Business context and reporting period
This is Houston American Energy Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The request identifies Abundia Global Impact Group, Inc.; that does not match the registrant named in the filing, so confirm the intended company and filing before relying on this summary.
The company is an oil and gas explorer and producer with U.S. and Colombian properties. Its near-term development focus is acreage in Reeves County, Texas. The filing states that the interim results are not necessarily indicative of full-year results.
Financial results and condition
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Oil and gas revenue | $46,275 in 2017; $33,887 in 2016 | $103,908 in 2017; $82,147 in 2016 |
| Operating expenses | $515,513 in 2017; $526,089 in 2016 | $1,075,660 in 2017; $917,760 in 2016 |
| Operating loss | $469,238 in 2017; $492,202 in 2016 | $971,752 in 2017; $835,613 in 2016 |
| Net loss | $466,274 in 2017; $490,406 in 2016 | $968,673 in 2017; $829,857 in 2016 |
| Basic and diluted loss per share | $0.01 in both years | $0.02 in both years |
Revenue increased 37% for the quarter and 26% for the six-month period year over year, primarily due to higher realized oil and gas prices; lower natural gas production partly offset the gains. Six-month G&A increased 21% to $1,004,439, while depreciation and depletion fell to $31,206 from $49,264. No income tax expense was recorded.
Cash was $229,778 at June 30, 2017, versus $481,172 at year-end 2016. Working capital was negative $324,778, compared with positive $423,795. Total liabilities were $616,366, including $447,628 of current notes payable net of discount and a $35,560 plugging-and-abandonment reserve. The balance sheet reports total assets of $4,861,034 and shareholders’ equity of $4,244,668. The filing does not report a conventional gross-margin measure.
For the first six months, operating cash use was $743,594, investing cash use was $2,170,118, and financing provided $2,662,318. Cash declined by $251,394 over the period. Property investment included approximately $986,000 for Reeves County acreage and $1,166,438 for U.S. drilling and completion work.
Material changes versus the prior comparable period
- Six-month revenue rose from $82,147 to $103,908, while net loss widened from $829,857 to $968,673.
- Operating cash use increased from $713,669 to $743,594; investing cash use rose from $71,010 to $2,170,118, reflecting Reeves County acquisition and drilling spending.
- Financing shifted from $90,079 of cash use in the first half of 2016 to $2,662,318 provided in the first half of 2017, mainly from preferred stock and bridge financing.
- The company acquired and began developing Reeves County acreage, issued Series A and Series B convertible preferred stock, and issued $600,000 face amount of bridge notes. It also cancelled 892,557 treasury shares.
Outlook, risks, contingencies, and unusual items
- Going concern: Management says continuing losses, negative operating cash flow, declining cash, low commodity prices, and financial commitments raise substantial doubt about the company’s ability to continue as a going concern for the following 12 months. Management states that the financial statements include no adjustments that might be required if the company cannot continue.
- Funding and dilution: Management estimated second-half 2017 capital spending of approximately $3.7 million and said available resources, including subsequent ATM proceeds, were insufficient to fund the drilling plan and operations through year-end. It expected to seek additional capital; no commitment for that funding was reported. In July, the company established a $5 million ATM program and, by August 14, had sold 2,957,327 shares for $1,708,149 net. The company reported that $300,000 of ATM proceeds was used to repay bridge notes; holders waived mandatory prepayment on the remaining $300,000 at July 31.
- Debt terms: The bridge notes bear 12% interest and were due October 21, 2017. They include mandatory prepayment provisions tied to financing, asset-sale, and Reeves County production proceeds. The notes were issued with warrants and a substantial debt discount.
- Operating plans: Hydraulic fracturing on the Johnson State #1H and drilling of the O’Brien #3H were completed in July. The company expected Johnson production sales to begin in August and O’Brien sales in September 2017. These are forward-looking expectations, not reported outcomes.
- Colombia: Permitting opposition continued to delay drilling on the Serrania concession; work on Los Picachos and Macaya was also deferred pending resolution. The company identified potential loss or impairment of prospect interests if it cannot fund commitments.
- Other risks and costs: Results remain exposed to volatile oil and gas prices; the company had not historically hedged. It reported $693,473 of future office lease payments through 2022 and deferred/accrued $65,000 of the CEO’s salary pending a determination of sufficient financial capacity. A one-time $10,000 lease participation fee contributed to other income.
- Controls: Management concluded disclosure controls were not effective as of June 30, 2017, citing lack of segregation of duties after the CFO’s departure and the CEO’s assumption of principal financial officer duties. The company relied on outside consultants and its accounting firm for reporting assistance.
Important facts for investors to verify
- Confirm that Houston American Energy Corp., rather than Abundia Global Impact Group, Inc., is the intended issuer and filing.
- Check subsequent filings for actual ATM issuance, remaining bridge-note balance and repayment, additional financing, and cash runway.
- Verify actual drilling results, production commencement and volumes from the Reeves County wells against management’s expectations.
- Assess the potential dilution from preferred-stock conversion, outstanding warrants, options, and further ATM sales.
- Monitor Colombia permitting developments, capital commitments, commodity-price exposure, and remediation of the disclosed control weaknesses.