What changed in this filing

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Item 1. Financial Statements

2021-11-15 compared with 2021-08-16 · 118 added, 120 removed, 391 unchanged (38% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2021

September 30, 2021

December 31, 2020

15 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2021

September 30, 2021

December 31, 2020

26 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the three

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

For the 3 months ended

For the 9 months ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Oil, NGL and Gas Sales

2 unchanged sentences

Costs and Expenses:

Oil and Natural Gas Operating

Oil and Gas Lease Operating

Depreciation, Depletion and Amortization

5 unchanged sentences

Gain (Loss) on Turnkey Drilling

Loss From Operations

Gain (Loss) From Operations

Other Income (Expense):

Interest Expense

Gain (Loss) on Settlement of Accounts Payable

Gain on Sale of Assets

Gain on Settlement of Accounts Payable

Gain (Loss) on Sale of Assets

Gain (Loss) on Investment in Joint Venture

Income (Loss) Before Income Tax Expense

Net Income (Loss)

Loss Before Income Tax Expense

Income Tax Provision

Preferred Stock Dividend

Net Loss available to common stock

Shares used in computing Basic and Diluted Net Loss per common share

Basic and Diluted Net (Loss) Per Common Share

Shares used in computing Diluted Net Loss per share

Diluted Net Income (Loss) per Share

Shares used in computing Basic and Diluted Net Loss per share

Basic and Diluted Loss per share

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

June 30, 2021

June 30, 2020

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

September 30, 2021

September 30, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)

Adjustments to Reconcile Net Income (Loss) to Net Cash (Used In) Provided By Operating Activities:

Depreciation, Depletion and Amortization

Gain on Sale of Assets

(Gain) Loss on Sale of Assets

(Gain) Loss on Turnkey Drilling Programs

(Gain) Loss on Settlement of Accounts Payable

Gain on Investment in Joint Venture

(Gain) Loss on Investment in Joint Venture

Bad Debt Expense

1 unchanged sentence

Geological & Geophysical Costs

Gain on Other

Right of use asset depreciation

Increase (Decrease) in:

Other & Revenue Receivables

2 unchanged sentences

Due to Affiliate

Net Cash (Used in) Provided by Operating Activities

Net Cash Used in Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Expenditures for Oil and Gas Properties and Turnkey Drilling Costs

Expenditures for Oil and Gas Properties and Other Capital Expenditures

Proceeds from Turnkey Drilling Programs

4 unchanged sentences

Principal Payments on Long-Term Debt

Net Cash (Used in) Provided by Financing Activities

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

Net Cash Provided by (Used in) Financing Activities

Net Decrease in Cash and Cash Equivalents

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

3 unchanged sentences

Cash Paid for Taxes

Decrease in Capital Accrued Balance

See notes to unaudited condensed consolidated financial statements.

11 unchanged sentences

Reclassify Preferred B to Mezzanine

June 30, 2020 Balance

September 30, 2020 Balance

December 31, 2020 Balance

1 unchanged sentence

Preferred Series B 3.5% Dividend

September 30, 2021 Balance

June 30, 2020 Balance

March 31, 2020 Balance

Stock Issued in lieu of Compensation

Preferred Series B 3.5% Dividend

Stock Issued in lieu of Compensation

September 30, 2020 Balance

June 30, 2021 Balance

March 31, 2021 Balance

Stock Issued in lieu of Compensation

Preferred Series B 3.5% Dividend

June 30, 2021 Balance

September 30, 2021 Balance

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

NOTE 1 – In the opinion of management, the accompanying unaudited condensed consolidated financial statements (“statements”) include all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented.

The results of operations for the six-month period are not, in management’s opinion, indicative of the results to be expected for a full year of operations.

The results of operations for the nine-month period are not, in management’s opinion, indicative of the results to be expected for a full year of operations.

It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report as filed on Form 10-K.

