What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-21 compared with 2023-03-24 · 451 added, 298 removed, 762 unchanged (50% of the section changed)

6 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Epsilon Energy, Ltd (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Epsilon Energy Ltd.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

13 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

/s/ BDO USA, P.C.

We have served as the Company’s auditor since 2017.

6 unchanged sentences

Accounts receivable

Short term investments

Fair value of derivatives

20 unchanged sentences

Other assets:

Operating lease right-of-use assets, long term

Restricted cash

Prepaid drilling costs

Total non-current assets

4 unchanged sentences

Royalties payable

Income taxes payable

Accrued capital expenditures

2 unchanged sentences

Fair value of derivatives

Asset retirement obligations

Operating lease liabilities

3 unchanged sentences

Deferred income taxes

Operating lease liabilities, long term

Total non-current liabilities

3 unchanged sentences

Preferred shares, no par value, unlimited shares authorized, none issued or outstanding

Common shares, no par value, unlimited shares authorized and 23,117,144 issued and outstanding at December 31, 2022 and 24,202,218 issued and 23,668,203 shares outstanding at December 31, 2021

Common shares, no par value, unlimited shares authorized and 22,222,722 shares issued and 22,151,848 shares outstanding at December 31, 2023 and 23,117,144 issued and outstanding at December 31, 2022

Treasury shares, at cost, 70,874 at December 31, 2023 and 0 at December 31, 2022

( 2,423,007 )

Additional paid-in capital

18 unchanged sentences

Depletion, depreciation, amortization, and accretion

Impairment expense

Gain on sale of oil and gas properties

Loss (gain) on sale of oil and gas properties

General and administrative expenses:

6 unchanged sentences

Interest expense

Gain (loss) on derivative contracts

( 4,482,909 )

Other income (expense)

Gain on derivative contracts

Other income (expense), net

( 4,544,296 )

Other income, net

Net income before income tax expense

1 unchanged sentence

Currency translation adjustments

Unrealized gain on securities

NET COMPREHENSIVE INCOME

13 unchanged sentences

( 2,423,007 )

Stock-based compensation expenses

( 68,783,207 )

( 5,862,012 )

Stock-based compensation expense

Buyback of common shares

1 unchanged sentence

( 6,234,879 )

Retirement of treasury shares

( 1,516,515 )

( 8,657,886 )

Exercise of stock options

Vesting of shares of restricted stock

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2022

2 unchanged sentences

( 5,600,655 )

( 5,862,012 )

Stock-based compensation expenses

Stock-based compensation expense

Buyback of common shares

1 unchanged sentence

( 6,055,601 )

Retirement of treasury shares

3 unchanged sentences

Vesting of shares of restricted stock

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2023

7 unchanged sentences

Depletion, depreciation, amortization, and accretion

Impairment expense

Loss (gain) on derivative contracts

Gain on sale of oil and gas properties

Settlement (paid) received on derivative contracts

Accretion of discount on available for sale securities

Loss (gain) on sale of oil and gas properties

Gain on derivative contracts

( 3,130,055 )

Settlement received (paid) on derivative contracts

( 1,225,837 )

1 unchanged sentence

Stock-based compensation expense

Deferred income tax expense (benefit)

Deferred income tax expense

Changes in assets and liabilities:

1 unchanged sentence

( 2,604,455 )

Other current assets

Prepaid income taxes

Other assets and liabilities

Accounts payable, royalties payable and other accrued liabilities

4 unchanged sentences

Additions to unproved oil and gas properties

( 8,136,442 )

Additions to proved oil and gas properties

3 unchanged sentences

Additions to land, buildings and property and equipment

Purchases of short term investments - held to maturity

( 32,812,974 )

Purchases of short term investments - available for sale

( 11,988,982 )

Proceeds from sales and maturities of short term investments

Proceeds from sale of oil and gas properties

Prepaid drilling costs

( 1,813,808 )

Net cash used in investing activities

6 unchanged sentences

Exercise of stock options

Dividends paid

( 5,600,655 )

( 5,862,012 )

Debt issuance costs

Net cash used in financing activities

2 unchanged sentences

Effect of currency rates on cash, cash equivalents, and restricted cash

Increase in cash, cash equivalents and restricted cash

(Decrease) increase in cash, cash equivalents, and restricted cash

( 31,933,319 )

Cash, cash equivalents, and restricted cash, beginning of period

4 unchanged sentences

Non-cash investing activities:

Change in unproved properties accrued in accounts payable and accrued liabilities

Change in proved properties accrued in accounts payable and accrued liabilities

( 1,100,041 )

( 1,097,257 )

Change in gathering system accrued in accounts payable and accrued liabilities

7 unchanged sentences

(the “Company” or “Epsilon” or “we”) was incorporated under the laws of the Province of Alberta, Canada on March 14, 2005 .

On October 24, 2007, the Company became a publicly traded entity trading on the Toronto Stock Exchange (“TSX”) in Canada.

On February 14, 2019, Epsilon’s registration statement on Form 10 was declared effective by the United States Securities and Exchange Commission and on February 19, 2019, we began trading in the United States on the NASDAQ Global Market under the trading symbol “EPSN.” Effective as of the close of trading on March 15, 2019, Epsilon voluntarily delisted its common shares from the TSX.

Epsilon is a North American on-shore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves.

On February 14, 2019, Epsilon’s registration statement on Form 10 was declared effective by the United States Securities and Exchange Commission and on February 19, 2019, we began trading in the United States on the NASDAQ Global Market under the trading symbol “EPSN.” Epsilon is a North American on-shore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves.

Basis of Preparation

9 unchanged sentences

Actual results could differ from those estimates.

Reclassification

The consolidated financial statements for the prior periods include certain reclassifications that were made to conform to the current period presentation.

Such reclassifications have no impact on previously reported consolidated financial position, results of operations or cash flows.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Summary of Significant Accounting Policies

7 unchanged sentences

Cash, cash equivalents, and restricted cash in the statement of cash flows

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are primarily from purchasers of oil and natural gas, counterparties to our financial instruments, and revenues earned for compression and gathering services.

Both oil and natural gas receivables are generally collected within 30 days after the end of the month.

Compression and gathering receivables are generally collected within 60 days after the end of the month.

Estimated losses on accounts receivable are provided through an allowance for doubtful accounts.

We estimate the allowance for doubtful accounts through various procedures, including review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts.

Actual balances are not applied against the reserves until substantially all collection efforts have been exhausted.

Our allowance for doubtful accounts was nil as of December 31, 2022 and 2021.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

Oil and Natural Gas Properties

10 unchanged sentences

Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized (see Note 5).

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Depreciation, depletion and amortization of the cost of proved oil and natural gas properties is calculated using the unit-of-production method.

20 unchanged sentences

and (v) recognition of revenue when or as a performance obligation is satisfied.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

Accounting Policies

6 unchanged sentences

Typically, the Company sells its natural gas directly to customers, under agreements with payment terms less than 30 days after delivery and 60 days on the revenue generated by the gas gathering system.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Natural Gas Revenues

9 unchanged sentences

The Company has a 35 % ownership interest in the Auburn Gas Gathering System (“Auburn GGS”).

This system aggregates the natural gas from the various pads in the field and transports the natural gas to the inlet of the Auburn compression facility where it is dehydrated, compressed and injected into Tennessee Gas Pipeline.

The gathering and compression services operate under fee-based contracts.

2 unchanged sentences

Oil and Other Liquids Revenue

The source of the Company’s oil and other liquids revenue is its ownership interest in wells in Oklahoma.

The source of the Company’s oil and other liquids revenue is its ownership interest in wells in the Permian Basin and Oklahoma.

The Company does not operate the wells and has elected not to receive its proportionate share of the production.

2 unchanged sentences

Accounts Receivable and Other

Oil, natural gas liquid and natural gas receivables consist of amounts due from purchasers for commodity sales from our revenue interest in the leases in Northwestern Pennsylvania and Oklahoma.

Oil, natural gas liquid and natural gas receivables consist of amounts due from purchasers for commodity sales from our revenue interest in the leases in Northeastern Pennsylvania, the Permian Basin, and Oklahoma.

Payments from purchasers are typically due by the last day of the month following the month of delivery.

2 unchanged sentences

The Company’s operations do not result in any contract assets or liabilities on the accompanying consolidated balance sheets.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

Buildings and Other Property and Equipment

3 unchanged sentences

Financial Instruments and Fair Value

Epsilon’s financial instruments consist of cash, cash equivalents, restricted cash, commodity derivative contracts, accounts receivable, accounts payable, and long-term debt.

Our financial instruments that are accounted for at fair value consist of commodity derivatives.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Epsilon’s financial instruments consist of cash and cash equivalents, short term investments, restricted cash, commodity derivative contracts, accounts receivable, accounts payable, and long-term debt.

The Company classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument.

6 unchanged sentences

The Company makes its own assumptions about how market participants would price the assets and liabilities.

Cash, cash equivalents, and restricted cash are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.

These financial instruments are therefore designated as Level 1 within the valuation hierarchy.

Commodity derivative instruments consist of fixed-price swaps, and basis swap contracts for natural gas.

The Company’s derivative contracts are valued based on an income approach.

The model considers various assumptions, such as quoted forward prices for commodities, time value and volatility factors.

Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.

The Company’s revolving line of credit has a recorded value that approximates its fair value since its variable interest rate is tied to current market rates and the applicable margins represent market rates.

The revolving line of credit is classified within Level 2 of the fair value hierarchy.

The Company has investments in U.S.

Treasury Bills, which mature over a period between 3 and 12 months and are classified as short term investments.

Treasury Bills are carried at fair value.

Treasury Bills are classified within Level 1 of the fair value hierarchy.

Commodity derivative instruments consist of NYMEX HH swap and basis swap contracts for natural gas.

The Company’s derivative contracts are valued based on a marked to market approach.

These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are therefore designated as Level 2 within the valuation hierarchy.

The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations.

Derivative Instruments

4 unchanged sentences

● Fixed-price swaps—where a fixed-price is received for production and a variable market price is paid to the contract counterparty.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

● Basis swap contracts—which guarantee a specified price differential between the price at Henry Hub and our physical pricing points.

5 unchanged sentences

Hedge accounting is not used for our derivative assets and liabilities.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Asset Retirement Obligations

7 unchanged sentences

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable and derivative contracts.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short term investments, accounts receivable and derivative contracts.

Exposure to credit risk associated with these instruments is controlled by (i) placing assets and other financial interests with credit-worthy financial institutions, (ii) maintaining policies over credit extension that include the evaluation of customers’ financial condition and monitoring paying history, although the Company does not have collateral requirements and (iii) netting derivative assets and liabilities for counterparties with a legal right of offset.

At December 31, 2022 and 2021, the cash and cash equivalents were primarily concentrated in one financial institution the U.S.

At December 31, 2023 and 2022, the cash and cash equivalents and short term investments were primarily concentrated in one financial institution the U.S.

We currently have $ 15.6 million in excess of the federally insured limits.

The Company periodically assesses the financial condition of these institutions and believe that any possible credit risk is minimal.

For the years ended December 31, 2022 and 2021, the Company had three customers that accounted for 95.7 % and 85.9 %, respectively, of the total trade accounts receivable.

For the year ended December 31, 2023, the Company had four customers that accounted for 90.7 % of the total trade accounts receivable.

For the year ended December 31, 2022, the Company had three customers that accounted for 95.7 % of the total trade accounts receivable.

Geographic Locations of Operations

Approximately 91 % and 93 % of our production during fiscal 2022 and 2021, respectively was derived from natural gas production and gathering system revenues in the state of Pennsylvania.

Approximately 77 % and 88 % of our revenue during fiscal years 2023 and 2022, respectively, was derived from natural gas production and gathering system revenues in the state of Pennsylvania.

As a result of prolonged weak pricing in Zone 4 of the Tennessee Gas Pipeline and, therefore, a reduced pace of development, Epsilon’s management is striving to allocate capital to additional upstream opportunities outside of the Marcellus Shale.

More specifically, the Company has allocated capital to the Permian Basin through its investments in New Mexico and Texas.

Epsilon’s management expects to continue to seek opportunities outside of the Marcellus Shale in order to provide the Company the flexibility to respond to market conditions by allocating capital across multiple basins and commodities.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

As a result of this geographic concentration, we may be disproportionately exposed to the effect of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, market limitations, weather events or interruption of the processing or transportation of crude oil or natural gas.

6 unchanged sentences

Gains and losses on translation of balances denominated in Canadian dollars are included in accumulated other comprehensive income.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Stock-Based Compensation

7 unchanged sentences

The fair value of the PSUs is determined by the performance requirements.

Based on the performance requirements, either the fair value of the Company’s common shares on the date of grant, or a Monte Carlo valuation is used to determine fair value of the shares at the date of the grant.

These awards vest ratably over a three-year period.

2 unchanged sentences

Additional disclosures about an entity’s lease transactions are also required.

ASU 2016-02 defines a lease as “a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.” The Company adopted ASU 2016-02 for the year beginning in January 2022.

We have chosen the transition using the comparative report at adoption method of applying the provisions of the new standard at the beginning of the period of adoption instead of the earliest comparative period presented in the consolidated financial statements.

5 unchanged sentences

Leases with an initial term of 12 months or less are not recorded on the Company’s Consolidated Balance Sheets and lease agreements with lease and non-lease components are generally accounted for as a single lease component.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

The Company determines whether a contract is, or contains, a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease.

1 unchanged sentence

however, most of the Company’s leases do not provide a readily determinable implicit rate.

Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate based on prevailing financial market conditions at the later of date of adoption or lease commencement, credit analysis of comparable companies and management judgments to determine the present values of its lease payments.

(see Note 10).

Joint Interests

The majority of the Company’s oil and natural gas exploration, development and production activities, and the gathering system, are conducted jointly with others and, accordingly, these financial statements reflect only the Company’s proportionate interest in such jointly controlled assets.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Recently Issued Accounting Standards

The Company, an emerging growth company (“EGC”), has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes.

The Company adopted ASU 2019-12 for the year beginning in January 2021.

There was no immediate impact from the adoption.

In June 2016 the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

In June 2016 the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities.

1 unchanged sentence

GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred.

The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and must be applied retrospectively.

Early adoption is permitted.

Epsilon is currently assessing the expected impact and will adopt ASU 2016-13 as of January 1, 2023.

We do not expect a material effect from the adoption of this ASU.

The revised guidance removes all recognition thresholds and requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the Company expects to collect over the instrument’s contractual life.

Epsilon has adopted ASU 2016-13 as of January 1, 2023.

There was no impact from the adoption of this ASU.

In 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which, for a limited period of time, adds Accounting Standards Codification (“ASC”) 848 to provide entities with certain practical expedients and exceptions from applying modification accounting if certain criteria are met.

The amendments are designed to reduce operational challenges that entities will face in applying modification accounting to all contracts that will be revised due to reference rate reform.

The guidance in ASC 848 was triggered by the pending discontinuation of certain benchmark reference rates and, in some cases, their replacement by new rates that are more observable or transaction-based and, therefore, less susceptible to manipulation, than certain interest-rate benchmark reference rates commonly used today, including the London Interbank Offered Rate (“LIBOR”).

This process of reference rate reform will require entities to modify certain contracts by removing the discontinued rates and including new rates.

Epsilon has adopted ASU 2020-04 as of January 1, 2023.

There was no impact from the adoption of this ASU.

In July 2023, the FASB issued ASU No.

2023-03 to amend various SEC paragraphs in the ASC to primarily reflect the issuance of SEC Staff Accounting Bulletin No.

2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120 (“SAB 120”), SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No.

SEC Staff Announcement at the March 24, 2022 EITF Meeting;

and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 – General Revision of Regulation S-X;

Income or Loss Applicable to Common Stock.

