Item 5 Market for Common Equity and Related Stockholder Matters
−Removed: Royale’s Common Stock is traded on the OTC QB Market.
−Removed: Prior to March 7, 2018, REF’s Common Stock was traded under the symbol “ROYL”, and since March 8, 2018, Royale’s Common Stock has traded under the symbol “ROYL”.
−Removed: As of December 31, 2018, 49,421,387 shares of Royale’s Common Stock were held by approximately 5,018 stockholders.
−Removed: As of December 31, 2017, 21,850,387 shares of REF’s Common Stock were held by approximately 4,928 stockholders.
−Removed: The following table reflects the high and low quarterly closing sales prices on the Nasdaq Stock Market and OTC QB Market from January 2017 through March 7, 2018, and of Royale from March 8, 2018, through December,
+Added: Royale’s Common Stock is traded on the OTC QB Market under the symbol “ROYL”.
+Added: As of December 31, 2019, 51,854,136 shares of Royale’s Common Stock were held by approximately 4,160 stockholders.
+Added: As of December 31, 2018, 49,421,387 shares of Common Stock were held by approximately 5,018 stockholders.
+Added: The following table reflects the high and low quarterly closing sales prices on the Nasdaq Stock Market and OTC QB Market from January 2018 through December 2019
Transfer Agent
1 unchanged sentence
The Board of Directors did not issue cash dividends in either 2019 or 2018.
−Removed: The Board of Directors did declare dividends during 2018 on the preferred stock to be Paid In Kind (“PIK”) of 59,461 shares par value $594,613.
−Removed: At year-end, these shares have not been issued.
+Added: The Board of Directors did declare dividends during 2019 and 2018 on the preferred stock to be Paid In Kind (“PIK”) of 73,473 and 59,461 shares and a par value of $734,725 and $594,613 respectively.
Recent Sales of Unregistered Securities
On October 29, 2018 the company filed Form S-8 to register up to 3,235,824 shares of common stock for compensation.
−Removed: Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
−Removed: The following discussion should be read in conjunction with Royale’s Financial Statements and Notes thereto and other financial information relating to Royale included elsewhere in this document.
−Removed: Since 1993, Royale has primarily acquired and developed producing and non-producing natural gas properties in California.
−Removed: In 2004, Royale began developing leases in Utah and in 2012 began acquiring leases in Alaska.
−Removed: The most significant factors affecting the results of operations are (i) the merger with Matrix in March 2018, (ii) the sale of certain oil and gas assets to RMX Resources, LLC, (iii) changes in oil and natural gas production levels and reserves, and (iv) turnkey drilling activities.
−Removed: Merger with Matrix Oil Management Corporation
−Removed: On March 7, 2018, Royale, REF, and Matrix and its affiliates were notified by the California Secretary of State of the filing and acceptance of agreements of merger by the California Secretary of State, to complete the previously announced merger between the companies described in Item 1 –
−Removed: Description of Business –
−Removed: Merger with Matrix Oil Management Corporation.
−Removed: Joint Venture with RMX Resources, LLC
−Removed: On April 4 and April 13, 2018, Royale contributed certain assets to RMX Resources, LLC pursuant to a Contribution Agreement described in Item 1 –
−Removed: Description of Business –
−Removed: Joint Venture with RMX Resources, LLC.
−Removed: Critical Accounting Policies
−Removed: Revenue Recognition
−Removed: Royale’s primary business is oil and gas production.
−Removed: Natural gas flows from the wells into gathering line systems, which are equipped occasionally with compressor systems, which in turn flow into metered transportation and customer pipelines.
−Removed: Monthly, price data and daily production are used to invoice customers for amounts due to Royale and other working interest owners.
−Removed: Royale operates most of its own wells and receives industry standard operator fees.
−Removed: These Supervisory fees are recognized as a reduction to the company’s General and Administrative expenses.
−Removed: Royale generally sells crude oil and natural gas under short-term agreements at prevailing market prices.
−Removed: Revenues are recognized when the products are delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured.
−Removed: Revenues from the production of oil and natural gas properties in which the Royale has an interest with other producers are recognized on the basis of Royale’s net working interest.
−Removed: Differences between actual production and net working interest volumes are not significant.
−Removed: Royale’s financial statements include its pro rata ownership of wells.
