revenue and profitability in the second half of 2019. A second Yoakum County well was committed for 2019 at an estimated company cost of approximately $325,000.
  • Management said the new Reeves County operator had not provided definitive plans for another 2019 well. Participation in any such well would require additional capital. The company may seek funding through its ATM offering or private equity or debt sales; it had no committed additional financing and gave no assurance it could obtain capital on acceptable terms.
  • Management cited continuing losses since 2011 and acknowledged that failure to fund drilling obligations could lead to penalties, loss of acreage rights, curtailed operations, or missed opportunities. It nevertheless believed available cash and expected operating cash flows could fund operations for the following 12 months.
  • The Crown Paper well was offline because of local flooding, generating no Q2 royalties; it resumed production in mid-August, with royalties expected to resume in Q3. In Colombia, discussions with officials continued over compensation for three concessions; no drilling was then contemplated pending resolution.
  • The company had a $5.2 million ATM program. It sold 230,000 shares for net proceeds of $56,070 during the first half and, after quarter-end through the report date, sold 207,164 shares for net proceeds of $46,596.
  • The company reported no hedging against oil and gas price volatility. Disclosure controls and procedures were deemed ineffective because of a lack of segregation of duties; management relied on outside consultants and its accounting firm for financial reporting assistance.
  • The filing’s MD&A G&A comparisons do not agree with the financial statements: MD&A gives Q2 2018 G&A of $373,905 versus $417,286 in the statements, and first-half 2018 G&A of $795,629 versus $864,359. Investors should verify the correct comparatives.

Important facts to verify

  1. Confirm the registrant’s identity: the supplied filing names Houston American Energy Corp., not Abundia Global Impact Group, Inc.
  2. Reconcile the conflicting 2018 G&A comparative figures between MD&A and the financial statements.
  3. Track Frost #1H production, realized prices, and whether management’s second-half revenue and profitability expectations were achieved.
  4. Verify funding availability and actual costs for the committed Yoakum well and any proposed Reeves County drilling.
  5. Monitor cash runway, ATM share issuance and dilution, Colombian concession discussions, and remediation of the disclosed control weaknesses.