Business context and reporting period
The supplied filing is Houston American Energy Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019—not a filing for Abundia Global Impact Group, Inc. Houston American is an oil and gas company with U.S. and Colombian properties. Its common stock trades as HUSA on NYSE American.
Financial results and position
| Metric | Three months ended September 30, 2019 | Nine months ended September 30, 2019 |
|---|---|---|
| Oil and gas revenue | $264,935 | $724,848 |
| Operating expenses | $549,380 | $1,733,223 |
| Operating loss | $(284,445) | $(1,008,375) |
| Net loss | $(304,633) | $(1,026,676) |
| Net loss attributable to common shareholders | $(362,233) | $(1,199,476) |
| Loss per common share | $(0.01) | $(0.02) |
At September 30, 2019, cash was $453,594, current assets were $672,217, current liabilities were $718,703, and the working-capital deficit was $46,486. Total assets were $8.20 million and total liabilities were $1.01 million. The company reported no income tax expense. No gross-margin measure is presented.
Nine-month operating cash use was $546,355, investing cash use was $645,507, and financing cash provided was $889,754; cash declined by $302,108 from year-end 2018. Capital spending primarily related to Permian Basin acreage acquisition and oil and gas property development.
Debt included $621,052 principal of unsecured related-party bridge notes, net of debt discount on the balance sheet to $462,652. The notes bear 12% interest and mature January 16, 2020. The company also had $339,711 in operating lease liabilities, including $94,430 current. Preferred stock had a stated $1.92 million aggregate liquidation preference.
Material changes versus prior comparable periods
- Revenue fell 52% in the quarter and 61% year to date versus 2018. Nine-month oil production declined to 10,227 barrels from 19,375, and gas production to 78,430 Mcf from 201,083. Management cited natural production declines at Reeves County wells, lower commodity prices, and temporary flooding-related loss of Crown Paper royalties.
- Nine-month net loss increased to $1.03 million from $316,000; operating cash flow shifted from $6,010 provided to $546,355 used.
- Nine-month lease operating expense fell 37% and general and administrative expense fell 17%, partly reflecting lower production and cost containment. A larger quarterly stock-based compensation expense partly offset G&A savings.
- Cash fell from $755,702 at December 31, 2018, while total liabilities increased from $145,478, reflecting related-party borrowing and adoption of lease accounting.
- Common shares outstanding rose from 62,425,140 at year-end to 64,727,404 at September 30. The company raised $472,554 net through its ATM offering and issued warrants to purchase 1.18 million shares with the bridge financing.
Outlook, risks and unusual items
- Management expected production from the Frost #1H Yoakum County well, which began producing in June 2019, resumed Crown Paper royalties, and future drilling and development to improve revenue and profitability. The filing gives no quantified earnings or production guidance.
- Management believed available cash and anticipated operating cash flows could support operations for the next twelve months, but not planned acquisitions and drilling. Additional capital would be needed; there were no commitments for future funding, and financing may not be available on acceptable terms. Failure to fund commitments could result in penalties, loss of acreage interests, or curtailed operations.
- In September, the company received $590,000 net from bridge notes with $621,052 principal, a 5% original issue discount, 12% interest, and warrants. Lenders—the CEO and a 10% shareholder—waived mandatory prepayment at September 30 and October 31. Subsequent to quarter-end, a $100,000 related-party note yielded $90,000 and was repaid by October 31; ATM sales generated a further $79,495 net through the report date.
- In October, the company paid $100,000 for a Hupecol Meta interest in Colombia, representing 1% of the Venus Exploration Area and 0.5% of the rest of the CPO-11 block. Colombian concessions remained subject to discussions seeking compensation; no drilling was planned there pending resolution.
- Commodity prices are volatile, and the company reported no historical hedging. Management disclosed continuing losses since 2011 and identified a going-concern funding need for development expenditures.
- Disclosure controls were deemed ineffective as of September 30, 2019 because the CEO also served as principal financial officer, resulting in a lack of segregation of duties. The company relied on outside consultants and its accounting firm to assist with financial reporting.
Important facts for investors to verify
- Confirm the correct issuer: the supplied document is Houston American Energy Corp. (HUSA), not Abundia Global Impact Group, Inc.
- Assess whether the company can repay the bridge notes at maturity and fund planned drilling and acquisitions without further dilutive or related-party financing.
- Track Frost #1H production, Permian well plans, commodity-price and transportation conditions, and Crown Paper royalty recovery.
- Review the status and potential value of the Colombian concessions and the Hupecol Meta acquisition.
- Monitor dilution from ATM share sales, preferred stock conversion rights, options, and warrants, as well as remediation of the disclosed control weakness.