CoJax Oil & Gas Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management ' s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of operations. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 , and our interim unaudited financial statements and accompanying notes to these financial statements. Overview CoJax is a growth-oriented independent exploration and production company based in Arlington, Virginia, and is engaged in oil and natural gas development, production, acquisition, and exploration activities currently focused in the Gulf States Region. Business Description and Plan of Operation CoJax is currently engaged in oil and natural gas acquisition, exploration, development, and production in Mississippi and Alabama. We focus on developing our existing properties while continuing to pursue acquisitions of oil and gas properties with upside potential in the Gulf States Region . Our goal is to increase stockholder value by investing in oil and natural gas projects with attractive rates of return on capital employed. We plan to achieve this goal by exploiting and developing our existing oil and natural gas properties and pursuing strategic acquisitions of additional properties, while remaining cash flow positive, maintaining low operating costs, and striving to show a gain in annual production while reducing the Company's debt. Executive Summary - First Quarter 2023 Developments and Highlights Risks and Uncertainties Since March 2020, and throughout the last two years, global markets and commodity prices have been extremely volatile due to the impacts from the COVID-19 pandemic, with further impacts on volatility caused by the war in Ukraine that began in February 2022. Commodity prices remained steady during the fourth quarter of 2022 as demand has continued to outpace relative supply. While recessionary concerns have placed some downward pressure on commodity prices, causing oil and gas prices to decline in the first quarter of 2023 from their earlier highs in 2022, worldwide commodity demand continues to exceed pre COVID-19 pandemic levels. Although supply has increased and we have seen continued recovery in commodity prices since the beginning of the pandemic, there is still an element of volatility and uncertainty that we expect to continue at least for the near-term and possibly longer, in part by the impact of the Russian-Ukrainian military conflict on global commodity and financial markets, and the associated effect of trade sanctions on imports of oil and natural gas from Russia. This volatility could negatively impact future prices for oil, natural gas, petroleum products and industrial products. Results of Operations – For the Three and Six Months Ended June 30 , 2023 , and 2022 For the Three Months Ended June 30 , For the Six Months Ended June 30 , Change Change Change Change 2023 2022 Amount % 2023 2022 Amount % Revenues $ 188,623 $ - $ 188,623 100% $ 417,341 $ - $ 417,341 100% Lease operating expenses 58,738 27,459 31,279 113.9% 117,877 28,885 88,992 308.1% 18 General & administrative expenses 171,112 171,200 (66,588) (38.9%) 542,466 642,372 (166,406) (25.9%) Depletion and accretion on discounted liabilities 84,143 622 83,521 * 182,587 1,244 181,343 * Loss from operations (125,370) (199,281) 73,911 37.1% (425,589) (672,501) 246,912 (36.7%) Other expense (546) (288) (258) 89.6% (1,102) (1,250) 148 (11.8%) Net loss $ (125,916) $ (199,569) $ 73,653 36.9% $ (426,691) $ (673,751) $ 247,060 (36.7%) * In excess of 1,000% Revenues Revenues were $417,341 for the six months ended June 30, 2023, and $0 for the same period during 2022. For the three months ended June 30, 2023, revenues were $188,623. There were no sales of oil and natural gas during the three months ended June 30, 2022. The Company is an early-stage company having just begun to acquire assignments of hydrocarbon revenues and underlying oil and gas exploration and production rights, and therefore has just begun producing significant revenue in 2023. Lease Operating Expenses Lease operating expenses were $117,877 for the six months ended June 30, 2023, and $28,885 for the six months ended June 30, 2022. Lease operating expenses were $58,738 for the three months ended June 30, 2023, and $27,459 for the three months ended June 30, 2022. The increase in expenses from each period in 2022 to the same periods in 2023 was due to additional operating expenses resulting from acquisitions of oil and gas properties. General and A dministrative E xpenses General and administrative expenses decreased $99,906 to $542,466 for the six months ended June 30, 2023, as compared to $642,372 for the six months ended June 30, 2022, and similarly, for the three months ended June 30, 2023, decreased to $171,112 as compared to $171,200 for the three months ended June 30, 2022. The decrease in general and administrative expense is primarily attributable to stock-based vendor and compensation-related expenses. Depletion and Accretion on Discounted Liabilities Depletion and accretion expenses were $182,877 for the six months ended June 30, 2023, and $1,244 for the six months ended June 30, 2022. Depletion and accretion expenses were $84,143 for the three months ended June 30, 2023, and $622 for the three months ended June 30, 2022. The increase resulted from acquisitions of oil and gas properties. Loss from Operations Total operating loss was $425,589 for the six months ended June 30, 2023, and $672,501 for the six months ended June 30, 2022. The decreased loss was primarily driven by the $417,341 increase in revenues during the six months ended June 30, 2023. The increase in revenue was partially offset by the $88,992 and $181,343 increases in lease operating expenses and depletion and accretion expense, respectively, over the same period. 19 Total operating loss was $125,370 for the three months ended June 30, 2023, and $199,281 for the three months ended June 30, 2022. The decreased loss was primarily driven by the $188,623 increase in revenues over the same period partially offset by a $31,279 increase in lease operating expenses and an increase of 83,521 in depletion and accretion. Other E xpense Other expense was $1,102 for the six months ended June 30, 2023, as compared to $1,250 for the six months ended June 30, 2022; and was $546 for the three months ended June 30, 2023, as compared to $288 for the three months ended June 30, 2022. These changes were primarily driven by changes in interest expense. Net Loss As a result of the above factors, for the six months ended June 30, 2023, the Company had a net loss of $426,691, as compared to a net loss of $673,751 for the six months ended June 30, 2022. For the three months ended June 30, 2023, the Company had a net loss of $125,916, as compared to a net loss of $199,569 for the three months ended June 30, 2022. Sales volumes and commodity prices received The following table presents our sales volumes and received pricing information for the three and six-month periods ended June 30, 2023, and 2022: For the Three Months For the Six Months Ended June 30, E nded June 30, 2023 2022 2023 2022 Oil volume (Bbls) 2,746 - 5,895 - Natural gas volume (Mcf) 1,215 - 2,795 - Total Production (Boe) 2,948 - 6,360 - Average Sales Price Oil price (per Bbl) $ 71.24 - $ 72.22 - Gas price (per Mcf) 2.09 - 2.29 - Total per BOE $ 67.53 - $ 68.63 - Capital Resources and Liquidity The Company had cash on hand of $116,882 at June 30, 2023, compared to $37,750 at December 31, 2022. For the six months ended June 30, 2023, the Company had net cash provided by operating activities of $84,062, compared to net cash used in operating activities of $33,031 for the same period of 2022. The increase in cash provided by operating activities for the six months ended June 30, 2023, was driven by the $435,033 net increase in adjustments for non-cash items and changes in the balances of accounts receivables, prepaid expenses, accounts payables, and accrued expenses, in addition to the $247,060 decrease in net loss from operations, compared to the same period of 2022. Net cash used in investing activities was $0 for the six months ended June 30, 2023, and June 30, 2022. Net cash used in financing activities was $4,930 for the six months ended June 30, 2023, compared to net cash provided by financing activities of $33,879 for the same period in 2022. The decrease in cash provided 20 by financing activities is due to proceeds from related party loans payable of $38,000 during the period ended June 30, 2022, compared to $14,930 in payments on related party and SBA PPP loans payable during the same period in 2023. Capital Resources for Future Acquisition and Development Opportunities We continuously evaluate potential acquisitions and development opportunities. To the extent possible, we intend to acquire producing properties and/or developed undrilled properties rather than exploratory properties. We do not intend to limit our evaluation to any one state. We presently have no intention to evaluate offshore properties or properties located outside of the United States. Effects of Inflation and Pricing The oil and natural gas industry is very cyclical, and the demand for goods and services of oil field companies, suppliers, and others associated with the industry puts pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase, so do all associated costs. Material changes in prices impact the current revenue stream, estimates of future reserves, borrowing base calculations of bank loans, and the value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and natural gas companies and their ability to raise capital, borrow money and retain personnel. We anticipate business costs will vary in accordance with commodity prices for oil and natural gas and the associated increase or decrease in demand for services related to production and exploration. Off Balance Sheet Arrangements The Company does not have any off balance sheet arrangements, and it is not anticipated that the Company will enter into any off-balance sheet arrangements. Disclosures About Market Risks Like other natural resource producers, the Company faces certain unique market risks associated with the exploration and production of oil and natural gas. The most salient risk factors are the volatile prices of oil and gas, operational risks, the ability to integrate properties and businesses, and certain environmental concerns and obligations. Oil and Gas Prices The price we receive for our oil and natural gas will heavily influence our revenue, profitability, access to capital, and future rate of growth. 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. The prices we receive for our production depend on numerous factors beyond our control. These factors include, without limitation, the following: worldwide and regional economic conditions impacting the global supply and demand for oil and natural gas; the price and quantity of imports of foreign oil and natural gas; the level of global oil and natural gas inventories; localized supply and demand fundamentals; the availability of refining capacity; price and availability of transportation and pipeline systems with adequate capacity; weather conditions, natural disasters, and public health threats; governmental regulations; speculation as to the future price of oil and the speculative trading of oil and natural gas futures contracts; price and availability of competitors’ supplies of oil and natural gas; energy conservation and 21 environmental measures; technological advances affecting energy consumption; the price and availability of alternative fuels and energy sources; and domestic and international drilling activity. A substantial or extended decline in oil or natural gas prices may result in impairments of our proved oil and gas properties and may materially and adversely affect our future business, financial condition, cash flows, and results of operations. Transportation of Oil and Natural Gas CoJax is presently committed to using the services of the existing gatherers in its present areas of production. This gives such gatherers certain short-term relative monopolistic powers to set gathering and transportation costs. Obtaining the services of an alternative gathering company would require substantial additional costs since an alternative gatherer would be required to lay new pipelines and/or obtain new rights-of-way. Competition in the Oil and Natural Gas Industry We operate in a highly competitive environment for developing and acquiring properties, marketing oil and natural gas, and securing equipment and trained personnel. As a relatively small oil and natural gas company, many large producers possess and employ financial, technical, and personnel resources substantially greater than ours. Those companies may be able to develop and acquire more prospects, and productive properties than our financial or personnel resources permit. It is also significant that more favorable prices can usually be negotiated for larger quantities of oil and/or gas products, such that CoJax views itself as having a price disadvantage compared to larger producers. Retention of Key Personnel We depend to a large extent on the services of our officers. These individuals have extensive experience in the energy industry, as well as expertise in evaluating and analyzing producing oil and natural gas properties and drilling prospects, maximizing production from oil and natural gas properties, and developing and executing financing strategies. The loss of any of these individuals could have a material adverse effect on our operations and business prospects. Our success may be dependent on our ability to continue to hire, retain and utilize skilled executive and technical personnel. Environmental and Regulatory Risks Our business and operations are subject to and impacted by a wide array of federal, state, and local laws and regulations governing the exploration for and development, production, and marketing of oil and natural gas, the operation of oil and natural gas wells, taxation, and environmental and safety matters. Many laws and regulations require drilling permits and govern the spacing of wells, rates of production, water, waste use and disposal, prevention of waste hydraulic fracturing, and other matters. From time to time, regulatory agencies have imposed price controls and limitations on production in order to conserve supplies of oil and natural gas. In addition, the production, handling, storage, transportation, and disposal of oil and natural gas, byproducts thereof, and other substances and materials produced or used in connection with oil and natural gas operations are subject to regulation under federal, state, and local laws and regulations. Compliance with these regulations may constitute a significant cost and effort for CoJax. To date, no specific accounting for environmental compliance has been maintained or projected by CoJax. CoJax does 22 not presently know of any environmental demands, claims, adverse actions, litigation, or administrative proceedings in which it or the acquired properties are involved or subject to or arising out of its predecessor operations. In the event of a violation of environmental regulations, these environmental regulatory agencies have a broad range of alternative or cumulative remedies, including ordering a cleanup of any spills or waste material and restoration of the soil or water to conditions existing prior to the environmental violation; fines; or enjoining further drilling, completion or production activities. Going Concern There can be no assurance that the Company will be able to achieve its business plan, raise additional capital, or secure the additional financing necessary to implement its current operating plan. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company has yet to achieve profitable operations, expects to incur further losses in the development of its business, has negative cash flows from operating activities, and is dependent upon future issuances of equity or other financings to fund ongoing operations, all of which raises substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations or to obtain the necessary financing from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern. Still, it considers that the Company will be able to obtain additional funds by equity financing or related party advances. However, there is no assurance of additional funding being available or on acceptable terms, if at all.