Note 6 - Investments in Affiliates

The following table outlines the changes in our investments in affiliates:

(in thousands)	Carbon California			Carbon Appalachia			Other			Total
Balance, December 31, 2016	$	-		$	-		$	668		$	668
Investment in affiliates gain		-			1,090			38			1,128
Cash distributions		-			-			(68	)		(68	)
Cash contributions		-			6,865			-			6,865
Class B Units issuance		1,854			924			-			2,778
Appalachia Warrant exercise		-			2,896						2,896
Balance, December 31, 2017	$	1,854		$	11,775		$	638		$	14,267
Investment in affiliates gain		-			1,026			85			1,111
Cash distributions		-			-			(125	)		(125	)
California Warrant exercise		(1,854	)		-						(1,854	)
OIE Membership Acquisition					(12,801	)					(12,801	)
Balance, December 31, 2018	$	-		$	-		$	598		$	598

Carbon California

For the period February 15, 2017 (inception) through January 31, 2018, based on our 17.81% interest in Carbon California, our ability to appoint a member to the board of directors and our role of manager of Carbon California, we accounted for our investment in Carbon California under the equity method of accounting as we believed we exerted significant influence. We used the Hypothetical Liquidation at Book Value Method (“HLBV”) to determine our share of profits or losses in Carbon California and adjusted the carrying value of our investment accordingly. The HLBV is a balance-sheet approach that calculates the amount each member of Carbon California would have received if Carbon California were liquidated at book value at the end of each measurement period. The change in the allocated amount to each member during the period represents the income or loss allocated to that member. In the event of liquidation of Carbon California, to the extent that Carbon California has net income, available proceeds are first distributed to members holding Class B Units and any remaining proceeds are then distributed to members holding Class A Units. For the period February 15, 2017 (inception) through January 31, 2018, Carbon California incurred a net loss of which our share (as a holder of Class B Units for that period) was zero.

Effective February 1, 2018, upon the exercise of the California Warrant, we consolidate Carbon California in our consolidated financial statements (see Note 4).

The following table sets forth, selected historical financial data for Carbon California.

(in thousands)	As of December 31, 2018		As of December 31, 2017
Current assets	$	11,829	$	3,968
Total oil and gas properties, net		84,825		43,458
Non-current assets		89,173		44,759
Current liabilities		6,773		6,899
Non-current liabilities		56,664		23,279
Total members’ equity		37,565		18,549

(in thousands)	Year Ended December 31, 2018		Period February 15, 2017 (inception) through December 31, 2017
Revenues	$	32,317	$	7,235
Operating expenses		20,057		9,893
Income (loss) from operations		12,260		(2,658	)
Net income (loss)		8,526		(6,552	)

Carbon Appalachia

Outlined below is a summary of i) our contributions, ii) our resulting percent of Class A unit ownership and iii) our overall resulting Sharing Percentage of Carbon Appalachia after giving effect of all classes of ownership. Holders of units within each class of units participate in profit or losses and distributions according to their proportionate share of each class of units (“Sharing Percentage”).

Timing	Capital Contribution	Resulting Class A Units (%)			Resulting Sharing %
April 2017	$0.24 million		2.00	%		2.98	%
August 2017	$3.71 million		15.20	%		16.04	%
September 2017	$2.92 million		18.55	%		19.37	%
November 2017	Warrant exercise		26.50	%		27.24	%
December 2018	OIE Membership Acquisition		100	%		100	%

Based on our 27.24% combined Class A, Class B and Class C interest (and our ability as of December 31, 2018 to earn up to an additional 14.7%) in Carbon Appalachia, our ability to appoint a member to the board of directors and our role of manager of Carbon Appalachia, we are accounting for our investment in Carbon Appalachia under the equity method of accounting as it believes it can exert significant influence. We use the HLBV to determine its share of profits or losses in Carbon Appalachia and adjusts the carrying value of its investment accordingly. Our investment in Carbon Appalachia is represented by our Class A and C interests, which it acquired by contributing approximately $6.9 million in cash and unevaluated property. In the event of liquidation of Carbon Appalachia, available proceeds are first distributed to members holding Class C Units then to holders of Class A Units until their contributed capital is recovered with an internal rate of return of 10%. Any additional distributions would then be shared between holders of Class A, Class B and Class C Units. For the year ended December 31, 2018, Carbon Appalachia incurred a net gain, of which our share is approximately $1.0 million. For the period of April 3, 2017 (inception) through December 31, 2017, Carbon Appalachia incurred a net gain, of which our share is approximately $1.1 million.

On December 31, 2018, we acquired all of Old Ironsides Class A Units of Carbon Appalachia for approximately $58.1 million, subject to certain closing adjustments. We paid $ 33.0 million in cash and issued the Old Ironsides Notes in the aggregate original principal amount of approximately $25.1 million to Old Ironsides.

Effective December 31, 2018, upon the closing of the OlE Membership Acquisition, we consolidate Carbon Appalachia in our consolidated financial statements. See Note 4.

The following table sets forth, selected historical financial data for Carbon Appalachia.

(in thousands)	As of December 31, 2018		As of December 31, 2017
Current assets	$	28,613	$	20,794
Total oil and gas properties, net		80,674		84,402
Non-current assets		96,814		97,762
Current liabilities		22,126		18,207
Non-current liabilities		58,480		59,420
Total members’ equity		44,821		40,929

(in thousands)	Year Ended December 31, 2018		Period April 3, 2017 (inception) through December 31, 2017
Revenues	$	83,541	$	31,584
Operating expenses		77,084		26,764
Income from operations		6,457		4,820
Net income		4,053		3,005