[Part I. FINANCIAL INFORMATION](index=4&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and detailed notes on accounting policies and key financial areas [Condensed Consolidated Balance Sheets (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(unaudited)) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------------------ | | Total Assets | $9,690 | $13,467 | $(3,777) | -28.05% | | Total Liabilities | $2,092 | $2,257 | $(165) | -7.31% | | Total Shareholders' Equity | $5,598 | $9,210 | $(3,612) | -39.22% | | Cash and equivalents | $777 | $1,532 | $(755) | -49.28% | | Net oil and natural gas properties | $7,057 | $8,454 | $(1,397) | -16.52% | - The company's **total assets decreased by $3,777 thousand, or 28.05%**, from December 31, 2019, to June 30, 2020, primarily driven by a decrease in **cash and equivalents** and **net oil and natural gas properties**[13](index=13&type=chunk)[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(unaudited)) Statements of Operations - Three Months Ended June 30 (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :------------------ | | Total Revenue | $189 | $1,872 | $(1,683) | -89.80% | | Operating Loss | $(2,417) | $(199) | $(2,218) | 1114.57% | | Net (Loss) Income | $(3,651) | $20 | $(3,671) | -18355.00% | | Basic and Diluted Loss Per Share | $(2.68) | $(0.05) | $(2.63) | 5260.00% | Statements of Operations - Six Months Ended June 30 (in thousands) | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :---------------------------------- | :---------------------------------- | :-------------------- | :------------------ | | Total Revenue | $1,112 | $3,433 | $(2,321) | -67.61% | | Operating Loss | $(2,653) | $(219) | $(2,434) | 1111.42% | | Net (Loss) Income | $(3,957) | $35 | $(3,992) | -11405.71% | | Basic and Diluted Loss Per Share | $(3.01) | $(0.11) | $(2.90) | 2636.36% | - The company experienced a significant decline in **total revenue** and a substantial increase in **net loss** for both the three and six months ended June 30, 2020, primarily due to **lower oil and natural gas prices** and **impairment charges**[16](index=16&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(unaudited)) Changes in Shareholders' Equity (in thousands) | Metric | December 31, 2019 (in thousands) | June 30, 2020 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------- | :--------------------------- | :-------------------- | | Total Shareholders' Equity | $9,210 | $5,598 | $(3,612) | | Accumulated Deficit | $(127,679) | $(131,636) | $(3,957) | | Shares Issued in Acquisition | - | 59,498 | 59,498 | | Share-based Compensation | - | $106 | $106 | - **Shareholders' equity decreased by $3,612 thousand**, primarily driven by a **net loss of $3,957 thousand** for the six months ended June 30, 2020. The company issued **59,498 shares** for the acquisition of New Horizon Resources and recognized **$106 thousand in share-based compensation**[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows (unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Cash Flow Activities (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Net cash used in operating activities | $(470) | $(179) | $(291) | | Net cash used in investing activities | $(134) | $(201) | $67 | | Net cash used in financing activities | $(152) | $(1,076) | $924 | | Net decrease in cash and equivalents | $(755) | $(1,456) | $701 | | Cash and equivalents, end of period | $777 | $884 | $(107) | - **Cash used in operating activities increased by $291 thousand**, while **cash used in financing activities significantly decreased by $924 thousand**, primarily due to the repayment of the credit facility in the prior year. Overall, the **net decrease in cash and equivalents was $755 thousand** for the six months ended June 30, 2020[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization, Operations and Significant Accounting Policies](index=10&type=section&id=1.%20Organization,%20Operations%20and%20Significant%20Accounting%20Policies) - U.S. Energy Corp. is an **oil and natural gas acquisition, exploration, and development company**. The financial statements are prepared in accordance with GAAP and SEC interim reporting rules, with certain disclosures condensed or omitted[24](index=24&type=chunk)[25](index=25&type=chunk) - On January 6, 2020, the Company completed a **one-for-ten reverse stock split**, with all financial statements adjusted retrospectively[27](index=27&type=chunk) - As of June 30, 2020, the Company had **$0.8 million in cash** and **$1.3 million in working capital**, including **$725 thousand from real estate held for sale**. Management believes existing cash and resources, including expected proceeds from asset sales, will fund operations for the next twelve months, despite significant declines in commodity prices[28](index=28&type=chunk) - The Company adopted **ASU No. 2018-13 on January 1, 2020**, which changed fair value measurement disclosures for warrants, removing process disclosures and adding quantitative information on unobservable inputs[32](index=32&type=chunk) [2. Acquisition of New Horizon Resources](index=12&type=section&id=2.