2 unchanged sentences

There are factors that give rise to substantial doubt about the Company’s ability to meet liquidity demands, and we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, the sale of oil and natural gas property participation interests through our normal course of business and the sale of non-strategic assets

At June 30, 2021, the Company has $ 1.0 million in Long Lived Assets Held for Sale (see Prospective East LA Sale below).

At June 30, 2021, the Company’s consolidated financial statements reflect a working capital deficiency of $ 5,120,939 and a net loss from of $ 1,023,504 and $ 1,595,671 for three months and six months ended June 30 2021.

At September 30, 2021, the Company’s consolidated financial statements reflect a working capital deficiency of $ 6,038,231 and a net loss of $ 982,328 and $ 2,577,999 for three months and nine months ended September 30, 2021.

These factors raise substantial doubt about our ability to continue as a going concern.

4 unchanged sentences

There can be no assurance that such a plan will be successful.

Prospective East LA Sale

The Company and its joint venture partner, RMX, have entered into a purchase and sales agreement as well as a second amendment to that certain purchase and sales agreement extending the closing date to the third quarter of 2021.

The property is surface real estate located in the city of Commerce, California, The Company carries these assets on the books for $ 1.9 million with an ARO amount of approximately $ 1.1 million for the existing wells and facilities located on the properties providing a net book value of approximately $ 0.846 million.

The sale would require the Company to plug and abandon the wells on the property and remove and restore the surface land with an estimated cost of $0.721 million.

The sale price is approximately $ 1.0 million to the Company.

Therefore, the Company recorded a loss on the pending sale of these properties of $ 0.567 million and reflect Assets Held for Sale of $ 1.0 million reflected in current assets with an ARO balance of $ 0.721 million in current liabilities at December 31, 2020.

The Company and its joint venture partner, RMX, entered into a purchase and sales agreement as well as a second amendment to that certain purchase and sales agreement which closed in September 2021.

During the period in 2021, the Company carried these assets on the books for $ 1.0 million booked as Held for Sale with an current ARO amount of approximately $ 721,000 for the existing wells and facilities located on the properties.

The sale required RMX and the Company to plug and abandon one well on the property and remove and restore the surface land.

The sale price of $ 1.0 million to the Company resulted in recording a loss on the sale of these properties of approximately $ 254,000 .

Non-operated West Texas Property Sale

During the six months ended June 30, 2021, we recorded a gain of $ 291,249 on the sale of asset on the sale of certain non-operated Texas properties.

These non-operated properties were originally acquired during the 2018 merger with Matrix Oil Management Corporation and booked as Held for Sale at the end of 2020.

These non-operated properties were originally acquired during the 2018 merger with Matrix Oil Management Corporation and booked as Held for Sale at the end 2020.

Consolidation

12 unchanged sentences

The majority of our ongoing revenues are derived from the sale of crude oil and condensate, natural gas liquids ("NGLs") and natural gas under spot and term agreements with our customers.

For the three months ended June 30

For the six months ended June 30

For the three months ended September 30

For the nine months ended September 30

Oil & Condensate Sales

48 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

June 30, 2021

September 30, 2021

December 31, 2020

9 unchanged sentences

At year-end 2020, we evaluated our investment in RMX and determined that the investment was fully impaired at December 31, 2020.

As a result of the valuation allowance, the Company has not included any gain or loss on its Investment in Joint Venture for the period ended June 30, 2021.

During the period ended June 30, 2020, the Company recorded a gain of $833,525 reflecting our share of net earnings or losses directly attributable to this equity method investment.

For the period ending June 30, 2021, no gain or loss was recorded as a result of full impairment of the investment balance at December 31, 2020.

As a result of the valuation allowance, the Company has not included any gain or loss on its Investment in Joint Venture for the period ended September 30, 2021.

During the period ended September 30, 2020, the Company recorded a loss of $301,015 reflecting our share of losses directly attributable to this equity method investment.