−Removed: Royale usually sells a portion of the working interest in each well it drills or participates in to third party investors and retains a portion of the prospect for its own account.
−Removed: All results, successful or not, are included at its pro rata ownership amounts:
−Removed: revenue, expenses, assets, and liabilities as defined in FASB ASC 932-323-25 and 932-360.
−Removed: The Company records amounts received from the Master Service Agreement (“MSA”) with RMX for providing land, engineering, accounting and back-office support as part of revenues.
−Removed: Revenues earned under the MSA are recorded at the end of each month that services were performed in conformity with the Agreement with an offsetting receivable from the RMX joint venture.
−Removed: The service fee income is treated as earned at the end of each month that services are performed as provided by contract.
−Removed: Equity Method Investments
−Removed: Investments in entities over which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
−Removed: Income from equity method investments represents Royale’s proportionate share of net income generated by the equity method.
−Removed: Equity method investments are included as noncurrent assets on the consolidated balance sheet.
−Removed: Business Combinations
−Removed: From time-to-time, the Company acquires businesses in the oil and gas industry.
−Removed: Businesses are included in the consolidated financial statements from the date of acquisition.
−Removed: We recognize, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition-date fair values.
−Removed: We measure and recognize goodwill as of the acquisition date as the excess of:
−Removed: (1) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of our previously held equity interest in the acquiree (if any), over (2) the fair value of assets acquired and liabilities assumed.
−Removed: If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, we report provisional amounts for the items for which the accounting is incomplete.
−Removed: The measurement or allocation period ends once we receive the information we are seeking;
−Removed: however, this period will generally not exceed one year from the acquisition date.
−Removed: Any material adjustments recognized during the measurement period will be reflected retrospectively in the consolidated financial statements of the subsequent period.
−Removed: We recognize third-party transaction related costs as expense currently in the period in which they are incurred.
−Removed: Fair value considerations include the evaluation of the underlying documentation supporting receivables, property, other assets and liabilities.
−Removed: If the documentation and support for a receivable or other asset represented by the seller is not deemed acceptable by the Company’s auditors, the receivable or other asset is not considered in the purchase price until such time as the receivable or other asset can be proven to a level acceptable to the Company’s auditors.
−Removed: Any receipts by the company of cash or other assets, subsequent to the transaction date for which the merger documentation was considered insufficient at the time of the merger, the company recognizes as a current liability.
−Removed: At such time as the documentation is deemed acceptable, the liability is relieved with a credit to earnings in the period of determination.
−Removed: When the Company pays more than fair market value for an asset, it records the overage as an intangible asset (“goodwill”).
−Removed: In the event that the Company pays less than fair market value for an asset(s) this results in “negative goodwill”
−Removed: or a so called “bargain purchase”.
−Removed: In the event of a bargain purchase, the Company will reevaluate the fair market value of the asset(s) being acquired until such time as there is no negative goodwill.
−Removed: We evaluate goodwill for impairment annually as of December 31st, or when an indicator of impairment exists.
−Removed: We compare the fair value of our reporting units with the carrying value, including goodwill.
−Removed: We recognize an impairment charge for the amount by which the carrying value exceeds a reporting unit’s fair value, not to exceed the total amount of recorded goodwill, as applicable.
−Removed: Oil and Gas Property and Equipment
−Removed: Depreciation, depletion and amortization, based on cost less estimated salvage value of the asset, are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration.
−Removed: Maintenance and repairs, including planned major maintenance, are expensed as incurred.
−Removed: Major renewals and improvements are capitalized and the assets replaced are retired.
−Removed: The project construction phase commences with the development of the detailed engineering design and ends when the constructed assets are ready for their intended use.
−Removed: Interest costs, to the extent they are incurred to finance expenditures during the construction phase, are included in property, plant and equipment and are depreciated over the service life of the related assets.
−Removed: Royale uses the “successful efforts”
−Removed: method to account for its exploration and production activities.
−Removed: Under this method, Royale accumulates its proportionate share of costs on a well-by-well basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred, and capitalizes expenditures for productive wells.
−Removed: Royale amortizes the costs of productive wells under the unit-of-production method.
−Removed: Royale carries, as an asset, exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where Royale is making sufficient progress assessing the reserves and the economic and operating viability of the project.
−Removed: Exploratory well costs not meeting these criteria are charged to expense.
−Removed: Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred.
