What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-14 compared with 2020-05-19 · 126 added, 87 removed, 370 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31, 2020

June 30, 2020

December 31, 2019

13 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31, 2020

June 30, 2020

December 31, 2019

22 unchanged sentences

Total Stockholders' Equity (Deficit)

Total Liabilities, Mezzanine and Stockholders' Equity (Deficit)

Total Liabilities, Mezzanine Equity and Stockholders' Equity (Deficit)

See notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

For the 3 months ended

March 31, 2020

March 31, 2019

For the 6 months ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Oil, NGL and Gas Sales

13 unchanged sentences

Interest Expense

Gain on Settlement of Accounts Payable

Gain (Loss) on Settlement of Accounts Payable

Loss on Sale of Assets

3 unchanged sentences

Preferred Stock Dividend

Net Income (Loss) available to common stock

Preferred Stock Dividend in Arrears

Net Loss attributable to common stock

Shares used in computing Basic Net Loss per share

1 unchanged sentence

Shares used in computing Diluted Net Loss per share

(Loss) Per Share

Diluted Net Income (Loss) per Share

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE three MONTHS ENDED March 31 , 2020 AND 2019

FOR THE six MONTHS ENDED AND 2019

CASH FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

Adjustments to Reconcile Net Loss to Net

Cash Provided by ( Used in ) Operating Activities:

Cash Used in Operating Activities:

Depreciation, Depletion and Amortization

(Gain) Loss on Sale of Assets

(Gain) Loss on Turnkey Drilling Programs

Loss on Sale of Assets

Gain on Turnkey Drilling Programs

(Gain) Loss on Settlement of Accounts Payable

1 unchanged sentence

Bad Debt Expense

Geological & Geophysical Expense

Stock Based Compensation

3 unchanged sentences

Prepaid Expenses and Other Assets

Increase (Decrease) in:

Accounts Payable and Accrued Expenses

Due to Affiliate

Net Cash Provided (Used) in Operating Activities

Net Cash Provided by (Used in) in Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Proceeds from Turnkey Drilling Programs

Net Cash Provided (Used) by Investing Activities

Net Cash Provided by (Used in) by Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Long-Term Debt

Principal Payments on Long-Term Debt

Seismic Financing Agreement

Net Cash Provided (Used) by Financing Activities

Net Cash Provided by (Used in) by Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

8 unchanged sentences

Preferred Stock Series B

Six months ended June 30, 2019

Shares Issued

2 unchanged sentences

and Outstanding

Comprehensive Deficit

Comprehensive

December 31, 2018 Balance

1 unchanged sentence

Preferred Series B 3.5% Dividend

Reclassify Preferred B to Mezzanine

March 31, 2020 Balance

Implementation of ASC 842 - Lease Accounting

June 30, 2019 Balance

Preferred Stock Series B

Six months ended June 30, 2020

Shares Issued

2 unchanged sentences

and Outstanding

Comprehensive Deficit

Comprehensive

December 31, 2019 Balance

1 unchanged sentence

Preferred Series B 3.5% Dividend

Reclassify Preferred B to Mezzanine

June 30, 2020 Balance

Preferred Stock Series B

Three months ended June 30, 2019

Shares Issued

and Outstanding

Shares Issued

and Outstanding

Comprehensive

March 31, 2019 Balance

Stock Issued in lieu of Compensation

Preferred Series B 3.5% Dividend

Implementation of ASC 842 - Lease Accounting

June 30, 2019 Balance

Preferred Stock Series B

Three months ended June 30, 2020

Shares Issued

and Outstanding

Shares Issued

and Outstanding

Comprehensive

March 31, 2020 Balance

Stock Issued in lieu of Compensation

Preferred Series B 3.5% Dividend

June 30, 2020 Balance

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

NOTE 1– In the opinion of management, the accompanying unaudited condensed consolidated financial statements (“statements”) include all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented.

The results of operations for the three-month period are not, in management’s opinion, indicative of the results to be expected for a full year of operations.

The results of operations for the six-month period are not, in management’s opinion, indicative of the results to be expected for a full year of operations.

It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report as filed on Form 10-K.

4 unchanged sentences

There are factors that give rise to substantial doubt about the Company’s ability to meet liquidity demands, and we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, the sale of oil and natural gas property participation interests through our normal course of business and the sale of non-strategic assets.