For the period ending September 30, 2021, no earnings or loss was recorded as a result of full impairment of the investment balance at December 31, 2020.

Other Receivables

4 unchanged sentences

All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged off accounts are added to the allowance.

At June 30, 2021 and December 31, 2020, the Company maintained an allowance for uncollectable accounts of $ 2,761,398 and $ 2,582,093 , for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

At September 30, 2021 and December 31, 2020, the Company maintained an allowance for uncollectable accounts of $ 2,761,398 and $ 2,582,093 , for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Fair Value Measurements

11 unchanged sentences

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

At June 30, 2021 and December 31, 2020, Royale Energy does not have any financial assets measured and recognized at fair value on a recurring basis.

At September 30, 2021 and December 31, 2020, Royale Energy does not have any financial assets measured and recognized at fair value on a recurring basis.

The Company estimates asset retirement obligations (ARO’s) pursuant to the provisions of ASC 410, “ Asset Retirement and Environmental Obligations ”.

8 unchanged sentences

In the third quarter of 2020, the Board of Directors authorized the issuance of Preferred shares, for the settlement of dividends accumulated through December 31, 2021.

The Company accrued $ 195,530 and $ 188,834 for dividends related to the Preferred shares during the second quarters of 2021 and 2020, respectively.

The Company accrued $ 199,413 and $ 192,583 for dividends related to the Preferred shares during the third quarters of 2021 and 2020, respectively.

Each quarter, the Company charges retained earnings for the accumulating dividend as the amounts add to the liquidation preference of the Preferred.

5 unchanged sentences

The result was a precipitous decline in the price of crude oil received by the Company in 2020.

At June 30, 2021 the price of West Texas Intermediate crude oil had reached $71.30 per barrel.

At September 30, 2021 the price of West Texas Intermediate crude oil had reached $75.03 per barrel.

ACCOUNTING STANDARDS

10 unchanged sentences

Oil and gas properties, equipment and fixtures consist of the following:

September 30,

Producing properties, including drilling costs

39 unchanged sentences

Impairments are measured by the amount the carrying value exceeds fair value.

During the six months ended June 30, 2021 and 2020, no impairment losses were incurred.

During the nine months ended September 30, 2021 and 2020, no impairment losses were incurred.

Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that Royale Energy expects to hold the properties.

17 unchanged sentences

Occasionally, drilling is delayed for various reasons such as weather, permitting, drilling rig availability and/or contractual obligations.

At June 30, 2021 and December 31, 2020, Royale Energy had Deferred Drilling Obligations of $ 4,047,439 and $ 3,127,500 , respectively.

At September 30, 2021 and December 31, 2020, Royale Energy had Deferred Drilling Obligations of $ 4,922,439 and $ 3,127,500 , respectively.

If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, Royale would retain the non-refundable portion of the contract and return the remaining funds to the participant.

1 unchanged sentence

Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.

During the six months ended June 30, 2021, we recorded a gain of $ 291,249 on the sale of asset on the sale of certain non-operated Texas properties.

During the nine months ended September 30, 2021, we recorded a gain of $ 36,954 on the sale of asset on the sale of certain non-operated California and Texas properties.

These non-operated properties were originally acquired during the 2018 merger with Matrix Oil Management Corporation and booked as Held for Sale at the end of 2020.

8 unchanged sentences

For 2021 and 2020, the board authorized the payment of each quarterly dividend of Series B Convertible Preferred shares, as Paid-In-Kind shares (“PIK”) to be paid immediately following the end of the quarter.

For the quarter ending June 30, 2021, the Company accrued 19,553 shares with a value of $ 195,530 .

For the quarter ending September 30, 2021, the Company accrued 19,942 shares with a value of $ 199,413 .

During 2021 and 2020 no cash was used to pay dividends on Series B preferred shares.