SAB 120 provides guidance on the measurement and disclosure of share-based awards shortly before announcing material nonpublic information.

These updates were immediately effective and did not have any impact on our consolidated financial statements.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to amend certain disclosure and presentation requirements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This ASU required disclosure of incremental segment information, primarily through enhanced disclosures about significant segment expenses and amounts for each reportable segment on an annual and interim basis.

This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods with fiscal years beginning after December 15, 2024.

The Company is currently assessing the potential effects of the standard.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to disclose disaggregated information about a reporting entity’s effective tax rate reconciliation, using both percentages and reporting currency amounts for specific standardized categories, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently assessing the potential effects of this standard.

Short Term Investments

Short term investments are highly liquid investments with original maturities between three and twelve months.

The Company’s short term investments consist of US Treasury bills.

These investments were previously classified as held-to-maturity.

In May 2023, as a result of a change in business investment strategy, the Company transferred all of its held-to-maturity short term investments to the available-for-sale category.

The securities transferred had a total amortized cost of $ 33,026,959 , fair value of $ 33,021,293 and unrealized losses of $ 5,666 at the time of transfer.

The unrealized loss was recorded as accumulated other comprehensive income at the time of transfer.

Available-for-sale short term investments are reported at fair value in the Consolidated Balance Sheets.

Unrealized gains and losses are excluded from earnings and are reported in accumulated other comprehensive income in the consolidated statements of operations and comprehensive income.

The following table summarizes the available-for-sale short term investments as of December 31, 2023 and 2022.

December 31, 2023

December 31, 2022

Treasury Bills

During the year ended December 31, 2023, the Company sold securities with a carrying amount of $ 10,394,482 for total proceeds of $ 10,454,976 .

The realized gains on these sales were $ 60,494 .

These securities were sold to raise cash to fund capital expenditures.

An additional $ 16,410,000 of securities reached maturity with total realized gains of $ 395,767 .

The realized gains are included in interest income in the consolidated statements of operations and comprehensive income.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

Property and Equipment

15 unchanged sentences

Total property and equipment, net

Asset Acquisitions

During the year ended December 31, 2023, Epsilon made the following three acquisitions.

Management determined that substantially all of the fair value of the gross assets acquired were concentrated in oil and gas properties and therefore accounted for these transactions as asset acquisitions and allocated the purchase price based on the relative fair value of the assets acquired and liabilities assumed.

There were no asset acquisitions for the year ended December 31, 2022.

● a 10 % interest in two wellbores located in Eddy County, New Mexico for total consideration of $ 2.1 million paid in cash.

● a 25 % working interest in 1,297 gross acres in Ector County, Texas for total consideration of $ 1.3 million paid in cash.

● a 25 % working interest in 11,067 gross acres in Ector County, Texas for total consideration of $ 6.3 million paid in cash.

Property Sale

In April 2022, the Company completed a well bore only sale and conveyance and partial release of oil and gas leases in Oklahoma for $ 200,000 .

In December 2021, the Company completed the sale of its shallow rights leases and wells in Oklahoma for $ 450,000 .

During the year ended December 31, 2023, Epsilon sold two wellbore-only Oklahoma assets for $ 12,498 .

This sale resulted in a loss of $ 1.45 million.

During the year ended December 31, 2022, Epsilon sold one wellbore-only Oklahoma asset for $ 200,000 .

This sale resulted in a gain of $ 0.22 million.

Property Impairment

Epsilon performs a quantitative impairment test whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable.

When indicators of impairment are present, the Company first

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

compares expected future undiscounted cash flows by asset group to their respective carrying values.

When indicators of impairment are present, the Company first compares expected future undiscounted cash flows by asset group to their respective carrying values.

If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount to the estimated fair values is required.

This is determined based on discounted cash flow techniques using significant assumptions including production volumes, future commodity prices, and a market-specific weighted average cost of capital which are affected by expectations about future market and economic conditions.

Additionally, GAAP requires that if an exploratory well is determined not to have found proved reserves, the costs incurred, net of any salvage value, are charged to expense.

For unproved properties, such as leasehold, expected current and future market prices for similar assets are considered relative to carrying values in evaluating impairment.

No impairment was recorded for the year ended December 31, 2022.

For the year ended December 31, 2021, the Company recognized dry hole costs of $ 0.15 million.

Revolving Line of Credit

The Company has a senior secured credit facility which includes a total commitment of up to $ 100 million.

The effective borrowing base is $ 30 million, which is subject to semi-annual redetermination.

There are currently no borrowings under the facility.

If we decide to access the facility, depending on the level of borrowing, we might need to increase our hedging activity.

Borrowings from the Facility may be used for the acquisition and development of oil and gas properties, investments in cash flow generating assets complimentary to the production of oil and gas, and for letters of credit and other general corporate purposes.

Upon each advance, interest is charged at the highest of a) the Prime Rate, or b) the sum of the Federal Funds Rate plus 0.5 %, plus an applicable margin ( 0.25 %- 1.25 %, based on percentage utilization on the facility).

The facility matures on March 1, 2024.

Effective April 6, 2021, the agreement was amended to extend the maturity date to March 1, 2024.

In addition, the agreement was amended to include a Benchmark Replacement definition and transition plan to be used at such time when the LIBOR rate is discontinued.

On February 10, 2023, Epsilon Energy USA entered into the Ninth Amendment of the Credit Agreement.

The borrowing base was increased to $ 30 million.

LIBOR was removed as a reference option in the calculation of interest.

Hedging requirements were amended to be between 0 %- 62.5 % of the 24-month projected production volumes, based on percentage utilization on the facility.

Also, cash distributions to the parent company (Epsilon Energy Ltd.) were allowed if the facility is < 80 % utilized and the leverage ratio (total debt / income adjusted for interest, taxes and non-cash amounts) is less than 2 .

The bank has a first priority security interest in the tangible and intangible assets of Epsilon Energy USA, Inc.

to secure any outstanding amounts under the agreement.

Under the terms of the agreement, the Company must maintain the following covenants:

● Interest coverage ratio greater than 3 (income adjusted for interest, taxes and non-cash amounts / cash interest expense)

● Current ratio greater than 1 (current assets / current liabilities)

● Leverage ratio less than 3.5 (total debt / income adjusted for interest, taxes and non-cash amounts)

We were in compliance with the financial covenants of the agreement as of December 31, 2022.

Additionally, U.S.

GAAP requires that if an exploratory well is determined not to have found proved reserves, the costs incurred, net of any salvage value, are charged to expense.

For unproved properties, such as leasehold costs, expected current and future market prices for similar assets are considered relative to carrying values in evaluating impairment.

EPSILON ENERGY LTD.

1 unchanged sentence

For the years ended December 31, 2023 and 2022

No impairment was recorded for the years ended December 31, 2023 and 2022.

Revolving Line of Credit

The Company closed a senior secured reserve based revolving credit facility on June 28, 2023 with Frost Bank as issuing bank and sole lender.

The new facility replaced the Company’s previous facility.

The initial commitment and borrowing base is $ 35 million (redetermined as of December 6, 2023), supported by the Company’s upstream assets in Pennsylvania and subject to semi-annual redeterminations with a maturity date of the earlier of June 28, 2027.

Interest will be charged at the Daily Simple SOFR rate plus a margin of 3.25 %.

The facility is secured by the assets of the Company’s subsidiary, Epsilon Energy USA.

As of December 31, 2023, there were no borrowings under the facility.

Under the terms of the facility, the Company must adhere to the following financial covenants:

● Current ratio of 1.0 to 1.0 (current assets / current liabilities)

● Leverage ratio of less than 2.5 to 1.0 (total debt / income adjusted for interest, taxes and non-cash amounts)

Additionally, if the leverage ratio is greater than 1.0 to 1.0, or the borrowing base utilization is greater than 50 %, the Company is required to hedge 50 % of the anticipated production from PDP reserves for a rolling 24 month period.

