AGIG 10-Q
Abundia Global Impact Group, Inc. (AGIG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ______________.
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)(Zip Code)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ☒ | |
| Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No
As of November 14, 2024, we had shares of $ par value common stock outstanding.
HOUSTON AMERICAN ENERGY CORP.
FORM 10-Q
INDEX
| 2 |
| ITEM 1 | Financial Statements |
PART I - FINANCIAL INFORMATION
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable – oil and gas sales | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Oil and gas properties, full cost method | ||||||||
| Costs subject to amortization | ||||||||
| Office equipment | ||||||||
| Total | ||||||||
| Accumulated depletion, depreciation, amortization, and impairment | ( | ) | ( | ) | ||||
| PROPERTY AND EQUIPMENT, NET | ||||||||
| Equity investment – Hupecol Meta LLC | ||||||||
| Right of use asset | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of lease liability | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Lease liability, net of current portion | ||||||||
| Reserve for plugging and abandonment costs | ||||||||
| TOTAL LONG-TERM LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock, par value $; shares authorized shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
| Nine Months | Three Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| OIL AND GAS REVENUE | $ | $ | ||||||||||||||
| EXPENSES OF OPERATIONS | ||||||||||||||||
| Lease operating expense and severance tax | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Depreciation and depletion | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME, NET | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Total other income | ||||||||||||||||
| Net (loss) income before taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | ||||||||||
| Basic and diluted (loss) income per common share | $ | ) | $ | ) | ||||||||||||
| Based and diluted weighted average number of common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2024 | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2024 | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | |||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||
| Net loss | — | |||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
HOUSTON AMERICAN ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operations: | ||||||||
| Depreciation and depletion | ||||||||
| Accretion of asset retirement obligation | ||||||||
| Stock-based compensation | ||||||||
| Amortization of right of use asset | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable | ( | ) | ||||||
| Decrease (increase) in accrued earnings distributions from Hupecol Meta, LLC | ( | ) | ||||||
| Increase in prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Increase in accounts payable and accrued expenses | ||||||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Payments for capital contribution for equity investment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common stock for cash, net of offering costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
| SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Changes in estimate of asset retirement obligations, net | $ | $ | ||||||
Change in accrued oil and gas development costs | $ | $ | ||||||
| Changes in accrued equity investment contributions and distributions | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
HOUSTON AMERICAN ENERGY CORP.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of Houston American Energy Corp., a Delaware corporation (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for a complete financial presentation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited consolidated financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.
These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes, which are included as part of the Company’s Form 10-K for the year ended December 31, 2023.
Consolidation
The accompanying consolidated financial statements include all accounts of the Company and its subsidiary (HAEC Louisiana E&P, Inc.). All significant inter-company balances and transactions have been eliminated in consolidation.
Liquidity and Capital Requirements
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following
the issuance date of these consolidated financial statements. The Company has incurred continuing losses since 2011, with an accumulated
deficit of $
The Company believes that it has the ability to fund, from cash on hand, its operating costs and anticipated drilling operations for at least the next twelve months following the issuance of these financial statements.
The actual timing and number of wells drilled during 2024 and beyond will be principally controlled by the operators of the Company’s acreage, based on a number of factors, including but not limited to availability of financing, performance of existing wells on the subject acreage, energy prices and industry condition and outlook, costs of drilling and completion services and equipment and other factors beyond the Company’s control or that of its operators.
In the event that the Company pursues additional acreage acquisitions or expands its drilling plans, the Company may be required to secure additional funding beyond our resources on hand. While the Company may, among other efforts, seek additional funding from “at-the-market” sales of common stock, and private sales of equity and debt securities, it presently does not have any commitments to provide additional funding, has limited shares of common stock available to support capital raising efforts and there can be no assurance that the Company can secure the necessary capital to fund its share of drilling, acquisition or other costs on acceptable terms or at all. If, for any reason, the Company is unable to fund its share of drilling and completion costs, it would forego participation in one or more of such wells. In such event, the Company may be subject to penalties or to the possible loss of some of its rights and interests in prospects with respect to which it fails to satisfy funding obligations and it may be required to curtail operations and forego opportunities.
