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. Long-term Debt:
<br />Long-term debt as of tune 30, 1986 and 1`d85 consists of the
<br />following;
<br />F'romn.nry nose payable nr a bank o'ilh
<br />prinapol due luly I, 1901, inlereN payable
<br />munihly ai the bank\ pnme role 10 5"~ al
<br />lone 311, 14851, cullaieralized by a
<br />cenlliralc nl depacd of $I50,IIOU !6110,000 $1311,0(10
<br />Borrwvink+ under a revoh~ing credit and term
<br />loan with prinapal due IuA~ I, 1908 and
<br />inlcresl, payable munlhlp ,tl an mlere+I rare
<br />`/,'%~ ucer the bank'. prime role
<br />(8.5 :o al Iune;U, I98fi1 _ 120,000(A) -
<br />5260,000 $35U,UU0
<br />(Al Under the terms of the revolving credit and teen loan,
<br />the borrowing base i, determined sennannually based
<br />u{wn the value, as defined, of the Company's oil and gas
<br />reserve, and may not exceed a maxinwm of
<br />$10,000,000. The borrowing base delernined by the
<br />bank was $2,750,000 as of June 30. 19f'~b. The Company
<br />may borrow against the credit line on a revolving balls
<br />through July 1, 1988, at which time any outstanding
<br />borruwings become payable. The Company is required to
<br />pay a quarterly commitment tee u('/a% on the unused
<br />portion of the line. Borrowings under ate line of credit
<br />are collateralized by certain of the Company's oil and gas
<br />properties. Re<trictive provisions o(the aKreement
<br />preclude the Company (ruin obtaining arldiuonal long-
<br />term debt Imancing and require the Company to maintain
<br />certain )working capital and debt W equity ratios anct a
<br />specified minimum total of stockholders' equity.
<br />A. Income Lixes:
<br />The provision Ibenefi0 for income taxes consi,ls of the
<br />following fur the years ended Iune 30, 1986, 1985 and 1984
<br />Currently payable Irefundablel:
<br />United $l alc+
<br />Canadian la. on Gam tin >ale
<br />of till and ga> properhee
<br />Deterred pn n•I+iun fbenr(IO
<br />Tar e11eOS of W rliz.tuun of net
<br />operaling Ina+ cJrrylurvvanl
<br />Unm predecessor corporation
<br />- $ IN I,IIUbI $ 12111,000)
<br />- '_n11,0U11 -
<br />(6,436,0901 745,U(Ill ;AISDOU
<br />- - 5`)S,OI7ll
<br />$(6,436,090) 58Gd.U110 h 1,41111,O11U
<br />During the year ended June 30, 1986, a ~•ub,tantial
<br />portion of the timing differences which were recorded for
<br />financial reporting purposes in prior periods were reversed in
<br />the reduction of the carryinK value of the Culnpany's oil and
<br />gas properties. Currespondingly, the Company eliminated
<br />related deferred taxes previously provided.
<br />The Company files a coroulidated federal income tax
<br />return with its wholly owned subsidiaries, Including the
<br />subsidiaries that are the successors to the predecessor
<br />corporations described in Note 1. One of these subsidiaries,
<br />Royal Properties, Inc. ("RPI") has a net operating loss
<br />carryfor~ard which arose prior to the formation o(the
<br />Company which can only be applied against the taxable
<br />income of such subsidiary. RPI had sufficient taxable income
<br />in the years ended lone 30, 1986, 1985 and 1983 such that
<br />the Company was able to utilize approximately $2,OOQ000
<br />of RPI's net operating loss carryiorward in its consolidated
<br />income lax returns. Since RPI's net operating loss
<br />carryforv.'ard arose prior to the formation of the Company
<br />and since this net operating loss carryiorward yes not
<br />aligned an estimated fair marker value upon the formation
<br />of the Company (See Note 1), the tax elfects of utilization of
<br />the carryforward are recorded as increase, in additional
<br />paid-in capdal. There was nu income tax eflect ofutilization
<br />of the RPI carryiorward for the year ended June 30, 1986 and
<br />1985 since the Company had a consolidated net loss for
<br />income tax purpose<. The income lax effect of utilization of
<br />the RPI carryforward ro reduce consolidated taxable income
<br />for the year ended June 30, 198-1 was $595.000. RPI's
<br />remaining net operating loss carryforward is approximately
<br />$1,200,000 al June 30, 1986 and expires primarily in 1993.
<br />Excluding the RPI net operating lots, the Company
<br />at June 3Q 1986 has operating loss carrylorvards of
<br />approximately $4,700,000 and nrveshnenl tax credit
<br />carryfonaerds of approximately $160,000 for lederal income
<br />tax and financial reporting purposes which expire Through
<br />the year 2001. The Company also has a $"_',200,000 statutory
<br />depletion carryiorward (ur federal income tax purposes
<br />which has no expiration date.
<br />A reconciliation between the Company's provision for
<br />income taxes computed at the statutory lederal Income tax
<br />rate of 46°ln and the provision for income taxes as reported
<br />for the years ended Iune 30, 1985 and 1984 is set forth
<br />below:
<br />Pruvolun Inr ina~me lane+cumpulcd al
<br />statutory rates 51,244,428 $;.lBq,24i
<br />Anwrntallun of ball. dilicrrnce on oil and
<br />ga~pnrperlies 250,549 309, in9
<br />Slate mumie layer, net nl lederal 6enelil 36,720 ! I b ~I(111
<br />Slalulory deplcuon io ercen of ia~ ha+i. 1567,5671 (}75, 3721
<br />Investment tar credos 173,0001 (I?I1pIlUl
<br />Ocher (31,130) (40,;'_01
<br />Pmri,lon for Inuime Wae~ 5 864,000 A1,JI711,0110
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