Basis of Presentation

Organization and Nature of Operations

Lonestar Resources US Inc. (“Lonestar”) is an independent oil and natural gas company focused on the development, production and acquisition of unconventional oil, natural gas liquids (“NGLs”) and natural gas properties in the Eagle Ford shale play in South Texas, primarily through our subsidiary, Lonestar Resources, Inc. Lonestar is a Delaware corporation with our common stock listed and traded on the Nasdaq Global Select Market under the symbol “LONE”.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Lonestar Resources US Inc., and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K/A for the year ended December 31, 2017 filed on November 2, 2018 (the “Form 10-K/A”). Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Lonestar,” refer to Lonestar Resources US Inc. and its subsidiaries.

The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year. In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of our consolidated financial position as of September 30, 2018, our consolidated results of operations for the three and nine months ended September 30, 2018 and 2017, and our consolidated cash flows for the nine months ended September 30, 2018 and 2017.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on our reported net loss, current assets, current liabilities, total liabilities or stockholders’ equity.

Net Loss per Common Share

Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common stock outstanding during the period. Diluted net loss per common share is calculated in the same manner but includes the impact of potentially dilutive securities. Potentially dilutive securities consist of warrants, equity compensation awards and preferred equity shares under the as-converted method. Basic weighted average common shares exclude shares of non-vested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic net loss per common share.

For the periods presented, there were no differences between the basic and diluted weighted average common shares. The following securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
Preferred stock	14,635,078	13,337,174	14,317,760	5,324,860
Warrants	760,000	760,000	760,000	760,000
Stock appreciation rights	1,017,500	682,500	901,108	556,044
Restricted stock units	1,037,209	629,174	831,486	536,044

Impairment of Oil and Gas Properties

During the third quarter of 2018, the Company recorded an impairment charge of approximately $12.2 million relating to expiring leases in southern Brazos County included in unproved properties. During the second quarter of 2017, the Company recorded an impairment charge of approximately $27.1 million relating to its West Poplar property in Roosevelt County, Montana.

Recent Accounting Pronouncements

Leases. In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will also be required. ASU 2016-02 is effective for the annual period beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. Currently, entities must adopt the standard using a modified retrospective transition and apply the guidance to the earliest comparative period presented, with certain practical expedients that entities may elect to apply. Management plans to adopt ASU 2016-02 in the quarter ending March 31, 2019. Changes to processes and internal controls to meet the standard’s reporting and disclosure requirements have been identified and are being implemented. In addition to lease agreements, service contracts and other agreements are also being reviewed to determine if they contain an embedded lease. At this time, we cannot estimate the amount that will be capitalized when this standard is adopted. The Company continues to evaluate the expected impact of this standard update on disclosures.

Revenue Recognition. Effective January 1, 2018, the Company adopted ASU 2014-09, using the modified retrospective method. Under the modified retrospective method, the Company recognized the cumulative effect of initially applying ASU 2014-09 as an adjustment to the opening balance of accumulated deficit; however, no significant adjustment was required as a result of adopting the new standard. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606. The comparative information has not been restated and continues to be reported under historic accounting standards in effect for those periods. The impact of the adoption of ASU 2014-09 is expected to be immaterial to the Company’s net income on an ongoing basis. See Note 5. Revenue Recognition, for further discussion.