1 unchanged sentence

Basic and diluted loss per share are calculated as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Preferred Stock Dividend

3 unchanged sentences

Weighted average common shares, including Dilutive effect

Six Months Ended June 30,

Net Income (Loss)

Nine Months Ended September 30,

Preferred Stock Dividend

Net Income (Loss) Attributable to Common Shareholders

Net Loss Attributable to Common Shareholders

Weighted average common shares outstanding

1 unchanged sentence

Weighted average common shares, including Dilutive effect

For the six months ended June 30, 2021 and 2020, Royale Energy had dilutive securities of 26,063,735 and 25,157,462 , respectively.

For the three months ended June 30, 2021 and 2020, Royale Energy had dilutive securities of 25,985,121 and 25,165,320 , respectively.

For the nine months ended September 30, 2021 and 2020, Royale Energy had dilutive securities of 26,212,211 and 25,160,750 , respectively.

For the three months ended September 30, 2021 and 2020, Royale Energy had dilutive securities of 26,071,245 and 25,166,967 , respectively.

In both periods, these securities were not included in the dilutive loss per share, due to their antidilutive nature.

5 unchanged sentences

As a result, the Company will continue to record a full valuation allowance against the deferred tax assets in 2021.

A reconciliation of Royale Energy’s provision for income taxes and the amount computed by applying the statutory income tax rates at June 30, 2021 and 2020, respectively, to pretax income is as follows:

For the six months ended

June 30, 2021

June 30, 2020

Tax provision (benefit) computed at statutory rate of 21 % at June 30, 2021 and 2020, respectively

A reconciliation of Royale Energy’s provision for income taxes and the amount computed by applying the statutory income tax rates at September 30, 2021 and 2020, respectively, to pretax income is as follows:

For the nine months ended

September 30, 2021

September 30, 2020

Tax provision (benefit) computed at statutory rate of 21 % at September 30, 2021 and 2020, respectively

Increase (decrease) in taxes resulting from:

4 unchanged sentences

NOTE 6 – ISSUANCE OF COMMON STOCK

During the six months ended June 30, 2021, in lieu of cash payments for salaries and board fees, Royale issued 1,468,642 shares of its Common stock valued at approximately $ 162,221 to an executive officer and board members, compared to the issuance of 1,390,787 shares issued with an approximate value of $ 169,550 in the same period of 2020.

During the nine months ended September 30, 2021, in lieu of cash payments for salaries and board fees, Royale issued 1,634,227 shares of its Common stock valued at approximately $ 176,709 to an executive officer and board members, compared to the issuance of 2,273,245 shares issued with an approximate value of $ 288,876 in the same period of 2020.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

7 unchanged sentences

For more information, see Item 3 below.

For the six months ended June 30, 2021, we had a net loss of $1,595,671 compared to the net income of $71,978, during the six months ended June 30, 2020.

The difference was primarily the result of a gain of $833,525 relating to our equity method investment in RMX recorded during the six months ended June 30, 2020.

For the nine months ended September 30, 2021 and 2020, we had net losses of $2,577,999 and $540,251, respectively.

The difference was primarily due to a gain on turnkey drilling of approximately $1 million during nine months in 2020 compared to a loss on turnkey drilling of approximately $65,000 during the period in 2021.

During the nine months ended September 30, 2020, we also recognized a gain of $532,510 relating to our equity method investment in RMX.

During the fourth quarter in 2020, it was determined that a full impairment of the equity method investment was warranted, so there was no comparative gain or loss in the current year period.

During the three months ended June 30, 2021 and 2020, we had net losses of $1,023,504 and $312,384, respectively mainly due to higher turnkey drilling costs during the second quarter in 2021 as additional work on wells drilled during the first quarter was performed to improve production.

During the first six months of 2021, revenues from oil and gas production increased $190,877 or 32.6% to $776,876 from the 2020 first six months revenues of $585,999.

During the three months ended September 30, 2021 and 2020, we had net losses of $982,328 and $612,229, respectively, mainly due to a loss on sale of assets recognized during the third quarter in 2021 as a result of the completion of the sale of certain properties in California.

During the first nine months of 2021, revenues from oil and gas production increased $64,501 or 5.7% to $1,202,346 from the 2020 first nine months revenues of $1,137,845.

This increase was mainly due to higher oil and natural gas commodity prices.

The net sales volume of oil and condensate for the six months ended June 30, 2021, was approximately 10,171 barrels with an average price of $59.32 per barrel, versus 11,499 barrels with an average price of $34.54 per barrel for the first half of 2020.

This represents a decrease in net sales volume of 1,328 barrels or 11.5%.

The net sales volume of natural gas for the six months ended June 30, 2021, was approximately 61,290 Mcf with an average price of $2.83 per Mcf, versus 83,040 Mcf with an average price of $2.27 per Mcf for the same period in 2020.

The net sales volume of oil and condensate for the nine months ended September 30, 2021, was approximately 14,734 barrels with an average price of $62.02 per barrel, versus 23,432 barrels with an average price of $37.34 per barrel for the first nine months of 2020.

This represents a decrease in net sales volume of 8,698 barrels or 37.1%, which was due to the sales of non-operated oil and gas properties in Texas and California.

The net sales volume of natural gas for the nine months ended September 30, 2021, was approximately 88,287 Mcf with an average price of $3.26 per Mcf, versus 121,097 Mcf with an average price of $2.17 per Mcf for the same period in 2020.

This represents a decrease in net sales volume of 32,810 Mcf or 27.1%.

The decrease in natural gas production volume was due to certain wells that were offline and waiting on workovers and to lower volumes on existing wells due to natural declines.

For the quarter ended June 30, 2021, revenues from oil and gas production increased $166,425 or 78.7% to $377,939 from the 2020 second quarter revenues of $211,514.

This increase was also due to higher oil and natural gas commodity prices.

The net sales volume of oil and condensate for the quarter ended June 30, 2021, was approximately 4,597 barrels with an average price of $63.25 per barrel, versus 6,468 barrels with an average price of $24.18 per barrel for the second quarter of 2020.

For the quarter ended September 30, 2021, revenues from oil and gas production decreased $126,376 or 22.9% to $425,470 from the 2020 third quarter revenues of $551,846.

This decrease was due to lower oil and natural gas production volumes.

The net sales volume of oil and condensate for the quarter ended September 30, 2021, was approximately 4,564 barrels with an average price of $68.05 per barrel, versus 11,933 barrels with an average price of $40.03 per barrel for the third quarter of 2020.

This represents a decrease in net sales volume of 7,369 barrels or 61.8% for the quarter in 2021.

The net sales volume of natural gas for the quarter ended June 30, 2021, was approximately 31,631 Mcf with an average price of $2.76 per Mcf, versus 30,587 Mcf with an average price of $1.80 per Mcf for the second quarter of 2020.

This represents an increase in net sales volume of 1,044 Mcf or 3.4% for the quarter in 2021.

Oil and natural gas lease operating expenses decreased by $65,387 or 8.4%, to $713,371 for the six months ended June 30, 2021, from $778,758 for the same period in 2020.

This was due mainly to lower outside operated lease costs due to the sale of certain non-operated Texas wells during the period in 2021.

For the second quarter in 2021, lease operating expenses increased $37,904 or 10.1% from the same quarter in 2020, mainly due to work on existing wells in our operated Texas field to increase production.

The aggregate of supervisory fees and other income was $18,102 for six months ended June 30, 2021, a decrease of $2,854 from $20,956 during the same period in 2020.

During the second quarter 2021, supervisory fees and other income increased $4,149 or 35.7% when compared to the quarter in 2020, due mainly to higher rental income.

Depreciation, depletion and amortization expense increased to $294,361 from $155,625, an increase of $138,736 or 89.1% for the six months ended June 30, 2021, as compared to the same period in 2020.

During the second quarter 2021, depreciation, depletion and amortization expenses also increased $94,266 or 124.5%.

The net sales volume of natural gas for the quarter ended September 30, 2021, was approximately 26,996 Mcf with an average price of $4.24 per Mcf, versus 38,057 Mcf with an average price of $1.94 per Mcf for the third quarter of 2020.

This represents a decrease in net sales volume of 11,061 Mcf or 29.1% for the quarter in 2021.

Oil and natural gas lease operating expenses increased by $9,563 or 0.8%, to $1,172,991 for the nine months ended September 30, 2021, from $1,163,428 for the same period in 2020.

For the third quarter in 2021, lease operating expenses increased $74,950 or 19.5% from the same quarter in 2020.

These increases were mainly due to work on existing wells in our operated Texas field to increase production.

The aggregate of supervisory fees and other income was $25,221 for nine months ended September 30, 2021, a decrease of $6,044 from $31,265 during the same period in 2020.

During the third quarter 2021, supervisory fees and other income decreased $3,190 when compared to the quarter in 2020.

These decreases were primarily due to lower pipeline and compressor fee income due to lower production volumes during the period in 2021.

Depreciation, depletion and amortization expense increased to $397,629 from $249,492, an increase of $148,137 or 59.4% for the nine months ended September 30, 2021, as compared to the same period in 2020.

During the third quarter 2021, depreciation, depletion and amortization expenses also increased $9,401 or 10.0%.

The depletion rate is calculated using production as a percentage of reserves.

This increase in depreciation expense was due to a decrease in expected recoverable reserves which increased the depletion rate.

At June 30, 2021, Royale Energy had a Deferred Drilling Obligation of $4,047,439.

During the first six months of 2021, we disposed of $1,841,061 of drilling obligations upon completing the drilling of two oil wells in Texas, while incurring expenses of $1,900,199, resulting in a loss of $59,138.

This increase in depletion expense was due to a decrease in expected recoverable reserves which increased the depletion rate.

At September 30, 2021, Royale Energy had a Deferred Drilling Obligation of $4,922,439.

During the first nine months of 2021, we disposed of $1,841,061 of drilling obligations upon completing the drilling of two oil wells in Texas, while incurring expenses of $1,906,204, resulting in a loss of $65,143.

Although these two wells were originally drilled during the first quarter of 2021, we continued additional work during second quarter 2021 to increase production.

At June 30, 2020, Royale Energy had a Deferred Drilling Obligation of $2,531,094.

During the first six months of 2020, we disposed of $3,901,582 of drilling obligations upon completing the drilling of three oil wells, one in California and two wells in Texas, while incurring expenses of $2,991,134, resulting in a gain of $910,448.

General and administrative expenses increased by $1,325 or 0.1% from $1,075,340 for the six months ended June 30, 2020, to $1,076,665 for the same period in 2021.

For the second quarter 2021, general and administrative expenses decreased $42,595 or 7.7% when compared to the same period in 2020.

Marketing expense for the six months ended June 30, 2021, increased $27,431, or 49.8%, to $82,495, compared to $55,064 for the same period in 2020.

For the second quarter 2021, marketing expenses increased $22,776 or 110.2% when compared to the second quarter in 2020.

At September 30, 2020, Royale Energy had a Deferred Drilling Obligation of $3,870,774.

During the first nine months of 2020, we disposed of $4,386,901 of drilling obligations upon completing the drilling of three oil wells, one in California and two wells in Texas, while incurring expenses of $3,358,206, resulting in a gain of $1,028,695.

General and administrative expenses decreased by $18,702 or 1.2% from $1,580,637 for the nine months ended September 30, 2020, to $1,561,935 for the same period in 2021.

For the third quarter 2021, general and administrative expenses decreased $20,027 or 4.0% when compared to the same period in 2020.