−Removed: Acquisition costs of proved properties are amortized using a unit-of-production method, computed on the basis of total proved oil and gas reserves.
−Removed: Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods.
−Removed: Under the unit-of-production method, oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank.
−Removed: Production costs are expensed as incurred.
−Removed: Production involves lifting the oil and gas to the surface and gathering, treating, field processing and field storage of the oil and gas.
−Removed: The production function normally terminates at the outlet valve on the lease or field production storage tank.
−Removed: Production costs are those incurred to operate and maintain Royale’s wells and related equipment and facilities.
−Removed: They become part of the cost of oil and gas produced.
−Removed: These costs, sometimes referred to as lifting costs, include such items as labor costs to operate the wells and related equipment;
−Removed: repair and maintenance costs on the wells and equipment;
−Removed: materials, supplies and energy costs required to operate the wells and related equipment;
−Removed: and administrative expenses related to the production activity.
−Removed: Proved oil and gas properties held and used by Royale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
−Removed: Royale estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts.
−Removed: Cash flows used in impairment evaluations are developed using annually updated evaluation assumptions for crude oil commodity prices.
−Removed: Annual volumes are based on field production profiles, which are also updated annually.
−Removed: Prices for natural gas and other products are based on assumptions developed annually for evaluation purposes.
−Removed: Impairment analyses are generally based on proved reserves.
−Removed: An asset group would be impaired if the undiscounted cash flows were less than its carrying value.
−Removed: Impairments are measured by the amount the carrying value exceeds fair value.
−Removed: During 2018 and 2017, impairment losses of $1,183,515 and $289,775, respectively, were recorded on various capitalized lease and land costs where the carrying value exceeded the fair value or where the leases were no longer viable.
−Removed: 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 expects to hold the properties.
−Removed: The valuation allowances are reviewed at least annually.
−Removed: Upon the sale or retirement of a complete field of a proved property, Royale eliminates the cost from its books, and the resultant gain or loss is recorded to Royale’s Statement of Operations.
−Removed: Upon the sale of an entire interest in an unproved property where the property has been assessed for impairment individually, a gain or loss is recognized in Royale’s Statement of Operations.
−Removed: If a partial interest in an unproved property is sold, any funds received are accounted for as a recovery of the cost in the interest retained with any excess funds recognized as a gain.
−Removed: Should Royale’s turnkey drilling agreements include unproved property, total drilling costs incurred to satisfy its obligations are recovered by the total funds received under the agreements.
−Removed: Any excess funds are recorded as a Gain on Turnkey Drilling Programs, and any costs not recovered are capitalized and accounted for under the “successful efforts”
−Removed: Royale sponsors turnkey drilling agreement arrangements in unproved properties as a pooling of assets in a joint undertaking, whereby proceeds from participants are reported as Deferred Drilling Obligations, and then reduced as costs to complete its obligations are incurred with any excess booked against its property account to reduce any basis in its own interest.
−Removed: Gains on Turnkey Drilling Programs represent funds received from turnkey drilling participants in excess of all costs Royale incurs during the drilling programs (e.g., lease acquisition, exploration and development costs), including costs incurred on behalf of participants and costs incurred for its own account;
−Removed: and are recognized only upon making this determination after Royale’s obligations have been fulfilled.
−Removed: The contracts require the participants pay Royale the full contract price upon execution of the agreement.
−Removed: Royale completes the drilling activities typically between 10 and 30 days after drilling begins.
−Removed: The participant retains an undivided or proportional beneficial interest in the property, and is also responsible for its proportionate share of operating costs.
−Removed: Royale retains legal title to the lease.
−Removed: The participants purchase a working interest directly in the well bore.
−Removed: In these working interest arrangements, the participants are responsible for sharing in the risk of development, but also sharing in a proportional interest in rights to revenues and proportional liability for the cost of operations after drilling is completed.
−Removed: Since the participant’s interest in the prospect is limited to the well, and not the lease, the investor does not have a legal right to participate in additional wells drilled within the same lease.
−Removed: However, it is the Company’s policy to offer to participants in a successful well the right to participate in subsequent wells at the same percentage level as their working interest investment in the prior successful well with similar turnkey drilling agreement terms.
−Removed: A certain portion of the turnkey drilling participant’s funds received are non-refundable.
−Removed: The company records a liability for all funds invested as deferred drilling obligations until each individual well is complete.
−Removed: Occasionally, drilling is delayed for various reasons such as weather, permitting, drilling rig availability and/or contractual obligations.
−Removed: At December 31, 2018 and 2017, Royale had deferred drilling obligations of $6,213,283 and $5,891,898 respectively.
−Removed: If Royale is unable to drill the wells, and a suitable replacement well is not found, Royale would retain the non-refundable portion of the contract and return the remaining funds to the participant.
−Removed: Included in cash and cash equivalents are amounts for use in completion of turnkey drilling programs in progress.
−Removed: Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.
−Removed: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.
−Removed: The most significant estimates pertain to proved oil, plant products and gas reserve volumes and the future development costs.
−Removed: Actual results could differ from those estimates.
−Removed: Deferred Income Taxes
−Removed: Deferred income taxes reflect the net tax effects, calculated at currently enacted rates, of (a) future deductible/taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements or income tax returns, and (b) operating loss and tax credit carry forwards.
−Removed: All available evidence, both positive and negative, must be considered to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed.
−Removed: The Company uses information about the Company’s financial position and its results of operations for the current and preceding years.
−Removed: The Company must use its judgment in considering the relative impact of negative and positive evidence.
−Removed: The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified.
−Removed: The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or all of the deferred tax asset.
−Removed: A cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.
−Removed: Future realization of a tax benefit sometimes will be expected for a portion, but not all, of a deferred tax asset, and the dividing line between the two portions may be unclear.
−Removed: In those circumstances, application of judgment based on a careful assessment of all available evidence is required to determine the portion of a deferred tax asset for which it is more likely than not a tax benefit will not be realized.
−Removed: Going Concern
−Removed: At December 31, 2018, the Company has an accumulated deficit of $71,050,426, a working capital deficiency of $5,471,153 and a stockholders’
−Removed: equity of $2,740,958.
−Removed: As a result, our financial statements include a “going concern qualification”
−Removed: reflecting substantial doubt as to our ability to continue as a going concern.
−Removed: See Note 1 to our audited financial statements .
−Removed: We have merged with Matrix to increase efficiency and reduce costs to both companies, thereby allowing a return to positive cash flow.
−Removed: We are exploring commitments to provide additional financing, but there is no guarantee that we will be able to secure additional financing on acceptable terms, or at all, if needed to fully fund our 2019 drilling budget and to support future operations.
−Removed: Results of Operations for the Twelve Months Ended December 31, 2018, as Compared to the Twelve Months Ended December 31, 2017
−Removed: The merger between Royale Energy and Matrix Oil Management was completed during the first quarter of 2018.
−Removed: For the year in 2018, the consolidated amounts represented here are for the full year for Royale Energy, Inc.
−Removed: and the ten month period for Matrix Oil Management and its subsidiaries.
−Removed: For the year ended December 31, 2018, we had a net loss of $23,504,327 compared to the net loss of $2,427,169 during the year in 2017.
−Removed: For the year in 2018, we had a loss from operations of $3,204,056, the major components of the remaining $20,300,271 net loss during the year were:
−Removed: Gain on Settlement of Accounts Payable
−Removed: Loss on Sale of Assets, net
−Removed: Loss on Issuance of Warrants
−Removed: Interest Expense
−Removed: Gain on Investment in Joint Venture
−Removed: Other Loss –
−Removed: Major Components
−Removed: The majority of the loss on sale of assets of $20,092,402 was recorded upon the transfer of oil and gas properties to RMX and surface rights in exchange for cash and a 20 percent working interest in RMX under the Contribution Agreement, along with subsequent purchase price adjustments.
−Removed: This loss was offset by a $550,000 gain on the sale of seismic data and a $334,661 gain on the sale of previously owned Matrix leases.
−Removed: Under the Contribution Agreement, we also issued warrants to acquire 4,000,000 shares of Royale common stock and recorded a loss of $1,439,990.
−Removed: The gain on investment in joint venture of $333,931 represents Royale’s share of RMX’s net income from operations through the year ended December 31, 2018.
−Removed: See Note 2 –
−Removed: Formation of RMX and Asset Contribution .
−Removed: During the year in 2018, revenues from oil and gas production increased $1,045,127 or 188.6% to $1,599,362 from the 2017 revenues of $554,235.
−Removed: This increase was due to higher production volumes associated with the merger.
