Exhibit 99.10
Synergy Offshore, LLC
d/b/a SOG Resources, LLC
Financial Statements
For the nine months ended September 30, 2021 and 2020
Synergy Offshore, LLC
d/b/a SOG Resources, LLC
INDEX TO FINANCIAL STATEMENTS
Synergy Offshore, LLC
d/b/a SOG Resources, LLC
Unaudited Condensed Balance Sheets
| | | September 30, | | | December 31, | |
| | | 2021 | | | 2020 | |
| Assets | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,946,261 | | | $ | 360,196 | |
| Oil and gas sales receivable | | | 850,456 | | | | 615,637 | |
| Other receivables | | | 76,212 | | | | 77,905 | |
| Prepaids and other current assets | | | 126,674 | | | | 311,920 | |
| Total current assets | | | 2,999,603 | | | | 1,365,658 | |
| | | | | | | | | |
| Oil and gas properties, successful efforts method: | | | | | | | | |
| Proved | | | 25,099,910 | | | | 24,941,480 | |
| Unproved | | | 2,937,036 | | | | 2,842,906 | |
| Less accumulated depreciation, depletion and amortization | | | (15,765,073 | ) | | | (15,209,980 | ) |
| Net oil and gas properties | | | 12,271,873 | | | | 12,574,406 | |
| | | | | | | | | |
| Restricted cash | | | 126,688 | | | | 126,688 | |
| Other assets | | | 34,238 | | | | 34,238 | |
| Total assets | | $ | 15,432,402 | | | $ | 14,100,990 | |
| | | | | | | | | |
| Liabilities and members’ deficit | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 421,848 | | | $ | 510,787 | |
| Accrued liabilities | | | 1,103,049 | | | | 1,103,927 | |
| Total current liabilities | | | 1,524,897 | | | | 1,614,714 | |
| Asset retirement obligations | | | 15,498,892 | | | | 14,915,271 | |
| Total liabilities | | | 17,023,789 | | | | 16,529,985 | |
| | | | | | | | | |
| Commitments and contingencies | | | - | | | | - | |
| | | | | | | | | |
| Members’ deficit | | | (1,591,387 | ) | | | (2,428,995 | ) |
| Total liabilities and members’ deficit | | $ | 15,432,402 | | | $ | 14,100,990 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
Synergy Offshore, LLC
d/b/a SOG Resources, LLC
Unaudited Condensed Statements of Operations
| | | For the nine months ended September 30, | |
| | | 2021 | | | 2020 | |
| Revenue - | | | | | | |
| Oil and gas | | $ | 6,009,396 | | | $ | 3,353,874 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Lease operating expense | | | 2,457,592 | | | | 2,285,096 | |
| Production taxes and transportation costs | | | 428,639 | | | | 31,985 | |
| Depreciation, depletion and amortization | | | 555,094 | | | | 704,089 | |
| Accretion | | | 583,621 | | | | 583,621 | |
| General and administrative | | | 1,568,122 | | | | 1,473,979 | |
| Total costs and expenses | | | 5,593,068 | | | | 5,078,770 | |
| | | | | | | | | |
| Operating income (loss) | | | 416,328 | | | | (1,724,896 | ) |
| | | | | | | | | |
| Other income (loss), net | | | 421,280 | | | | (3,520 | ) |
| Net income (loss) | | $ | 837,608 | | | $ | (1,728,416 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
Synergy Offshore, LLC
d/b/a SOG Resources, LLC
Unaudited Condensed Statements of Changes in Members’ Deficit
| Balance at January 1, 2020 | | $ | 50,486 | |
| Equity distributions | | | (46,000 | ) |
| Net loss | | | (1,728,416 | ) |
| Balance at September 30, 2020 | | $ | (1,723,930 | ) |
| | | | | |
| Balance at January 1, 2021 | | | (2,428,995 | ) |
| Net income | | | 837,608 | |
| Balance at September 30, 2021 | | $ | (1,591,387 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
Synergy Offshore, LLC
d/b/a SOG Resources, LLC
Unaudited Condensed Statements of Cash Flows
| | | For the nine months ended September 30, | |
| | | 2021 | | | 2020 | |
| Cash flows from operating activities: | | | | | | | | |
| Net income (loss) | | $ | 837,608 | | | $ | (1,728,416 | ) |
| Adjustments to reconcile net income (loss) to net cash from operating activities: | | | | | | | | |
| Depreciation, depletion and amortization | | | 555,094 | | | | 704,089 | |
| Accretion | | | 583,621 | | | | 583,621 | |
| Changes in assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (233,126 | ) | | | 479,517 | |
| Prepaids and other assets | | | 185,246 | | | | 80,008 | |
| Accounts payable | | | (88,939 | ) | | | (130,809 | ) |
| Accrued liabilities | | | (878 | ) | | | (219,364 | ) |
| Net cash from operating activities | | | 1,838,626 | | | | (231,354 | ) |
| | | | | | | | | |
| Cash flows from investing activities - | | | | | | | | |
| Capital expenditures | | | (252,561 | ) | | | - | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from issuance of note payable | | | - | | | | 424,800 | |
| Distributions to members | | | - | | | | (46,000 | ) |
| Net cash from financing activities | | | - | | | | 378,800 | |
| | | | | | | | | |
| Net change in cash and cash equivalents and restricted cash | | | 1,586,065 | | | | 147,446 | |
| | | | | | | | | |
| Cash and cash equivalents and restricted cash, beginning of year | | | 486,884 | | | | 588,964 | |