We were in compliance with the financial covenants of the agreement as of December 31, 2023

Borrowing Base

Interest Rate

Revolving line of credit

SOFR + 3.25 %

Shareholders’ Equity

1 unchanged sentence

The Company is authorized to issue an unlimited number of common shares with no par value and an unlimited number of Preferred Shares with no par value.

(b) Purchases of Equity Shares

Commencing on March 8, 2022, we implemented a plan to repurchase our issued and outstanding common shares and to return capital to our shareholders.

We used cash on hand to fund these repurchases.

During the year ended December 31, 2022, we repurchased 982,500 common shares of the maximum of 1,183,410 authorized for repurchase and spent $ 6,234,879 under the plan.

The repurchased stock had an average price of $ 6.32 per share (excluding commissions) and was subsequently retired during the year ended December 31, 2022.

In 2023, we repurchased 190,700 common shares at an average price of $ 5.82 per share (excluding commissions) before the plan terminated on March 7, 2023.

Commencing on January 1, 2021, we implemented a plan to repurchase our issued and outstanding common shares.

The plan terminated on December 31, 2021.

We used cash on hand to fund these repurchases.

(b) Purchases of Equity Securities

On March 9, 2023, Epsilon’s Board of Directors (the “Board”) authorized a new share repurchase program of up to 2,292,644 common shares, representing 10 % of the outstanding common shares of Epsilon, for an aggregate purchase price of not more than US $ 15.0 million.

The program is pursuant to a normal course issuer bid and will be conducted in accordance with Rule 10b-18 under the Exchange Act.

The program commenced on March 27, 2023 and will end on March 26, 2024, unless the maximum amount of common shares is purchased before then or Epsilon provides earlier notice of termination.

During the year ended December 31, 2023, we repurchased 968,149 common shares and spent $ 4,940,295 at an average price of $ 5.08 per share (excluding commissions) under the new plan.

The previous share repurchase program commenced on March 8, 2022.

During the year ended December 31, 2022, we repurchased 982,500 common shares of the maximum of 1,183,410 authorized for repurchase and spent $ 6,234,879 under the plan.

The repurchased stock had an average price of $ 4.51 per share (excluding commissions) and was subsequently retired during the year ended December 31, 2022.

On March 9, 2023, the Board of Directors authorized a new share repurchase program of up to 2,292,644 common shares, representing 10% of the outstanding common shares of Epsilon, for an aggregate purchase price of not more than US $15.0 million.

The repurchased stock had an average price of $ 6.32 per share (excluding commissions) and

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

was subsequently retired during the year ended December 31, 2022.

In 2023, we repurchased and retired 190,700 common shares at an average price of $ 5.82 per share (excluding commissions) before the plan terminated on March 7, 2023.

In 2023, the Company repurchased 1,158,849 shares at an average price of $ 5.20 per share (excluding commissions) under the two consecutive repurchase programs.

On March 19, 2024, the Board of Directors authorized a new share repurchase program of up to 2,191,320 common shares, representing 10 % of the current outstanding common shares of Epsilon, for an aggregate purchase price of not more than US $ 12.0 million.

The program is pursuant to a normal course issuer bid and will be conducted in accordance with Rule 10b-18 under the Exchange Act.

1 unchanged sentence

Epsilon’s board of directors (the “Board”) adopted the 2020 Equity Incentive Plan (the “2020 Plan”) on July 22, 2020 subject to approval by Epsilon’s shareholders at Epsilon’s 2020 Annual General and Special Meeting of shareholders, which occurred on September 1, 2020 (the “Meeting”).

The Board adopted the 2020 Equity Incentive Plan (the “2020 Plan”) on July 22, 2020 subject to approval by Epsilon’s shareholders at Epsilon’s 2020 Annual General and Special Meeting of shareholders, which occurred on September 1, 2020 (the “Meeting”).

Shareholders approved the 2020 Plan at the Meeting.

5 unchanged sentences

Restricted Stock Awards

For the year ended December 31, 2022, 289,231 common shares of Restricted Stock with a weighted average market price at grant date of $ 6.28 were awarded to the Company’s officers, employees, and board of directors.

For the year ended December 31, 2021, 48,000 common shares of Restricted Stock with a weighted average market price at grant date of $ 5.04 were awarded to the Company’s board of directors.

For the year ended December 31, 2023, 358,546 restricted common shares with a weighted average market price at grant date of $ 5.42 were awarded to the Company’s management, employees, and board of directors.

For the year ended December 31, 2022, 289,231 restricted common shares with a weighted average market price at grant date of $ 6.28 were awarded to the Company’s officers, employees, and board of directors.

These shares vest over a three or four-year period, with an equal number of shares being issued per period on the anniversary of the award resolution.

1 unchanged sentence

The Company determined the fair value of the granted Restricted Stock-based on the market price of the common shares of the Company on the date of grant.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

The following table summarizes restricted stock for the years ended December 31, 2023 and 2022:

6 unchanged sentences

Stock compensation expense for the granted Restricted Stock is recognized over the vesting period.

Stock compensation expense recognized during the year ended December 31, 2022 was $ 776,939 (for the year ended December 31, 2021, $ 554,249 ).

Stock compensation expense recognized during the year ended December 31, 2023 was $ 959,525 (during the year ended December 31, 2022, $ 776,939 ).

The total value of vested shares during the year ended December 31, 2023 was $ 875,014 (during the year ended December 31, 2022:

$ 1,010,911 ).

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

At December 31, 2023, the Company had unrecognized stock-based compensation related to these shares of $ 2,651,858 to be recognized over a weighted-average period of 1.42 years.

Performance Share Unit Awards (“PSU”)

The Company grants PSUs, which are paid in stock to certain key employees.

The Company historically granted PSUs, which are paid in stock to certain key employees.

The PSUs will vest on the last day of the performance period.

1 unchanged sentence

● The targets for the PSUs are based on (i) the relative total stockholder return (“TSR”) percentile ranking and (ii) the relative cash flow per debt adjusted share – growth (“CFDAS Growth”) percentile ranking of the Company, each as compared to the Company’s peer group as specified in the award agreement during the applicable one-year performance period ending on December 31.

● Cash Flow per Debt Adjusted Share (“CFDAS”) is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) divided by the sum of the 1) the total debt plus the value of preferred stock minus cash and the amount of dividends paid for the year divided by the share price at the end of the year;

and 2) the actual share count at year end.

● Cash Flow per Debt Adjusted Share (“CFDAS”) is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) divided by the sum of the (i) the total debt plus the value of preferred stock minus cash and the amount of dividends paid for the year divided by the share price at the end of the year;

and (ii) the actual share count at year end.

● The vesting of each PSU Award will be based 50 % on TSR performance and 50 % based on CFDAS Growth performance.

1 unchanged sentence

The number of shares ultimately issued under these awards can range from zero to 200 % of target award amounts at the discretion of the Compensation Committee of the Board of Directors.

During the year ended December 31, 2022, a total of 31,667 common shares were vested and issued.

During the year ended December 31, 2023, a total of 15,833 common shares vested.

The following table summarizes PSUs for the years ended December 31, 2023 and 2022:

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

December 31, 2023

5 unchanged sentences

Stock compensation expense for the granted PSUs is recognized over the vesting period.

Stock compensation expense recognized during the year ended December 31, 2022 related to PSUs was $ 244,087 (for the year ended December 31, 2021, $ 401,835 ).

At December 31, 2022, the Company had unrecognized stock-based compensation related to these shares of $ 63,328 to be recognized over a weighted average period of 0.63 years (at December 31, 2021:

$ 310,790 over 1.01 years).

Stock compensation expense recognized during the year ended December 31, 2023 related to PSUs was $ 58,737 (during the year ended December 31, 2022, $ 244,087 ).

The total value of vested shares during the year ended December 31, 2023 was $ 80,432 (during the year ended December 31, 2022:

At December 31, 2023, the Company had no unrecognized stock-based compensation related to these shares.

During the years ended December 31, 2023 and 2022, the Company awarded no PSUs.

Stock Options

As of December 31, 2022, the Company had outstanding stock options covering 70,000 common shares at an overall average exercise price of $ 5.03 per common share to directors, officers, and employees of the Company and its subsidiaries.

As of December 31, 2023, the Company had outstanding stock options covering 57,500 common shares at an overall average exercise price of $ 5.03 per common share to officers and employees of the Company and its subsidiaries.

These 57,500 options have a weighted-average expected remaining term of approximately 0.05 years.

The following table summarizes stock option activity for the years ended December 31, 2023 and 2022:

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

December 31, 2023

5 unchanged sentences

Exercisable at period-end

At December 31, 2022, the Company had unrecognized stock-based compensation related to these options of nil (for the year ended December 31, 2021:

The aggregate intrinsic value at December 31, 2022 was $ 112,000 (at December 31, 2021:

At December 31, 2023 and 2022, the Company had unrecognized stock-based compensation related to these options of nil .

The total intrinsic value of the outstanding options at December 31, 2023 was $ 2,875 (at December 31, 2022:

The total intrinsic value of options exercised during the year ended December 31, 2023 was $ 5,500 (during the year ended December 31, 2022:

During the years ended December 31, 2023 and 2022, the Company awarded no stock options.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

The following table summarizes information for stock options outstanding at December 31, 2023:

3 unchanged sentences

The value of the options was recorded as stock-based compensation expense, with an offsetting amount to additional paid-in capital based on the vesting terms.

Stock-based compensation for the options, for the years ended December 31, 2022 was nil (for the year ended December 31, 2021:

Stock-based compensation expense for the options, for the years ended December 31, 2023 and 2022 was nil .

Revenue Recognition

Revenues are comprised primarily of sales of natural gas along with the revenue generated from the Company’s ownership interest in the gas gathering system in the Auburn field in Northeastern Pennsylvania.

Also included to a much lesser degree is natural gas, crude oil and NGLs from Oklahoma.

Revenues are comprised primarily of sales of natural gas, oil and NGLs, along with the revenue generated from the Company’s ownership interest in the gas gathering system in the Auburn field in Northeastern Pennsylvania.

Overall, product sales revenue generally is recorded in the month when contractual delivery obligations are satisfied, which occurs when control is transferred to the Company’s customers at delivery points based on contractual terms and conditions.

In addition, gathering and compression revenue generally is recorded in the month when contractual service obligations are satisfied, which occurs as control of those services is transferred to the Company’s customers.

Gathering System revenues derived from Epsilon’s production, which have been eliminated from total gathering system revenues (“elimination entry”), amounted to $ 1.4 million and $ 1.5 million, respectively, for the years ended December 31, 2023 and 2022.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

The following table details revenue for the years ended December 31, 2023 and 2022:

5 unchanged sentences

Total operating revenue

(1) Net of the elimination entry

Product Sales Revenue

2 unchanged sentences

Product sales revenue is recognized at the point in time that control of the product transfers to the purchaser based on contractual terms which reflect prevailing commodity market prices.

To the extent that marketing costs are incurred by the Company prior to the transfer of control of the product, those costs are included in lease operating expenses on the Company’s consolidated statements of operations.

Settlement statements for product sales, and the related cash consideration, are generally received from the purchaser within 30 days .

1 unchanged sentence

Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Gas Gathering and Compression Revenue

4 unchanged sentences

Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts on a case-by-case basis once there is evidence that collection is not probable.

At December 31, 2022, there were no accounts for which collection was not probable.

Allowance for Credit Losses

The Company records an allowance for credit losses on a case-by-case basis once there is evidence that collection is not probable.

At December 31, 2023 and 2022, there were no accounts for which collection was not probable.

The following table details accounts receivable as of December 31, 2023 and 2022:

3 unchanged sentences

Gathering and compression fees

Commodity contract

Total accounts receivable

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

Accumulated Other Comprehensive Income

3 unchanged sentences

Balance at beginning of period

Translation (loss) gain

Translation loss

Unrealized gain on securities

Balance at end of period

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Net income (loss) before income taxes is as follows for the periods indicated:

Net income before income taxes is as follows for the periods indicated:

Year ended December 31,

( 1,167,609 )

We file a federal income tax return in the United States, Canada, and various state and local jurisdictions.

7 unchanged sentences

The following table presents the reconciliation of our income taxes calculated at the statutory federal tax rate to the income tax provision in our financial statements.

Our effective tax rate for 2022 differs from the statutory rate primarily due to states taxes and the recognition of a valuation allowance on our Canadian and Oklahoma state deferred tax assets.

Our effective tax rate for 2021 differs from the statutory rate primarily due to states taxes and the recognition of a valuation allowance on our Canadian and Oklahoma state deferred tax assets.

Our effective tax rate for 2023 differs from the statutory rate primarily due to states taxes, foreign withholding taxes, & the recognition of a valuation allowance on our Canadian and Oklahoma

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

state deferred tax assets.

Our effective tax rate for 2022 differs from the statutory rate primarily due to states taxes & the recognition of a valuation allowance on our Canadian and Oklahoma state deferred tax assets.

Income tax provision computed at the statutory federal tax rate

4 unchanged sentences

State valuation allowance

Foreign withholding on dividends

Miscellaneous other items

1 unchanged sentence

Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

Net deferred tax liabilities consisted of the following at December 31, 2023 and 2022:

3 unchanged sentences

Canadian net operating loss carryforwards

Lease Liabilities

Unrealized derivatives/other

17 unchanged sentences

( 10,617,394 )

As of December 31, 2022, we have no U.S.

federal net operating loss carry-forwards and approximately $ 9.9 million of state net operating loss carry-forwards, of which $ 0.3 million expires in 2037 and the remaining can be carried forward indefinitely.

These loss carryforwards may reduce future taxable income, however, the extent of which may be limited due to any Internal Revenue Code Section 382 limitation.

As of December 31, 2023, we have no federal net operating loss carry-forwards and approximately $ 12.5 million of state net operating loss carry-forwards, of which $ 0.3 million expires in 2037 and the remaining can be carried forward indefinitely.

These loss carryforwards may reduce future taxable income, however, the extent of which may be limited due to any IRC Section 382 limitation.

A state valuation allowance of $ 0.15 million is applicable to the net state deferred tax assets attributable to Oklahoma because of objective negative evidence on the cumulative loss incurred in the state over the three-year period ended December 31, 2023.

As of December 31, 2022, we have $ 40.6 million of Canadian net operating loss carry-forwards.

As of December 31, 2023, we have $ 42.1 million of Canadian net operating loss carry-forwards, which will expire between 2027-2043.

A separate valuation allowance of $ 11.5 million attributable to Canadian net operating losses and other tax carryovers is recorded because it is more likely than not to be utilized.

The net change in the total valuation allowance for each of the years ended December 31, 2023 and 2022 was an increase of $ 0.50 million and a decrease of $ 0.66 million, respectively.

On August 16, 2022, legislation commonly known as the Inflation Reduction Act was signed into law.

Among other things, the Inflation Reduction Act includes a 1% excise tax on corporate stock repurchases applicable to repurchases after December 31, 2022, and also a new minimum tax based on book income.

While we do not currently expect the Inflation Reduction Act to have a material impact on our effective tax rate in 2022, our analysis of the impact of the Inflation Reduction Act on us is ongoing, and it is possible that the Inflation Reduction Act (or implementing regulations and other guidance, which have not yet been issued) could adversely impact our current and deferred federal tax liability in future periods.

Among other things, the Inflation Reduction Act includes a 1% excise tax on corporate stock repurchases applicable to repurchases

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

after December 31, 2022, and also a new minimum tax based on book income.

The Inflation Reduction Act did not have a material impact on our effective tax rate.

The Company does not have any material uncertain tax positions.

The Company recognizes interest expense and penalties related to the uncertain tax position in the income tax expense line in the accompanying consolidated statements of operations and comprehensive loss.

Accrued interest and penalties are included in other non-current liabilities in the consolidated balance sheets and were $ 0 as of December 31, 2023 and 2022.