−Removed: The net sales volume of oil for the year ended December 31, 2018, was approximately 18,570 barrels with an average price of $64.10 per barrel, versus 102 barrels with an average price of $46.07 per barrel for the same period in 2017.
−Removed: This represents an increase in net sales volume of 18,468 barrels.
−Removed: The net sales volume of natural gas for the year ended December 31, 2018, was approximately 135,396 Mcf with an average price of $2.85 per Mcf, versus 190,111 Mcf with an average price of $2.89 per Mcf for the same period in 2017.
−Removed: This represents a decrease in net sales volume of 54,715 Mcf or 28.8%.
−Removed: The decrease in natural gas production volume was due to several of our operated wells being offline during the year in 2018 due to new pipeline equipment requirements by Pacific Gas & Electric and to the natural declines of our remaining wells.
−Removed: Oil and natural gas lease operating expenses increased by $1,177,731 or 270.4%, to $1,613,368 for the year ended December 31, 2018, from $435,637 for the year in 2017.
−Removed: This was higher due to the increase in the number of wells operated by the Company during the period in 2018, related to the merger.
−Removed: When measuring lease operating costs on a production or lifting cost basis, in 2018, the $1,613,368 equates to a $6.54 per MCFE lifting cost versus a $2.28 per MCFE lifting cost in 2017, a 160.2% increase, due to higher operating costs related to non-operated wells in 2018.
−Removed: The aggregate of supervisory fees and other income was $1,683,679 for year ended December 31, 2018, an increase of $1,230,535 or 271.6% from $453,144 during the year in 2017.
−Removed: This increase was mainly due to the receipt of service agreement fees through an arrangement with RMX Resources, LLC.
−Removed: Depreciation, depletion and amortization expense increased to $722,935 from $116,017, an increase of $606,918 or 523.1% for the year ended December 31, 2018, as compared to the year in 2017.
−Removed: The depletion rate is calculated using production as a percentage of reserves.
−Removed: This increase in depreciation expense was due to the increase in the number of wells and related equipment operated by the Company as a result of the merger consolidation.
−Removed: General and administrative expenses increased by $1,130,379 or 56.4% from $2,005,630 for the year ended December 31, 2018, to $3,136,009 for the year in 2018.
−Removed: This increase was primarily due to merger related increases in employee associated costs of $631,896 and outside consulting of $563,452 when compared to 2017.
−Removed: Legal and accounting expense decreased to $1,391,037 for the year in 2018, compared to $1,540,190 for the year in 2017, a $149,153 or 9.7% decrease.
−Removed: This decrease was primarily due to lower legal and accounting fees related to the Matrix merger, which concluded during the first quarter.
−Removed: Marketing expense for the year ended December 31, 2018, increased $71,981, or 26.8%, to $340,641, compared to $268,660 for the year in 2017.
−Removed: Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs.
−Removed: At December 31, 2018, Royale Energy had a Deferred Drilling Obligation of $6,213,283.
−Removed: During 2018, we disposed of $6,128,615 of drilling obligations upon completing the drilling of four natural gas wells in Northern California, while incurring expenses of $3,569,899, resulting in a gain of $2,558,716.
−Removed: At December 31, 2017, Royale had a deferred drilling obligation of $5,891,898.
−Removed: During 2017, we disposed of $5,934,604 of obligations relating to 2016, upon completing the drilling of three developmental natural gas wells and participating in the drilling of an additional developmental oil well, while incurring expenses of $4,446,780.
−Removed: This resulted in a gain of $1,487,824.
−Removed: During 2018, we recorded a gain on investment in joint venture of $333,931 as our 20% share of RMX Resources, LLC’s period net income of $1,669,654, see discussion in Note 2 .
−Removed: During 2018, we also recorded a $105,130 loss on derivative instruments, reflecting the period end market-to market changes in the fair value positions, related to Matrix operations prior to the conclusion of the merger.
−Removed: During the year ended December 31, 2018 and 2017, we recorded gains of $287,134 and $73,325, respectively, on the settlement of accounts payable.
−Removed: Impairment losses of $1,183,515 and $289,775 were recorded in 2018 and 2017, respectively.
−Removed: We periodically review our proved properties for impairment on a field-by-field basis and charge impairments of value to the expense.
−Removed: In 2017, the impairments were on various capitalized leases that were no longer viable.