The Company’s 2020 financial statements reflect a working capital deficiency of $4,550,447 and a net loss from operations of $889,959.

The Company’s 2020 financial statements reflect a working capital deficiency of $4,866,333 and a net loss of $312,384 for the three months ended June 30, 2020.

These factors raise substantial doubt about our ability to continue as a going concern.

12 unchanged sentences

Subsequent to the issuance of the consolidated financial statements for the year ended December 31, 2019, the Company concluded that the Statement of Cash Flows for the year ending December 31, 2019 contained an immaterial error related to the classification of payments arising from operating leases as net cash used in financing activities rather than net cash used in operating activities.

This immaterial error has been corrected for the comparative period shown by reclassifying $35,207 from cash flows from financing activities to cash flows used in operating activities for the year ending December 31, 2019.

This immaterial error did not have any impact on our financial position, net loss or total cash flow for the year ending December 31, 2019.

This immaterial error has been corrected for the comparative period shown by reclassifying $70,415 from cash flows from financing activities to cash flows used in operating activities for the period ending June 30, 2019.

This immaterial error did not have any impact on our financial position, net loss or total cash flow for the period ending June 30, 2019.

Use of Estimates

6 unchanged sentences

On December 31, 2018, Royale was formally notified of RMX Resources, LLC’s intent to terminate the Master Service Agreement (“MSA”) as of March 31, 2019.

The Termination Notice calls for Royale to continue to provide accounting and other services through March 31, 2019.

Thereafter, per Article VII, Section 7.2 of the MSA, Royale has provided all reasonable assistance requested, by the RMX Board of Directors, to transition the management of RMX through April 30, 2019 at which point all services under the MSA terminated.

The Termination Notice called for Royale to continue to provide accounting and other services through March 31, 2019.

Thereafter, per Article VII, Section 7.2 of the MSA, Royale provided all reasonable assistance requested, by the RMX Board of Directors, to transition the management of RMX through April 30, 2019 at which point all services under the MSA terminated.

Settlement Agreement and Well Participation Agreement with RMX

On March 11, 2019 Royale entered into a Settlement Agreement with RMX to resolve differences resulting from the calculation of certain post-closing amounts as called for under Section 7.3 of the Subscription and Contribution Agreement.

Under the terms of this provision, Royale estimated that it may owe RMX approximately $552,645 related to its calculation of this post-closing amount under this provision.

In addition, there are other disputed amounts related to certain joint owner billing amounts remaining unpaid at year end.

In settlement of these differences, Royale has agreed to assign its remaining interests in the Bellevue Field, located in Kern County and the W.

On March 11, 2019, Royale entered into a Settlement Agreement with RMX to resolve differences which resulted from the calculation of certain post-closing amounts as called for under Section 7.3 of the Subscription and Contribution Agreement.

Under the terms of this provision, Royale estimated that it may have owed RMX approximately $552,645 related to its calculation of this post-closing amount under this provision.

In addition, there were other disputed amounts related to certain joint owner billing amounts which remained unpaid at year end.

In settlement of these differences, Royale agreed to assign its remaining interests in the Bellevue Field, located in Kern County and the W.

Whittier Field located in Los Angeles County, California to RMX.

At December 31, 2018, the Bellevue and W.

Whittier fields accounted for 5.145 and 140.647 Mboe in reserves and were valued at $67,671 and $2.4 million, respectively, using SEC pricing and discounted at 10 percent.

Whittier fields accounted for 5.145 and 140.647 Mboe in reserves and were valued at $67,671 and $2.4 million, respectively, using SEC pricing and discounted at 10%.

Royale will continue to be responsible for the liability for the payment of all royalties and suspended funds incurred prior to March 1, 2018.

4 unchanged sentences

West Coast Settlement

On December 5, 2018, Royale entered into a Purchase and Sales Agreement (“West Coast Agreement”) for properties located in the Jameson North Field Area in Mitchell and Nolan Counties, Texas and the Big Mineral Creek Field Area in Grayson County, Texas.

On December 5, 2018, Royale entered into a Purchase and Sale Agreement (“West Coast Agreement”) for properties located in the Jameson North Field Area in Mitchell and Nolan Counties, Texas and the Big Mineral Creek Field Area in Grayson County, Texas.