%20Acquisition%20of%20New%20Horizon%20Resources) - On March 1, 2020, the Company acquired New Horizon Resources, gaining operated producing properties in North Dakota, consisting of **nine gross wells (five net wells)** and approximately **1,300 net acres**[33](index=33&type=chunk) Acquisition Consideration and Assets (in thousands) | Consideration/Assets | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Fair value of net assets acquired | $362 | | Cash consideration | $150 | | Issuance of common stock (59,498 shares) | $240 | | Cash acquired | $(28) | | Total fair value of consideration transferred | $362 | - For the six months ended June 30, 2020, New Horizon properties contributed **$33 thousand in revenues** and **$69 thousand in lease operating expenses**[34](index=34&type=chunk) [3. Real Estate Held for Sale](index=12&type=section&id=3.%20Real%20Estate%20Held%20for%20Sale) - The Company decided to sell its **14-acre tract with a 30,400 sq ft office building in Riverton, Wyoming**, which previously served as its corporate headquarters[35](index=35&type=chunk) Real Estate Held for Sale Metrics (in thousands) | Metric | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Pre-impairment carrying value | $1,376 | | Estimated net proceeds | $725 | | Loss recognized on real estate held for sale | $651 | - A **loss of $651 thousand** was recognized to adjust the property's value to its **estimated net proceeds of $725 thousand**[37](index=37&type=chunk) [4. Revenue Recognition](index=13&type=section&id=4.%20Revenue%20Recognition) - Revenues are derived from **oil and natural gas sales**, with payments received one to three months after delivery. Variances between estimated and actual revenue are insignificant[38](index=38&type=chunk) - The Company reports **gross revenue from well operators** before production taxes and transportation costs, with production taxes reported separately and transportation costs in lease operating expense[41](index=41&type=chunk) Revenue by Geographic Area (in thousands) | Geographic Area | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :---------------- | :------------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | North Dakota | $125 | $679 | $663 | $1,252 | | Texas | $64 | $1,193 | $449 | $2,181 | | Total Revenue | $189 | $1,872 | $1,112 | $3,433 | - **Negative natural gas and liquids revenue for Q2 2020** was due to an over-accrual and negative realized prices[44](index=44&type=chunk) Revenue Concentration by Operator | Operator | 2020 Revenue Concentration | 2019 Revenue Concentration | | :---------------- | :------------------------- | :------------------------- | | CML Exploration LLC | 37% | 52% | | Zavanna LLC | 44% | 29% | [5. Leases](index=14&type=section&id=5.%20Leases) - The Company adopted **ASC 842 on January 1, 2019**, recording a **$228 thousand right-of-use asset** and a **$252 thousand lease liability** for its Denver office operating lease[46](index=46&type=chunk) Lease Balances (in thousands) | Lease Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Right of use asset balance | $154 | $179 | | Total lease liability | $173 | $200 | Lease Costs and Sublease Income (in thousands) | Lease Cost Type | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------ | :------------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Total lease costs | $12 | $21 | $28 | $42 | | Sublease income | $(11) | $- | $(16) | $- | - The Company subleased its Denver office starting March 2020, generating **sublease income**. The **weighted average discount rate for leases is 8.75%**[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) Future Lease Commitments (in thousands) | Future Lease Commitments | Amount (in thousands) | | :----------------------- | :-------------------- | | Remainder of 2020 | $37 | | 2021 | $74 | | 2022 | $76 | | 2023 | $6 | | Total lease payments | $193 | | Less: imputed interest | $(20) | | Total lease liability | $173 | Riverton Office Building Lease Maturities (in thousands) | Riverton Office Building Lease Maturities | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Remainder of 2020 | $80 | | 2021 | $161 | | 2022 | $165 | | 2023 | $169 | | 2024 | $163 | | Remaining through June 2029 | $695 | | Total lease maturities | $1,433 | [6. Oil and Natural Gas Production Activities](index=16&type=section&id=6.