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Item 1. Financial Statements

2023-11-13 compared with 2023-08-14 · 107 added, 121 removed, 388 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2023

December 31, 2022

September 30,

Current Assets

13 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2023

December 31, 2022

September 30,

LIABILITIES AND STOCKHOLDERS ’ EQUITY (DEFICIT)

15 unchanged sentences

Mezzanine Equity:

Convertible Preferred Stock, Series B, $ 10 par value, 3,000,000 Shares Authorized, 2,402,541 , and 2,361,154 shares issued and outstanding at June 30, 2023 and December 31, 2022 respectively

Convertible Preferred Stock, Series B, $ 10 par value, 3,000,000 Shares Authorized,

2,423,505 , and 2,361,154 shares issued and outstanding at September 30, 2023 and

December 31, 2022, respectively

Stockholders' Equity (Deficit):

Common Stock, .001 Par Value, 280,000,000 Shares Authorized, 67,684,188 and 61,876,957 shares issued and outstanding at June 30, 2023 and December 31, 2022 respectively

Common Stock, .001 Par Value, 280,000,000 Shares Authorized, 67,684,188 and

61,876,957 shares issued and outstanding at September 30, 2023 and

December 31, 2022, respectively

Additional Paid in Capital

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the three months ended

For the six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

For the three

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Oil, NGL and Gas Sales

13 unchanged sentences

Gain on Settlement of Accounts Payable

Loss Before Income Tax Expense

Loss Before Income Taxes

Income Tax Provision

Preferred Stock Dividend

Preferred Stock Dividend in Arrears

Net Loss available to common stock

2 unchanged sentences

Shares used in computing Diluted Net Loss per share

Diluted Net Income (Loss) per Share

Diluted Net 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, 2023 AND 2022

For the Six Months Ended

June 30, 2023

June 30, 2022

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

For the Nine Months Ended

September 30, 2023

September 30, 2022

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

Adjustments to Reconcile Net Loss to Net

Cash Used in Operating Activities:

Depreciation, Depletion and Amortization

Gain on Turnkey Drilling Programs

Gain on Settlement of Accounts Payable

(Gain) Loss on Settlement of Accounts Payable

Well Equipment Write Down

7 unchanged sentences

Accounts Payable and Accrued Expenses

Royalties Payable

Net Cash Used in Operating Activities

2 unchanged sentences

Proceeds from Turnkey Drilling Programs

Net Cash Provided (Used) by Investing Activities

Net Cash Provided by Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

1 unchanged sentence

Net Cash Used by Financing Activities

Net Decrease in Cash and Cash Equivalents

Net Increase (Decrease) in Cash and Cash Equivalents

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

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Number of Shares

Issued and Outstanding

Paid in Capital

1 unchanged sentence

Common Amount

Preferred Shares

Preferred Amount

December 31, 2021 Balance

1 unchanged sentence

Preferred Series B 3.5% Dividend

June 30, 2022 Balance

September 30, 2022 Balance

Common Shares

Common Amount

Preferred Shares

Preferred Amount

December 31, 2022 Balance

2 unchanged sentences

Preferred Series B 3.5% Dividend

June 30, 2023 Balance

September 30, 2023 Balance

Common Shares

Common Amount

Preferred Shares

Preferred Amount

March 31, 2022 Balance

June 30, 2022 Balance

Stock Issued in lieu of Compensation

Preferred Series B 3.5% Dividend

June 30, 2022 Balance

September 30, 2022 Balance

Common Shares

Common Amount

Preferred Shares

Preferred Amount

March 31, 2023 Balance

Cashless Warrant Exercise Issuance

Stock Issued in lieu of Compensation

Preferred Series B 3.5% Dividend

June 30, 2023 Balance

Preferred Series B 3.5% Dividend

September 30, 2023 Balance

See notes to unaudited condensed consolidated financial statements.

4 unchanged sentences

Consolidation

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.

In the opinion of management, the accompanying unaudited condensed consolidated financial 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 accompanying unaudited consolidated financial statements, which include the accounts of Royale Energy, Inc.

7 unchanged sentences

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC.

Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023, or for any other period.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023, or for any other period.

Liquidity and Going Concern

1 unchanged sentence

There are factors that give rise to substantial doubt about our 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, 2023, our consolidated financial statements reflect a working capital deficiency of $ 6,984,331 .