The seller was West Coast Energy Properties, LP.

The West Coast Agreement called for a post-closing settlement.

On July 11, 2019, Royale entered into a post-closing settlement as called for under the terms of the West Coast Agreement calling for payment due seller of $156,975 to be made in equal monthly payments of $26,163 commencing July 31, 2019 with the final payment on December 31, 2019.

On July 11, 2019, Royale entered into a post-closing settlement as called for under the terms of the West Coast Agreement for payment due seller of $156,975 which were made in equal monthly payments of $26,163 commencing July 31, 2019 with the final payment on December 31, 2019.

Revenue Recognition

The majority of our ongoing revenues are derived from the sale of crude oil and condensate, natural gas liquids ("NGLs") and natural gas under spot and term agreements with our customers.

For the three months ended March 31 ,

Oil & Condensate Sales

For the three months ended June 30

For the six months ended June 30

Oil and Condensate Sales

Natural Gas Sales

26 unchanged sentences

Turnkey Drilling

These Turnkey Agreements are managed by the Company for the participants of the well.

The collections of pre-drilling AFE amounts are segregated by the Company and the gains and losses on the Turnkey Agreements are recorded in income or expense at the time of the casing point election in accordance with ASC 932-323-25 and 932-360.

The Company manages the performance obligation for the well participants and only records revenue or expense at the time the performance obligation of the Turnkey Agreement has been satisfied.

These Turnkey Drilling Agreements are managed by the Company for the participants of the well.

The collections of pre-drilling AFE amounts are segregated by the Company and the gains and losses on the Turnkey Drilling Agreements are recorded in income or expense at the time of the casing point election in accordance with ASC 932-323-25 and 932-360.

The Company manages the performance obligation for the well participants and only records revenue or expense at the time the performance obligation of the Turnkey Drilling Agreement has been satisfied.

Supervisory Fees and Other

3 unchanged sentences

On December 31, 2018, Royale received notice of cancelation of the MSA by RMX effective March 31, 2019.

For the year ended 2019, the Company recognized $540,000 in supervisory fees from RMX.

For the six months ended June 30, 2019, the Company recognized $540,000 in supervisory fees from RMX.

Also included in the caption are Pipeline and Compressor fees which are received and allocated based on production volumes.

10 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

March 31, 2020

June 30, 2020

December 31, 2019

9 unchanged sentences

The earnings from RMX reflected in these financial statements as Investment in Joint Venture (“JV”), reflect our share of net earnings or losses directly attributable to this equity method investment.

We evaluated our investment in RMX as of March 31, 2020 and determined that any losses were not other than temporary.

As of June 30, 2020, we evaluated our investment in RMX and determined that any losses were not other than temporary.

Listed below is the summarized information required under Rule 3-09 of regulation S-X, Article 10 for Royale’s investment in RMX:

For the period ended

March 31, 2020

June 30, 2020

December 31, 2019

1 unchanged sentence

Total Liabilities

Member Equity

Stockholders’ Equity

For the 6 months ended

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

Results of Operations:

Net Operating revenue

Loss from operations

Income (Loss) from operations

Net Income (Loss)

For the 3 months ended

June 30, 2020

June 30, 2019

Results of Operations:

Net Operating revenue

Income (Loss) from operations

Net Income (Loss)

Other Receivables

Our other receivables consist of joint interest billing receivables from direct working interest investors and industry partners.

Other receivables consist of joint interest billing receivables from direct working interest investors and industry partners.

We provide for uncollectible accounts receivable using the allowance method of accounting for bad debts.

2 unchanged sentences

All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged off accounts are added to the allowance.

At March 31, 2020 and December 31, 2019, the Company maintained an allowance for uncollectable accounts of $1,868,508 and $1,791,162, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

At June 30, 2020 and December 31, 2019, the Company maintained an allowance for uncollectable accounts of $1,868,508 and $1,791,162, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Fair Value Measurements

11 unchanged sentences

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

At March 31, 2020 and December 31, 2019, Royale Energy does not have any financial assets measured and recognized at fair value on a recurring basis.

At June 30, 2020 and December 31, 2019, Royale Energy does not have any financial assets measured and recognized at fair value on a recurring basis.