%20Oil%20and%20Natural%20Gas%20Production%20Activities) - The Company recorded a **$1.8 million ceiling test write-down** of its oil and gas properties for the three months ended June 30, 2020, due to **reduced crude oil prices** and the performance of a South Texas well[54](index=54&type=chunk) - The ceiling test calculation as of June 30, 2020, used **$47.17 per barrel for oil** and **$2.07 per MMbtu for natural gas**, with a **10% discount factor**[53](index=53&type=chunk) - An additional **$2.1 million reclassification to the depletable base** of the full cost pool was recorded due to a reduction in the value of certain unevaluated acreage[54](index=54&type=chunk) [7. Debt](index=17&type=section&id=7.%20Debt) - In December 2017, APEG II exchanged **$4.5 million of outstanding borrowings for 581,927 shares of common stock**, representing approximately **42% of the Company's outstanding common stock** as of June 30, 2020[55](index=55&type=chunk) - The credit facility was fully repaid on March 1, 2019, and terminated on July 30, 2019. **Interest expense for the six months ended June 30, 2019, was $20 thousand**, with a **weighted average interest rate of 8.75%**[56](index=56&type=chunk) [8. Write-Off of Deposit](index=17&type=section&id=8.%20Write-Off%20of%20Deposit) - The Company made a **$250,000 option payment** and an additional **$124,000 to CETA in 2017-2018** for an option to acquire shares or lease properties. As of June 30, 2020, **$225,000 has been received**, and an allowance for the remaining **$75,000 due from CETA** has been established due to collection uncertainty[57](index=57&type=chunk) [9. Commitments, Contingencies and Related-Party Transactions](index=17&type=section&id=9.%20Commitments,%20Contingencies%20and%20Related-Party%20Transactions) - The Company was involved in **litigation with APEG II** (its largest shareholder) and its **former CEO, David Veltri**, regarding control of company funds and management termination[58](index=58&type=chunk)[61](index=61&type=chunk)[66](index=66&type=chunk) - The Texas Federal Court ordered APEG to return Company funds, less the outstanding credit facility balance, resulting in the Company receiving approximately **$850 thousand**[62](index=62&type=chunk) - The Colorado Federal Court granted injunctive relief against Mr. Veltri for continuing to act as CEO without authorization and appointed a temporary custodian, C. Randel Lewis, to resolve board deadlock[69](index=69&type=chunk)[70](index=70&type=chunk) - Both the Texas and Colorado litigations were dismissed in July and May 2020, respectively, with the Company expecting all related matters to be formally dismissed in August 2020[65](index=65&type=chunk)[71](index=71&type=chunk) [10. Preferred Stock](index=19&type=section&id=10.%20Preferred%20Stock) - The Company issued **50,000 shares of Series A Convertible Preferred Stock to Mt. Emmons Mining Company (MEM) for $2 million in 2016**, with a liquidation preference increasing by quarterly dividends of **12.25% per annum**[73](index=73&type=chunk) - Each share of Preferred Stock is convertible into **1.33 shares of common stock**, totaling **79,334 shares** as of June 30, 2020, after accounting for the reverse stock split[73](index=73&type=chunk) - Preferred Stock is senior to common stock regarding dividend and liquidation rights, and holders have approval rights on specified matters and the right to demand repurchase upon a change of control[75](index=75&type=chunk) [11. Shareholders' Equity](index=20&type=section&id=11.%20Shareholders'%20Equity) - In December 2016, the Company issued warrants to purchase **100,000 shares of common stock** at an exercise price of **$20.05 per share** (adjusted to **$11.30** due to anti-dilution provisions). The warrants are classified as liabilities due to a redemption option in a 'Fundamental Transaction'[76](index=76&type=chunk) Warrant Fair Value and Revaluation (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | | Fair value of warrants | $193 | $73 | | Warrant revaluation (loss) gain (6 months) | $(120) | $242 | - **Total stock-based compensation expense related to stock options was $0** for the six months ended June 30, 2020, compared to **$26 thousand in 2019**, as all stock options had vested[78](index=78&type=chunk) - In January 2020, the Company granted **48,000 restricted shares to the CEO** and **28,000 to Board members**, resulting in **$106 thousand in stock compensation expense** for the six months ended June 30, 2020, with **$266 thousand unrecognized**[81](index=81&type=chunk) [12. Asset Retirement Obligations](index=21&type=section&id=12.