We had net losses of $ 1,035,375 and $ 33,031 for the three and six months ended June 30, 2023, respectively.

At September 30, 2023, our consolidated financial statements reflect a working capital deficiency of $ 7,482,591 .

We had net losses of $ 470,730 and $ 503,761 for the three and nine months ended September 30, 2023, respectively.

This indicates that there is substantial doubt about our ability to continue as a going concern.

13 unchanged sentences

For the three months ended

For the six months ended

September 30,

For the nine months ended

September 30,

Oil & Condensate Sales

29 unchanged sentences

We determined the plant tailgate is the point in time where control is transferred to midstream entities and they are entitled to significant risks and rewards of ownership of the natural gas and NGLs.

The amounts due to midstream entities for gathering and processing services are recognized as shipping and handling cost and included as lease operating expense in our consolidated statement of operations, since we make those payments in exchange for distinct services except for natural gas sold to Pacific Gas & Electric (PG&E) where transportation is netted directly against revenue.

The amounts due to midstream entities for gathering and processing services are recognized as shipping and handling cost and included as lease operating expense in our consolidated statement of operations, since we make those payments in exchange for distinct services except for natural gas sold to Pacific Gas & Electric where transportation is netted directly against revenue.

Under some of our natural gas processing agreements, we have an option to take the processed natural gas and NGLs in-kind and sell to customers other than the processing company.

16 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, 2023

December 31, 2022

September 30,

Cash and Cash Equivalents

13 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, 2023, and December 31, 2022, we maintained an allowance for uncollectable accounts of $ 2,748,626 and $ 2,757,549 , respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

At September 30, 2023, and December 31, 2022, we maintained an allowance for uncollectable accounts of $ 2,746,925 and $ 2,757,549 , respectively, 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, 2023 and December 31, 2022, we do not have any financial assets measured and recognized at fair value on a recurring basis.

We estimate asset retirement obligations (AROs) pursuant to the provisions of ASC 410, “ Asset Retirement and Environmental Obligations ”.

At September 30, 2023 and December 31, 2022, we do not have any financial assets measured and recognized at fair value on a recurring basis.

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

The estimates of the fair value the AROs are based on discounted cash flow projections using numerous estimates, assumptions, and judgements regarding such factors as the existence of a legal obligation for an ARO, amounts and timing of settlements, the credit-adjusted risk-free rate to be used and inflation rates.

9 unchanged sentences

The Board of Directors authorized the issuance of the Preferred Stock, for the settlement of dividends accumulated through December 31, 2023.

We accrued $ 209,644 and $ 202,464 for dividends related to the Preferred Stock for the second quarters of 2023 and 2022, respectively.

We accrued $ 213,807 and $ 206,485 for dividends related to the Preferred Stock for the third quarters of 2023 and 2022, respectively.

Each quarter, we charge retained earnings for the accumulating dividend as the amounts add to the liquidation preference of the Preferred Stock.

12 unchanged sentences

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

September 30,

Producing properties, including drilling costs

2 unchanged sentences

Accumulated depletion, depreciation & amortization

Net capitalized costs Total

Commercial and Other

Net capitalized costs Total Oil & Gas

Equipment and fixtures

Furniture and equipment

Accumulated depreciation

Net capitalized costs Total Equipment and Fixtures

Net capitalized costs Total

31 unchanged sentences

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

During the six months ended June 30, 2023, and 2022, no impairment losses were incurred.

During the nine months ended September 30, 2023, and 2022, 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, 2023, and December 31, 2022, we had Deferred Drilling Obligations of $ 8,190,855 and $ 8,129,965 , respectively.

At September 30, 2023, and December 31, 2022, we had Deferred Drilling Obligations of $ 10,140,855 and $ 8,129,965 , respectively.

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

8 unchanged sentences

For 2023 and 2022, the board authorized the payment of each quarterly dividend on shares of Preferred Stock, as Paid-In-Kind shares to be paid immediately following the end of the quarter.

For the quarter ending June 30, 2023, we accrued 20,964 shares with a value of $ 209,644 .

For the quarter ending September 30, 2023, we accrued 21,380 shares with a value of $ 213,807 .

During 2023 and 2022 no cash was used to pay dividends on shares of the Preferred Stock.

