v3.26.1
Debt and Equity Restructuring Transaction
 12 Months Ended
Dec. 31, 2025
Restructuring and Related Activities [Abstract]  
Restructuring and Related Activities Disclosure [Text Block]

Note 14 – Debt and Equity Restructuring Transaction

 

On October 11, 2024, we completed a significant equity restructuring transaction, eliminating our Series B, 3.5% Convertible Preferred Stock and simplifying our capital structure. The transaction was executed through a combination of common stock issuance, warrants, and senior promissory notes in exchange for the retirement of all outstanding Series B Preferred Shares as of June 30, 2024. The preferred holders waived the payment of any unpaid dividends.

 

The restructuring involved the exchange and extinguishment of 2,466,455 shares of Series B Preferred Stock, which carried an aggregate liquidation preference of $24.7 million. The exchange was structured as follows:

 

  1. 90% Conversion to Common Stock – Former holders of the Series B Preferred Stock received 22,198,095 shares of Royale common stock at an exchange ratio of 10 shares of common stock for each share of Series B Preferred Stock.

 

  2. 10% Conversion to Notes Payable – The remaining portion of the Series B Preferred Stock was exchanged for Senior Unsecured Promissory Notes, totaling $1.85 million. These notes bear an interest rate of 0% until December 31, 2025, increasing to 5% through 2027 and 8% through June 30, 2029, when all principal and interest is due.

 

  3. Issuance of Warrants – As part of the exchange, Royale issued 25 million warrants with an exercise price of $0.10 per share, expiring on June 30, 2029. The fair value of the warrants was determined to be $959,637 using a Black-Scholes-Merton model.

 

  4. Transfer of Additional Assets – The Company transferred a 0.5% overriding royalty interest (ORRI) in an Alaskan property and three parcels of Bellevue, Kern County real estate to a holding entity controlled by the Preferred Shareholders. The real estate was assigned a fair value of $368,434, which was recognized as an inducement to convert the preferred shares.

 

  5. Settlement of Historical Liabilities – Royale also settled approximately $3 million in pre-merger obligations by issuing 2,508,509 shares common stock and promissory notes for $278,724 on the same terms stated above.

 

The transaction was accounted for as an extinguishment of equity in accordance with ASC 470-50 and ASC 260-10-S99-2, as it represented a fundamental change in the structure and rights of the preferred stockholders. No gain or loss was recognized on the conversion of Series B Preferred Stock, as it was deemed to be an equity transaction per authoritative guidance. However, the issuance of warrants and asset transfers was treated as an inducement expense. The excess of the fair value of the warrants and assets transferred over the accrued dividend forgiven totaling $674,341 was treated as inducement. The inducement was accounted for as an equity transaction and increases the net loss attributable to common shareholders in the Loss Per Share computation in Note 1.

 

The Company concurrently settled approximately $3.47 million of accrued liabilities and unpaid guaranteed payments through the issuance of common stock and additional promissory notes valued at fair market rates. The liabilities extinguished included obligations associated with prior merger activity and were held primarily by related parties. The exchange of these liabilities was accounted for as a capital transaction with no gain or loss recognized on extinguishment, in accordance with guidance in ASC 470-50. The fair value of the new instruments issued was allocated between notes payable, common stock, and additional paid-in capital.