%20Asset%20Retirement%20Obligations) - The Company has **AROs for future plugging and abandonment of proved properties**, recorded at fair value with a corresponding increase in asset carrying amount[82](index=82&type=chunk) Asset Retirement Obligations (in thousands) | Metric | Six Months Ended June 30, 2020 (in thousands) | Year Ended December 31, 2019 (in thousands) | | :------------------------------------ | :------------------------------------ | :---------------------------------- | | Balance, beginning of period | $819 | $939 | | Liabilities incurred for acquisition of New Horizon wells | $163 | $- | | Balance, end of period | $985 | $819 | - **AROs increased by $163 thousand** due to liabilities incurred from the acquisition of New Horizon wells[84](index=84&type=chunk) [13. Income Taxes](index=22&type=section&id=13.%20Income%20Taxes) - The Company's **effective tax rate for the three and six months ended June 30, 2020 and 2019, was 0%**[85](index=85&type=chunk) - A **full valuation allowance is maintained against all Deferred Tax Assets (DTAs)** due to uncertainty of realization, resulting in no recorded DTAs as of June 30, 2020[87](index=87&type=chunk) - The Company is analyzing the CARES Act but expects **no material impact on its tax position**[89](index=89&type=chunk) [14. Earnings (Loss) Per Share](index=22&type=section&id=14.%20Earnings%20(Loss)%20Per%20Share) - Basic and diluted net loss per common share are calculated by dividing net loss attributable to common shareholders by the weighted-average common shares outstanding[90](index=90&type=chunk) Earnings (Loss) Per Share Data (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss applicable to common shareholders (in thousands) | $(3,754) | $(71) | $(4,160) | $(143) | | Basic and Diluted Loss Per Share | $(2.68) | $(0.05) | $(3.01) | $(0.11) | | Basic and Diluted Weighted Average Common Shares Outstanding (in thousands) | 1,399 | 1,341 | 1,380 | 1,341 | - All potentially dilutive securities (stock options, restricted stock, warrants, Series A preferred stock) were **anti-dilutive** and excluded from diluted EPS calculations due to the net loss[90](index=90&type=chunk)[93](index=93&type=chunk) [15. Fair Value Measurements](index=23&type=section&id=15.%20Fair%20Value%20Measurements) - Fair value measurements are categorized into a hierarchy: **Level 1 (quoted prices in active markets)**, **Level 2 (observable inputs other than Level 1)**, and **Level 3 (unobservable inputs)**[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - Warrants are classified as **Level 3 liabilities** and valued using a Lattice model, with fair values of **$193 thousand at June 30, 2020**, and **$73 thousand at December 31, 2019**. Key inputs include volatility, probability of down-round events, and risk-free interest rates[97](index=97&type=chunk)[99](index=99&type=chunk) - Marketable equity securities (investment in Anfield) are classified as **Level 1** due to quoted market prices on the TSX Venture Exchange[100](index=100&type=chunk) - Oil and gas properties and real estate assets held for sale are valued on a non-recurring basis using **Level 3 inputs**, such as estimated future discounted cash flows, production, prices, operating costs, and capitalization rates[101](index=101&type=chunk)[102](index=102&type=chunk) [16. Subsequent Events Update](index=25&type=section&id=16.%20Subsequent%20Events%20Update) - On July 22, 2020, the Company sold **1,210,455 shares of Anfield Energy Inc. for approximately $45 thousand**, retaining **2,420,910 shares** which it expects to sell in Q3 2020[105](index=105&type=chunk) - On July 30, 2020, the Company filed a Notice of Voluntary Dismissal in its lawsuit against former CEO David Veltri, expecting all Texas Litigation matters to be dismissed in August 2020[106](index=106&type=chunk) - In July 2020, the Company received an arbitration request from a former employee for breach of employment agreement. The Company has accrued **$100 thousand for its insurance deductible**, believing the insurance carrier will settle the claim[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Company's