Accounting Principles and Use of Estimates
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing financial statements, management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews its estimates, including those related to such potential matters as litigation, environmental liabilities, income taxes and the related valuation allowance, determination of proved reserves of oil and gas and asset retirement obligations. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.
| 7 |
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to a concentration of credit risk include cash, cash equivalents (if any) and any marketable
securities (if any). The Company had cash deposits of $
Basic earnings (loss) per share is computed by dividing net loss available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted in common shares that then shared in the earnings of the Company. In periods in which the Company reports a net loss, dilutive securities are excluded from the calculation of diluted net loss per share amounts as the effect would be anti-dilutive.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board “FASB”, issued Accounting Standards Update “ASU”, No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The guidance in ASU 2023-09 improves the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The standard is effective for public companies for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). The amendments in this update expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment among other disclosure requirements. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
Subsequent Events
The
Company has evaluated all transactions from September 30, 2024 through the financial statement issuance date for subsequent event disclosure
consideration. On November 11, 2024, subsequent to the period covered by this report, the Company sold shares of our common
stock to one investor for aggregate proceeds of approximately $
NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates revenue by significant product type for the three and Nine-month periods ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Oil sales | $ | $ | ||||||||||||||
| Natural gas sales | ( | ) | ||||||||||||||
| Natural gas liquids sales | ||||||||||||||||
| Total revenue from customers | $ | $ | ||||||||||||||
There
were
NOTE 3 – OIL AND GAS PROPERTIES
During
the three and nine months ended September 30, 2024, the Company recorded depletion expense of $
Geographical Information
The Company currently has properties in the United States. Revenues for the nine months ended September 30, 2024 and long-lived assets (net of depletion, amortization, and impairments) as of September 30, 2024 are presented below:
| Nine Months Ended September 30, 2024 | As of September 30, 2024 | |||||||
| Revenues | Long Lived Assets, Net | |||||||
| United States | $ | $ | ||||||
| Total | $ | $ | ||||||
Revenues and long-lived assets attributable to the Company’s investments in Hupecol Meta LLC (“Hupecol Meta”), and its underlying assets and operations in Colombia, are excluded from the above table.
| 8 |
NOTE 4 – EQUITY INVESTMENT
The Company’s carrying value of its holdings in Hupecol Meta is reflected in the line item “equity investment – Hupecol Meta LLC” on the Company’s Consolidated Balance Sheet.
During
the three months ended September 30, 2024, the Company made capital contributions totaling $
In 2008, the Company adopted the Houston American Energy Corp. 2008 Equity Incentive Plan (the “2008 Plan”). The terms of the 2008 Plan, as amended in 2012 and 2013, allow for the issuance of up to shares of the Company’s common stock pursuant to the grant of stock options and restricted stock.
In 2017, the Company adopted the Houston American Energy Corp. 2017 Equity Incentive Plan (the “2017 Plan”). The terms of the 2017 Plan, allow for the issuance of up to shares of the Company’s common stock pursuant to the grant of stock options and restricted stock.
In 2021, the Company adopted the Houston American Energy 2021 Equity Incentive Plan (the “2021 Plan” and, together with the 2008 Plan and the 2017 Plan, the “Plans”). The terms of the 2021 Plan allow for the issuance of up to shares of the Company’s common stock pursuant to the grant of stock options and restricted stock.
Persons eligible to participate in the Plans are key employees, consultants and directors of the Company.
The Company periodically grants options to employees, directors and consultants under the Plans and is required to make estimates of the fair value of the related instruments and recognize expense over the period benefited, usually the vesting period.
Stock Option Activity
| Options | Weighted-Average Exercise Price |
Aggregate Intrinsic Value | ||||||||||
| Outstanding at January 1, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired | ( | ) | ||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||
| Exercisable at September 30, 2024 | $ | $ | ||||||||||
During the nine months ended September 30, 2024, options to purchase an aggregate of shares of the Company’s common stock were granted to the Company’s directors. The options have a life, are exercisable at $ per share, The grant date fair value of these stock options was $ based on the Black-Scholes Option Pricing model based on the following assumptions: market value of common stock on grant date – $; risk free interest rate based on the applicable US Treasury bill rate – %; dividend yield – %; volatility factor based on the trading history of the Company – %; weighted average expected life in years – ; and expected forfeiture rate – %.
During the three and nine-months ended September 30, 2024, the Company recognized $ and $, respectively, of stock-based compensation expense attributable to the vesting amortization of stock options. As of September 30, 2024, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $. The unrecognized expense is expected to be recognized over a weighted average period of years and the weighted average remaining contractual term of the outstanding options and exercisable options at September 30, 2024 is years and years, respectively.
| 9 |
As of September 30, 2024, there were shares of common stock available for issuance pursuant to future stock or option grants under the Plans.
Stock-Based Compensation Expense
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Stock-based compensation expense included in general and administrative expense | $ | $ | $ | ||||||||||||
| Earnings per share effect of share-based compensation expense – basic and diluted | $ | ) | ) | $ | ) | ) | |||||||||
NOTE 6 – CAPITAL STOCK
Warrants
A summary of warrant activity and related information for 2024 is presented below:
| Warrants | Weighted-Average Exercise Price | Aggregate Intrinsic Value | ||||||||||
| Outstanding at January 1, 2024 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Expired | ||||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||
| Exercisable at September 30, 2024 | $ | $ | ||||||||||
Earnings (loss) per common share-basic is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Net income (loss) per common share-diluted assumes the conversion of all potentially dilutive securities and is calculated by dividing net (loss) income by the sum of the weighted average number of shares of common stock, as defined above, outstanding plus potentially dilutive securities. Net income (loss) per common share-diluted considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares, as defined above, would have an anti-dilutive effect.
| 10 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | ||||||||||
| Effect of common stock equivalents | ||||||||||||||||
| Net (loss) income adjusted for common stock equivalents | $ | ( | ) | $ | ( | ) | ||||||||||
| Denominator: | ||||||||||||||||
| Weighted average common shares – basic | ||||||||||||||||
| Dilutive effect of common stock equivalents: | ||||||||||||||||
| Options and warrants | ||||||||||||||||
| Denominator: | ||||||||||||||||
| Weighted average common shares – diluted | ||||||||||||||||
| (Loss) earnings per common share – basic | $ | ) | $ | ) | ||||||||||||
| (Loss) earnings per common share – diluted | $ | ) | $ | ) | ||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Stock warrants | ||||||||||||||||
| Stock options | ||||||||||||||||
| Total | ||||||||||||||||
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Lease Commitment
The
Company leases office facilities under an operating lease agreement that expires
| Year | Amount | |||
| 2024 | ||||
| 2025 | ||||
| Total future lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of future operating lease payments | ||||
| Less: current portion of operating lease liabilities | ( | ) | ||
| Operating lease liabilities, net of current portion | $ | |||
| Right of use assets | $ | |||
Total
base rental expense was $
| 11 |
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Information
This Form 10-Q quarterly report of Houston American Energy Corp. (the “Company”) for the three months ended September 30, 2024, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.
The actual results or events may differ materially from those anticipated and as reflected in forward-looking statements included herein. Factors that may cause actual results or events to differ from those anticipated in the forward-looking statements included herein include the Risk Factors described in Item 1A herein and in our Form 10-K for the year ended December 31, 2023.
Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and we will not update that information except as required by law in the normal course of our public disclosure practices.
Additionally, the following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in Item 1 of Part 1 of this Form 10-Q, as well as the Risk Factors in Item 1A and the financial statements in Item 7 of Part II of our Form 10-K for the fiscal year ended December 31, 2023.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We believe certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. A description of our critical accounting policies is set forth in our Form 10-K for the year ended December 31, 2023. As of, and for the three months ended, September 30, 2024, there have been no material changes or updates to our critical accounting policies.
Recent Developments
Drilling and Operating Activity
During the three months ended September 30, 2024, no drilling activities were conducted on properties of Hupecol Meta. At September 30, 2024, we had 4 wells on production in the U.S. Permian Basin.
Our Frost 2-H well was reworked during the quarter to repair its electric submersible pump.
In June 2024, the Company entered into a joint venture agreement with EOG Resources, Inc. (“EOG”) with respect to the drilling of six wells on the State Finkle Unit in the Wolfcamp formation in Reeves County, Texas. During June 2024, the Company elected to participate in all six wells.
Pursuant to the joint venture agreement, EOG will act as operator of the unit and is the principal working interest owner in the unit. The unit includes acreage subject to our existing O’Brien lease. We will hold an approximately 0.00370542% working interest in the unit, which is less than previously disclosed due to title issues. The first well was scheduled to spud June 23, 2024 with all six wells anticipated to be in production by the second quarter of 2025. Houston American’s cost of participating in the drilling program is estimated at $550,000. Drilling activity continued during the quarter.
| 12 |
Operations, Planned Drilling and Divestiture in Colombia
At September 30, 2024, Hupecol Meta operated four wells in the Venus Exploration Area of the CPO-11 block in Colombia. Each of the four wells operated by Hupecol Meta were shut-in from February 20 to March 18, 2024 as a result of a dispute with local residents regarding maintenance of the road serving the wells.
During the quarter, Hupecol Meta drilled the Jupiter 1 well, which resulted in a dry hole.
We own an approximately 18% interest in Hupecol Meta, representing an approximately 16% interest in the wells operated in the Venus Exploration Area. We do not report results of Hupecol Meta in our consolidated operating results but include our investment in Hupecol Meta on our balance sheet as “Equity Investment – Hupecol Meta” with distributions from Hupecol Meta reported as “Other Income” on our Statement of Operations.
Hupecol Meta has advised that it intends to evaluate potential monetization or some form of divestiture of its assets in Colombia, including the interest in the CPO-11 block held by Hupecol Meta. Pending the outcome of Hupecol Meta’s evaluation of, and potential efforts regarding, divestiture or monetization of the CPO-11 block in the fourth quarter of 2024, we have no planned drilling operations, or other planned operations, in Colombia. As a result, we expect to continue to operate our existing wells in the CPO-11 block. There is no assurance as to the timing or outcome of Hupecol Meta’s potential monetization or divestiture of assets.
Capital Investments
During the quarter ended September 30, 2024, our capital investment expenditures totaled $1,072,364, attributable to investments in our equity investment in Hupecol Meta LLC (“Hupecol Meta”).
Distributions from Equity Investment
During the three and nine months ended September 30, 2024, we received distributions, totaling $268,817 and $922,959, respectively, from Hupecol Meta, representing our share of distributable net income and reflected as “Other Income” on our Statement of Operations.
Management and Board Changes
On November 11, 2024, subsequent to the period covered by this report, we sold 2,180,180 shares of our common stock to one investor for aggregate proceeds of approximately $2.5 million. In connection with this transaction, John F. Terwilliger resigned as Chief Executive Officer (“CEO”), and Peter Longo was appointed as CEO. Mr. Terwilliger remains an advisor to the Company until the end of this year. Also, as part of the foregoing transaction, Mr. Terwilliger received $800,000 in exchange for the waiver of certain claims pursuant to his change in control agreement with the Company. In addition, James A. Schoonover resigned as a director on November 11, 2024, and Robert J. Bailey was appointed as a director.
Results of Operations
Oil and Gas Revenues. Total oil and gas revenues increased 15% to $130,239 in the three months ended September 30, 2024, compared to $112,994 in the three months ended September 30, 2023. Oil and gas revenues declined 28% to $393,729 in the nine months ended September 30, 2024, compared to $547,408 for the nine months ended September 30, 2023. The change in revenue was due to decreases in average sales price of natural gas (down 92%), oil production (down 28%), and natural gas production (down 13%), and partially offset by an increase in average sales price of oil (up 6%).
The following table sets forth the gross and net producing wells, net oil and gas production volumes and average hydrocarbon sales prices for the quarters ended September 30, 2024 and 2023:
Nine Months Ended September 30,(1) | Three Months Ended September 30,(1) | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Gross producing wells | 4 | 4 | 4 | 4 | ||||||||||||
| Net producing wells | 0.68 | 0.68 | 0.68 | 0.68 | ||||||||||||
| Net oil production (Bbl) | 4,101 | 5,667 | 1,411 | 1,308 | ||||||||||||
| Net gas production (Mcf) | 34,883 | 40,188 | 13,719 | 6,732 | ||||||||||||
| Average sales price – oil (per barrel) | $ | 76.70 | $ | 72.09 | $ | 77.29 | $ | 73.01 | ||||||||
| Average sales price – natural gas (per Mcf) | $ | 0.11 | $ | 1.33 | $ | - | $ | 1.72 | ||||||||
| (1) | All well, production and price information excludes wells operated by Hupecol Meta. |
The change in production volumes was primarily attributable to the natural decline in production.
The change in average oil and natural gas sales price realized reflects global energy trends.
Oil and gas sales revenues are entirely attributable to our U.S. properties.
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Lease Operating Expenses. Lease operating expenses increased 78% to $229,210 during the three months ended September 30, 2024, from $128,918 during the three months ended September 30, 2023. Lease operating expenses increased 55% to $534,443 during the nine months ended September 30, 2024, from $344,318 during the nine months ended September 30, 2023. The increase in lease operating expenses was attributable to additional severance tax expense from prior periods and an increase in production expenses during the nine months ended September 30, 2024.
Lease operating expenses are entirely attributable to our U.S. properties and exclude lease operating expenses of Hupecol Meta.
Depreciation and Depletion Expense. Depreciation and depletion expense was $39,994 and $23,749 for the three months ended September 30, 2024 and 2023, respectively, and $103,079 and $115,645 for the nine months ended September 30, 2024 and 2023, respectively. The change in depreciation and depletion was principally due to the decline in oil production during the nine months ended September 30, 2024.
General and Administrative Expenses (excluding stock-based compensation). General and administrative expense decreased by 10% to $280,260 during the three months ended September 30, 2024 from $312,344 during the three months ended September 30, 2023, and decreased 22% to $930,401 during the nine months ended September 30, 2024, from $1,196,463 during the nine months ended September 30, 2023. The decrease in general and administrative expense was primarily attributable to a bonus of $200,000 paid to our CEO in the second quarter of 2023, which was not repeated this year.
Stock-Based Compensation. Stock-based compensation decreased to $19,048 during the three months ended September 30, 2024 and $82,461 during nine months ended September 30, 2024 from $95,205 during the three months ended September 30, 2023 and $212,982 during the nine months ended September 30, 2023.
Other Income (Expense). Other income/expense, net, totaled $293,505 of income during the three months ended September 30, 2024, compared to $626,052 of income during the three months ended September 30, 2023, and totaled $1,007,102 during the nine months ended September 30, 2024, compared to $1,349,162 during the nine months ended September 30, 2023. Other income consisted of equity investment distributions totaling $922,959 and $1,235,101, respectively, from Hupecol Meta, representing our share of distributable net income for the nine months ended September 30, 2024 and 2023, respectively, and interest income on cash balances during the nine months ended September 30, 2024 and 2023. In mid-October 2024 the Company received a notification for a cash call from Hupecol Meta, LLC for the amount of $859,246 for anticipated costs related to the Jupiter #1 well.
Financial Condition
Liquidity and Capital Resources. At September 30, 2024, we had a cash balance of $2,847,296 and working capital of $2,772,692, compared to a cash balance of $4,059,182 and working capital of $3,917,231 at December 31, 2023.
Cash Flows. Operating activities used $139,522 of cash during the nine months ended September 30, 2024, compared to cash outflows of $211,463 during the nine months ended September 30, 2023. The change in operating cash flow was primarily attributable to a bonus of $200,000 paid to our CEO in the second quarter of 2023, which was not repeated this year.
Investing activities used cash of $1,072,364 during the nine months ended September 30, 2024, compared to $1,954,515 used during the nine months ended September 30, 2023. Cash used in investing activities for both periods was attributable to investments in Hupecol Meta to support our share of costs in Colombia.
Financing activities provided $0 during the nine months ended September 30, 2024, compared to $1,652,000 provided during the nine months ended September 30, 2023. Cash provided by financing activities during the nine months ended September 30, 2023 was attributable to funds received from the sale of common stock in the company’s 2022 ATM offering.
Long-Term Liabilities. At September 30, 2024, we had long-term liabilities of $71,620, compared to $152,904 at December 31, 2023. Long-term liabilities at September 30, 2024 and December 31, 2023, consisted of a reserve for plugging costs and the long-term lease liability.
Capital and Exploration Expenditures and Commitments. Our principal capital and exploration expenditures relate to ongoing efforts to acquire, drill and complete prospects. During 2023, capital expenditures relating to Hupecol Meta increased with our investments in Hupecol Meta to fund our share of costs associated with the initial wells drilled on the CPO-11 block. Based on discussions with Hupecol Meta, we anticipate that one additional vertical well will be drilled on the CPO-11 block by the end of 2024 pending efforts by Hupecol Meta to monetize its interest in the CPO-11 block. Our costs relating to the drilling of such well is estimated at approximately $550,000. There are no present plans to conduct additional drilling operations on our U.S. properties. The actual timing and number of well operations undertaken, if any, will be principally controlled by the operators of our acreage based on a number of factors, including but not limited to availability of financing, performance of existing wells on the subject acreage, energy prices and industry condition and outlook, costs of drilling and completion services and equipment and other factors beyond our control or that of our operators.
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In addition to possible operations on our existing acreage holdings, we continue to evaluate drilling prospects in which may acquire an interest and participate.
During the three months ended September 30, 2024, we invested $1,072,364 for the acquisition and development of oil and gas properties, consisting of capital contributions to Hupecol Meta. The $1,072,364 invested in Hupecol Meta was capitalized to our equity investment in Hupecol Meta.
As our allocable share of well costs will vary depending on the timing and number of wells drilled as well as our working interest in each such well and the level of participation of other interest owners, we have not established a drilling budget but will budget on a well-by-well basis as our operators propose wells. We believe that we have the ability, through our cash on-hand, to fund operations and our cost for all planned wells expected to be drilled during 2024.
In the event that we pursue additional acreage acquisitions or expand our drilling plans, we may be required to secure additional funding beyond our resources on hand. While we may, among other efforts, seek additional funding from “at-the-market” sales of common stock, and private sales of equity and debt securities, we presently have limited authorized shares of common stock available for issuance to support equity capital raises and we have no commitments to provide additional funding, and there can be no assurance that we can secure the necessary capital to fund our share of drilling, acquisition or other costs on acceptable terms or at all. If, for any reason, we are unable to fund our share of drilling and completion costs and fail to satisfy commitments relative to our interest in our acreage, we may be subject to penalties or to the possible loss of some of our rights and interests in prospects with respect to which we fail to satisfy funding commitments and we may be required to curtail operations and forego opportunities.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements or guarantees of third party obligations at September 30, 2024.
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Commodity Price Risk
The price we receive for our oil and gas production heavily influences our revenue, profitability, access to capital and future rate of growth. Crude oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and gas have been volatile, and these markets will likely continue to be volatile in the future. The price we receive for production depends on numerous factors beyond our control.
We have not historically entered into any hedges or other transactions designed to manage, or limit, exposure to oil and gas price volatility.
| ITEM 4 | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation as of September 30, 2024 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024. Such conclusion reflects the 2013 departure of our chief financial officer and assumption of duties of principal financial officer by our chief executive officer and the resulting lack of an appropriate level of accounting knowledge and experience commensurate with the financial reporting requirements for a public company, in particular with respect to technical accounting knowledge regarding accounting for certain transactions, and a related lack of segregation of duties. Until we are able to remedy these material weaknesses, we are relying on third party consultants to assist with financial reporting.
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Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
| ITEM 6 | EXHIBITS |
| Exhibit | Number | Description | |
| 31.1 | Certification of CEO and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | Certification of CEO and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 101.INS | Inline XBRL Instance Document | ||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized.
| HOUSTON AMERICAN ENERGY CORP. | ||
| Date: November 14, 2024 | ||
| By: | /s/ Steve Hartzell | |
| Steve Hartzell | ||
| Chairman of the Board and Principle Financial Officer | ||
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