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,

Nine Months Ended September 30,

Preferred Stock Dividend

2 unchanged sentences

Effect of dilutive securities

Weighted average common shares,

including Dilutive effect

For the six months ended June 30, 2023 and 2022, we had dilutive securities of 24,025,410 and 26,683,208 , respectively.

For the three months ended June 30, 2023 and 2022, we had dilutive securities of 24,025,410 and 26,698,515 , respectively.

Weighted average common shares, including Dilutive effect

For the nine months ended September 30, 2023 and 2022, we had dilutive securities of 24,235,050 and 26,867,129 , respectively.

For the three months ended September 30, 2023 and 2022, we had dilutive securities of 24,235,050 and 26,827,162 , 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, we will continue to record a full valuation allowance against the deferred tax assets in 2023.

A reconciliation of our provision for income taxes and the amount computed by applying the statutory income tax rates at June 30, 2023 and 2022, respectively, to pretax income is as follows:

For the six months ended

June 30, 2023

June 30, 2022

Tax benefit computed at statutory rate of 21 % at June 30, 2023 and 2022, respectively

Increase (decrease) in taxes resulting from:

Other non-deductible expenses

Change in valuation allowance

Provision (benefit)

NOTE 6 – ISSUANCE OF COMMON STOCK

1 unchanged sentence

CIC elected to make a cashless exercise of the warrant and as a result we issued 3,266,055 shares of our common stock to CIC.

During the six months ended June 30, 2023, in lieu of cash payments for board fees, we issued 2,541,176 shares of common stock valued at approximately $ 108,001 to board members.

During the six months ended June 30, 2022, in lieu of cash payments for salaries and board fees, we issued 1,929,078 shares of common stock valued at approximately $ 136,000 to an executive officer and board members.

During the nine months ended September 30, 2023, in lieu of cash payments for board fees, we issued 2,541,176 shares of common stock valued at approximately $ 108,001 to board members.

During the nine months ended September 30, 2022, in lieu of cash payments for salaries and board fees, we issued 5,637,242 shares of common stock valued at approximately $ 395,006 to an executive officer and board members.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

4 unchanged sentences

Write-offs charged against the allowance

Balance at June 30, 2023

Balance at September 30, 2023

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

13 unchanged sentences

RESULTS OF OPERATIONS

For the six months ended June 30, 2023 and 2022, we had net losses of $33,031 and $312,853, respectively.

During the three months ended June 30, 2023 and 2022, we had net losses of $1,035,375 and $260,502, respectively.

The difference was due to higher turnkey drilling costs incurred in the second quarter of 2023 in the Texas well in which we participated and lower oil and gas revenues due to lower oil and gas commodity prices during the second quarter 2023.

During the first six months of 2023, revenues from oil and gas production decreased $197,875 or 16.7%, to $988,744 in 2023 from revenues of $1,186,619 during the first six months of 2022.

For the nine months ended September 30, 2023 and 2022, we had net losses of $503,761 and $739,184, respectively.

The decrease in net losses were primarily due to the completion of one oil well in Texas and participating in the drilling and completion of an oil well in the Texas Permian basin where we recognized a gain on turnkey drilling of $1,338,305 for the nine months ended September 30, 2023 compared to $627,136 for the nine months ended September 30, 2022.

During the three months ended September 30, 2023 and 2022, we had net losses of $470,730 and $426,331, respectively.

The difference was primarily due to lower oil and gas revenues due to lower oil and gas commodity prices during the third quarter 2023.

During the first nine months of 2023, revenues from oil and gas production decreased $281,431 or 16.3%, to $1,447,698 in 2023 from revenues of $1,729,129 during the first nine months of 2022.

This decrease was mainly due to lower oil and natural gas commodity prices.

The net sales volume of oil and condensate for the six months ended June 30, 2023, was approximately 9,864 barrels with an average price of $71.69 per barrel, versus 8,186 barrels with an average price of $99.58 per barrel for the six months of 2022.

The net sales volume of oil and condensate for the nine months ended September 30, 2023, was approximately 14,851 barrels with an average price of $73.20 per barrel, versus 11,330 barrels with an average price of $98.69 per barrel for the nine months of 2022.

This represents an increase in net sales volume of 3,521 barrels or 31.1%, which was due to wells completed and put online during the latter half of 2022 and first half of 2023.