financial condition and operational results, covering COVID-19 impacts, legal proceedings, accounting policies, and analysis of revenue, expenses, liquidity, and cash flows [General Overview](index=26&type=section&id=General%20Overview) - U.S. Energy Corp. is an **independent energy company focused on acquiring and developing oil and natural gas properties** in South Texas and the Williston Basin in North Dakota[110](index=110&type=chunk) - The Company operates under a **non-operator business model**, relying on partners for drilling, completion, production, and marketing of oil and natural gas[111](index=111&type=chunk) [Recent Developments](index=26&type=section&id=Recent%20Developments) - On July 22, 2020, the Company sold **1,210,455 common shares of Anfield Energy Inc. for approximately $45 thousand** and expects to sell the remaining **2,420,910 shares** during Q3 2020[112](index=112&type=chunk) [Impacts of COVID-19 Pandemic and Effect on Economic Environment](index=26&type=section&id=Impacts%20of%20COVID-19%20Pandemic%20and%20Effect%20on%20Economic%20Environment) - The COVID-19 pandemic led to a **drastic decline in global demand** and an **oversupply of crude oil**, causing spot and future prices to fall to historic lows in Q2 2020[113](index=113&type=chunk) - Operators in North Dakota significantly decreased drilling and completion activity and shut in or curtailed production, impacting the Company's revenues[113](index=113&type=chunk) - The Company recorded a **$1.8 million ceiling test write-down** at June 30, 2020, due to lower crude oil prices affecting proved reserve values. Further write-downs are likely if depressed prices continue[114](index=114&type=chunk) [Legal Proceedings](index=28&type=section&id=Legal%20Proceedings) - Litigation with APEG II and former CEO David Veltri is expected to be formally dismissed in August 2020, following voluntary dismissals filed by both parties in July 2020[116](index=116&type=chunk) - In July 2020, the Company received an arbitration request from a former employee for breach of employment agreement and has accrued **$100 thousand for its insurance deductible**[117](index=117&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The preparation of financial statements requires management to make assumptions and estimates that affect reported amounts, with actual results potentially differing under various conditions[118](index=118&type=chunk) [Recently Issued Accounting Standards](index=28&type=section&id=Recently%20Issued%20Accounting%20Standards) - Information on recently issued accounting standards and adoption plans is detailed in Note 1 of the financial statements[119](index=119&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) [Comparison of our Statements of Operations for the Three Months Ended June 30, 2020 and 2019](index=29&type=section&id=Comparison%20of%20our%20Statements%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202020%20and%202019) Statements of Operations Comparison - Three Months Ended June 30 (in thousands, except per share and price data) | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total Revenue | $189 | $1,872 | $(1,683) | -90% | | Oil Production (Bbls) | 11,710 | 29,386 | (17,676) | -60% | | Gas Production (Mcfe) | 13,124 | 60,141 | (47,017) | -78% | | Average Oil Price (Bbls) | $17.18 | $59.89 | $(42.73) | -71% | | Average Gas Price (Mcfe) | $(0.95) | $1.86 | $(2.82) | -151% | | BOE Production | 13,897 | 39,410 | (25,513) | -65% | - **Total revenue decreased by 90%** due to a **60% decrease in oil production** and a **71% decrease in realized oil prices**, primarily caused by reduced demand from the COVID-19 pandemic and operators shutting in North Dakota production[122](index=122&type=chunk)[123](index=123&type=chunk) Production Costs Comparison - Three Months Ended June 30 (in thousands) | Production Costs | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Production taxes | $13 | $118 | $(105) | -89% | | Lease operating expense | $333 | $471 | $(138) | -29% | | Total Production Costs | $346 | $589 | $(243) | -41% | - **Production taxes decreased by 89%** due to lower oil revenues, and **lease operating expenses decreased by 29%** due to production shut-ins and cost-cutting measures[125](index=125&type=chunk) - **DD&A rate increased to $6.45 per BOE from $4.98 per BOE**, impacted by a **$2.1 million reclassification of unevaluated properties** and reduced reserve quantities[126](index=126&type=chunk) - An **impairment of $1.8 million** was recorded for oil and natural gas properties