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

8 unchanged sentences

In the first quarter of 2019, the Board of Directors authorized the issuance of Preferred shares, for the settlement of dividends accumulated through December 31, 2020.

As a result, the Company accrued $187,200 and $178,794 for dividends related to the Preferred shares during the first quarters of 2020 and 2019, respectively.

The Company accrued $188,834 and $178,794 for dividends related to the Preferred shares during the second quarters of 2020 and 2019, respectively.

Each quarter, the Company charges retained earnings for the accumulating dividend as the amounts add to the liquidation preference of the Preferred.

For further information regarding the Preferred see Note 3, below.

For further information regarding the Preferred Stock see Note 3, below.

Accounting Standards

12 unchanged sentences

Effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.

Application of this ASU has not had a material impact on our financial statements.

Application of this ASU has not had a material impact on our consolidated financial statements.

NOT YET ADOPTED

9 unchanged sentences

Producing properties, including drilling costs

Undeveloped or unevaluated properties

Undeveloped properties

Lease and well equipment

Total Oil & Gas

Total Oil and Gas

Accumulated depletion, depreciation & amortization

Total Oil & Gas Net

Commercial and Other

Total Oil and Gas, Net

Furniture and equipment

2 unchanged sentences

Total Commercial and Other Net

Oil & Gas Property and Equipment and Fixtures

Oil and Gas Property and Equipment and Fixtures

The guidance set forth in the Continued Capitalization of Exploratory Well Costs paragraph of the Extractive Activities Topic of the FASB ASC requires that we evaluate all existing capitalized exploratory well costs and disclose the extent to which any such capitalized costs have become impaired and are expensed or reclassified during a fiscal period.

We did not make any additions to capitalized exploratory well costs pending a determination of proved reserves during the periods ended March 31, 2020 or in 2019.

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.

9 unchanged sentences

Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred.

Acquisition costs of proved oil & gas properties are amortized using a unit-of-production method, computed on the basis of total proved oil and gas reserves.

Acquisition costs of proved oil and gas properties are amortized using a unit-of-production method, computed on the basis of total proved oil and gas reserves.

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.

15 unchanged sentences

Impairment analyses are generally based on proved reserves.

An asset group would be impaired if the undiscounted cash flows were less than its’ carrying value.

An asset group would be further assessed if the undiscounted cash flows were less than its’ carrying value.

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

During the three months ended March 31, 2020 and 2019, no impairment losses were incurred.

During the six months ended June 30, 2020 and 2019 no impairment losses were incurred.

Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that Royale Energy expects to hold the properties.

13 unchanged sentences

The participants purchase a working interest directly in the well bore.

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 and the interest is conveyed to the participant.

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 and the interest is conveyed to the participant.

A certain portion of the turnkey drilling participant’s funds received are non-refundable.

1 unchanged sentence

Occasionally, drilling is delayed for various reasons such as weather, permitting, drilling rig availability and/or contractual obligations.

At March 31, 2020 and December 31, 2019, Royale Energy had Deferred Drilling Obligations of $4,025,589 and $5,232,675, respectively.

At June 30, 2020 and December 31, 2019, Royale Energy had Deferred Drilling Obligations of $2,531,094 and $5,232,675, respectively.

If Royale Energy 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.

2 unchanged sentences

NOTE 3 - SERIES B PREFERRED STOCK

On March 7, 2018, the Company was 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 (the “Merger”).

Pursuant to the terms of the Merger all Class A limited partnership interests of Matrix Investments, LP (“Matrix Investments”) were exchanged for Royale Common stock using conversion ratios according to the relative value of the Class A limited partnership interests, and $20,124,000 of Matrix Investments preferred limited partnership interests were converted into 2,012,400 shares of Series B Convertible Preferred Stock of Royale.

Pursuant to the merger in 2018, Royale issued 2,012,400 shares of Series B Convertible Preferred Stock.

The Board of Directors of Royale Energy, prior to the merger, authorized 3,000,000 shares of Series B Convertible Preferred, which carries a liquidation preference and a 3.5% dividend, payable in cash or Paid-In-Kind shares.

1 unchanged sentence

The Series B Preferred Stock has never been registered under the Securities Exchange Act of 1934, and no market exists for the shares.