Commitments and Contingencies

The Company also enters into commitments for capital expenditures in advance of the expenditures being made.

As of December 31, 2023, our commitments for capital expenditures were nil .

On March 10, 2021, Epsilon filed a complaint against Chesapeake Appalachia, LLC (“Chesapeake”) in the United States District Court for the Middle District of Pennsylvania, Scranton, Pennsylvania (“Middle District”).

Epsilon claims that Chesapeake has breached a settlement agreement and several operating agreements (“JOAs”) to which Epsilon and Chesapeake are parties.

Epsilon asserts that Chesapeake has failed to cooperate with Epsilon’s efforts to develop resources in the Auburn Development, located in North-Central Pennsylvania, as required under both the settlement agreement and JOAs.

Epsilon requested a preliminary injunction but was unsuccessful in obtaining that injunction.

Epsilon filed a motion to amend its original Complaint.

Chesapeake opposed.

The Court ruled in Epsilon’s favor and allowed Epsilon’s amendment.

Chesapeake moved to dismiss the amended Complaint.

The Court granted the motion to dismiss on a narrow issue without prejudice to Epsilon’s right to file a new lawsuit based on new proposals made after the Court’s decision.

Epsilon filed a motion for reconsideration of that decision, but the court denied the motion for reconsideration on January 18, 2022.

Epsilon filed a notice of appeal on February 15, 2022 challenging the District Court's rulings in the case.

Following the Third Circuit's ruling to remand the case back to District court, Epsilon has sought and was granted a dismissal of the case without prejudice in September 2023.

EPSILON ENERGY LTD.

1 unchanged sentence

For the years ended December 31, 2023 and 2022

Commitments and Contingencies

As a result of the adoption of Leases (Topic 842), the Company recognized an operating lease as of December 31, 2022 summarized in the following table (in thousands):

Under ASC 842, Leases, the Company recognized an operating lease related to its corporate office as of December 31, 2023 summarized in the following table:

Operating lease right-of-use assets

Operating lease right-of-use assets, long term

Total operating lease right-of-use assets

Operating lease liabilities

Operating lease liabilities, long term

Total operating lease liabilities

2 unchanged sentences

Operating cash flows from operating leases

Weighted average remaining lease term - operating lease

Right-of-use assets obtained in exchange for new operating lease liabilities

Weighted average remaining lease term (years) - operating lease

Weighted average discount rate (annualized) - operating lease

Rent expense for operating leases for the year ended December 31, 2021 was $ 0.18 million as presented in other general and administrative expenses in the consolidated statements of operations and comprehensive income.

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liability as of December 31, 2022:

Amounts due in the year ended December 31,

The Company had one office lease that expired in April 2023.

On March 1, 2023, the Company commenced a new office lease with a 70 month lease term and future lease payments estimated to be approximately $ 0.85 million.

There are no other pending leases, and no lease arrangements in which the Company is the lessor.

Lease expense for operating leases was $ 0.14 million and $ 0.03 for the years ended December 31, 2023 and 2022, respectively.

This lease expense is presented in other general and administrative expenses in the consolidated statements of operations and comprehensive income.

Future minimum lease payments as of December 31, 2023 are as follows:

Operating Leases

Total minimum lease payments

effect of discounting

imputed interest

Present value of future minimum lease payments

1 unchanged sentence

Long-term lease obligations

The Company’s future minimum lease commitments as of December 31, 2021 are summarized in the following table:

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

The expiration date of the current lease is April 2023 and the Company has chosen not to extend that lease.

As of December 31, 2022, the Company entered into a new office lease that commenced on March 1, 2023.

The lease is for 70 months with future lease payments estimated to be approximately $ 0.85 million.

There are no other pending leases, and no lease arrangements in which the Company is the lessor.

Other commitments

The Company also enters into commitments for capital expenditures in advance of the expenditures being made.

As of December 31, 2022, we had commitments of $ 0.8 million for capital expenditures.

Epsilon claims that Chesapeake has breached a settlement agreement and several operating agreements (“JOAs”) to which Epsilon and Chesapeake are parties.

Epsilon asserts that Chesapeake has failed to cooperate with Epsilon’s efforts to develop resources in the Auburn Development, located in Northeast Pennsylvania, as required under both the settlement agreement and JOAs.

Epsilon requested a preliminary injunction but was unsuccessful in obtaining that injunction.

Epsilon filed a motion to amend its original Complaint.

Chesapeake opposed.

The Court ruled in Epsilon’s favor and allowed Epsilon’s amendment.

Chesapeake moved to dismiss the amended Complaint.

The Court granted the motion to dismiss without prejudice to Epsilon’s right to file a new lawsuit based on new proposals made after the Court’s decision.

Epsilon filed a motion for reconsideration of that decision, but the court denied the motion for reconsideration on January 18, 2022.

Epsilon filed a notice of appeal on February 15, 2022 challenging both the motion to dismiss and motion for reconsideration decisions.

Chesapeake filed a cross-appeal on March 1, 2022.

A briefing schedule was set and briefing closed October 14, 2022.

Oral argument was held in January 2023.

A decision on the appeal is not expected until mid-2023.

Epsilon re-filed a complaint against Chesapeake in the Middle District on May 9, 2022.

Epsilon generally asserts similar claims as in the previous suit, pursuing declaratory judgment claims regarding Chesapeake’s obligation to Epsilon to cooperate with Epsilon’s efforts in the Auburn Development and regarding Chesapeake’s obstruction of Epsilon’s efforts with the Pennsylvania Department of Environmental Protection permitting process but not based on specific well proposals.

Chesapeake filed a motion to stay pending a decision on the Third Circuit appeal, which was granted.

The matter is stayed pending a decision from the Third Circuit.

Net Income Per Share

Basic net income per share is computed on the basis of the weighted-average number of common shares outstanding during the period.

Diluted net income per share is computed based upon the weighted-average number of common shares outstanding during the period plus the assumed issuance of common shares for all potentially dilutive securities.

The net income used in the calculation of basic and diluted net income per share are as follows:

Year ended December 31,

Net income available to shareholders

Diluted net income per share is computed based upon the weighted-average number of

EPSILON ENERGY LTD.

1 unchanged sentence

For the years ended December 31, 2023 and 2022

common shares outstanding during the period plus the assumed issuance of common shares for all potentially dilutive securities.

The net income used in the calculation of basic and diluted net income per share are as follows:

Year ended December 31,

In calculating the net income per share, basic and diluted, the following weighted-average shares were used:

2 unchanged sentences

Dilutive stock options

Unvested time-based restricted shares

Unvested performance-based restricted shares

Diluted weighted-average shares outstanding

We excluded the following shares from the diluted EPS because their inclusion would have been anti-dilutive.

We excluded the following shares from the diluted net income per share because their inclusion would have been anti-dilutive.

Year ended December 31,

6 unchanged sentences

The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive management.

Segment performance is evaluated based on operating profit or loss as shown in the table below.

Interest expense, interest income and income taxes are managed separately on a group basis.

Segment performance is evaluated based on operating income or loss as shown in the table below.

Interest income and income taxes are managed separately on a group basis.

The Company’s reportable segments are as follows:

The Upstream segment activities include acquisition, development and production of primarily natural gas reserves on properties within the United States;

The Upstream segment activities include acquisition, development and production of natural gas and oil reserves on properties within the United States;

The Gas Gathering segment partners with two other companies to operate a natural gas gathering system;

17 unchanged sentences

Depletion, depreciation, amortization and accretion

Operating income

Operating income (loss)

( 7,311,496 )

Other income (expense)

1 unchanged sentence

Interest expense

Gain (loss) on derivative contracts

Other (expense) income

Gain on derivative contracts

Other income (expense), net

Net income before income tax expense

Net income (loss) before income tax expense

( 5,637,981 )

Segment assets

Capital expenditures (2)

Current assets, net

Proved properties

1 unchanged sentence

Gathering system

Operating lease right-of-use asset

Other property and equipment

Operating lease right-of-use asset

Total segment assets

Capital expenditures (3)

As of and for the year ended December 31, 2022

10 unchanged sentences

Depletion, depreciation, amortization and accretion

Operating income

Operating income (loss)

( 7,346,438 )

Other income (expense)

1 unchanged sentence

Interest expense

Gain (loss) on derivative contracts

( 4,482,909 )

Loss on derivative contracts

Other (expense) income

Other income (expense), net

( 4,542,841 )

Net income (loss) before income tax expense

( 6,892,715 )

Net income before income tax expense

Segment assets

Capital expenditures (2)

Current assets, net

Proved properties

2 unchanged sentences

Other property and equipment

Total segment assets

Capital expenditures (3)

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

(1) Segment operating revenue represents revenues generated from the operations of the segment.

2 unchanged sentences

Direct Energy Business Marketing, LLC and EQT Energy, LLC each accounted for 10 % or more of our total revenue.

Epsilon Energy Ltd.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2022 and 2021

ended December 31, 2021, we sold natural gas to 30 unique customers.

Direct Energy Business Marketing, LLC and SWN Energy Services Company, LLC each accounted for 10 % or more of our total revenue.

(2) Capital expenditures for Upstream consist primarily of the drilling and completing of wells while Gas Gathering consists of expenditures relating to the installation of additional gathering facilities.

For the year ended December 31, 2022, we sold natural gas to 26 unique customers.

Direct Energy Business Marketing, LLC and EQT Energy, LLC each accounted for 10 % or more of our total revenue.

(2) Operating expenses for the year ended December 31, 2023 includes loss on the sale of Oklahoma assets of $ 1,449,871 .

(3) Capital expenditures for the Upstream segment consist primarily of the acquisition of properties, and the drilling and completing of wells while Gas Gathering consists of expenditures relating to the expansion, completion, and maintenance of the gathering and compression facility.

Commodity Risk Management Activities

5 unchanged sentences

Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract.

The Company does not currently require collateral from any of its counterparties nor does its counterparties require collateral from the Company.

The Company does not currently require collateral from any of its counterparties nor do its counterparties require collateral from the Company.

The Company enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future natural gas production and related cash flows.

5 unchanged sentences

During 2023, Epsilon recognized gains on financial commodity derivative contracts of $ 3,130,055 .

This amount included settlements of these contracts of $ 1,225,837 .

For 2021, Epsilon recognized losses on financial commodity derivative contracts of $ 4,482,909 .

This amount included settlements of these contracts of $ 4,243,085 .

This amount included cash received on the settlement of these contracts of $ 3,251,890 .

During 2022, Epsilon recognized gains on financial commodity derivative contracts of $ 236,077 .

This amount included cash paid on the settlement of these contracts of $ 1,225,837 .

Commodity Derivative Contracts

At December 31, 2023, the Company had outstanding NYMEX HH swaps totaling 1.905 Bcf with a weighted average strike price of $ 3.25 and Tennessee Z4 basis swaps totaling 1.905 Bcf with a weighted average strike price of ($ 1.10 ) to hedge a portion of expected volumes for the contract period of January 2024 to October 2024.

At December 31, 2022, the Company had outstanding NYMEX HH swaps totaling 1.07 Bcf and Tennessee Z4 basis swaps totaling 1.07 Bcf outstanding.

At December 31, 2021, Epsilon had two natural gas commodity two-way costless collar contracts totaling 0.59 Bcf outstanding.

Fair Value of Derivative

NYMEX Henry Hub swap

Tennessee Z4 basis swap

Two-way costless collar

EPSILON ENERGY LTD.

2 unchanged sentences

Fair Value of Derivative

NYMEX Henry Hub swap

Tennessee Z4 basis swap

Two-way costless collar

Fair Value of Derivative

Tennessee Z4 basis swap

Net Fair Value of Derivatives

2 unchanged sentences

Fair value of asset (liability), beginning of the period

Gains (losses) on derivative contracts included in earnings

( 4,482,909 )

Gains on derivative contracts included in earnings

Settlement of commodity derivative contracts

Fair value of asset (liability), end of the period

( 3,251,890 )

Fair value of asset, end of the period

The following table presents the fair value of derivatives, as presented in the Consolidated Balance Sheets, on a net basis as they are subject to master netting arrangements:

December 31, 2023

December 31, 2022

Derivative Assets

Fair value of derivatives

Derivative Liabilities

Fair value of derivatives

Asset Retirement Obligations

Asset retirement obligations are estimated by management based on Epsilon’s net ownership interest in all wells and the gathering system, estimated costs to reclaim and abandon such assets and the estimated timing of the costs to be incurred in future periods, and the forecast risk free cost of capital.

Epsilon has estimated the net present value of its total asset retirement obligations to be $ 2.8 million as of December 31, 2022 ($ 2.8 million at December 31, 2021) based on a total net future undiscounted liability of approximately $ 7.4 million ($ 7.4 million at December 31, 2021).

Each year we review, and to the extent necessary, revise our asset retirement obligations estimates.

Epsilon has estimated the net present value of its total asset retirement obligations to be $ 3.5 million as of December 31, 2023 ($ 2.8 million at December 31, 2022).

Each year we review, and to the extent necessary, revise our asset retirement obligations estimates in accordance with recent activity and current service costs.

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

The following table presents the activity in Epsilon’s asset retirement obligations for the periods indicated:

5 unchanged sentences

Balance end of period

Fair Value Measurements

The methodologies used to determine the fair value of our financial assets and liabilities at December 31, 2023 were the same as those used at December 31, 2022.

Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.

The revolving line of credit is classified within Level 2 of the fair value hierarchy.

The Company has investments in U.S.

Treasury bills, all of which mature over a period of 3 and 12 months and are classified as short term investments.

Treasury bills are carried at fair value.

Treasury bills are classified within Level 1 of the fair value hierarchy.

Commodity derivative instruments consist of NYMEX HH swap and basis swap contracts for natural gas.

The Company’s derivative contracts are valued based on a marked to market approach.

The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations.

December 31, 2023

Effect of Netting

Net Fair Value

Derivative contracts

Cash equivalents

Short term investments

Derivative contracts

December 31, 2022

Effect of Netting

Net Fair Value

Derivative contracts

Cash equivalents

Derivative contracts

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2023 and 2022

Current Expected Credit Loss

Under ASU 326, Financial Instruments – Credit Losses, estimated losses on financial assets are provided through an allowance for credit losses.

The majority of our financial assets are invested in U.S.

Treasury bills.

We also have accounts receivable which are primarily from purchasers of oil and natural gas, counterparties to our financial instruments, and revenues earned for compression and gathering services.

Our oil, gas, and natural gas liquids accounts receivables are generally collected within 30 days after the end of the month.

Compression and gathering receivables are generally collected within 60 days after the end of the month.

We assess collectability through various procedures, including review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts.

As of December 31, 2023 and 2022, we determined that our allowance for credit loss was nil .

Subsequent Events

On January 30, 2024, the Company repurchased 248,700 shares at $ 4.82 per share (excluding commissions) under the existing share repurchase plan.

On February 27, 2024 the Company closed an acquisition in the Permian Basin in Ector County, Texas.

The acquired assets are a 25 % working interest in 3 producing wells and 3,246 gross undeveloped acres, in partnership with the same operator of the Company’s existing assets in Texas.

The effective date for the transaction was (i) February 1, 2024 with respect to the leases and (ii) March 1, 2024 with respect to the wells.

The total consideration paid was $ 15 million, funded from cash on-hand.

EPSILON ENERGY LTD.

Supplemental Information to Consolidated Financial Statements

NATURAL GAS AND OIL PRODUCING ACTIVITIES

SUPPLEMENTAL NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)

Natural gas and oil Reserves

21 unchanged sentences

All reserves located in United States

Net proved developed reserves at December 31, 2020

Natural Gas (MMcf)

Net proved reserves at December 31, 2021

Revisions of previous estimates

Transfers from proved undeveloped

Net proved developed reserves at December 31, 2021

Net proved reserves at December 31, 2022

Revisions of previous estimates

Transfers from proved undeveloped

Net proved developed reserves at December 31, 2022

Net proved undeveloped reserves at December 31, 2020

Net proved reserves at December 31, 2023

Natural Gas Liquids (MBbl)

Net proved reserves at December 31, 2021

Revisions of previous estimates

Extensions and discoveries (7)(8)

Transfers from proved undeveloped

Net proved undeveloped reserves at December 31, 2021

Net proved reserves at December 31, 2022

Revisions of previous estimates

Extensions and discoveries

Transfers from proved undeveloped

Net proved undeveloped reserves at December 31, 2022

Net proved reserves at December 31, 2023

Oil and Condensate (MBbl)

Net proved reserves at December 31, 2021

Revisions of previous estimates

Extensions and discoveries

Net proved reserves at December 31, 2022

Revisions of previous estimates

Extensions and discoveries

Net proved reserves at December 31, 2023

Total Company (MMcfe)

Net proved reserves at December 31, 2021

Revisions of previous estimates (1)(2)

Net proved reserves at December 31, 2022

Revisions of previous estimates (3)(4)

Net proved reserves at December 31, 2023

EPSILON ENERGY LTD.

Supplemental Information to Consolidated Financial Statements

All reserves located in United States

Proved developed reserves:

Natural Gas (MMcf)

At December 31, 2021

1 unchanged sentence

At December 31, 2023

Natural Gas Liquids (MBbl)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Oil and condensate (MBbl)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Total proved developed reserves (MMcfe)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Proved undeveloped reserves:

Natural Gas (MMcf)

At December 31, 2021

1 unchanged sentence

At December 31, 2023

(1) Revisions of previous estimates for Pennsylvania for 2021 include additions of 11,202 Mmcfe related to well performance and 4,748 Mmcfe related to commodity pricing.

Natural Gas Liquids (MBbl)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Oil and condensate (MBbl)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Total proved undeveloped reserves (MMcfe)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Total proved reserves:

Natural Gas (MMcf)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Natural Gas Liquids (MBbl)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Oil and condensate (MBbl)

At December 31, 2021

At December 31, 2022

At December 31, 2023

Total proved reserves (MMcfe)

At December 31, 2021

At December 31, 2022

At December 31, 2023

EPSILON ENERGY LTD.

Supplemental Information to Consolidated Financial Statements

(2) Revisions of previous estimates for Oklahoma for 2021 include additions of 2,160 Mmcfe related to well performance, 423 Mmcfe related to commodity pricing, and reduction of 624 Mmcfe related to property interest adjustments.

(3) Revisions of previous estimates for Pennsylvania for 2022 include additions of 6,261 Mmcfe related to well performance and 4,576 Mmcfe related to commodity pricing .

(4) Revisions of previous estimates for Oklahoma for 2022 include additions of 267 Mmcfe related to commodity pricing, 253 Mmcfe related to changes in previously adopted development plans, and reduction of 1,505 Mmcfe related to well performance.

(5) Revisions of previous estimates for Pennsylvania for 2021 include additions of 11,572 Mmcfe related to changes to the previously adopted development plan, 566 Mmcfe related to commodity pricing, and reductions of 606 Mmcfe related to well performance.

(6) Revisions of previous estimates for Oklahoma for 2021 include additions of 246 Mmcfe related to commodity pricing, 205 Mmcfe related to well performance, 107 Mmcfe related to property interest adjustments, and reduction of 373 Mmcfe from changes to the previously adopted development plan.

(7) Extensions and discoveries for Pennsylvania for 2021 include additions of 4,388 Mmcfe related to the proposal and development by the operator of a well that was not previously included in the development schedule.

(8) Extension and discoveries for Oklahoma for 2021 include additions of 865 Mmcfe related to recent offset development, and 779 Mmcfe related to exercising the Company’s option to participate in two new wells that were not previously included in the development schedule.

(9) Revisions of previous estimates for Pennsylvania for 2022 include reductions of 18,898 Mmcfe related to changes to the previously adopted development plan, reductions of 25 Mmcfe related to well performance, and additions of 185 Mmcfe related to commodity pricing.

(10) Revisions of previous estimates for Oklahoma for 2022 include additions of 41 Mmcfe related to commodity pricing, reductions of 58 Mmcfe related to well performance, and reduction of 4,607 Mmcfe from changes to the previously adopted development plan.

(1) Revisions of previous estimates for Pennsylvania for 2022 include additions of 6,238 MMcf related to well performance and 4,759 MMcf related to commodity pricing, and reductions of 18,898 MMcf related to changes to previously adopted development plans.

(2) Revisions of previous estimates for Oklahoma for 2022 include additions of 310 MMcfe related to commodity pricing, reductions of 4,353 MMcfe related to changes to previously adopted development plans and reductions of 1,561 MMcfe related to well performance.

(3) Revisions of previous estimates for Pennsylvania for 2023 include reductions of 9,626 MMcf related to well performance, reductions of 21,830 MMcf related to commodity pricing, and additions of 16,625 MMcf related to changes in previously adopted development plans.

(4) Revisions of previous estimates for Oklahoma for 2023 include reductions of 454 MMcfe related to commodity pricing, 1,760 MMcfe related to changes in previously adopted development plans, and 777 MMcfe related to well performance.

Capitalized Costs Relating to Natural gas and oil Producing Activities

12 unchanged sentences

Property acquisition costs are those costs incurred to lease property, including both undeveloped leasehold and the purchase of reserves in place.

Exploration costs include costs of identifying areas that may warrant examination and examining specific areas that are considered to have prospects containing oil and natural gas reserves, including costs of drilling exploratory wells, geological and geophysical costs and carrying costs on

EPSILON ENERGY LTD.

Supplemental Information to Consolidated Financial Statements

undeveloped properties.

Development costs are incurred to obtain access to proved reserves, including the cost of drilling, as well as the costs to develop the gathering system.

8 unchanged sentences

The following table sets forth results of operations for natural gas and oil producing activities for the years ended December 31, 2023 and 2022:

EPSILON ENERGY LTD.

Supplemental Information to Consolidated Financial Statements

Year ended December 31,

4 unchanged sentences

Depreciation, depletion, amortization, accretion and impairment

Income tax expense

Results of operations from oil and gas producing activities

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Natural gas and oil Reserves

The following information has been developed utilizing procedures prescribed by the Extractive Industries—Natural Oil and Gas Topic 932 of the ASC and based on natural gas reserves and production volumes estimated by our independent petroleum consultants, DeGolyer and MacNaughton.

The following information has been developed utilizing procedures prescribed by the Extractive Activities—Natural Oil and Gas (Topic 932) of the ASC and based on natural gas reserves and production volumes estimated by our independent petroleum consultants, DeGolyer and MacNaughton.

The commodity prices estimated below were based on a 12-month average of first-day-of-the-month commodity prices for the years 2023 and 2022.

7 unchanged sentences

Such decisions are based upon a wide range of factors, including estimates of probable and possible reserves as well as proved reserves, and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated.

EPSILON ENERGY LTD.

Supplemental Information to Consolidated Financial Statements

The following table sets forth the standardized measure of discounted future net cash flows from projected production of Epsilon’s gas reserves as of December 31, 2023 and 2022.

3 unchanged sentences

(119,404,233)

(104,161,488)

Future development costs (1)

Future income taxes (2)

Future net cash flows (undiscounted)

10% annual discount for estimated timing of cash flows

3 unchanged sentences

(2) Future income taxes for 2023 and 2022 were estimated using a combined federal and state statutory tax rate of approximately 26%.

EPSILON ENERGY LTD.

Supplemental Information to Consolidated Financial Statements

Changes in Standardized Measure of Discounted Future Net Cash Flows

4 unchanged sentences

Changes in price, net of production costs

(156,373,808)

Development costs incurred

Net changes in future development costs

Extensions and discoveries, less related costs

Revisions of previous quantity estimates

1 unchanged sentence

Net change in income taxes

Purchases of reserves in place

Timing differences and other technical revisions

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data