due to the net capitalized cost exceeding the full cost ceiling limitation[127](index=127&type=chunk) G&A Expenses Comparison - Three Months Ended June 30 (in thousands) | G&A Expenses | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total G&A Expenses | $367 | $1,280 | $(913) | -71% | | Professional fees, insurance and other | $71 | $1,064 | $(993) | -91% | | Compensation and benefits | $296 | $188 | $108 | 57% | - **General and administrative expenses decreased by 71%**, primarily due to a **$931 thousand reduction in legal fees** (including removal of **$250 thousand for litigation settlement accruals**), partially offset by a **$108 thousand increase in compensation and benefits** from stock-based awards[128](index=128&type=chunk) Non-Operating Items Comparison - Three Months Ended June 30 (in thousands) | Non-Operating Items | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total other (expense) income | $(1,234) | $219 | $(1,453) | -663% | | Loss on real estate held for sale | $(651) | $- | $(651) | N/A% | | Impairment of real estate | $(403) | $- | $(403) | N/A% | | Warrant revaluation (loss) gain | $(114) | $234 | $(348) | -149% | | Unrealized loss on marketable equity securities | $(46) | $(8) | $(38) | -475% | - **Non-operating expense increased significantly** due to a **$651 thousand loss on real estate held for sale**, a **$403 thousand impairment of other real estate**, and a **$114 thousand warrant revaluation loss**[129](index=129&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk) [Comparison of our Statements of Operations for the Six Months Ended June 30, 2020 and 2019](index=31&type=section&id=Comparison%20of%20our%20Statements%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202020%20and%202019) Statements of Operations Comparison - Six Months Ended June 30 (in thousands, except per share and price data) | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total Revenue | $1,112 | $3,433 | $(2,321) | -68% | | Oil Production (Bbls) | 32,014 | 54,739 | (22,725) | -42% | | Gas Production (Mcfe) | 53,437 | 113,402 | (59,965) | -53% | | Average Oil Price (Bbls) | $32.99 | $58.00 | $(25.02) | -43% | | Average Gas Price (Mcfe) | $1.04 | $2.28 | $(1.24) | -54% | | BOE Production | 40,920 | 73,639 | (32,719) | -44% | - **Total revenue decreased by 68%** for the six months, driven by a **42% decrease in oil production** and a **43% decrease in realized oil prices**, primarily due to the COVID-19 pandemic and production shut-ins in North Dakota[136](index=136&type=chunk)[137](index=137&type=chunk) Production Costs Comparison - Six Months Ended June 30 (in thousands) | Production Costs | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Production taxes | $80 | $216 | $(136) | -63% | | Lease operating expense | $742 | $938 | $(196) | -21% | | Total Production Costs | $822 | $1,154 | $(332) | -29% | - **Production taxes decreased by 63%** due to lower oil revenues, and **lease operating expenses decreased by 21%** due to production shut-ins and cost-cutting measures[139](index=139&type=chunk) - **DD&A rate was $4.76 per BOE**, slightly lower than **$4.87 per BOE in 2019**, impacted by a **$2.1 million reclassification of unevaluated properties** and reduced reserve quantities[140](index=140&type=chunk) - An **impairment of $1.8 million** was recorded for oil and natural gas properties due to the net capitalized cost exceeding the full cost ceiling limitation[141](index=141&type=chunk) G&A Expenses Comparison - Six Months Ended June 30 (in thousands) | G&A Expenses | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total G&A Expenses | $939 | $2,128 | $(1,189) | -56% | | Professional fees, insurance and other | $420 | $1,620 | $(1,200) | -74% | | Compensation and benefits | $519 | $480 | $39 | 8% | - **General and administrative expenses decreased by 56%**, primarily due to a **$1,232 thousand reduction in legal fees** (including removal of **$250 thousand for litigation settlement accruals**), partially offset by a **$39 thousand increase in compensation and benefits** from stock-based awards[142](index=142&type=chunk) Non-Operating Items Comparison - Six Months Ended June 30 (in thousands) | Non-Operating Items | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total other (expense) income | $(1,304) | $254 | $(1,558) | -613% | | Loss on real estate held for sale | $(651) | $- | $(651) | N/A% | | Impairment of real estate | $(403) | $- | $(403) | N/A% | | Warrant revaluation (loss) gain | $(120) | $242 | $(362) | -150% | | Unrealized (loss) gain on marketable equity securities | $(121) | $5 | $(126) | -2,520% | - **Non-operating expense increased significantly** due to a **$651 thousand loss on real estate held for sale**, a **$403 thousand impairment of other real estate**, and a **$120 thousand warrant revaluation loss**[144](index=144&type=chunk)[145](index=145&type=chunk)[147](index=147&type=chunk) [Non-GAAP Financial Measures- Adjusted EBITDAX](index=34&type=section&id=Non-GAAP%20Financial%20Measures-%20Adjusted%20EBITDAX) - Adjusted EBITDAX is a non-GAAP measure used to evaluate performance, excluding items like DDA, impairment, stock-based compensation, unrealized gains/losses, and interest expense[150](index=150&type=chunk)[151](index=151&type=chunk) Adjusted EBITDAX (Non-GAAP) (in thousands) | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Income (loss) from continuing operations (GAAP) | $(3,957) | $35 | | Adjusted EBITDAX (Non-GAAP) | $(550) | $204 | - **Adjusted EBITDAX decreased from a gain of $204 thousand in 2019 to a loss of $550 thousand in 2020**, reflecting the operational challenges and impairments[152](index=152&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity and Capital Resources Metrics (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Cash and equivalents | $777 | $1,532 | $(755) | | Working capital | $1,343 | $1,470 | $(127) | | Total assets | $9,690 | $13,467 | $(3,777) | | Total shareholders' equity | $5,598 | $9,210 | $(3,612) | | Current ratio | 2.7 to 1.0 | 2.2 to 1.0 | N/A | - **Working capital decreased by $127 thousand**, primarily due to cash used in operating activities and the New Horizon acquisition, partially offset by the reclassification of real estate held for sale[154](index=154&type=chunk) - The Company had **$777 thousand in cash and equivalents** as of June 30, 2020, and **$783 thousand** as of August 7, 2020[155](index=155&type=chunk) - Lower crude oil prices, which remained historically low in Q2 2020, negatively impact revenues and may lead to additional ceiling test write-downs. The Company currently lacks commodity derivative contracts[156](index=156&type=chunk)[157](index=157&type=chunk) - The Company is actively pursuing the sale of its Riverton, Wyoming office building, with an estimated realizable value between **$700 thousand and $900 thousand**[158](index=158&type=chunk) - Potential financing alternatives for 2020 include refinancing credit facilities, selling oil and natural gas assets, or issuing common stock[160](index=160&type=chunk) [Cash Flows](index=36&type=section&id=Cash%20Flows) Cash Flow Activities Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | | :-------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Operating activities | $(470) | $(179) | $(291) | | Investing activities | $(134) | $(201) | $67 | | Financing activities | $(152) | $(1,076) | $924 | - **Cash used in operating activities increased by $291 thousand** due to decreased revenues, partially offset by reduced operating expenses and changes in working capital[162](index=162&type=chunk) - **Cash used in investing activities decreased by $67 thousand**, with the primary use in 2020 being the **$122 thousand net cash for the New Horizon acquisition**[163](index=163&type=chunk) - **Cash used in financing activities significantly decreased by $924 thousand**, mainly due to the repayment of the credit facility in 2019, compared to smaller repayments on insurance premium notes and the New Horizon credit facility in 2020[164](index=164&type=chunk) [Off-Balance Sheet Arrangements](index=37&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company has not participated in transactions generating relationships with unconsolidated entities or special purpose entities (SPEs) for off-balance sheet arrangements during the reporting periods[165](index=165&type=chunk)[166](index=166&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, U.S. Energy Corp. is exempt from providing quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as a smaller reporting company[167](index=167&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of disclosure controls and internal control over financial reporting, highlighting identified material weaknesses and remediation efforts [Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.](index=38&type=section&id=Conclusion%20Regarding%20the%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures.) - As of June 30, 2020, the CEO and CFO determined that the Company's **disclosure controls and procedures were not effective**[170](index=170&type=chunk) - Material weaknesses in internal control over financial reporting include **inadequate segregation of duties** due to limited accounting staff and **inadequate controls over physical and logical access to IT systems**[171](index=171&type=chunk)[174](index=174&type=chunk) [Changes in Internal Control over Financial Reporting.](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting.) - There were **no changes to the internal control over financial reporting** during the three months ended June 30, 2020, that materially affected or are reasonably likely to materially affect the system of controls[172](index=172&type=chunk) - The Company has designed and is implementing a remediation plan to strengthen internal controls and improve disclosure controls and procedures[173](index=173&type=chunk) [Part II. OTHER INFORMATION](index=39&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed discussion of legal proceedings, including litigation with APEG II and former CEO David Veltri, as outlined in the financial statement notes - Legal proceedings involving APEG II and former CEO David Veltri are detailed in Note 9 of the financial statements[176](index=176&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.Risk%20Factors) As a smaller reporting company, U.S. Energy Corp. is exempt from providing a separate discussion of risk factors in this quarterly report - The Company is exempt from providing risk factor information as a smaller reporting company[177](index=177&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company reported no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds occurred[178](index=178&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities during the reporting period - No defaults upon senior securities were applicable[178](index=178&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The Company reported no mine safety disclosures during the reporting period - Mine safety disclosures were not applicable[179](index=179&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) The Company reported no other information requiring disclosure under this item - No other information was applicable[180](index=180&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, and certifications - The exhibits include various corporate documents such as Amended and Restated Articles of Incorporation, Bylaws, Certificate of Designation for Series A Convertible Preferred Stock, Common Stock Purchase Warrant, and several stock compensation and incentive plans[182](index=182&type=chunk)[183](index=183&type=chunk) - Key agreements listed are the Mt. Emmons Mining Company Acquisition Agreement, Series A Convertible Preferred Stock Purchase Agreement, Investor Rights Agreement, and the Exchange Agreement with APEG Energy II, L.P.[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act are also included[184](index=184&type=chunk) [Signatures](index=42&type=section&id=Signatures) The report is duly signed by Ryan L. Smith, Chief Executive Officer and Chief Financial Officer, on August 14, 2020 - The report was signed by Ryan L. Smith, Chief Executive Officer and Chief Financial Officer, on August 14, 2020[188](index=188&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2020 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. (Exact Name of Registrant as Specified in its Charter) | Wyoming | 83-0205516 | | --- | --- | | (State ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION U.S. ENERGY CORP. (Exact Name of Company as Specified in its Charter) Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2019 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-06814 Wyoming 83-0205516 (State or other jurisdiction of incor ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2019 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. (Exact Name of Registrant as Specified in its Charter) | Wyoming | | 83-0205516 | | --- | --- | --- ...

(Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2019 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. (Exact Name of Registrant as Specified in its Charter) | Wyoming | 83-0205516 | | --- | --- | | (State o ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2019 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. | Wyoming | 83-0205516 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer | | incorpo ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2018 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-6814 U.S. ENERGY CORP. (Exact Name of Company as Specified in its Charter) Wyoming 83-0205516 (State or other jurisdiction of incorp ...