−Removed: During the years in 2018 and 2017, we recorded write downs of $9,790 and $16,375, respectively on certain well equipment that was no longer useable.
−Removed: Bad debt expense for 2018 and 2017 were $648,518 and $164,145, respectively.
−Removed: The expenses in 2018 and 2017 arose from identified uncollectable receivables relating to our oil and natural gas properties either plugged and abandoned or scheduled for plugging and abandonment and our year-end oil and natural gas reserve values.
−Removed: We periodically review our accounts receivable from working interest owners to determine whether collection of any of these charges appears doubtful.
−Removed: By contract, the Company may not collect some charges from its Direct Working Interest owners for certain wells that ceased production or had been sold during the year, to the extent that these charges exceed production revenue.
−Removed: Interest expense increased to $177,171 for the year ended December 31, 2018, from $159,268 in 2017, a $17,903 increase.
−Removed: This increase resulted from interest accrued on the term loan agreement originated by Matrix.
−Removed: Further details concerning this agreement can be found in Capital Resources and Liquidity , below.
−Removed: In 2018 and 2017, we did not have an income tax expense due to the use of a percentage depletion carryover valuation allowance created from the current and past operations resulting in an effective tax rate less than the new federal rate of 21% plus the relevant state rates (mostly California, 8.8%).
−Removed: Capital Resources and Liquidity
−Removed: At December 31, 2018, Royale had current assets totaling $8,258,012 and current liabilities totaling $14,983,369, a $6,725,357 working capital deficit.
−Removed: We had cash and cash equivalents at December 31, 2018 of $1,853,742 and restricted cash of $4,501,300 compared to cash and cash equivalents of $278,227 and restricted cash of $3,060,466 at December 31, 2017.
−Removed: Ordinarily, we fund our operations and cash needs from our available credit and cash flows generated from operations.
−Removed: We believe that consummation of the Merger will enable the combined companies to meet their liquidity demands.
−Removed: However, because the Merger results in different liquidity needs than Royale had before the Merger, there is doubt as to the ability to meet liquidity demands through cash flow or ongoing operations.
−Removed: In that event, the Company will seek alternative capital sources through additional sales of equity or debt securities, or the sale of property.
−Removed: At December 31, 2018, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $1,411,144, compared to $764,015 at December 31, 2017, a $647,129 increase.
−Removed: This increase was mainly due to receivables from an affiliate for contracted services and an industry partner for drilling operations.
−Removed: At December 31, 2018, revenue receivable was $316,974, an increase of $210,967, compared to $106,007 at December 31, 2017, due to higher oil and gas production volumes on wells that were drilled or came back on production in 2018.
−Removed: At December 31, 2018, our accounts payable and accrued expenses totaled $4,895,533, an increase of $256,654 from the accounts payable at December 31, 2017 of $4,638,879, mainly related to drilling of one well at year end 2018 and operations related trade accounts payable.
−Removed: In July 2016, we received a cash investment of $1,580,000 from two investors to purchase convertible promissory notes with principal amounts of $1,280,000 and $300,000, with a conversion price of $0.40 per share, with warrants to purchase one share of common stock for every three shares of common stock issuable upon conversion of the notes.
−Removed: The notes originally matured on August 2, 2017, one year from the date of issuance, and carried a 10% interest rate, with a default rate of 25%.
−Removed: Shortly before completion of the Merger, the $300,000 note and accrued interest of $47,500 was converted into 750,000 shares of Royale common stock valued at $347,500, and Royale agreed to a cash settlement with the holder of the $1,280,000 note for $1,900,000, which was paid on April 13, 2018.
−Removed: In conjunction with the Purchase and Sale Agreement on June 15, 2016, Matrix Oil Management Corp entered into a term loan agreement with Arena Limited SPV, LLC (Term Loan) for approximately $12.4 million.
−Removed: The proceeds of the term loan were used for the approximately 50% working interest purchase of the oil and gas properties noted above in the Purchase and Sale Agreement, the payoff of the existing Credit Facility, payment of legal and other loan costs, and other working capital needs of the Company as defined in the loan agreement.
−Removed: The original maturity date of the Term Loan was June 15, 2018, it was secured by the assets of Matrix, and contained financial covenants commencing June 30, 2016 and thereafter, as defined in the term loan agreement.