Marketing expense for the nine months ended September 30, 2021, increased $37,317, or 43.1%, to $123,818, compared to $86,501 for the same period in 2020.

For the third quarter 2021, marketing expenses increased $9,886 or 31.5% when compared to the third quarter in 2020.

Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs.

Legal and accounting expense increased to $276,000 for the six-month period in 2021, compared to $174,660 for the same period in 2020, a $101,340 or 58.0% increase.

Legal and accounting expense increased to $338,870 for the nine-month period in 2021, compared to $238,124 for the same period in 2020, a $100,746 or 42.3% increase.

This increase was primarily due to higher audit related expenses during the period in 2021.

For the second quarter 2021, legal and accounting expenses decreased $30,888 or 35.1%, when compared to the second quarter in 2020, mainly due to lower legal fees.

During the six months ended June 30, 2021, we recorded a gain of $291,249 on the sale of asset on the sale of certain non-operated Texas properties.

These non-operated properties were originally acquired during the merger with Matrix and booked as Held for Sale at the end of 2020.

For the third quarter 2021, legal and accounting expenses decreased $594 or 0.9%, when compared to the third quarter in 2020.

During the three months ended September 30, 2021, we recorded a loss of $254,295 on sale of asset upon the sale of certain non-operated California properties which was completed during the third quarter of 2021.

We also recorded a gain of $291,249 on the sale of asset upon the sale of certain non-operated Texas properties which was recognized during the second quarter of 2021.

In both instances, these non-operated properties were originally acquired during the 2018 merger with Matrix and booked as Held for Sale at the end of 2020, which resulted in a net gain on sale of assets of $36,954 for the nine months ended September 30, 2021.

During the first quarter of 2021, we recorded a gain on settlement of $10,061 due to the payment by the SBA of the remaining balance on our PPP loan obtained in 2020.

During the six months ended June 30, 2020, we recorded a gain of $833,525, on investment in joint venture as our 20% share of RMX Resources, LLC’s.

During the nine months ended September 30, 2020, we recorded a gain of $532,510, on investment in joint venture as our 20% share of RMX Resources, LLC’s.

As a result of recognizing an impairment for the full value of the investment, the Company did not recognize any gain or loss in subsequent periods.

2 unchanged sentences

During the first quarter in 2020, we recorded a loss on settlement of $31,500 related to a 2018 seismic sales agreement.

During the six-month period in 2020, we recorded $14,392 in geological and geophysical expenses.

Bad debt expense for the six months ended June 30, 2021, and 2020 were $187,348 and $186,168, respectively.

During the nine-month period in 2020, we recorded $14,392 in geological and geophysical expenses, related to costs in our Texas Jameson field.

Bad debt expense for the nine months ended September 30, 2021, and 2020 were $187,348 and $368,417, respectively.

Approximately $180,000 of the expenses in 2021 and $154,000 of the expenses in 2020 arose from identified uncollectable receivables relating to our oil and natural gas properties either plugged and abandoned or scheduled for plugging and abandonment and our period end oil and natural gas reserve values.

2 unchanged sentences

During the period in 2020 approximately $203,000 was related to revenue receivable from an industry partner whose collectability was in doubt.

Interest expense decreased to $4,591 for the six months ended June 30, 2021, from $7,444 for the same period in 2020, a $2,853 decrease.

This decrease was mainly due to lower principal balances on notes payable during the six-month period in 2021.

Interest expense decreased to $6,857 for the nine months ended September 30, 2021, from $10,306 for the same period in 2020, a $3,449 decrease.

This decrease was mainly due to lower principal balances on notes payable during the nine-month period in 2021.

CAPITAL RESOURCES AND LIQUIDITY

At June 30, 2021, we had current assets totaling $4,984,552 and current liabilities totaling $10,105,491, a $5,120,939 working capital deficit.

We had $603,075 in cash and $2,271,556 in restricted cash at June 30, 2021, compared to $255,112 in cash and $2,146,571 in restricted cash at December 31, 2020.

At September 30, 2021, we had current assets totaling $4,971,915 and current liabilities totaling $11,010,146, a $6,038,231 working capital deficit.

We had $472,925 in cash and $1,694,521 in restricted cash at September 30, 2021, compared to $255,112 in cash and $2,146,571 in restricted cash at December 31, 2020.

In accordance with ASC 480-10-S99 the Company reclassified the Series B Convertible Preferred Stock from Permanent Equity to Mezzanine capital as a result of the change in voting rights provided at the time it of issuance.

For more information, see Note 3 – Series B Convertible Preferred Stock.

At June 30, 2021, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $274,884 compared to $462,777 at December 31, 2020, a $187,893 decrease.

At September 30, 2021, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $318,913 compared to $462,777 at December 31, 2020, a $143,864 decrease.

This decrease was mainly due to the increase in the accounts receivable allowance from direct working interest owners.

At June 30, 2021, revenue receivable was $355,990, an increase of $151,841, compared to $204,149 at December 31, 2020, due to higher commodity prices during the quarter in 2021.

At June 30, 2021, our accounts payable and accrued expenses totaled $4,481,815, an increase of $320,706 from the accounts payable at December 31, 2020 of $4,161,109, which was mainly due to drilling costs and lease operating costs during the first six months in 2021.

At September 30, 2021, revenue receivable was $257,067, an increase of $52,918, compared to $204,149 at December 31, 2020, due to higher commodity prices during the quarter in 2021.

At September 30, 2021, our accounts payable and accrued expenses totaled $4,626,077, an increase of $464,968 from the accounts payable at December 31, 2020 of $4,161,109, which was mainly due to drilling costs and lease operating costs during the first nine months in 2021.

The Company has had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $6,038,231 and an accumulated deficit of $85,463,445.

5 unchanged sentences

Operating Activities.

Net cash used in operating activities totaled $882,420 for the six months ended June 30, 2021.

Net cash provided by operating activities was $334,538 for the six months ended June 30, 2020.

This difference in cash was due to accounts payable and accrued expenses and prepaid assets during the periods related mainly to the wells drilled during the periods, as we used more prepaid drilling funds during the period in 2020.

Net cash used by operating activities totaled $2,366,587 and $645,657 for the nine months ended September 30, 2021, respectively.

This difference in cash used was mainly due to drilling prepayments made during the period in 2021 versus the use of previously made drilling prepayments during the 2020 period.

Investing Activities.

Net cash provided by investing activities totaled $1,380,582 and net cash used in investing activities totaled $2,767,301 for the six months ended June 30, 2021, and 2020, respectively.

During the six month period in 2021, we received approximately $2.8 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $2.0 million in the drilling and completing of two Texas oil wells.

During the period in 2021, we also received approximately $672,000 for the sale of non-operated properties in Texas.

Net cash provided by investing activities totaled $2,160,234 and net cash used in investing activities totaled $992,429 for the nine months ended September 30, 2021, and 2020, respectively.

During the nine month period in 2021, we received approximately $3.6 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $2.5 million in the drilling and completing of two Texas oil wells.

During the period in 2021, we also received approximately $1 million for the sale of non-operated properties in Texas and California.

During the period in 2020, we received approximately $3 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $4 million in the drilling and completing of one Southern California oil well and two Texas oil wells.

Financing Activities.

Net cash used in financing activities totaled $25,214 and net cash provided by financing activities was $147,319 for the six months ended June 30, 2021, and 2020, respectively.

Net cash used in financing activities totaled $27,884 and net cash provided by financing activities was $144,806 for the nine months ended September 30, 2021, and 2020, respectively.

During the period in 2021, the total used was for note and financing lease payments while during the period in 2020, we received $207,800 in SBA-PPP loan and made principal payments of approximately $63,000 on existing notes payable.

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

What changed 10-Q

Item 1. Financial Statements