| Cash and cash equivalents and restricted cash, end of year | | $ | 2,072,949 | | | $ | 736,410 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
Synergy Offshore, LLC
d/b/a SOG Resources, LLC
Notes to Unaudited Condensed Financial Statements
1. Organization and Significant Accounting Policies
Organization – Synergy Offshore, LLC d/b/a SOG Resources, LLC (the “Company”), a Texas limited liability company, was formed on March 18, 2010, as a limited partnership, and converted to a limited liability company on October 21, 2010. The Company is engaged primarily in the development of oil and natural gas properties in Montana and Wyoming. The Company is located in Houston, Texas and its fiscal year-end is December 31.
Basis of Presentation – These interim financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements, and should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2020.
In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of normal recurring adjustments, necessary to fairly present the financial position as of, and the results of operations for, all periods presented. In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.
Significant estimates include (i) oil and gas reserves that are used in the calculation of depreciation, depletion, amortization and impairment of the carrying value of oil and gas properties; (ii) production and commodity price estimates used to record oil and gas sales receivables; and (iii) the cost of future asset retirement obligations. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions we believe to be reasonable. Due to inherent uncertainties, including the future prices of oil and gas, these estimates could change in the near term and such changes could be material.
2. Asset Retirement Obligations
The following table summarizes the changes in ARO (in thousands):
| Balance at January 1, 2020 | | $ | 15,339 | |
| Accretion | | | 584 | |
| Balance at June 30, 2020 | | $ | 15,923 | |
| | | | | |
| Balance at January 1, 2021 | | $ | 14,915 | |
| Accretion | | | 584 | |
| Balance at June 30, 2021 | | $ | 15,499 | |
3. Note Payable
In the second quarter of 2020, the Company received proceeds from a SBA Paycheck Protection Program Loan (“PPP Loan”) of approximately $425 thousand pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The purpose of the PPP was to encourage the continued employment of workers. The Company used all of the PPP Loan proceeds for eligible payroll expenses, lease and utility payments.
The PPP Loan and accrued interest thereon may be forgiven by the SBA upon documentation of expenditures in accordance with the SBA requirements and proper application by the Company. The Company’s application for forgiveness was approved by the SBA in the fourth quarter of 2020. Accordingly, the Company recognized approximately $425 thousand as other income in the statement of operations for this forgiveness.
In the first quarter of 2021, the Company received proceeds from a 2nd round PPP Loan of approximately $425 thousand pursuant. This 2nd round PPP Loan was forgiven by the SBA in the third quarter of 2021.
4. Commitments and Contingencies
Litigation – From time to time, the Company may be subject to litigation or other claims in the normal course of business.
Surety Bonds – As of September 30, 2021 and December 31, 2020, the Company had surety bonds of $1.4 million issued to the Montana Board of Oil and Gas Conservation, the Wyoming Oil and Gas Conservation Commission and the Wyoming Bureau of Land Management. The surety bonds are meant to cover certain plugging and abandonment liabilities related to the Company’s oil and natural gas properties in Montana and Wyoming.
Other – In the course of its normal business affairs, the Company is subject to possible loss contingencies arising from federal, state, and local environmental, health, and safety laws and regulations and third-party litigation. There are no matters which, in the opinion of management, will have a material adverse effect on the financial position, results of operations, or cash flows of the Company as of and for the nine months ended September 30, 2021 and 2020.
5. Subsequent Events
The Company has evaluated events and transactions subsequent to the balance sheet date and through March 1, 2022, the date the financial statements were available to be issued.
On October 4, 2021, we entered into Purchase and Sale Agreement with U.S. Energy Corp. (“U.S. Energy”) for the sale of all of our oil and gas properties. The transaction also included certain wells, contracts, technical data, records, personal property and hydrocarbons associated with the assets being sold. This transaction was completed on January 5, 2022 for a total purchase price $125,000 in cash and 6,546,384 shares of U.S. Energy’s common stock.
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