−Removed: The Term Loan contained preferential payment requirements in advance of the amounts outstanding under the subordinated notes payable to partners, as defined in the term loan agreement.
−Removed: The Term Loan Agreement called for interest at the rate of nine percent (9%) plus the adjusted LIBOR Rate computed on a daily basis.
−Removed: The loan balance as of March 31, 2018 was $11,140,749.
−Removed: The Company recognized $164,401 in interest expense for the period ended March 31, 2018.
−Removed: In April 2018 pursuant to the Contribution Agreement, this loan agreement was paid in full.
−Removed: We have not engaged in hedging activities or use derivative instruments to manage market risks.
−Removed: The following schedule summarizes our known contractual cash obligations at December 31, 2018, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.
−Removed: Total Obligations
−Removed: Office Leases
−Removed: Operating Activities.
−Removed: For the years ended December 31, 2018 and 2017, cash used by operating activities totaled $2,865,829 and $1,199,439, respectively.
−Removed: This $1,666,390 or 138.9% increase in cash used was due to higher receivables from an affiliate for contracted services, an industry drilling partner accounts and revenue receivables due to higher production volumes.
−Removed: It was also higher in 2018 due to higher merger related royalty and affiliate payables.
−Removed: Investing Activities.
−Removed: Net cash provided by investing activities totaled $8,183,844 for the year ended December 31, 2018.
−Removed: Net cash used by investing activities totaled $456,466 for the year ended December 31, 2017.
−Removed: The difference in cash during the year in 2018 was due to approximately $4 million in cash received in the merger and for the oil and gas asset sale and contribution in the formation of RMX Resources, LLC, discussed previously.
−Removed: In 2018, we also received $550,000 on the sale of a seismic license and approximately $412,000 for the sale of various lease interests previously owned by Matrix.
−Removed: During the year in 2018, we also received approximately $6.5 million in direct working interest investor turnkey drilling investments, while in 2017 we received approximately $3.9 million.
−Removed: Additionally, our turnkey drilling expenditures were higher in 2017, where we drilled three natural gas wells and participated in the drilling of an oil well, while in 2018 we drilled four natural gas wells and completed two, due to formation difficulties in one well and the other was dry.
−Removed: Financing Activities.
−Removed: Net cash used by financing activities totaled $2,301,666 in 2018, mainly due to the $1.9 million settlement payment for the cash advances on pending transactions.
−Removed: In 2018, we also paid $274,920 for principal and fee payments on the Matrix originated term loan agreement.
−Removed: In 2018, we paid $126,746 on a note payable to an industry partner for lease operating and plugging and abandonment costs.
−Removed: No net cash was provided or used in financing activities during 2017.
−Removed: Changes in Reserve Estimates
−Removed: During 2018, our overall proved developed and undeveloped natural gas reserves increased by 40.1% and our previously estimated proved developed and undeveloped natural gas reserve quantities were revised downward by approximately .40 million cubic feet of natural gas.
−Removed: This downward revision was mainly the result of one location with previously estimated proved undeveloped natural gas reserves which the Company had decided not to drill.
−Removed: See Supplemental Information about Oil and Gas Producing Activities (Unaudited), page F-29.
−Removed: During 2017, our overall proved developed and undeveloped reserves increased by 4% and our previously estimated proved developed and undeveloped reserve quantities were revised upward by approximately .31 million cubic feet of natural gas.
−Removed: This upward revision reflected higher than previously estimated proved producing and non-producing natural gas reserves at eight California wells and one Utah well.
−Removed: See Supplemental Information about Oil and Gas Producing Activities (Unaudited), page F-29.
−Removed: Item 7A Qualitative and Quantitative Disclosures About Market Risk
−Removed: Royale is exposed to market risk from changes in commodity prices and in interest rates.
−Removed: In 2018, we sold a majority of our natural gas at the daily market rate through the Pacific Gas & Electric pipeline.
−Removed: In 2018, our natural gas revenues were approximately $385,800 with an average price of $2.85 per MCF.
−Removed: At current production levels, a 10% per MCF increase or decrease in our average price received could potentially increase or decrease our natural gas revenues by approximately $38,580.
−Removed: We currently do not sell any of our natural gas or oil through hedging contracts.
−Removed: Item 8 Financial Statements and Supplementary Data
−Removed: See pages F-1, et seq., included herein.
−Removed: Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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.