The net sales volume of natural gas for the six months ended June 30, 2023, was approximately 68,081 Mcf with an average price of $4.10 per Mcf, versus 65,308 Mcf with an average price of $5.61 per Mcf for the same period in 2022.

The net sales volume of natural gas for the nine months ended September 30, 2023, was approximately 101,324 Mcf with an average price of $3.51 per Mcf, versus 99,830 Mcf with an average price of $6.04 per Mcf for the same period in 2022.

This represents an increase in net sales volume of 1,494 Mcf or 1.5%.

The increase in natural gas production volume was also due to new wells being brought online.

For the quarter ended June 30, 2023, revenues from oil and gas production decreased $249,112 or 36.7% to $430,293 from the 2022 second quarter revenues of $679,405.

For the quarter ended September 30, 2023, revenues from oil and gas production decreased $83,556 or 15.4% to $458,954 from the 2022 third quarter revenues of $542,510.

This decrease was also due to lower oil and natural gas commodity prices.

The net sales volume of oil and condensate for the quarter ended June 30, 2022, was approximately 5,104 barrels with an average price of $70.45 per barrel, versus 4,297 barrels with an average price of $106.05 per barrel for the second quarter of 2022.

This represents an increase in net sales volume of 807 barrels or 18.8% for the quarter in 2023.

The net sales volume of natural gas for the quarter ended June 30, 2023, was approximately 37,962 Mcf with an average price of $1.84 per Mcf, versus 31,781 Mcf with an average price of $6.92 per Mcf for the second quarter of 2022.

This represents an increase in net sales volume of 6,181 Mcf or 19.4% for the quarter in 2023.

Oil and natural gas lease operating expenses increased by $289,117 or 35.6%, to $1,102,095 for the six months ended June 30, 2023, from $812,978 for the same period in 2022.

This increase was mainly due to well equipment and supplies primarily on our Texas Jameson wells to increase production.

For the second quarter in 2023, lease operating expenses increased $127,788 or 32.1% from the same quarter in 2022, mainly due to increases in workovers and water disposal fees in our Texas Jameson field during the quarter in 2023.

The aggregate of supervisory fees and other income was $111,966 for the six months ended June 30, 2023, an increase of $94,925 from $17,041 during the same period in 2022.

During the second quarter 2023, supervisory fees and other income increased $90,842 when compared to the quarter in 2022.

The net sales volume of oil and condensate for the quarter ended September 30, 2023, was approximately 4,987 barrels with an average price of $76.19 per barrel, versus 3,143 barrels with an average price of $96.37 per barrel for the third quarter of 2022.

This represents an increase in net sales volume of 1,844 barrels or 58.7% for the third quarter in 2023.

The net sales volume of natural gas for the quarter ended September 30, 2023, was approximately 33,242 Mcf with an average price of $2.32 per Mcf, versus 34,522 Mcf with an average price of $6.86 per Mcf for the third quarter of 2022.

This represents a decrease in net sales volume of 1,280 Mcf or 3.7% for the third quarter in 2023.

Oil and natural gas lease operating expenses increased by $240,811 or 19.6%, to $1,469,988 for the nine months ended September 30, 2023, from $1,229,177 for the same period in 2022.

This increase was mainly due to higher well equipment and supplies costs in order to increase production primarily on our Texas Jameson wells.

For the third quarter in 2023, lease operating expenses decreased $48,306 or 11.6% from the same quarter in 2022, mainly due to lower workover costs in our Texas Jameson field during the third quarter in 2023.

The aggregate of supervisory fees and other income was $171,577 for the nine months ended September 30, 2023, an increase of $147,228 from $24,349 during the same period in 2022.

During the third quarter 2023, supervisory fees and other income increased $52,303 when compared to the quarter in 2022.

These increases were mainly due to increases in water disposal recovery income as we converted an existing non-producing oil well into a water injection well in order to reduce water disposal hauling costs paid to outside vendors.

Depreciation, depletion and amortization expense decreased to $173,907 from $244,208, a decrease of $70,301 or 28.8% for the six months ended June 30, 2023, as compared to the same period in 2022.

During the second quarter 2023, depreciation, depletion and amortization expenses also decreased $5,057 or 4.2%.

Depreciation, depletion and amortization expense decreased to $231,224 from $301,235, a decrease of $70,011 or 23.2% for the nine months ended September 30, 2023, as compared to the same period in 2022.

During the third quarter 2023, depreciation, depletion and amortization expenses increased $290 or 0.5%.

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

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

At June 30, 2023, Royale Energy had a Deferred Drilling Obligation of $8,190,855.

During the first six months of 2023, we removed $2,561,610 of drilling obligations as we completed one oil well in our Texas Jameson field and participated in the drilling and completion of an oil well in the Texas Permian basin, while incurring expenses of $1,222,228, resulting in a gain of $1,339,382.

At June 30, 2022, Royale Energy had a Deferred Drilling Obligation of $8,359,011.

During the first six months of 2022, we disposed of $3,185,928 of drilling obligations upon completing one oil well in Texas and participated in the drilling and completion of two oil wells in southern California, while incurring expenses of $2,558,792, resulting in a gain of $627,136.

General and administrative expenses decreased by $145,648 or 14.2% from $1,023,817 for the six months ended June 30, 2022 to $878,169 for the same period in 2023.

For the second quarter 2023, general and administrative expenses decreased $64,662 or 13.3% when compared to the same period in 2022.

These decreases were mainly due to lower employee related expenses due to cost reduction measures during the periods in 2023.

For the first six months of 2023, marketing expenses increased $12,572 or 9.4% to $146,891, compared to $134,319 for the first six months of 2022.

For the second quarter 2023, marketing expenses decreased $20,301 or 25.9% when compared to the second quarter in 2022.

The decrease in depletion expense was due to an increase in expected recoverable reserves which decreased the depletion rate.

At September 30, 2023, Royale Energy had a Deferred Drilling Obligation of $10,140,855.

During the first nine months of 2023, we removed $2,561,610 of drilling obligations as we completed one oil well in our Texas Jameson field and participated in the drilling and completion of an oil well in the Texas Permian basin, while incurring expenses of $1,223,305, resulting in a gain of $1,338,305.

At September 30, 2022, Royale Energy had a Deferred Drilling Obligation of $10,084,011.

During the first nine months of 2022, we disposed of $3,185,928 of drilling obligations upon completing one oil well in Texas and participated in the drilling and completion of two oil wells in southern California, while incurring expenses of $2,558,792, resulting in a gain of $627,136.

General and administrative expenses decreased by $118,740 or 8.6% from $1,381,282 for the nine months ended September 30, 2022 to $1,262,542 for the same period in 2023.

This decrease was mainly due to lower employee related expenses due to cost reduction measures during the period in 2023.

For the third quarter 2023, general and administrative expenses increased $26,908 or 7.5% when compared to the same period in 2022, mainly due to higher employee related insurance expenses and outside services during the quarter in 2023.

For the first nine months of 2023, marketing expenses increased $46,242 or 25.1% to $230,282, compared to $184,040 for the first nine months of 2022.

For the third quarter 2023, marketing expenses increased $33,670 or 67.7% when compared to the third quarter in 2022.

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 decreased to $273,143 for the six-month period in 2023, compared to $346,410 for the same period in 2022, a $73,267 or 21.2%.

Legal and accounting expense decreased to $368,810 for the nine-month period in 2023, compared to $440,130 for the same period in 2022, a $71,320 or 16.2% decrease.

This decrease during the period in 2023 was primarily due to higher fees related to the conversion of our accounting software during the period in 2022.

For the second quarter 2023, legal and accounting expenses increased $87,112 or 55.1%, when compared to the second quarter in 2022, primarily due to the delay in our 2022 audit and its related fees, which occurred during the second quarter 2023.

During the six months ended June 30, 2023, we recorded a gain on other of $54,975 as we reconciled employee related items previously recorded as liabilities.

For the third quarter 2023, legal and accounting expenses increased $1,947 or 2.1%, when compared to the third quarter in 2022.

During the nine months ended September 30, 2023, we recorded a gain on other of $54,975 as we reconciled employee related items previously recorded as liabilities.

We also recorded a gain on other of approximately $57,000 on our share of prior years property tax refunds received by RMX Resources, LLC during the period in 2023.

During the six months ended June 30, 2022, we recorded a gain of $422,614 on settlement of accounts payable for a reduced amount.

During the nine months ended September 30, 2022, we recorded a gain of $422,614 on settlement of accounts payable for a reduced amount.

CAPITAL RESOURCES AND LIQUIDITY

At June 30, 2023, we had current assets totaling $8,155,268 and current liabilities totaling $15,139,599, a $6,984,331 working capital deficit.

We had $974,496 in cash and $1,236,665 in restricted cash at June 30, 2023, compared to $1,650,507 in cash and $2,249,627 in restricted cash at December 31, 2022.

At September 30, 2023, we had current assets totaling $9,970,189 and current liabilities totaling $17,452,780, a $7,482,591 working capital deficit.

We had $523,619 in cash and $3,169,999 in restricted cash at September 30, 2023, compared to $1,650,507 in cash and $2,249,627 in restricted cash at December 31, 2022.

In accordance with ASC 480-10-S99, we 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 of issuance.

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

At June 30, 2023, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $999,030 compared to $943,633 at December 31, 2022, a $55,397 increase.

This increase was mainly due to accounts receivables from direct working interest owners for lease operating expenses on our Texas Jameson wells to increase production volumes.

At June 30, 2023, revenue receivable was $381,821, a decrease of $320,116, compared to $701,937 at December 31, 2022, due to lower commodity prices during the second quarter in 2023.

At June 30, 2023, our accounts payable and accrued expenses totaled $5,342,800 a decrease of $186,029 from the accounts payable at December 31, 2022 of $5,528,829, which was mainly due to lower revenue payables due to the lower commodity prices during the period in 2023.

At September 30, 2023, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $1,029,774 compared to $943,633 at December 31, 2022, a $86,141 increase.

This increase was mainly due to accounts receivables from direct working interest owners for lease operating expenses to increase production volumes on our Texas Jameson wells.

At September 30, 2023, revenue receivable was $273,356, a decrease of $428,581, compared to $701,937 at December 31, 2022, due to lower commodity prices during the third quarter in 2023.

At September 30, 2023, our accounts payable and accrued expenses totaled $5,702,296 a decrease of $173,467 from the accounts payable at December 31, 2022 of $5,528,829, which was mainly due to lower revenue payables due to the lower commodity prices during the period in 2023.

We have had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $7,482,591 and an accumulated deficit of $88,779,170.

6 unchanged sentences

Operating Activities.

Net cash used in operating activities totaled $1,658,304 and $1,078,217 for the six months ended June 30, 2023 and 2022, respectively.

This difference in cash used was mainly due to lower accounts payable during the period in 2023 when compared to the period in 2022 where we increased our accounts payable.

Net cash used in operating activities totaled $198,937 and $1,331,314 for the nine months ended September 30, 2023 and 2022, respectively.

This difference in cash used was mainly due to lower revenue receivables, due to lower commodity prices in 2023, and lower accounts payable during the period in 2023 when compared to higher revenue receivables and accounts payables during the period in 2022.

Investing Activities.

Net cash provided by investing activities totaled $24,774 and $1,100,610 for the six months ended June 30, 2023, and 2022, respectively.

During the six-month period in 2023, we received approximately $2.6 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $2.6 million as we drilled and completed one Texas well and participated in the drilling and completing of another Texas well in the Permian basin.

During the six month period in 2022, we received approximately $3.7 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $2.6 million as we drilled and completed one Texas well and participated in the drilling and completing of two southern California oil wells.

Net cash provided by investing activities totaled $1,337 and $1,598,227 for the nine months ended September 30, 2023, and 2022, respectively.

During the nine-month period in 2023, we received approximately $4.6 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $4.6 million as we drilled and completed one Texas well and participated in the drilling and completing of another Texas well in the Permian basin.

Additionally, we are participating in the drilling of in progress wells, one in Southern California and three in the Permian basin.

During the nine-month period in 2022, we received approximately $5.4 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $3.8 million as we drilled and completed one Texas well and participated in the drilling and completing of two southern California oil wells.

Financing Activities.

Net cash used in financing activities totaled $5,895 and $76,333 for the six months ended June 30, 2023, and 2022, respectively.

Net cash used in financing activities totaled $8,916 and $99,173 for the nine months ended September 30, 2023, and 2022, respectively.

During the periods in 2023 and 2022, the totals were used for principal payments on our notes payable and financing lease payments.

4 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements