Epsilon Energy Ltd. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Our consolidated balance sheets as of December 31, 2024 and 2023, and the consolidated statements of operations and comprehensive income, changes in shareholders’ equity and cash flows for years ended December 31, 2024 and 2023 included in this annual report have been prepared in accordance with U.S. GAAP. ​ 39 ​ ​ Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Epsilon Energy Ltd. Houston, Texas Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Epsilon Energy Ltd. (the “Company”) as of December 31, 2024 and 2023, 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, 2024 and 2023, 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Estimation of Future Production Volumes Used to Estimate Proved Oil and Natural Gas Reserves and the Associated Effect on Depreciation, Depletion and Amortization (“DD&A”) Expense Related to Proved Oil and Natural Gas Properties As described in Note 3 to the consolidated financial statements, the Company uses the successful efforts method of accounting for its oil and natural gas producing activities which involves management making significant estimates, including estimating the future production volumes of proved oil and natural gas reserves. As disclosed in Note 5, the Company’s oil and natural gas properties, net balance as of December 31, 2024 was $97.0 million, which includes proved 40 ​ ​ oil and natural gas properties of $191.3 million and accumulated depletion, amortization and impairment of $122.8 million. DD&A expense was $10.2 million for the year ended December 31, 2024. We have identified the estimation of future production volumes used to estimate proved oil and natural gas reserves and the associated effect on DD&A expense related to proved oil and natural gas properties as a critical audit matter. Estimating future production volumes involves a high degree of subjectivity from management and their independent petroleum engineer. Changes in this estimate could have a significant effect on the measurement of DD&A expense. Auditing the estimation of future production volumes required subjective and complex auditor judgment. The primary procedures we performed to address this critical audit matter included: • Evaluating the professional qualifications and objectivity of the independent petroleum engineer, including their relationship to the Company. • Assessing the reasonableness of the future production volumes by comparing estimates of future production volumes against historical results of production volumes on a summary basis for all wells. • Performing a retrospective review over management estimates of future production volumes made in prior periods as compared to actual results. /s/ BDO USA, P.C. We have served as the Company’s auditor since 2017. Houston, Texas March 19, 2025 ​ ​ 41 ​ EPSILON ENERGY LTD. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2024 ​ 2023 ASSETS ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 6,519,793 ​ $ 13,403,628 Accounts receivable ​ ​ 5,843,722 ​ ​ 6,015,448 Short term investments ​ ​ — ​ ​ 18,775,106 Fair value of derivatives ​ ​ — ​ ​ 1,219,025 Prepaid income taxes ​ ​ 975,963 ​ ​ 952,301 Other current assets ​ ​ 792,041 ​ ​ 763,288 Total current assets ​ ​ 14,131,519 ​ ​ 41,128,796 Non-current assets ​ ​ ​ ​ ​ ​ Property and equipment: ​ ​ ​ ​ ​ ​ Oil and gas properties, successful efforts method ​ ​ ​ ​ ​ ​ Proved properties ​ ​ 191,349,210 ​ ​ 160,263,511 Unproved properties ​ ​ 28,364,186 ​ ​ 25,504,873 Accumulated depletion, depreciation, amortization and impairment ​ ​ ( 122,751,395 ) ​ ​ ( 113,708,210 ) Total oil and gas properties, net ​ ​ 96,962,001 ​ ​ 72,060,174 Gathering system ​ ​ 43,116,371 ​ ​ 42,738,273 Accumulated depletion, depreciation, amortization and impairment ​ ​ ( 36,449,511 ) ​ ​ ( 35,539,996 ) Total gathering system, net ​ ​ 6,666,860 ​ ​ 7,198,277 Land ​ ​ 637,764 ​ ​ 637,764 Buildings and other property and equipment, net ​ ​ 259,335 ​ ​ 291,807 Total property and equipment, net ​ ​ 104,525,960 ​ ​ 80,188,022 Other assets: ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets, long term ​ ​ 344,589 ​ ​ 441,987 Restricted cash ​ ​ 470,000 ​ ​ 470,000 Prepaid drilling costs ​ ​ 982,717 ​ ​ 1,813,808 Total non-current assets ​ ​ 106,323,266 ​ ​ 82,913,817 Total assets ​ $ 120,454,785 ​ $ 124,042,613 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable trade ​ $ 2,334,732 ​ $ 3,149,371 Gathering fees payable ​ ​ 997,016 ​ ​ 1,136,237 Royalties payable ​ ​ 1,400,976 ​ ​ 1,422,898 Accrued capital expenditures ​ ​ 572,079 ​ ​ 696,761 Accrued compensation ​ ​ 695,018 ​ ​ 636,295 Other accrued liabilities ​ ​ 371,503 ​ ​ 649,037 Fair value of derivatives ​ ​ 487,548 ​ ​ 118,770 Operating lease liabilities ​ ​ 121,135 ​ ​ 86,473 Total current liabilities ​ ​ 6,980,007 ​ ​ 7,895,842 Non-current liabilities ​ ​ ​ ​ ​ ​ Asset retirement obligations ​ ​ 3,652,296 ​ ​ 3,502,952 Deferred income taxes ​ ​ 12,738,577 ​ ​ 11,553,943 Operating lease liabilities, long term ​ ​ 355,776 ​ ​ 476,911 Total non-current liabilities ​ ​ 16,746,649 ​ ​ 15,533,806 Total liabilities ​ ​ 23,726,656 ​ ​ 23,429,648 Commitments and contingencies (Note 11) ​ ​ ​ ​ ​ ​ Shareholders' equity ​ ​ ​ ​ ​ ​ Preferred shares, no par value, unlimited shares authorized, none issued or outstanding ​ ​ — ​ ​ — Common shares, no par value, unlimited shares authorized and 22,008,766 shares issued and outstanding at December 31, 2024 and 22,222,722 issued and 22,151,848 shares outstanding at December 31, 2023 ​ ​ 116,081,031 ​ ​ 118,272,565 Treasury shares, at cost, 0 at December 31, 2024 and 70,874 at December 31, 2023 ​ ​ — ​ ​ ( 360,326 ) Additional paid-in capital ​ ​ 12,118,907 ​ ​ 10,874,491 Accumulated deficit ​ ​ ( 41,505,076 ) ​ ​ ( 37,946,042 ) Accumulated other comprehensive income ​ ​ 10,033,267 ​ ​ 9,772,277 Total shareholders' equity ​ ​ 96,728,129 ​ ​ 100,612,965 Total liabilities and shareholders' equity ​ $ 120,454,785 ​ $ 124,042,613 ​ ​ The accompanying notes are an integral part of these consolidated financial statements 42 ​ EPSILON ENERGY LTD. Consolidated Statements of Operations and Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Revenues from contracts with customers: ​ ​ ​ ​ ​ ​ Gas, oil, NGL, and condensate revenue ​ $ 25,998,712 ​ $ 20,939,221 Gas gathering and compression revenue ​ ​ 5,524,063 ​ ​ 9,790,531 Total revenue ​ ​ 31,522,775 ​ ​ 30,729,752 ​ ​ ​ ​ ​ ​ ​ Operating costs and expenses: ​ ​ ​ ​ ​ ​ Lease operating expenses ​ ​ 7,264,824 ​ ​ 6,405,281 Gathering system operating expenses ​ ​ 2,265,190 ​ ​ 2,459,694 Depletion, depreciation, amortization, and accretion ​ ​ 10,185,119 ​ ​ 7,685,084 Impairment expense ​ ​ 1,450,076 ​ ​ — Loss on sale of oil and gas properties ​ ​ — ​ ​ 1,449,871 General and administrative expenses: ​ ​ ​ ​ ​ ​ Stock based compensation expense ​ ​ 1,244,416 ​ ​ 1,018,262 Other general and administrative expenses ​ ​ 5,688,714 ​ ​ 6,293,234 Total operating costs and expenses ​ ​ 28,098,339 ​ ​ 25,311,426 Operating income ​ ​ 3,424,436 ​ ​ 5,418,326 ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ ​ ​ ​ ​ Interest income ​ ​ 493,277 ​ ​ 1,673,241 Interest expense ​ ​ ( 46,400 ) ​ ​ ( 80,379 ) (Loss) gain on derivative contracts ​ ​ ( 391,147 ) ​ ​ 3,130,055 Other income ​ ​ 76,727 ​ ​ 4,357 Other income, net ​ ​ 132,457 ​ ​ 4,727,274 ​ ​ ​ ​ ​ ​ ​ Net income before income tax expense ​ ​ 3,556,893 ​ ​ 10,145,600 Income tax expense ​ ​ 1,629,093 ​ ​ 3,200,447 NET INCOME ​ $ 1,927,800 ​ $ 6,945,153 Currency translation adjustments ​ ​ 262,588 ​ ​ ( 3,872 ) Unrealized (loss) gain on securities ​ ​ ( 1,598 ) ​ ​ 1,598 NET COMPREHENSIVE INCOME ​ $ 2,188,790 ​ $ 6,942,879 ​ ​ ​ ​ ​ ​ ​ Net income per share, basic ​ $ 0.09 ​ $ 0.31 Net income per share, diluted ​ $ 0.09 ​ $ 0.31 Weighted average number of shares outstanding, basic ​ ​ 21,930,277 ​ ​ 22,496,772 Weighted average number of shares outstanding, diluted ​ ​ 21,930,277 ​ ​ 22,511,647 ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements 43 ​ EPSILON ENERGY LTD. Consolidated Statements of Changes in Shareholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ Total ​ ​ Common Shares Issued ​ Treasury Shares ​ Additional ​ Comprehensive ​ Accumulated ​ Shareholders' ​ ​ Shares ​ Amount ​ Shares ​ Amount ​ paid-in Capital ​ Income ​ Deficit ​ Equity Balance at December 31, 2022 ​ 23,117,144 ​ $ 123,904,965 ​ — ​ $ — ​ $ 9,856,229 ​ $ 9,774,551 ​ $ ( 39,290,540 ) ​ $ 104,245,205 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 6,945,153 ​ ​ 6,945,153 Dividends ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 5,600,655 ) ​ ​ ( 5,600,655 ) Stock-based compensation expense ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1,018,262 ​ ​ — ​ ​ — ​ ​ 1,018,262 Buyback of common shares ​ — ​ ​ — ​ ( 1,158,849 ) ​ ​ ( 6,055,601 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 6,055,601 ) Retirement of treasury shares ​ ( 1,087,975 ) ​ ​ ( 5,695,275 ) ​ 1,087,975 ​ ​ 5,695,275 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Exercise of stock options ​ 12,500 ​ ​ 62,875 ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 62,875 Vesting of shares of restricted stock ​ 181,053 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Other comprehensive loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 2,274 ) ​ ​ — ​ ​ ( 2,274 ) Balance at December 31, 2023 ​ 22,222,722 ​ $ 118,272,565 ​ ( 70,874 ) ​ $ ( 360,326 ) ​ $ 10,874,491 ​ $ 9,772,277 ​ $ ( 37,946,042 ) ​ $ 100,612,965 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,927,800 ​ ​ 1,927,800 Dividends ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 5,486,834 ) ​ ​ ( 5,486,834 ) Stock-based compensation expense ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1,244,416 ​ ​ — ​ ​ — ​ ​ 1,244,416 Buyback of common shares ​ — ​ ​ — ​ ( 373,700 ) ​ ​ ( 1,831,208 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,831,208 ) Retirement of treasury shares ​ ( 444,574 ) ​ ​ ( 2,191,534 ) ​ 444,574 ​ ​ 2,191,534 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Vesting of shares of restricted stock ​ 230,618 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Other comprehensive loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 260,990 ​ ​ — ​ ​ 260,990 Balance at December 31, 2024 ​ 22,008,766 ​ $ 116,081,031 ​ — ​ $ — ​ $ 12,118,907 ​ $ 10,033,267 ​ $ ( 41,505,076 ) ​ $ 96,728,129 ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements 44 ​ EPSILON ENERGY LTD. Consolidated Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 1,927,800 ​ $ 6,945,153 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depletion, depreciation, amortization, and accretion ​ ​ 10,185,119 ​ ​ 7,685,084 Impairment expense ​ ​ 1,450,076 ​ ​ — Accretion of discount on available for sale securities ​ ​ ( 297,637 ) ​ ​ ( 836,528 ) Loss on sale of oil and gas properties ​ ​ — ​ ​ 1,449,871 Gain (loss) on derivative contracts ​ ​ 391,147 ​ ​ ( 3,130,055 ) Settlement received on derivative contracts ​ ​ 1,196,656 ​ ​ 3,251,890 Settlement of asset retirement obligation ​ ​ ( 88,992 ) ​ ​ ( 509,802 ) Stock-based compensation expense ​ ​ 1,244,416 ​ ​ 1,018,262 Deferred income tax expense ​ ​ 1,184,634 ​ ​ 936,549 Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 171,726 ​ ​ 1,185,938 Prepaid income taxes ​ ​ ( 23,662 ) ​ ​ 187,793 Other assets and liabilities ​ ​ ( 17,828 ) ​ ​ 126,347 Accounts payable, royalties payable and other accrued liabilities ​ ​ ( 493,176 ) ​ ​ ( 122,203 ) Net cash provided by operating activities ​ ​ 16,830,279 ​ ​ 18,188,299 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Additions to unproved oil and gas properties ​ ​ ( 4,507,280 ) ​ ​ ( 8,136,442 ) Additions to proved oil and gas properties ​ ​ ( 31,695,651 ) ​ ​ ( 10,377,642 ) Additions to gathering system properties ​ ​ ( 341,452 ) ​ ​ ( 82,302 ) Additions to land, buildings and property and equipment ​ ​ ( 16,513 ) ​ ​ ( 49,689 ) Purchases of short term investments - held to maturity ​ ​ — ​ ​ ( 32,812,974 ) Purchases of short term investments - available for sale ​ ​ ( 4,045,785 ) ​ ​ ( 11,988,982 ) Proceeds from short term investments - held to maturity ​ ​ 6,743,178 ​ ​ 26,864,976 Proceeds from short term investments - available for sale ​ ​ 16,373,752 ​ ​ — Proceeds from sale of oil and gas properties ​ ​ — ​ ​ 12,498 Prepaid drilling costs ​ ​ 831,091 ​ ​ ( 1,813,808 ) Net cash used in investing activities ​ ​ ( 16,658,660 ) ​ ​ ( 38,384,365 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Buyback of common shares ​ ​ ( 1,831,208 ) ​ ​ ( 6,055,601 ) Exercise of stock options ​ ​ — ​ ​ 62,875 Dividends paid ​ ​ ( 5,486,834 ) ​ ​ ( 5,600,655 ) Debt issuance costs ​ ​ — ​ ​ ( 140,000 ) Net cash used in financing activities ​ ​ ( 7,318,042 ) ​ ​ ( 11,733,381 ) Effect of currency rates on cash, cash equivalents, and restricted cash ​ ​ 262,588 ​ ​ ( 3,872 ) Decrease in cash, cash equivalents, and restricted cash ​ ​ ( 6,883,835 ) ​ ​ ( 31,933,319 ) Cash, cash equivalents, and restricted cash, beginning of period ​ ​ 13,873,628 ​ ​ 45,806,947 Cash, cash equivalents, and restricted cash, end of period ​ $ 6,989,793 ​ $ 13,873,628 ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow disclosures: ​ ​ ​ ​ ​ ​ Income tax paid - federal ​ $ 414,250 ​ $ 1,250,000 Income tax paid - state (PA) ​ $ — ​ $ 182,000 Income tax (refund) paid - state (other) ​ $ ( 2,071 ) ​ $ 7,583 Interest paid ​ $ 16,832 ​ $ 97,595 ​ ​ ​ ​ ​ ​ ​ Non-cash investing activities: ​ ​ ​ ​ ​ ​ Change in proved properties accrued in accounts payable and accrued liabilities ​ $ ( 862,744 ) ​ $ 1,611,724 Change in gathering system accrued in accounts payable and accrued liabilities ​ $ 36,645 ​ $ 16,969 Asset retirement obligation asset additions and adjustments ​ $ 54,902 ​ $ 1,190,579 ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements 45 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements For the years ended December 31, 2024 and 2023 ​ 1. Description of Business Epsilon Energy Ltd. (the “Company” or “Epsilon” or “we”) was incorporated under the laws of the Province of Alberta, Canada on March 14, 2005 . 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. ​ 2. Basis of Preparation Principles of Consolidation The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Epsilon Energy USA, Inc. and its wholly owned subsidiaries, Epsilon Midstream, LLC, Epsilon Operating, LLC, Dewey Energy GP, LLC, Dewey Energy Holdings, LLC and Altolisa Holdings, LLC. With regard to the gathering system, in which Epsilon owns an undivided interest in the asset, proportionate consolidation accounting is used. All inter-company transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved natural gas reserves and related cash flow estimates used in impairment tests of oil and natural gas and gathering system properties, asset retirement obligations, accrued natural gas and oil revenues and operating expenses, accrued gathering system revenues and operating expenses, as well as the valuation of commodity derivative instruments. Actual results could differ from those estimates. ​ ​ 3. Summary of Significant Accounting Policies Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents includes cash on hand and short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Restricted cash consists of amounts deposited to back bonds or letters of credit. The Company presents restricted cash with cash and cash equivalents in the Consolidated Statements of Cash Flows. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts in the Consolidated Statements of Cash Flows as of December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2024 ​ 2023 Cash and cash equivalents ​ $ 6,519,793 ​ $ 13,403,628 Restricted cash included in other assets ​ ​ 470,000 ​ ​ 470,000 Cash, cash equivalents, and restricted cash in the statement of cash flows ​ $ 6,989,793 ​ $ 13,873,628 ​ 46 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 Oil and Natural Gas Properties Epsilon accounts for its crude oil and natural gas exploration and production activities under the successful efforts method of accounting. Oil and natural gas lease acquisition costs are capitalized when incurred. Unproved properties with acquisition costs that are not individually significant are aggregated. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved oil and natural gas properties. Lease delay rentals are expensed as incurred. Oil and natural gas exploration costs, other than the costs of drilling exploratory wells, are expensed as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether Epsilon has discovered proved commercial reserves. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been discovered when drilling has been completed. Such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. 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). Depreciation, depletion and amortization of the cost of proved oil and natural gas properties is calculated using the unit-of-production method. The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. When circumstances indicate that proved (developed and undeveloped) oil and natural gas properties may be impaired, Epsilon compares expected undiscounted future cash flows at a depreciation, depletion and amortization group level to the carrying value of the asset. If the expected undiscounted future cash flows, based on Epsilon’s estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the carrying value of the asset, the capitalized cost is reduced to fair value. Fair value is generally calculated using the Income Approach which considers estimated discounted future cash flows. Gas Gathering System Properties Epsilon’s 35 % portion of asset development costs are capitalized when incurred. All other costs are expensed. Depreciation, depletion and amortization of the cost of gathering system properties is calculated using the unit-of- production method. The reserve base used to calculate depreciation, depletion and amortization for the gathering system includes only proved Pennsylvania natural gas developed reserves. When circumstances indicate that the gathering system properties may be impaired, Epsilon compares expected undiscounted future cash flows related to the gathering system to the unamortized capitalized cost of the asset. If the expected undiscounted future cash flows are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally calculated using the Income Approach, which considers estimated discounted future cash flows. Revenue Recognition Revenues are comprised primarily of sales of natural gas, crude 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. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. 47 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 Accounting Policies Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The Company recognizes upstream revenue at the point in time when control has been transferred to the customer, generally at the time natural gas reaches an agreed-upon delivery point and collectability is reasonably assured. Upstream revenue is based upon a fixed price, based on market pricing, and is measured as the amount of consideration the Company expects to receive in exchange for the transferring of the natural gas. The services provided by the gas gathering system take place continuously and as a practical expedient, the revenues are recognized monthly for the volumes that are processed and transported for the upstream producers during that period of time. Revenue for the services performed are based on the rates outlined in the Anchor Shipper Gas Gathering Agreement for Northern Pennsylvania (the “ASGGA”) effective January 1, 2024 that governs all volumes gathered and processed by the system. The gathering rate is fixed, but is adjusted annually by the Consumer Price Index for All Urban Consumers (“CPI-U”) as published by US Bureau of Labor Statistics. 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. Natural Gas Revenues The Company’s natural gas purchase contracts are generally structured such that Epsilon commits and dedicates for sale its proportionate share of natural gas production per day to a purchaser. Natural gas is sold at market prices. Control transfers at the delivery point specified in the contract, which typically is stated as the inlet of the third-party sales transportation pipeline. The Company recognizes revenue proportionate to its entitled share of volumes sold. Currently, the vast majority of Epsilon’s natural gas production comes from the Marcellus in Northeastern Pennsylvania. Epsilon uses a third-party service for its natural gas marketing. In this capacity, the third-party is responsible for carrying out marketing activities such as submission of nominations, receipt of payments, submission of invoices and negotiation of contracts. Commissions payable to the third-party broker for these services are treated as lease operating expenses in the financial statements. Gas Gathering System Revenue 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 the Tennessee Gas Pipeline. The gathering and compression services operate under fee-based contracts. The producers in the area served by the gathering system pay fees to the system owners based on the services provided to them in getting their share of the gas production to the third-party sales transmission point. Revenue is recognized over time as the services are provided. Oil and Other Liquids Revenue The source of the Company’s oil and other liquids revenue is its ownership in wells in the Permian Basin, Oklahoma, and Alberta, Canada. The Company does not operate the wells and has elected not to receive its proportionate share of the production. As such, under the Joint Operating Agreement, the operators have control of the marketing of this production at current market prices and remits our net revenue interest less taxes and fees on a monthly basis. The Company recognizes revenue with a monthly accrual of its proportionate share of volumes produced at an estimated market price. Accounts Receivable and Other Oil, natural gas liquid and natural gas receivables consist of amounts due from purchasers or operators for commodity sales from our revenue interest in the leases in Northeastern Pennsylvania, the Permian Basin, Oklahoma, and Alberta, Canada. Payments from purchasers are typically due by the last day of the month following the month of delivery. Gathering fee revenue consists of fees due from the operator of the Auburn GGS, as an agent for the Company fulfilling the operations of the gathering system. Payments from the operator are typically due 60 days from the last day of the month of transmission. The Company’s operations do not result in any contract assets or liabilities on the accompanying consolidated balance sheets. 48 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 Buildings and Other Property and Equipment Buildings are depreciated on a straight-line basis over the estimated useful life of the property, 30 years . Other property and equipment consists of computer hardware and software, and furniture and fixtures. Other property and equipment is generally depreciated on a straight-line basis over the estimated useful lives of the property and equipment, which range from 3 years to 7 years . Financial Instruments and Fair Value 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. Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2—Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Level 3—Valuations in this level are those with inputs for the asset or liability that are not based on observable market data. The Company makes its own assumptions about how market participants would price the assets and liabilities. Cash, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates fair value because of the short-term maturity of these instruments. Cash equivalents are carried at fair value. 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 had investments in U.S. Treasury Bills, which mature over a period between 3 and 12 months and are classified as short term investments. The U.S. Treasury Bills are carried at fair value. The U.S. 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 The Company enters into derivative contracts to hedge price risk associated with a portion of natural gas and oil production. While it is never management’s intention to hold or issue derivative instruments for speculative trading purposes, conditions sometimes arise where actual production is less than estimated, which has, and could, result in over-hedged volumes. Natural gas production is primarily sold under market sensitive contracts which are typically priced at a differential to the NYMEX or the published natural gas index prices for the producing area due to the natural gas quality and the proximity to major consuming markets. Our derivative transactions have included the following: ● Fixed-price swaps—where a fixed price is received for production and a variable market price is paid to the contract counterparty. 49 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 ● Basis swap contracts—which guarantee a specified price differential between the price at Henry Hub and our physical pricing points. If the settled price differential is greater than the swapped basis, then we receive a payment from the counterparty in the amount of the difference between the two. If the settled price differential is less than the swapped basis, then we make a payment to the counterparty for the difference between the two. ● Two-way collar contracts—which guarantee a specified price range for NYMEX by using the proceeds of selling a call option at a specified strike price (the “Ceiling”) to finance the purchase of a put option at a specified strike price (the “Floor”). Derivative instruments are recorded on the consolidated balance sheets at fair value as either current or non-current assets or liabilities based on their anticipated settlement date. Gains or losses on derivative contracts are recorded as gain (loss) on derivative contracts in the consolidated statements of operations and comprehensive income. Hedge accounting is not used for our derivative assets and liabilities. Asset Retirement Obligations The Company records a liability for asset retirement obligations at fair value in the period in which the liability is incurred if a reasonable estimate of fair value can be made. The associated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset. Subsequently, the asset retirement cost is allocated to expense using a systematic and rational method of the asset’s useful life. Recognized asset retirement obligations relate to the plugging and abandonment of oil and natural gas wells and decommissioning of the gas gathering system. Management reviews the estimates of the timing of well abandonments as well as the estimated plugging and abandonment costs, which are discounted at the credit adjusted risk free rate. These adjustments are recorded to the asset retirement obligations with an offsetting change to oil and gas properties. An ongoing accretion expense is recognized for changes in the value of the liability as a result of the forecast inflation due to the passage of time, which is recorded in depreciation, depletion, amortization, and accretion expense in the consolidated statements of operations and comprehensive income. Concentrations of Credit Risk 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, 2024, cash and cash equivalents was primarily concentrated in one financial institution the U.S. At December 31, 2023, cash and cash equivalents and short term investments were primarily concentrated in one financial institution the U.S. We currently have $ 4.1 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 year ended December 31, 2024, the Company had three customers that accounted for 89.1 % 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. Geographic Locations of Operations Approximately 50 % and 77 % of our revenue during fiscal years 2024 and 2023, respectively, was derived from natural gas production and gathering system revenues in the state of Pennsylvania. Approximately 40 % and 6 % of our revenue during fiscal year 2024 and 2023, respectively, was derived from oil, natural gas, and natural gas liquids revenues in the state of Texas. Epsilon’s management expects to continue to seek opportunities in other North American basins to provide the Company the flexibility to respond to market conditions by allocating capital across multiple basins and commodities. 50 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 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. Income Taxes Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. Epsilon assesses the realizability of deferred tax assets and recognizes valuation allowances as appropriate (see Note 10). Foreign Currency Transactions Even though the Canadian dollar is the functional currency of Epsilon Energy Ltd. (the parent entity), the United States dollar is the reporting currency for all of Epsilon’s consolidated subsidiaries. Any gains or losses on transactions or monetary assets or liabilities in currencies other than the functional currency are included in net income in the current period. Gains and losses on translation of balances denominated in Canadian dollars are included in accumulated other comprehensive income. Stock-Based Compensation The Company has issued time-based restricted stock and performance share units (“PSU”) to employees and directors of the Company. The fair value of the time-based restricted stock is determined using the fair value of the Company’s common shares on the date of grant. The fair value of the PSUs is determined by the performance requirements. These awards vest ratably over a three-year period. Compensation expense and a corresponding increase to additional paid in capital are recorded over the vesting period. Leases The Company leases office space to be used for general, administrative, and executive offices with terms typically ranging from five to seven years , subject to certain renewal options as applicable. The Company considers renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of lease liabilities and right-of-use assets. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Interest expense for finance leases is incurred based on the carrying value of the lease liability. 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. 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. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; 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 12). 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. Recently Issued Accounting Standards In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to amend certain disclosure and presentation requirements. For entities subject to the SEC’s existing disclosure requirements, the effective date for each amendment 51 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the codification and will not become effective for any entity. The Company is currently evaluating the impact of this ASU. 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 has adopted ASU No. 2023-07 as of December 31, 2024. See Note 14 “Operating Segments” in the Notes to Consolidated Financial Statements. 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. The amendments will be effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of this new standard and believes that the adoption will result in additional disclosures, but will not have any other impact on its consolidated financial statements. In March 2024, the FASB issued ASU No. 2024-01, Compensation – Stock Compensation (Topic 718): Scope Applications of Profits Interest and Similar Awards (“ASU 2024-01”). The amendments in ASU 2024-01 improves its overall clarity and operability without changing the guidance and adding illustrative examples to determine whether profits interest award should be accounted for in accordance with Topic 718. The amendments will be effective for fiscal years beginning after December 15, 2024, and interim periods within those annual periods. The Company does not anticipate that these updates, once adopted, will have a material effect. In November 2024, the FASB issued ASU 2024-3 "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures." The ASU will improve the decision usefulness for investors by requiring public business entities to disclose more detailed information about their expenses such as (a) inventory and manufacturing expense, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, etc. The amendments will be effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments will be applied prospectively with an option for a retrospective application. The Company is evaluating the impact of this new standard and believes that the adoption will result in additional disclosures, but will not have any other impact on its consolidated financial statements. ​ 4. 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 are classified as available-for-sale. 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, 2024 and 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 December 31, 2023 ​ ​ Amortized ​ Unrealized ​ Fair ​ Amortized ​ Unrealized ​ Fair ​ Cost Losses Value Cost Gains Value U.S. Treasury Bills ​ $ — ​ $ — ​ $ — ​ $ 18,773,508 ​ $ 1,598 ​ $ 18,775,106 ​ During the year ended December 31, 2024, the Company sold securities with a carrying amount of $ 14,989,595 for total proceeds of $ 15,336,930 . The realized gains on these sales were $ 347,335 . An additional $ 7,780,000 of securities 52 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 reached maturity with total realized gains of $ 234,248 . The realized gains are included in interest income in the consolidated Statements of Operations and Comprehensive Income. ​ 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. ​ ​ 5. Property and Equipment The following table summarizes the Company’s property and equipment at December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2024 ​ 2023 Property and equipment: ​ ​ ​ ​ ​ ​ Oil and gas properties, successful efforts method ​ ​ ​ ​ ​ ​ Proved properties ​ $ 191,349,210 ​ $ 160,263,511 Unproved properties ​ ​ 28,364,186 ​ ​ 25,504,873 Accumulated depletion, depreciation, amortization and impairment ​ ​ ( 122,751,395 ) ​ ​ ( 113,708,210 ) Total oil and gas properties, net ​ ​ 96,962,001 ​ ​ 72,060,174 Gathering system ​ ​ 43,116,371 ​ ​ 42,738,273 Accumulated depletion, depreciation, amortization and impairment ​ ​ ( 36,449,511 ) ​ ​ ( 35,539,996 ) Total gathering system, net ​ ​ 6,666,860 ​ ​ 7,198,277 Land ​ ​ 637,764 ​ ​ 637,764 Buildings and other property and equipment, net ​ ​ 259,335 ​ ​ 291,807 Total property and equipment, net ​ $ 104,525,960 ​ $ 80,188,022 ​ Asset Acquisitions During the year ended December 31, 2024, Epsilon made the following four 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. ● a 25 % working interest in three producing wells in Ector County, Texas for $ 12.1 million. ● a 25 % working interest in 3,620 gross undeveloped acres in Ector County, Texas for $ 2.6 million. ● a 50 % working interest in 14,243 gross undeveloped acres in Alberta, Canada for $ 1.0 million. ● a joint venture covering approximately 130,000 gross undeveloped acres in Alberta, Canada with a commitment to provide an approximately $ 7.0 million drilling carry to earn a 25 % working interest 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. ● 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. 53 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 ● 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 During the year ended December 31, 2024, Epsilon had no asset sales. 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. 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 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, 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. During the year ended December 31, 2024, Epsilon recorded an impairment of $ 1.45 million on the Killam project (interest acquired in April 2024) in Alberta, Canada. One well was impaired as a result of a decrease in reserves ($ 0.53 million) and one well drilled during the year was deemed non-commercial ($ 0.92 million). For the year ended December 31, 2023, there was no impairment. Refer to Note 17 – Fair Value Measurements. ​ ​ 6. 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 current borrowing base is $ 45 million (redetermined as of February 10, 2025), supported by the Company’s upstream assets in Pennsylvania and subject to semi-annual redeterminations with a maturity date 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 Epsilon Energy USA subsidiary (Borrower). There are currently 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, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at Balance at ​ ​ ​ ​ December 31, December 31, ​ Current ​ ​ ​ 2024 ​ 2023 Borrowing Base Interest Rate Revolving line of credit ​ $ — ​ $ — ​ $ 45,000,000 ​ ​ SOFR + 3.25 % ​ ​ 54 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 7. Shareholders’ Equity (a) Authorized shares 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 Securities 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 outstanding common shares of Epsilon at such time, for an aggregate purchase price of not more than US $ 12.0 million. The program was pursuant to a normal course issuer bid and was conducted in accordance with Rule 10b-18 under the Exchange Act. The program commenced on March 27, 2024 and was set to expire on March 26, 2025, unless the maximum amount of common shares is purchased before then or the Board approves earlier termination. During the year ended December 31, 2024, we repurchased 125,000 common shares and spent $ 627,500 at an average price of $ 5.00 per share (excluding commissions) under the plan. On February 12, 2025, the Board terminated and revoked authority under the program. The previous share repurchase program commenced on March 9, 2023. During the year ended December 31, 2023, we repurchased 968,149 common shares of the maximum of 2,292,644 authorized for repurchase and spent $ 4,940,295 under the plan. The repurchased stock had an average price of $ 5.08 per share (excluding commissions) and 897,275 common shares were retired during the year ended December 31, 2023. In 2024, we repurchased 248,700 common shares and spent $ 1,203,708 at an average price of $ 4.82 per share (excluding commissions) and retired 319,574 common shares before the plan terminated on March 26, 2024. In 2024, the Company repurchased 373,700 shares and spent $ 1,831,208 at an average price of $ 4.88 per share (excluding commissions) under the two consecutive repurchase programs. On February 12, 2025, the Board authorized a new share repurchase program of up to 2,200,876 common shares, representing 10 % of the current outstanding common shares of Epsilon, for an aggregate purchase price of not more than US $ 13.0 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 will commence on February 12, 2025 and end on February 11, 2026, unless the maximum amount of common shares is purchased before then or the Board approves earlier termination. ​ (c) Equity Incentive Plan 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. The 2020 Plan provides for incentive compensation in the form of stock options, stock appreciation rights, restricted stock and stock units, performance shares and units, other stock-based awards and cash-based awards. Under the 2020 Plan, Epsilon is authorized to issue up to 2,000,000 common shares. Restricted Stock Unit For the year ended December 31, 2024, 300,052 restricted common shares with a weighted average grant date fair value of $ 5.97 were awarded to the Company’s management, employees, and board of directors. For the year ended December 31, 2023, 358,546 restricted common shares with a weighted average grant date fair value of $ 5.42 were awarded to the Company’s management, 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. The vesting of the shares is contingent on the individuals’ continued employment or service. 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. ​ 55 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 The following table summarizes restricted stock for the years ended December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ Year ended ​ ​ December 31, 2024 ​ December 31, 2023 ​ ​ Number of ​ Weighted ​ Weighted ​ Number of ​ Weighted ​ Weighted ​ ​ Restricted ​ Average ​ Average ​ Restricted ​ Average ​ Average ​ ​ Shares ​ Remaining Life ​ Grant Date ​ Shares ​ Remaining Life ​ Grant Date ​ Outstanding (years) Fair Value Outstanding (years) Fair Value Balance non-vested Restricted Stock at beginning of period ​ 491,536 ​ 1.74 ​ $ 5.59 ​ 298,210 ​ 1.74 ​ $ 6.00 Granted ​ 300,052 ​ 1.92 ​ $ 5.97 ​ 358,546 ​ 1.90 ​ $ 5.42 Vested ​ ( 230,618 ) ​ — ​ $ 5.65 ​ ( 165,220 ) ​ — ​ $ 5.95 Balance non-vested Restricted Stock at end of period ​ 560,970 ​ 1.61 ​ $ 5.77 ​ 491,536 ​ 1.74 ​ $ 5.59 ​ Stock compensation expense for the granted Restricted Stock is recognized over the vesting period. Stock compensation expense recognized during the year ended December 31, 2024 was $ 1,244,416 (during the year ended December 31, 2023, $ 959,525 ). The total fair value of vested shares during the year ended December 31, 2024 was $ 1,303,187 (during the year ended December 31, 2023: $ 875,014 ). At December 31, 2024, the Company had unrecognized stock-based compensation related to these shares of $ 3,198,469 to be recognized over a weighted-average period of 1.30 years. Performance Share Unit (“PSU”) The Company historically granted PSUs, which are paid in stock to certain key employees. The number of shares ultimately issued under these awards can range from zero to 200 % of target awarded amounts at the discretion of the Compensation committee of the Board of Directors. During the years ended December 31, 2024 and 2023, the Company awarded no PSUs. During the year ended December 31, 2023, a total of 15,833 common shares vested. Stock compensation expense recognized during the year ended December 31, 2024 related to PSUs was $ 0 (during the year ended December 31, 2023, $ 58,737 ). At December 31, 2024, the Company had no unrecognized stock-based compensation related to these shares. Stock Options As of December 31, 2024, the Company had no outstanding stock options. The following table summarizes stock option activity for the years ended December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ Year ended ​ ​ December 31, 2024 ​ December 31, 2023 ​ ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ Number of ​ Average ​ Number of ​ Average ​ ​ Options ​ Exercise ​ Options ​ Exercise Exercise price in US$ Outstanding Price Outstanding Price Balance at beginning of period ​ 57,500 ​ $ 5.03 ​ ​ 70,000 ​ $ 5.03 Exercised ​ — ​ ​ — ​ ​ ( 12,500 ) ​ ​ 5.03 Expired ​ ( 57,500 ) ​ ​ 5.03 ​ ​ — ​ ​ — Balance at period-end ​ — ​ $ — ​ ​ 57,500 ​ $ 5.03 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable at period-end ​ — ​ $ — ​ ​ 57,500 ​ $ 5.03 ​ At December 31, 2024 and 2023, the Company had unrecognized stock-based compensation related to these options of nil . The total intrinsic value of the outstanding options at December 31, 2024 was nil (at December 31, 2023: $ 2,875 ). The total intrinsic value of options exercised during the year ended December 31, 2024 was nil (during the year ended December 31, 2023: $ 5,500 ). During the years ended December 31, 2024 and 2023, the Company awarded no stock options. 56 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 8 . Revenue Recognition 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 Auburn gas gathering system 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 $ 1.1 million and $ 1.4 million, respectively, for the years ended December 31, 2024 and 2023. The following table details revenue for the years ended December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2024 2023 Operating revenue ​ ​ ​ ​ ​ ​ Natural gas ​ $ 10,786,068 ​ $ 14,864,214 Natural gas liquids ​ ​ 1,481,958 ​ ​ 984,418 Oil and condensate ​ ​ 13,730,686 ​ ​ 5,090,589 Gathering and compression fees (1) ​ ​ 5,524,063 ​ ​ 9,790,531 Total operating revenue ​ $ 31,522,775 ​ $ 30,729,752 (1) Net of elimination ​ Product Sales Revenue The Company enters into contracts with third party purchasers to sell its natural gas, oil, NGLs and condensate production. Under these product sales arrangements, the sale of each unit of product represents a distinct performance obligation. 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 and comprehensive income. Settlement statements for product sales, and the related cash consideration, are generally received from the purchaser within 30 days . As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the natural gas, oil, NGLs, or condensate. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received. Gas Gathering and Compression Revenue The Company also provides natural gas gathering and compression services through its ownership interest in the Auburn gas gathering system in Pennsylvania. For the provision of gas gathering and compression services, the Company collects its share of the gathering and compression fees per unit of gas serviced and recognizes gathering revenue over time using an output method based on units of gas gathered. The settlement statement from the operator of the Auburn GGS is received two months after transmission and compression has occurred. As a result, the Company must estimate the amount of production that was transmitted and compressed within the system. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received. 57 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 Current Expected Credit Losses Under ASU 326, Financial Instruments – Credit Losses, estimated losses on financial assets are provided through an allowance for credit losses. 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, 2024 and 2023, we determined that our allowance for credit loss was nil . ​ The following table details accounts receivable as of December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, December 31, ​ ​ 2024 ​ 2023 ​ 2022 Accounts receivable ​ ​ ​ ​ ​ ​ ​ ​ ​ Natural gas and oil sales ​ $ 4,888,294 ​ $ 4,327,886 ​ $ 5,696,419 Joint interest billing ​ ​ — ​ ​ 17,476 ​ ​ 20,454 Gathering and compression fees ​ ​ 918,471 ​ ​ 1,543,239 ​ ​ 1,483,956 Commodity contract ​ ​ 36,957 ​ ​ 72,075 ​ ​ — Interest ​ ​ — ​ ​ 54,772 ​ ​ 557 Total accounts receivable ​ $ 5,843,722 ​ $ 6,015,448 ​ $ 7,201,386 ​ ​ ​ 9. Accumulated Other Comprehensive Income Accumulated other comprehensive income includes certain transactions that have generally been reported in the consolidated statements of changes in shareholders’ equity. The activity in accumulated other comprehensive income during the years ended December 31, 2024 and 2023 consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 2023 ​ Balance at beginning of period ​ $ 9,772,277 ​ $ 9,774,551 ​ Translation gain/(loss) ​ ​ 262,588 ​ ​ ( 3,872 ) ​ Unrealized (loss)/gain on securities ​ ​ ( 1,598 ) ​ ​ 1,598 ​ Balance at end of period ​ $ 10,033,267 ​ $ 9,772,277 ​ ​ ​ ​ 10. Income Taxes Net income (loss) before income taxes is as follows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Foreign $ ( 2,769,534 ) ​ $ ( 1,167,609 ) U.S. ​ 6,326,427 ​ 11,313,209 ​ ​ $ 3,556,893 ​ $ 10,145,600 ​ We file a federal income tax return in the United States, Canada, and various state and local jurisdictions. We believe that we have appropriate support for the income tax positions taken and to be taken on the Company's tax returns and that the accruals for tax liabilities are adequate for all open years based on our assessment of many factors 58 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 including past experience and interpretations of tax law applied to the facts of each matter. The Company's tax returns are open to audit under the statute of limitations for the years ending December 31, 2021 through December 31, 2024. The following tables present the Company’s current and deferred tax expense (benefit) for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Current: ​ ​ ​ ​ ​ ​ Federal ​ $ 391,009 ​ $ 1,902,584 State ​ ​ 53,450 ​ ​ 361,314 Total current income tax expense ​ ​ 444,459 ​ ​ 2,263,898 Deferred: ​ ​ ​ ​ ​ ​ Federal ​ ​ 1,372,363 ​ ​ 1,013,452 State ​ ​ ( 187,729 ) ​ ​ ( 76,903 ) Total deferred tax expense ​ ​ 1,184,634 ​ ​ 936,549 Income tax expense ​ $ 1,629,093 ​ $ 3,200,447 ​ 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 2024 and 2023 differs from the statutory rate primarily due to states taxes, foreign withholding taxes, and the recognition of a valuation allowance on our Canadian and Oklahoma state deferred tax assets. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ Year Ended ​ ​ ​ December 31, ​ Effective ​ December 31, ​ Effective ​ ​ 2024 Tax Rate 2023 Tax Rate Income tax provision computed at the statutory federal tax rate ​ $ 746,947 21.00 % $ 2,130,576 21.00 % Difference in Canadian and U.S. tax rate ​ ( 55,391 ) ( 1.56 ) % ( 23,352 ) ( 0.23 ) % Adjustment of Canadian deferred tax balances ​ ​ 983,975 ​ 27.66 % ​ ( 128,552 ) ​ ( 1.27 ) % Valuation allowance on Canadian loss ​ ( 425,667 ) ( 11.97 ) % 397,102 3.91 % Return to provision adjustment ​ ( 1,245 ) ( 0.04 ) % 5,244 0.05 % State taxes ​ ( 129,233 ) ( 3.63 ) % 108,401 1.07 % State valuation allowance ​ ​ ( 16,271 ) ​ ( 0.46 ) % ​ 100,133 ​ 0.99 % Foreign withholding on dividends ​ ​ 414,250 ​ 11.65 % ​ 630,722 ​ 6.22 % Miscellaneous other items ​ 111,728 3.14 % ( 19,827 ) ( 0.20 ) % Income tax expense ​ $ 1,629,093 45.79 % $ 3,200,447 31.54 % ​ Our effective tax rate for 2024 and 2023, excluding the impact of Canadian loss net valuation allowance, is 25.48 % and 28.29 %, respectively. 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. 59 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 Net deferred tax liabilities consisted of the following at December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2024 2023 Deferred tax assets: ​ ​ ​ ​ ​ ​ State net operating loss carryforwards ​ $ 358,224 ​ $ 396,416 Canadian net operating loss carryforwards ​ 11,084,754 ​ 11,510,422 ARO ​ ​ 873,169 ​ ​ 865,214 Lease Liabilities ​ ​ 114,196 ​ ​ 139,153 Other ​ ​ 159,582 ​ ​ — Unrealized derivatives ​ 116,743 ​ 89,758 Gross deferred tax assets ​ 12,706,668 ​ 13,000,963 Valuation allowance ​ ( 11,213,899 ) ​ ( 11,655,838 ) Total deferred tax assets ​ 1,492,769 ​ 1,345,125 Deferred tax liabilities: ​ ​ Oil and gas property ​ ( 12,620,466 ) ​ ( 10,765,374 ) Partnership ​ ( 1,528,368 ) ​ ( 1,752,767 ) ROU Assets ​ ​ ( 82,512 ) ​ ​ ( 109,169 ) Unrealized derivatives ​ ​ — ​ ​ ( 271,758 ) Gross deferred tax liabilities ​ ( 14,231,346 ) ​ ( 12,899,068 ) Net deferred tax liability ​ $ ( 12,738,577 ) ​ $ ( 11,553,943 ) ​ As of December 31, 2024, we have no federal net operating loss carry-forwards and approximately $ 11.3 million of state net operating loss carry-forwards, of which $ 0.2 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 $ 0.13 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, 2024. As of December 31, 2024, we have $ 40.9 million of Canadian net operating loss carry-forwards. A separate valuation allowance of $ 11.1 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, 2024 and 2023 was a decrease of $ 0.5 million and an increase of $ 0.50 million, respectively. 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, 2024 and 2023. ​ 11. Commitments and Contingencies The Company also enters into commitments for capital expenditures in advance of the expenditures being made. As of December 31, 2024, our commitments for capital expenditures were $ 7.8 million. All of the capital commitments are related to the first two wells of the joint venture in Alberta entered into in October 2024. Of the total commitment, $ 3.4 million is drilling carry in favor of the operator, and the remaining amount is our working interest share of outstanding authorizations for future expenditures. ​ 60 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 12. Leases Under ASC 842, Leases, the Company recognized an operating lease related to its corporate office as of December 31, 2024 summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2024 ​ 2023 Asset ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets, long term ​ $ 344,589 ​ $ 441,987 Total operating lease right-of-use assets ​ $ 344,589 ​ $ 441,987 ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ ​ Operating lease liabilities ​ $ 121,135 ​ $ 86,473 Operating lease liabilities, long term ​ ​ 355,776 ​ ​ 476,911 Total operating lease liabilities ​ $ 476,911 ​ $ 563,384 ​ ​ ​ ​ ​ ​ ​ Operating lease costs ​ $ 236,044 ​ $ 144,490 ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ 214,230 ​ $ 27,010 Right-of-use assets obtained in exchange for new operating lease liabilities ​ $ — ​ $ 535,149 Weighted average remaining lease term (years) - operating lease ​ ​ 2.50 ​ ​ 3.00 Weighted average discount rate (annualized) - operating lease ​ ​ 8.25 % ​ ​ 8.25 % ​ 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 $ 0.24 million and $ 0.14 for the years ended December 31, 2024 and 2023, 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, 2024 are as follows: ​ ​ ​ ​ ​ ​ Operating Leases 2025 ​ $ 173,550 2026 ​ ​ 177,021 2027 ​ ​ 180,492 2028 ​ ​ 183,963 Total minimum lease payments ​ ​ 715,026 Less: imputed interest ​ ​ ( 238,115 ) Present value of future minimum lease payments ​ ​ 476,911 Less: current obligations under leases ​ ​ ( 121,135 ) Long-term lease obligations ​ $ 355,776 ​ ​ ​ 13. 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. 61 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 The net income used in the calculation of basic and diluted net income per share are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Net income ​ $ 1,927,800 ​ $ 6,945,153 ​ In calculating the net income per share, basic and diluted, the following weighted-average shares were used: ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Basic weighted-average number of shares outstanding ​ 21,930,277 ​ 22,496,772 Dilutive stock options ​ — ​ 4,431 Unvested performance-based restricted shares — 10,444 Diluted weighted-average shares outstanding 21,930,277 22,511,647 ​ We excluded the following shares from the diluted net income per share because their inclusion would have been anti-dilutive. ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Anti-dilutive options ​ — ​ 53,069 Anti-dilutive unvested time-based restricted shares ​ 512,072 ​ 331,810 Anti-dilutive unvested performance-based restricted units ​ — ​ 5,389 Total Anti-dilutive shares 512,072 390,268 ​ ​ ​ 14. Operating Segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive management consisting of the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. The CODM uses the Company’s consolidated financial results, including operating income or loss by segment, to make key operating decisions, assess performance, and to allocate resources. 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: a. The Upstream segment activities include acquisition, development and production of natural gas and oil reserves on properties within the United States and Canada; and b. The Gas Gathering segment partners with two other companies to operate a natural gas gathering system. 62 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 Segment activity as of, and for the years ended December 31, 2024 and 2023 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Upstream Gas Gathering Total As of and for the year ended December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Natural gas ​ $ 10,786,068 ​ $ — ​ $ 10,786,068 Natural gas liquids ​ ​ 1,481,958 ​ ​ — ​ ​ 1,481,958 Oil and condensate ​ ​ 13,730,686 ​ ​ — ​ ​ 13,730,686 Gathering and compression fees ​ ​ — ​ ​ 5,524,063 ​ ​ 5,524,063 Intersegment gathering and compression fees ​ ​ — ​ ​ 1,135,176 ​ ​ 1,135,176 ​ ​ ​ 25,998,712 ​ ​ 6,659,239 ​ ​ 32,657,951 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of operating revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Elimination of intersegment revenues ​ ​ ​ ​ ​ ​ ​ ​ ( 1,135,176 ) Total consolidated operating revenue (1) ​ ​ ​ ​ ​ ​ ​ ​ 31,522,775 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating costs ​ ​ ​ ​ ​ ​ ​ ​ ​ Gathering, transportation, and compression ​ ​ 4,996,764 ​ ​ — ​ ​ 4,996,764 Other lease operating expense ​ ​ 2,268,060 ​ ​ 2,265,190 ​ ​ 4,533,250 Intersegment other lease operating expense ​ ​ 1,135,176 ​ ​ — ​ ​ 1,135,176 Impairment ​ ​ 1,450,076 ​ ​ — ​ ​ 1,450,076 Depletion, depreciation, amortization and accretion ​ ​ 9,268,155 ​ ​ 916,964 ​ ​ 10,185,119 Segment operating income ​ $ 6,880,481 ​ $ 3,477,085 ​ $ 9,222,390 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of segment operating income ​ ​ ​ ​ ​ ​ ​ ​ ​ Salary expense ​ ​ ​ ​ ​ ​ ​ ​ 2,815,428 Stock based compensation ​ ​ ​ ​ ​ ​ ​ ​ 1,244,416 Other general and administrative ​ ​ ​ ​ ​ ​ ​ ​ 2,873,286 Elimination of intersegment other lease operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ( 1,135,176 ) Total consolidated operating income ​ ​ ​ ​ ​ ​ ​ ​ 3,424,436 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ ​ ​ ​ ​ ​ ​ ​ 493,277 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ( 46,400 ) Loss on derivative contracts ​ ​ ​ ​ ​ ​ ​ ​ ( 391,147 ) Other income ​ ​ ​ ​ ​ ​ ​ ​ 76,727 Other income, net ​ ​ ​ ​ ​ ​ ​ ​ 132,457 Net income before income tax expense ​ ​ ​ ​ ​ ​ ​ $ 3,556,893 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital expenditures (2) ​ $ 36,219,444 ​ $ 341,452 ​ $ 36,560,896 Segment assets ​ $ 97,944,718 ​ $ 6,666,860 ​ $ 104,611,578 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total segment assets reconciled to consolidated amounts are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Total segment assets ​ ​ ​ ​ ​ ​ ​ $ 104,611,578 Current assets, net ​ ​ ​ ​ ​ ​ ​ ​ 14,131,519 Other property and equipment ​ ​ ​ ​ ​ ​ ​ ​ 897,099 Operating lease right-of-use asset ​ ​ ​ ​ ​ ​ ​ ​ 344,589 Restricted Cash ​ ​ ​ ​ ​ ​ ​ ​ 470,000 ​ ​ ​ ​ ​ ​ ​ ​ $ 120,454,785 ​ 63 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Upstream Gas Gathering Total As of and for the year ended December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Natural gas ​ $ 14,864,214 ​ $ — ​ $ 14,864,214 Natural gas liquids ​ ​ 984,418 ​ ​ — ​ ​ 984,418 Oil and condensate ​ ​ 5,090,589 ​ ​ — ​ ​ 5,090,589 Gathering and compression fees ​ ​ — ​ ​ 9,790,531 ​ ​ 9,790,531 Intersegment gathering and compression fees ​ ​ — ​ ​ 1,375,879 ​ ​ 1,375,879 ​ ​ ​ 20,939,221 ​ ​ 11,166,410 ​ ​ 32,105,631 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of operating revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Elimination of intersegment revenues ​ ​ ​ ​ ​ ​ ​ ​ ( 1,375,879 ) Total consolidated operating revenue (1) ​ ​ ​ ​ ​ ​ ​ ​ 30,729,752 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating costs ​ ​ ​ ​ ​ ​ ​ ​ ​ Gathering, transportation, and compression ​ ​ 5,938,422 ​ ​ — ​ ​ 5,938,422 Other lease operating expense ​ ​ 466,859 ​ ​ 2,459,694 ​ ​ 2,926,553 Intersegment other lease operating expense ​ ​ 1,375,879 ​ ​ — ​ ​ 1,375,879 Loss on sale of oil and gas properties ​ ​ 1,449,871 ​ ​ — ​ ​ 1,449,871 Depletion, depreciation, amortization and accretion ​ ​ 6,638,882 ​ ​ 1,046,202 ​ ​ 7,685,084 Segment operating income ​ $ 5,069,308 ​ $ 7,660,514 ​ $ 11,353,943 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of segment operating income ​ ​ ​ ​ ​ ​ ​ ​ ​ Salary expense ​ ​ ​ ​ ​ ​ ​ ​ 2,856,089 Stock based compensation ​ ​ ​ ​ ​ ​ ​ ​ 1,018,262 Other general and administrative ​ ​ ​ ​ ​ ​ ​ ​ 3,437,145 Elimination of intersegment other lease operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ( 1,375,879 ) Total consolidated operating income ​ ​ ​ ​ ​ ​ ​ ​ 5,418,326 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ ​ ​ ​ ​ ​ ​ ​ 1,673,241 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ( 80,379 ) Gain on derivative contracts ​ ​ ​ ​ ​ ​ ​ ​ 3,130,055 Other income ​ ​ ​ ​ ​ ​ ​ ​ 4,357 Other income, net ​ ​ ​ ​ ​ ​ ​ ​ 4,727,274 Net income before income tax expense ​ ​ ​ ​ ​ ​ ​ $ 10,145,600 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital expenditures (2) ​ $ 18,563,773 ​ $ 82,302 ​ $ 18,646,075 Segment assets ​ $ 73,873,982 ​ $ 7,198,277 ​ $ 81,072,259 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total segment assets reconciled to consolidated amounts are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Total segment assets ​ ​ ​ ​ ​ ​ ​ $ 81,072,259 Current assets, net ​ ​ ​ ​ ​ ​ ​ ​ 41,128,796 Other property and equipment ​ ​ ​ ​ ​ ​ ​ ​ 929,571 Operating lease right-of-use asset ​ ​ ​ ​ ​ ​ ​ ​ 441,987 Restricted Cash ​ ​ ​ ​ ​ ​ ​ ​ 470,000 ​ ​ ​ ​ ​ ​ ​ ​ $ 124,042,613 (1) Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the years ended December 31, 2024 and 2023 have been eliminated upon consolidation. For the year ended December 31, 2024, we sold natural gas to 34 unique customers. SWN Energy Services Company, LLC accounted for 10 % or more of our total revenue. For the year ended December 31, 2023, we sold natural gas to 33 unique customers. Direct Energy Business Marketing, LLC and EQT Energy, LLC each accounted for 10 % or more of our total revenue. (2) 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 . 15. Commodity Risk Management Activities Commodity Price Risks Epsilon engages in price risk management activities from time to time. These activities are intended to manage Epsilon’s exposure to fluctuations in commodity prices for natural gas by securing fixed price contracts for a portion of expected sales volumes. 64 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 Inherent in the Company’s fixed price contracts, are certain business risks, including market risk and credit risk. Market risk is the risk that the price of oil and natural gas will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract. The Company may be required to post collateral depending on the cumulative balance owed to a counterparty on a mark-to-market basis. The Company enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future natural gas and oil production and related cash flows. The natural gas and oil revenues and cash flows are affected by changes in commodity product prices, which are volatile and cannot be accurately predicted. The objective for holding these commodity derivatives is to protect the operating revenues and cash flows related to a portion of the future natural gas sales from the risk of significant declines in commodity prices, which helps ensure the Company’s ability to fund the capital budget. Epsilon has historically elected not to designate any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for these financial commodity derivative contracts using the mark-to-market accounting method. Under this accounting method, changes in the fair value of outstanding financial instruments are recognized as gains or losses in the period of change and are recorded as (loss) gain on derivative contracts on the consolidated statements of operations and comprehensive income. The related cash flow impact is reflected in cash flows from operating activities. During 2024, Epsilon recognized losses on financial commodity derivative contracts of $ 391,147 . This amount included cash received on the settlement of these contracts of $ 1,196,656 . During 2023, Epsilon recognized gains on financial commodity derivative contracts of $ 3,130,055 . This amount included cash paid on the settlement of these contracts of $ 3,251,890 . Commodity Derivative Contracts At December 31, 2024, the Company had outstanding NYMEX HH swaps totaling 2.2615 Bcf with a weighted average strike price of $ 3.26 and Tennessee Z4 basis swaps totaling 2.2615 Bcf with a weighted average strike price of ($ 0.91 ) covering January 2025 to October 2025, and NYMEX WTI CMA swaps totaling 20,662 Bbls with a weighted average strike price of $ 73.49 to hedge a portion of expected volumes for the contract period of January 2025 to June 2025. 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value of Derivative Assets ​ December 31, December 31, ​ ​ 2024 ​ 2023 Current ​ ​ NYMEX Henry Hub swap $ 151,274 ​ $ 1,353,667 Tennessee Z4 basis swap ​ 195,211 ​ ​ 112,719 Crude Oil NYMEX WTI CMA ​ 56,547 ​ ​ — ​ $ 403,032 ​ $ 1,466,386 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value of Derivative Liabilities ​ December 31, December 31, ​ ​ 2024 ​ 2023 Current ​ ​ NYMEX Henry Hub swap $ ( 448,852 ) ​ $ — Tennessee Z4 Basis swap ​ ( 441,728 ) ​ ​ ( 366,131 ) ​ $ ( 890,580 ) ​ $ ( 366,131 ) ​ ​ ​ ​ ​ ​ ​ Net Fair Value of Derivatives $ ( 487,548 ) ​ $ 1,100,255 ​ ​ 65 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 ​ The following table presents the changes in the fair value of Epsilon’s commodity derivatives for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Fair value of asset, beginning of the period ​ $ 1,100,255 ​ $ 1,222,090 (Loss) gain on derivative contracts included in earnings ​ ( 391,147 ) ​ 3,130,055 Settlement of commodity derivative contracts ​ ( 1,196,656 ) ​ ( 3,251,890 ) Fair value of (liability) asset, end of the period ​ $ ( 487,548 ) ​ $ 1,100,255 ​ ​ 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, 2024 December 31, 2023 ​ ​ Gross Fair ​ Amounts ​ Net Fair ​ Gross Fair ​ Amounts ​ Net Fair ​ Value Netted Value Value Netted Value Derivative Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of derivatives $ 403,032 ​ $ ( 403,032 ) ​ $ - $ 1,466,386 ​ $ ( 247,361 ) ​ $ 1,219,025 Derivative Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of derivatives $ ( 890,580 ) ​ $ 403,032 ​ $ ( 487,548 ) $ ( 366,131 ) ​ $ 247,361 ​ $ ( 118,770 ) ​ ​ ​ ​ ​ 16. 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 $ 3.7 million as of December 31, 2024 ($ 3.5 million at December 31, 2023). Each year we review, and to the extent necessary, revise our asset retirement obligations estimates in accordance with recent activity and current service costs. The following table presents the activity in Epsilon’s asset retirement obligations for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ Year ended ​ ​ ​ December 31, ​ ​ December 31, ​ ​ 2024 2023 Balance beginning of period ​ $ 3,502,952 ​ $ 2,780,237 Liabilities acquired ​ ​ 48,207 ​ ​ 12,437 Liabilities disposed of ​ ​ — ​ ​ ( 46,961 ) Wells plugged and abandoned ​ ​ ( 88,992 ) ​ ​ ( 509,802 ) Change in estimates ​ ​ 6,695 ​ ​ 1,178,142 Accretion ​ ​ 183,434 ​ ​ 88,899 Balance end of period ​ $ 3,652,296 ​ $ 3,502,952 ​ ​ ​ 66 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 ​ ​ ​ 17. Fair Value Measurements ​ The methodologies used to determine the fair value of our financial assets and liabilities at December 31, 2024 were the same as those used at December 31, 2023. ​ Cash, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates fair value because of the short-term maturity of these instruments. Cash equivalents are carried at fair value. 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 had 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. The U.S. Treasury bills are carried at fair value. The U.S. 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 and NYMEX WTI CMA swap contracts for crude oil. 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 ​ Level 1 ​ Level 2 Level 3 Effect of Netting Net Fair Value Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative contracts ​ $ — ​ $ 403,032 ​ $ — ​ $ ( 403,032 ) ​ $ — Cash equivalents ​ $ 298,767 ​ $ — ​ $ — ​ $ — ​ $ 298,767 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative contracts ​ $ — ​ $ 890,580 ​ $ — ​ $ ( 403,032 ) ​ $ 487,548 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Level 1 ​ Level 2 Level 3 Effect of Netting Net Fair Value Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative contracts ​ $ — ​ $ 1,219,025 ​ $ — ​ $ — ​ $ 1,219,025 Cash equivalents ​ $ 195,669 ​ $ — ​ $ — ​ $ — ​ $ 195,669 Short term investments ​ $ 18,775,106 ​ $ — ​ $ — ​ $ — ​ $ 18,775,106 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative contracts ​ $ — ​ $ 247,361 ​ $ — ​ $ ( 366,131 ) ​ $ ( 118,770 ) ​ ​ Non-Recurring Fair Value Measurements ​ The Company performed an impairment test on our oil and gas properties and it was determined that the carrying amount of the Killam project in Alberta, Canada exceeded the estimated undiscounted future cash flows resulting in a reduction of the carrying amount of the oil properties to their estimated fair values by $ 1.45 million. This nonrecurring fair value measurement is classified within Level 3 of the fair value hierarchy. For the year ended December 31, 2023, there was no impairment. ​ 67 EPSILON ENERGY LTD. Notes to the Consolidated Financial Statements (Continued) For the years ended December 31, 2024 and 2023 The table below summarizes the fair value of the impaired assets at December 31, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices Significant ​ ​ ​ ​ ​ in Active ​ Other ​ Significant ​ ​ ​ ​ Markets for ​ Observable ​ Unobservable ​ ​ December 31, ​ Identical Assets ​ Inputs ​ Inputs ​ ​ 2024 ​ (Level 1) ​ (Level 2) ​ (Level 3) Nonrecurring fair value measurement ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-lived assets held and used ​ $ 492,253 ​ $ — ​ $ — ​ $ 492,253 Total Nonrecurring fair value measurement ​ $ 492,253 ​ $ — ​ $ — ​ $ 492,253 ​ ​ ​ ​ ​ 68 EPSILON ENERGY LTD. Supplemental Information to Consolidated Financial Statements (Unaudited) SUPPLEMENTAL NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) Natural gas and oil Reserves Users of this information should be aware that the process of estimating quantities of ‘‘proved,’’ ‘‘proved developed’’ and ‘‘proved undeveloped’’ crude oil, natural gas liquids (NGLs) and natural gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors, including, but not limited to, additional development activity; evolving production history; crude oil and condensate, NGL and natural gas prices; and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. Although reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. Proved reserves represent estimated quantities of crude oil, NGLs and natural gas, which, by analysis of geoscience and engineering data, can be estimated, with reasonable certainty, to be economically producible from a given date forward from known reservoirs under then-existing economic conditions, operating methods and government regulations before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. Proved developed reserves are proved reserves expected to be recovered under operating methods being utilized at the time the estimates were made, through wells and equipment in place or if the cost of any required equipment is relatively minor compared to the cost of a new well. Proved undeveloped reserves (PUDs) are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. PUDs can be recorded in respect of a particular undrilled location only if the location is scheduled, under the then-current drilling and development plan, to be drilled within five years from the date that the PUDs are to be recorded, unless specific factors (such as those described in interpretative guidance issued by the Staff of the SEC) justify a longer timeframe. Likewise, absent any such specific factors, PUDs associated with a particular undeveloped drilling location shall be removed from the estimates of proved reserves if the location is scheduled, under the then-current drilling and development plan, to be drilled on a date that is beyond five years from the date that the PUDs were recorded. Epsilon has formulated development plans for all drilling locations associated with its PUDs at December 31, 2024. Under these plans, each PUD location will be drilled within five years from the date it was recorded. Estimates for PUDs are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty. The following tables set forth Epsilon’s net proved reserves at December 31, 2024 and 2023 and changes for each of the two years in the year ended December 31, 2024. Net proved reserves at December 31 are estimated by the Company’s independent petroleum engineers, DeGolyer and MacNaughton. ​ 69 EPSILON ENERGY LTD. Supplemental Information to Consolidated Financial Statements (Unaudited) NET PROVED RESERVE SUMMARY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Permian ​ ​ ​ ​ ​ ​ ​ ​ Pennsylvania Basin Oklahoma Canada Total Natural Gas (MMcf) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net proved reserves at December 31, 2022 84,497 ​ - ​ 5,543 ​ - ​ 90,040 Revisions of previous estimates ​ (14,831) ​ - ​ (1,515) ​ - ​ (16,346) Acquisitions ​ - ​ 481 ​ - ​ - ​ 481 Production ​ (7,906) ​ - ​ (354) ​ - ​ (8,260) Net proved reserves at December 31, 2023 61,760 ​ 481 ​ 3,674 ​ - ​ 65,915 Revisions of previous estimates 8,334 ​ 303 ​ (480) ​ - ​ 8,157 Acquisitions ​ - ​ 1,471 ​ - ​ - ​ 1,471 Production ​ (5,700) ​ (205) ​ (237) ​ - ​ (6,142) Net proved reserves at December 31, 2024 ​ 64,394 ​ 2,050 ​ 2,957 ​ - ​ 69,401 Natural Gas Liquids (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net proved reserves at December 31, 2022 ​ - ​ - ​ 491 ​ - ​ 491 Revisions of previous estimates ​ - ​ - ​ (203) ​ - ​ (203) Acquisitions ​ - ​ 116 ​ - ​ - ​ 116 Production ​ - ​ - ​ (21) ​ - ​ (21) Net proved reserves at December 31, 2023 ​ - ​ 116 ​ 267 ​ - ​ 383 Revisions of previous estimates ​ - ​ 89 ​ (1) ​ - ​ 88 Acquisitions ​ - ​ 475 ​ - ​ - ​ 475 Production ​ - ​ (52) ​ (17) ​ - ​ (69) Net proved reserves at December 31, 2024 ​ - ​ 628 ​ 249 ​ - ​ 877 Oil and Condensate (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net proved reserves at December 31, 2022 ​ - - 211 - ​ 211 Revisions of previous estimates ​ - ​ - ​ (43) ​ - (43) Acquisitions ​ - ​ 194 ​ - ​ - ​ 194 Production ​ - ​ - ​ (21) ​ - ​ (21) Net proved reserves at December 31, 2023 ​ - 194 147 - 341 Revisions of previous estimates ​ - ​ 243 ​ (20) ​ - ​ 223 Acquisitions ​ - ​ 1,175 ​ - ​ 17 ​ 1,192 Production ​ - ​ (173) ​ (11) ​ - ​ (184) Net proved reserves at December 31, 2024 ​ - ​ 1,439 ​ 116 ​ 17 ​ 1,572 Total Company (MMcfe) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net proved reserves at December 31, 2022 ​ 84,497 ​ - ​ 9,758 ​ - ​ 94,255 Revisions of previous estimates (1)(2) ​ (14,831) - (2,991) - (17,822) Acquisitions ​ - ​ 2,341 ​ - ​ - ​ 2,341 Production ​ (7,906) ​ - ​ (606) ​ - ​ (8,512) Net proved reserves at December 31, 2023 ​ 61,760 2,341 6,161 - 70,262 Revisions of previous estimates (3)(4)(5) ​ 8,334 ​ 2,294 ​ (606) ​ - ​ 10,022 Acquisitions ​ - ​ 11,371 ​ - ​ 102 ​ 11,473 Production ​ (5,700) ​ (1,555) ​ (405) ​ - ​ (7,660) Net proved reserves at December 31, 2024 ​ 64,394 ​ 14,451 ​ 5,150 ​ 102 ​ 84,097 ​ (1) 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. (2) 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. (3) Revisions of previous estimates for Pennsylvania for 2024 include additions of 10,244 MMcf related to changes in previously adopted development plans, reductions of 2,849 MMcf related to commodity pricing, and additions of 939 MMcf related to well performance. (4) Revisions of previous estimates for the Permian Basin for 2024 include additions of 2,317 MMcfe related to well performance and reductions of 23 MMcfe related to commodity pricing. (5) Revisions of previous estimates for Oklahoma for 2024 include reductions of 196 MMcfe related to commodity pricing and 410 MMcfe related to well performance. 70 EPSILON ENERGY LTD. Supplemental Information to Consolidated Financial Statements (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Permian ​ ​ ​ ​ ​ ​ ​ ​ Pennsylvania Basin Oklahoma Canada Total Proved developed reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Natural Gas (MMcf) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ 76,302 ​ - ​ 2,664 ​ - ​ 78,966 At December 31, 2023 ​ 45,135 ​ 481 ​ 1,939 ​ - ​ 47,555 At December 31, 2024 ​ 54,150 ​ 1,265 ​ 1,436 ​ - ​ 56,851 Natural Gas Liquids (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ - ​ - ​ 198 ​ - ​ 198 At December 31, 2023 ​ - ​ 116 ​ 133 ​ - ​ 249 At December 31, 2024 ​ - ​ 375 ​ 115 ​ - ​ 490 Oil and condensate (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ - ​ - ​ 107 ​ - ​ 107 At December 31, 2023 ​ - ​ 194 ​ 78 ​ - ​ 272 At December 31, 2024 ​ - ​ 779 ​ 51 ​ 17 ​ 847 Total proved developed reserves (MMcfe) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ 76,302 ​ - ​ 4,494 ​ - ​ 80,796 At December 31, 2023 ​ 45,135 ​ 2,341 ​ 3,205 ​ - ​ 50,681 At December 31, 2024 ​ 54,150 ​ 8,188 ​ 2,432 ​ 102 ​ 64,872 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved undeveloped reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Natural Gas (MMcf) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ 8,195 ​ - ​ 2,879 ​ - ​ 11,074 At December 31, 2023 ​ 16,625 ​ - ​ 1,736 ​ - ​ 18,361 At December 31, 2024 ​ 10,244 ​ 785 ​ 1,521 ​ - ​ 12,550 Natural Gas Liquids (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ - ​ - ​ 293 ​ - ​ 293 At December 31, 2023 ​ - ​ - ​ 134 ​ - ​ 134 At December 31, 2024 ​ - ​ 253 ​ 134 ​ - ​ 387 Oil and condensate (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ - ​ - ​ 104 ​ - ​ 104 At December 31, 2023 ​ - ​ - ​ 69 ​ - ​ 69 At December 31, 2024 ​ - ​ 660 ​ 65 ​ - ​ 725 Total proved undeveloped reserves (MMcfe) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ 8,195 ​ - ​ 5,264 ​ - ​ 13,459 At December 31, 2023 ​ 16,625 ​ - ​ 2,956 ​ - ​ 19,581 At December 31, 2024 ​ 10,244 ​ 6,263 ​ 2,718 ​ - ​ 19,225 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total proved reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Natural Gas (MMcf) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ 84,497 ​ - ​ 5,543 ​ - ​ 90,040 At December 31, 2023 ​ 61,760 ​ 481 ​ 3,675 ​ - ​ 65,916 At December 31, 2024 ​ 64,394 ​ 2,050 ​ 2,957 ​ - ​ 69,401 Natural Gas Liquids (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ - ​ - ​ 491 ​ - ​ 491 At December 31, 2023 ​ - ​ 116 ​ 267 ​ - ​ 383 At December 31, 2024 ​ - ​ 628 ​ 249 ​ - ​ 877 Oil and condensate (MBbl) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ - ​ - ​ 211 ​ - ​ 211 At December 31, 2023 ​ - ​ 194 ​ 147 ​ - ​ 341 At December 31, 2024 ​ - ​ 1,439 ​ 116 ​ 17 ​ 1,572 Total proved reserves (MMcfe) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 ​ 84,497 ​ - ​ 9,758 ​ - ​ 94,255 At December 31, 2023 ​ 61,760 ​ 2,341 ​ 6,161 ​ - ​ 70,262 At December 31, 2024 ​ 64,394 ​ 14,451 ​ 5,150 ​ 102 ​ 84,097 ​ ​ 71 EPSILON ENERGY LTD. Supplemental Information to Consolidated Financial Statements (Unaudited) Capitalized Costs Relating to Natural gas and oil Producing Activities The following table sets forth the capitalized costs relating to Epsilon’s crude oil and natural gas production activities at December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Proved properties $ 191,349,210 ​ $ 160,263,511 Unproved properties ​ 28,364,186 ​ ​ 25,504,873 Total Oil & Gas Properties ​ ​ 219,713,396 ​ ​ 185,768,384 Accumulated depreciation, depletion, amortization and impairment ​ ​ (122,751,395) ​ (113,708,210) Net capitalized costs ​ $ 96,962,001 ​ $ 72,060,174 ​ Costs incurred for oil and natural gas property acquisition, exploration and development activities The following table summarizes costs incurred and capitalized in oil and natural gas properties related to acquisition, exploration and development activities. 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 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Permian ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pennsylvania Basin Oklahoma Canada Total Oil and Natural Gas Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total costs incurred for oil and natural gas activities as of December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unproved acquisition costs ​ $ 499,820 ​ $ 1,345,113 ​ $ — ​ $ 1,014,380 ​ $ 2,859,313 Proved acquisition costs ​ ​ 17,389 ​ ​ 12,147,327 ​ ​ — ​ ​ — ​ ​ 12,164,716 Proved development costs ​ ​ 4,782,274 ​ ​ 12,193,104 ​ ​ 68,651 ​ ​ 1,876,953 ​ ​ 18,920,982 Total costs incurred ​ $ 5,299,483 ​ $ 25,685,544 ​ $ 68,651 ​ $ 2,891,333 ​ $ 33,945,011 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total costs incurred for oil and natural gas activities as of December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unproved acquisition costs ​ $ 6,727,250 ​ $ 556,047 ​ $ 49,737 ​ $ 2,682 ​ $ 7,335,716 Proved development costs ​ ​ 4,714,022 ​ ​ 8,384,986 ​ ​ (1,132,451) ​ ​ — ​ ​ 11,966,557 Total costs incurred ​ $ 11,441,272 ​ $ 8,941,033 ​ $ (1,082,714) ​ $ 2,682 ​ $ 19,302,273 ​ Results of Operations for Natural Gas and Oil Producing Activities The following table sets forth results of operations for natural gas and oil producing activities for the years ended December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2024 2023 Oil and gas producing activities: ​ ​ ​ ​ ​ Gas sales $ 10,786,068 ​ $ 14,864,214 Oil and other liquid sales ​ ​ 15,212,644 ​ ​ 6,075,007 Total revenues ​ ​ 25,998,712 ​ ​ 20,939,221 Lease operating costs ​ ​ (7,264,824) ​ ​ (6,405,281) Depreciation, depletion, amortization, accretion and impairment ​ ​ (10,718,231) ​ ​ (6,638,882) Income tax expense ​ ​ (1,629,093) ​ ​ (2,569,725) Results of operations from oil and gas producing activities ​ $ 6,386,564 ​ $ 5,325,333 ​ 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 Activities—Natural Oil and Gas (Topic 932) of the ASC and based on natural gas reserves and production volumes estimated by our 72 EPSILON ENERGY LTD. Supplemental Information to Consolidated Financial Statements (Unaudited) 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 2024 and 2023. The following information may be useful for certain comparative purposes, but should not be solely relied upon in evaluating Epsilon or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of Epsilon. The future cash flows presented below are based on expense and cost rates in existence as of the date of the projections. It is expected that material revisions to some estimates of natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used. Estimated future income taxes are computed using current statutory income tax rates including consideration of the current tax basis of the properties and related carryforwards. The resulting tax-effected future net cash flows are reduced to present value amounts by applying a 10% annual discount factor. Management does not rely upon the following information in making investment and operating decisions. 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. 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, 2024 and 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Permian ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pennsylvania Basin Oklahoma Canada Total Standard measure of discounted net cash flows as of December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Future cash inflows ​ $ 100,218,636 ​ $ 125,275,660 ​ $ 21,830,652 ​ $ 941,636 ​ $ 248,266,584 Future production costs ​ ​ (54,462,887) ​ ​ (43,915,587) ​ ​ (10,313,945) ​ ​ (377,798) ​ ​ (109,070,217) Future development costs (1) ​ ​ (12,274,739) ​ ​ (14,245,000) ​ ​ (4,896,984) ​ ​ (45,000) ​ ​ (31,461,723) Future income taxes (2) ​ ​ (7,461,773) ​ ​ (10,447,829) ​ ​ (701,602) ​ ​ — ​ ​ (18,611,204) Future net cash flows (undiscounted) ​ ​ 26,019,237 ​ ​ 56,667,244 ​ ​ 5,918,121 ​ ​ 518,838 ​ ​ 89,123,440 10% annual discount for estimated timing of cash flows ​ ​ (10,628,574) ​ ​ (24,726,300) ​ ​ (3,014,198) ​ ​ (97,774) ​ ​ (38,466,846) Standardized measure of discounted future net cash flows ​ $ 15,390,663 ​ $ 31,940,944 ​ $ 2,903,924 ​ $ 421,064 ​ $ 50,656,595 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Standard measure of discounted net cash flows as of December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Future cash inflows ​ $ 103,665,328 ​ $ 18,829,996 ​ $ 29,629,506 ​ $ — ​ $ 152,124,830 Future production costs ​ ​ (54,684,801) ​ ​ (6,755,857) ​ ​ (12,372,663) ​ ​ — ​ ​ (73,813,321) Future development costs (1) ​ ​ (10,931,859) ​ ​ (87,500) ​ ​ (4,796,571) ​ ​ — ​ ​ (15,815,930) Future income taxes (2) ​ ​ (8,311,899) ​ ​ (1,295,491) ​ ​ (1,973,614) ​ ​ — ​ ​ (11,581,004) Future net cash flows (undiscounted) ​ ​ 29,736,769 ​ ​ 10,691,148 ​ ​ 10,486,658 ​ ​ — ​ ​ 50,914,575 10% annual discount for estimated timing of cash flows ​ ​ (10,162,963) ​ ​ (2,548,601) ​ ​ (5,230,103) ​ ​ — ​ ​ (17,941,667) Standardized measure of discounted future net cash flows ​ $ 19,573,806 ​ $ 8,142,548 ​ $ 5,256,555 ​ $ — ​ $ 32,972,908 (1) Costs associated with the abandonment of proved properties are included in future development costs. (2) Future income taxes for 2024 and 2023 were estimated using a combined federal and state statutory tax rate of approximately 24% . 73 EPSILON ENERGY LTD. Supplemental Information to Consolidated Financial Statements (Unaudited) Changes in Standardized Measure of Discounted Future Net Cash Flows The following table sets forth the changes in the standardized measure of discounted future net cash flows for the years ended December 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Permian ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pennsylvania Basin Oklahoma Canada Total Future net cash flows as of December 31, 2022 ​ $ 127,038,998 ​ $ — ​ $ 18,738,110 ​ $ — ​ $ 145,777,108 Revenue less production and other costs ​ ​ (7,598,080) ​ ​ (3,131,578) ​ ​ (2,428,537) ​ ​ — ​ ​ (13,158,195) Changes in price, net of production costs ​ ​ (144,425,073) ​ ​ — ​ ​ (11,948,735) ​ ​ — ​ ​ (156,373,808) Development costs incurred ​ ​ 3,538,365 ​ ​ 7,571,473 ​ ​ (1,098,330) ​ ​ — ​ ​ 10,011,508 Net changes in future development costs ​ ​ (1,929,366) ​ ​ (7,627,799) ​ ​ 4,468,819 ​ ​ — ​ ​ (5,088,346) Revisions of previous quantity estimates ​ ​ (5,794,427) ​ ​ 9,352,748 ​ ​ (4,089,834) ​ ​ — ​ ​ (531,513) Accretion of discount ​ ​ 12,078,196 ​ ​ — ​ ​ 2,192,989 ​ ​ — ​ ​ 14,271,185 Net change in income taxes ​ ​ 39,014,488 ​ ​ (1,153,874) ​ ​ 1,938,755 ​ ​ — ​ ​ 39,799,369 Timing differences and other technical revisions ​ ​ (2,349,296) ​ ​ 3,131,578 ​ ​ (2,516,681) ​ ​ — ​ ​ (1,734,399) Future net cash flows as of December 31, 2023 ​ ​ 19,573,805 ​ ​ 8,142,548 ​ ​ 5,256,555 ​ ​ — ​ ​ 32,972,908 Revenue less production and other costs ​ ​ (4,953,087) ​ ​ (11,478,606) ​ ​ (1,123,854) ​ ​ (43,696) ​ ​ (17,599,243) Changes in price, net of production costs ​ ​ (2,686,674) ​ ​ 1,164,105 ​ ​ (1,816,853) ​ ​ — ​ ​ (3,339,422) Development costs incurred ​ ​ 4,784,359 ​ ​ 8,450,190 ​ ​ 68,651 ​ ​ 1,016,640 ​ ​ 14,319,839 Net changes in future development costs ​ ​ (5,084,036) ​ ​ (20,313,738) ​ ​ (131,859) ​ ​ (1,020,101) ​ ​ (26,549,734) Revisions of previous quantity estimates ​ ​ 390,639 ​ ​ 6,394,390 ​ ​ (770,571) ​ ​ — ​ ​ 6,014,458 Accretion of discount ​ ​ 2,598,426 ​ ​ 578,818 ​ ​ 565,753 ​ ​ — ​ ​ 3,742,998 Net change in income taxes ​ ​ 644,355 ​ ​ (4,914,788) ​ ​ 622,733 ​ ​ — ​ ​ (3,647,700) Purchases of reserves in place ​ ​ — ​ ​ 40,846,884 ​ ​ — ​ ​ — ​ ​ 40,846,884 Timing differences and other technical revisions ​ ​ 122,876 ​ ​ 3,071,142 ​ ​ 233,368 ​ ​ 468,221 ​ ​ 3,895,607 Future net cash flows as of December 31, 2024 ​ $ 15,390,663 ​ $ 31,940,944 ​ $ 2,903,924 ​ $ 421,064 ​ $ 50,656,595 ​ ​ ​ 74 ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ​