Overview
The Company was incorporated in the State of Colorado on September 26, 2013.
This discussion should be read in conjunction with the other sections contained
herein, including the risk factors and the consolidated financial statements and
the related exhibits contained herein. The various sections of this discussion
contain a number of forward-looking statements, all of which are based on our
current expectations and could be affected by the uncertainties and risk factors
described throughout this Report as well as other matters over which we have no
control. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including but
not limited to those set forth in this Report. See "Risk Factors" and
"Cautionary Note Regarding Forward-Looking Statements."
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Going Concern
The future of our company is dependent upon its ability to obtain financing and
upon future profitable operations. Management has plans to seek additional
capital through a private placement and public offering of its common stock, if
necessary. Our auditors have expressed a going concern opinion which raises
substantial doubt about the Company's ability to continue as a going concern.
The Company's financial statements are prepared using accounting principles
generally accepted in the United States of America (U.S. GAAP) applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company does not have
significant cash or other current assets, nor does it have an established source
of revenues sufficient to cover its operating costs and to allow it to continue
as a going concern. These conditions raise substantial doubt about the company's
ability to continue as a going concern.
Under the going concern assumption, an entity is ordinarily viewed as continuing
in business for the foreseeable future with neither the intention nor the
necessity of liquidation, ceasing trading, or seeking protection from creditors
pursuant to laws or regulations. Accordingly, assets and liabilities are
recorded on the basis that the entity will be able to realize its assets and
discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plan described in the Business paragraph
and eventually attain profitable operations. The accompanying financial
statements do not include any adjustments that may be necessary if the Company
is unable to continue as a going concern.
During the next year, the Company's foreseeable cash requirements will relate to
continual development of the operations of its business, maintaining its good
standing and making the requisite filings with the Securities and Exchange
Commission, and the payment of expenses associated with research and
development. The Company may experience a cash shortfall and be required to
raise additional capital.
Historically, it has mostly relied upon internally generated funds and funds
from the sale of shares of stock to finance its operations and growth.
Management may raise additional capital through future public or private
offerings of the Company's stock or through loans from private investors,
although there can be no assurance that it will be able to obtain such
financing. The Company's failure to do so could have a material and adverse
effect upon it and its shareholders.
Results of Operations
For the Year Ended December 31, 2022 Compared to the Year Ended December 31,
2021
During the years ended December 31, 2022 and 2021, the Company generated
revenues of $270,627 and $3,839. The increase in revenue was due to acquired
percentage working interests and net revenue interests in the Logan Project.
Lease operating expenses were $573,770 for the year ended December 31, 2022
compared to $15,652 for 2021. The increase in oil and gas sales and lease
operating expenses was due to an increase in Alpha Energy Texas operations.
Operating expenses were $1,256,702 for the year ended December 31, 2022 compared
to $894,498 for 2021. The change was primarily attributable to an increase of
$310,849 in professional expenses related to the engagement of new legal and
audit firms. In addition, there was an increase in gain on accounts payable of
$120,250 related to the Company recording a gain on accounts payable of $0 and
$120,250 during the years ended December 31, 2022 and 2021, respectively. These
changes were offset by decreases of $36,000 in board of director fees and a
decrease of $32,895 in general and administrative expenses.
Other expense was $22,704 for the year ended December 31, 2022 compared to other
expense of $164,427 for 2021. The change was attributable to a $194,416 gain on
change in fair value of derivative liabilities due to the payoff of a
convertible note in 2022, which was offset by a $63,299 increase in interest
expense.
During the year ended December 31, 2022, the Company recognized a net loss of
$1,582,549 compared to $1,070,738 for the year ended December 31, 2021.
Liquidity and Capital Resources
Overview -
Liquidity describes the ability of a company to generate sufficient cash flows
to meet the cash requirements of its business operations, including working
capital needs, debt services, acquisitions, contractual obligations and other
commitments. As of the date of this filing, we have yet to generate meaningful
revenue from our business operations and have funded acquisitions, capital
expenditure and working capital requirement through equity and debt financing.
As of December 31, 2022, we had total current assets of $208,544 and total
current liabilities of $1,737,933. We have historically funded our operations
from lines of credit, sales of equity securities, loans and advances, including
from related parties.
As of December 31, 2022, our revenues have been inadequate to cover our
operating costs. Accordingly, we expect we will be dependent on obtaining
capital from external sources to fund our operations over the next two to three
years. Although we have been successful in raising capital in the past,
financing may not be available on terms favorable to us, if at all, so we may
not be successful in obtaining additional financing. Therefore, it is not
considered probable, as defined in applicable accounting standards, that our
plan to raise additional capital will alleviate the substantial doubt regarding
our ability to continue as a going concern.
Cash Flows -
The following table summarizes our cash flows from operating, investing and
financing activities for the periods presented.
Fiscal Year Ended December 31,
2022 2021
Net cash used in operating activities $ (1,463,814 ) $ (356,892 )
Net cash used in investing activities
(1,387,449 ) (95,791 )
Net cash provided by financing activities $ 2,946,408 $ 452,900
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Cash flows from operating activities
Our cash flows used in operating activities to date have been primarily
comprised of costs related to pursuing acquisitions and general and
administrative activities as a result of operating as a public company, which we
expect to increase.
Net cash used in operating activities was $1,463,814 and $356,892 for the years
ended December 31, 2022 and 2021, respectively. The increase in net cash flows
used in operating activities as compared to the same period in 2021 is primarily
driven by our signing of the Logan 1 acquisition in March 2022 and preparation
for oil and natural gas related production activities thereafter.
Cash flows from investing activities
Our cash flows from investing activities have been comprised primarily of
purchases of equipment and installation of improvements to our leased
facilities.
Net cash used in investing activities was $1,387,449 and $95,791 for the years
ended December 31, 2022 and 2021, respectively. The increase was primarily due
to the acquisition of oil and natural gas property during the year ended
December 31, 2022.
Cash flows from financing activities
We have financed our operations primarily through sales of equity securities,
loans and advances, including from related parties.
Net cash provided by financing activities was $2,946,408 and $452,900 for the
years ended December 31, 2022 and 2021, respectively. The increase is comprised
of $120,236 in proceeds from advances, from related parties, $500,000 from
senior secured convertible notes payable from related party and $2,504,500 in
proceeds from the sale of common stock, which were offset by repayments on the
Convertible Credit Line of $168,328 and $10,000 repayments of advances, related
party. The Company generated cash of $452,900 from financing activities during
the year ended December 31, 2021 which consisted of $427,900 advances, related
party, related party, $20,000 in proceeds from convertible credit line payable,
related party and $5,000 in proceeds from the sale of common stock.
On June 1, 2021, the Company entered into a convertible credit line with a
related party, AEI Acquisition Company, LLC, the beneficial owner of 74% of the
Company's common stock, which provides for up to $1,500,000 of advances. The
outstanding principal amount accrues interest at a rate of 7% per annum and is
convertible into shares of common stock at a rate equal to the lesser of (i)
$4.00 per share or (ii) the closing price on the common stock on the primary
trading market for our common stock on the day immediately preceding the date of
conversion. During the year ended December 31, 2022, the Company repaid the
convertible credit line in full. As of December 31, 2022 and 2021, the
outstanding principal balance on the convertible credit line was $0 and
$168,328, respectively.
On December 31, 2022, the Company and 20 Shekels, Inc. an affiliate of our
President Jay Leaver, and AEI Management, Inc., an affiliate of our majority
stockholder, AEI Acquisition Company, LLC., entered into Exchange Agreements
(the "Exchange Agreements") with respect to certain outstanding indebtedness of
the Company. Under the Exchange Agreements, the Company's previously issued
7.25% Senior Secured Notes due February 22, 2024 to affiliates of Mr. Leaver
(which were assigned to 20 Shekels, Inc. a corporation wholly-owned by
Marshwiggle, LLC, a limited liability company jointly owned by Mr. Leaver and
his spouse ) and to AEI Management, Inc. were amended and restated and the
Contractual Investment Agreements ("CIA") entered with the Company and related
agreements were terminated and replaced with the new 7.25% Senior Secured Note
Purchase Agreement agreements and the new 7.25% Transaction Documents. Under the
terms of the Exchange Agreements, 20 Shekels, Inc. was issued a $906,754
principal amount 7.25% Note and AEI Management, Inc. was issued a $413,206
principal amount 7.25% Note. As a result of the amendments, the holders and the
Company amended and restated the terms of the contractual agreements governing
7.25% Notes in order to, among other things, extend the maturity date to
December 31 2024 and limit the scope of the collateral pledged to assets
acquired on March 9, 2022 (34 well bores and related assets) under the Purchase
and Sale Agreement with Progressive Well Service, LLC on the Cherokee Uplift in
Central Oklahoma for the Logan 1 Assets. In addition, AEI Management, Inc. was
appointed collateral agent for 7.25% Notes, the CIAs were terminated, and the
parties agreed to various representations and warranties, covenants, and
conditions, as provided in the new 7.25% Transaction Documents and released all
prior obligations under the CIA and related agreements.
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