Additionally, the Series B Convertible Preferred shares will automatically convert to common at any time in which the Volume Weighted Average Price (VWAP) of the common stock exceeds $3.50 per share for 20 consecutive trading days, the shares are registered with the SEC and the volume of common shares trades exceeds 200,000 shares per day.

Additionally, the Series B Convertible Preferred shares will automatically convert to common stock at any time in which the Volume Weighted Average Price (VWAP) of the common stock exceeds $3.50 per share for 20 consecutive trading days, the shares are registered with the SEC and the volume of common shares trades exceeds 200,000 shares per day.

The shareholders of the Series B Convertible Preferred became entitled to vote the number of shares into which they would be entitled to convert, beginning in 2020.

In accordance with ASC 480-10-S99-1.02, the Company has determined that the conversion or redemption of these shares are outside the sole control of the Company and that they should be classified in mezzanine or temporary equity as redeemable noncontrolling interest beginning at the reporting period, ended March 31, 2020.

NOTE 4 – NET INCOME (LOSS) PER SHARE

Basic and diluted Net Income (Loss) per share are calculated as follows:

For the 3 months ended

March 31, 2020

March 31, 2019

Net Income (Loss)

NOTE 4 – LOSS PER SHARE

Basic and diluted loss per share are calculated as follows:

Three Months Ended June 30,

Preferred Stock Dividend

Net Income (Loss) Attributable to

Common Shareholders

Preferred Stock Dividend in Arrears

Net (Loss) Attributable to Common Shareholders

Weighted average common shares outstanding

Effect of dilutive securities

Weighted average common shares,

including Dilutive effect

Weighted average common shares, including Dilutive effect

Six Months Ended June 30,

Net Income (Loss)

For the three months ended March 31, 2019, Royale Energy had dilutive securities of 23,980,471.

These securities were not included in the dilutive loss per share, due to their antidilutive nature.

Preferred Stock Dividend

Preferred Stock Dividend in Arrears

Net Income (Loss) Attributable to Common Shareholders

Weighted average common shares outstanding

Effect of dilutive securities

Weighted average common shares, including Dilutive effect

For the six months ended June 30, 2020 and 2019, Royale Energy had dilutive securities of 25,157,462 and 23,978,631, respectively.

For the three months ended June 30, 2020 and 2019, Royale Energy had dilutive securities of 25,165,320 and 23,976,804, respectively.

In both periods, these securities were not included in the dilutive loss per share, due to their antidilutive nature.

NOTE 5 – INCOME TAXES

4 unchanged sentences

As a result, the Company will continue to record a full valuation allowance against the deferred tax assets in 2020.

A reconciliation of Royale Energy’s provision for income taxes and the amount computed by applying the statutory income tax rates at March 31, 2020 and 2019, respectively, to pretax income is as follows:

For the quarter ended

March 31, 2020

March 31, 2019

Tax expense (benefit) computed at statutory rate of 21% at March 31, 2020 and 2019, respectively

A reconciliation of Royale Energy’s provision for income taxes and the amount computed by applying the statutory income tax rates at June 30, 2020 and 2019, respectively, to pretax income is as follows:

For the six months ended

June 30, 2020

June 30, 2019

Tax benefit computed at statutory rate of 21% at June 30, 2020, and 2019, respectively

Increase (decrease) in taxes resulting from:

State tax / percentage depletion / other

Other non-deductible expenses

2 unchanged sentences

NOTE 6 – ISSUANCE OF COMMON STOCK

During the three months ended March 31, 2020, in lieu of cash payments for salaries, Royale issued 377,763 shares of its common stock valued at approximately $53,336 to an executive officer, compared to the issuance of 989,966 shares issued with a value of $240,008 in the same period of 2019.

NOTE 7 – SUBSEQUENT EVENT

During the six months ended June 30, 2020, in lieu of cash payments for salaries and board fees, Royale issued 1,390,787 shares of its Common stock valued at approximately $169,550 to an executive officer and board members, compared to the issuance of 1,383,221 shares issued with an approximate value of $348,923 in the same period of 2019.

NOTE 7 – Cares act – ppp loan

On April 22, 2020, the Company entered into a loan (the "PPP Loan") evidenced by a promissory note (the "Promissory Note"), under the Paycheck Protection Program sponsored by the U.S.

8 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements