What changed in this filing

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Item 1. Financial Statements

2020-11-13 compared with 2020-08-14 · 114 added, 116 removed, 380 unchanged (38% of the section changed)

1 unchanged sentence

ROYALE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, 2020

December 31, 2019

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets

11 unchanged sentences

ROYALE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, 2020

December 31, 2019

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the 3 months ended

For the 6 months ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

For the three months ended

For the nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Oil, NGL and Gas Sales

4 unchanged sentences

Depreciation, Depletion and Amortization

Lease Impairment

Bad Debt Expense

4 unchanged sentences

Gain on Turnkey Drilling

Loss From Operations

Gain (Loss) From Operations

Other Income (Expense):

1 unchanged sentence

Gain (Loss) on Settlement of Accounts Payable

Loss on Sale of Assets

Gain (Loss) on Sale of Assets

Gain (Loss) on Investment in Joint Venture

2 unchanged sentences

Preferred Stock Dividend

Preferred Stock Dividend in Arrears

Net Loss attributable to common stock

Net Loss available to common stock

Shares used in computing Basic Net Loss per share

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE six MONTHS ENDED AND 2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)

Adjustments to Reconcile Net Loss to Net

Cash Used in Operating Activities:

FOR THE nine MONTHS ENDED September 30, 2020 AND 2019

September 30, 2020

September 30, 2019

Cash Flows Used in Operating Activities:

Depreciation, Depletion and Amortization

Loss on Sale of Assets

Gain on Turnkey Drilling Programs

Loss on Lease Impairment

(Gain) Loss on Sale of Assets

(Gain) Loss on Turnkey Drilling Programs

(Gain) Loss on Settlement of Accounts Payable

1 unchanged sentence

Bad Debt Expense

Geological & Geophysical Expense

Stock Based Compensation

Right of Use Asset Depreciation

Stock Based Compensation

Geological & Geophysical Costs

Gain on Other

(Increase) Decrease in:

2 unchanged sentences

Accounts Payable and Accrued Expenses

Royalties Payable

Due to Affiliate

Net Cash Provided by (Used in) in Operating Activities

Other Liabilities

Net Cash Used in Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Proceeds from Turnkey Drilling Programs

Net Cash Provided by (Used in) by Investing Activities

Net Cash Provided (Used) by Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

1 unchanged sentence

Principal Payments on Long-Term Debt

Seismic Financing Agreement

Net Cash Provided by (Used in) by Financing Activities

Principal Payments on Seismic Financing Agreement

Net Cash Provided (Used) by Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

1 unchanged sentence

Cash, Cash Equivalents, and Restricted Cash at End of Period

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

Cash Paid for Interest

Cash Paid for Taxes

Increase (Decrease) in Capital Accrued Balance

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

Preferred Stock Series B

Six months ended June 30, 2019

Shares Issued

and Outstanding

Shares Issued

and Outstanding

Comprehensive

Accumulated Comprehensive

December 31, 2018 Balance

1 unchanged sentence

Preferred Series B 3.5% Dividend

Implementation of ASC 842 - Lease Accounting

June 30, 2019 Balance

Preferred Stock Series B

Six months ended June 30, 2020

Shares Issued

and Outstanding

Shares Issued

and Outstanding

Comprehensive

September 30, 2019 Balance

Accumulated Comprehensive

December 31, 2019 Balance

2 unchanged sentences

Reclassify Preferred B to Mezzanine

September 30, 2020 Balance

Accumulated Comprehensive

June 30, 2019 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

September 30, 2019 Balance

Accumulated Comprehensive

June 30, 2020 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

Stock Issued in lieu of Compensation

September 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 six-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 nine-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 $4,866,333 and a net loss of $312,384 for the three months ended June 30, 2020.

The Company’s 2020 financial statements reflect a working capital deficiency of $4,475,962 as of September 30, 2020 and a net loss of $540,251 for the nine months ended September 30, 2020.

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

10 unchanged sentences

All material intercompany accounts and transactions have been eliminated in the financial statements.

Correction of an Immaterial Error in Previously Issued Financial Statements

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 $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.

Correction of Immaterial Errors in Previously Issued Financial Statements

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 immaterial errors related to the classification of payments arising from operating leases and to the quantification of the amount of capital expenditures that had been accrued for but not yet paid.

These immaterial errors have been corrected for the comparative period, resulting in an increase in cash flows used in operating activities of $681,388;

an increase in cash flows provided by investing activities of $585,918;

and a decrease in cash flows used in financing activities of $95,470 for the period ending September 30, 2019.

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

Use of Estimates

26 unchanged sentences

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.

Prospective East LA Sale

On June 24, 2020, Royale and RMX Resources, LLC entered into a Purchase and Sale Agreement to sell a portion of property jointly owned by Royale and RMX, located in Los Angeles County, California for a gross price of $2,150,000.

The property is jointly owned by Royale and RMX, and calls for, among other things, the abandonment of one well, located on the subject lands.

The gross sale proceeds to Royale, if and when the sales closes, will be $1,075,000.

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 June 30

For the six months ended June 30

Oil and Condensate Sales

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Oil & Condensate Sales

Natural Gas Sales

10 unchanged sentences

Those marketing activities are carried out as part of the collaborative arrangement, and we do not purchase or otherwise obtain control of other working interest owners’ share of production.

Therefore, we act as a principal only in regards to the sale of our share of production and recognize revenue for the volumes associated with our net production.

Therefore, we act as a principal only regarding the sale of our share of production and recognize revenue for the volumes associated with our net production.

The Company frequently 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.

13 unchanged sentences

Turnkey Drilling

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.

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.

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

For the nine months ended September 30, 2019, the Company recognized $610,971 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.

June 30, 2020

December 31, 2019

September 30,

Cash and Cash Equivalents

8 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.

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

As of September 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

June 30, 2020

September 30, 2020

December 31, 2019

1 unchanged sentence

Total Liabilities

Stockholders’ Equity

Member Equity

For the 9 months ended

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Results of Operations:

3 unchanged sentences

For the 3 months ended

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Results of Operations:

8 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 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.

At September 30, 2020 and December 31, 2019, the Company maintained an allowance for uncollectable accounts of $1,942,911 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 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.

At September 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.

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

The Company accrued $192,583 and $185,971 for dividends related to the Preferred shares during the third 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.

25 unchanged sentences

Oil and gas properties, equipment and fixtures consist of the following:

September 30,

Producing properties, including drilling costs

Undeveloped properties

Undeveloped or unevaluated properties

Lease and well equipment

Total Oil and Gas

Total Oil & Gas

Accumulated depletion, depreciation & amortization

Total Oil and Gas, Net

Total Oil & Gas Net

Commercial and Other

Furniture and equipment

2 unchanged sentences

Total Commercial and Other Net

Oil and Gas Property and Equipment and Fixtures

Oil & 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.

30 unchanged sentences

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

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

During the nine months ended September 30, 2019, impairment losses of $40,223 were incurred on various lease and land costs that were no longer viable.

During the nine months ended September 30, 2020, 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.

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.

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.

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

At September 30, 2020 and December 31, 2019, Royale Energy had Deferred Drilling Obligations of $3,870,774 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

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

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.

3 unchanged sentences

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 June 30, 2020.

NOTE 4 – LOSS PER SHARE

Basic and diluted loss per share are calculated as follows:

Three Months Ended June 30,

Three Months ending

September 30, 2020

September 30, 2019

Net Income (Loss)

Preferred Stock Dividend

Preferred Stock Dividend In Arrears

Net (Loss) Attributable to Common Shareholders

Net Income (Loss) Attributable to

Common Shareholders

Weighted average common shares outstanding

1 unchanged sentence

Weighted average common shares, including Dilutive effect

Six Months Ended June 30,

Net Income (Loss)

Nine Months ending

September 30, 2020

September 30, 2019

Net Income (Loss)

Preferred Stock Dividend

Preferred Stock Dividend In Arrears

Net Income (Loss) Attributable to Common Shareholders

Net Income (Loss) Attributable to

Common Shareholders

Weighted average common shares outstanding

1 unchanged sentence

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.

Net Income (Loss)

For the nine months ended September 30, 2020 and 2019, Royale Energy had dilutive securities of 25,160,750 and 23,967,039, respectively.

For the three months ended September 30, 2020 and 2019, Royale Energy had dilutive securities of 25,166,967 and 23,938,358, respectively.

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 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

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

Nine months ended

September 30, 2020

September 30, 2019

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

Increase (decrease) in taxes resulting from:

State tax / percentage depletion / other

Other non-deductible expenses

Provision-to-Return Adjustments

Change in valuation allowance

1 unchanged sentence

NOTE 6 – ISSUANCE OF COMMON STOCK

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.

During the nine months ended September 30, 2020, in lieu of cash payments for salaries and board fees, Royale issued 2,273,245 shares of its Common stock valued at approximately $288,876 to an executive officer and board members, compared to the issuance of 1,881,491 shares issued with an approximate value of $455,146 in the same period of 2019.

NOTE 7 – Cares act – ppp loan

8 unchanged sentences

The Promissory Note principal may be forgiven subject to the terms of the Paycheck Protection Program.

During the period, the Company submitted an application for loan forgiveness for the full amount outstanding.

On November 10, the Company received notice that the SBA has remitted funds to the initiating bank in the amount of $198,846 in repayment of its PPP loan, leaving a balance of $10,054.

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