UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to_______
Commission file number 1-12835
GENERAL AMERICAN ROYALTY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2468002
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Energy Square, Suite 717
4925 Greenville Avenue
Dallas, Texas
(Address of principal executive offices)
75206
(Zip Code)
(214) 361-8535
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes___ No X
As of April 30, 1997, there were 916,500 shares of the Registrant's Common
Stock, par value $.001 per share, outstanding.
Traditional Small Business Disclosure Format (check one):
Yes____ No____
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GENERAL AMERICAN ROYALTY, INC.
BALANCE SHEET
April 30,
1997 October 31,
ASSETS (Unaudited) 1996
----------- -----------
Current assets:
Cash $ 14,301 $ 37,916
Accounts receivable-oil & gas 25,998 29,608
Accounts receivable-officers 5,070 3,135
Accounts receivable-other 1,650 1,650
Prepaid expenses 6,330 2,834
------ ---------
Total Current assets 53,349 75,143
Equipment, less accumulated depreciation of $142 984 -
Royalty interest in oil and gas properties, less
accumulated depletion of $49,741 & $21,381
respectively 517,455 545,815
Deferred financing, net of amortization of $83,846 - 25,154
Other assets, net of amortization of $125 & $100 4,085 3,929
--------- ---------
Total Assets $ 575,873 $ 650,041
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,934 $ 10,022
Accounts payable-shareholder - 3,000
Notes payable 200,000 -
Notes payable to shareholder, current
portion - 33,333
-------- --------
Total Current liabilities 233,934 46,355
Notes payable to shareholder - 136,667
-------- --------
Total liabilities 233,934 183,022
Stockholders' equity:
Common stock, $.001 par value,
20,000,000 shares authorized,
916,500 & 910,000 outstanding,
respectively 917 910
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares issued or outstanding - -
Additional paid-in capital 630,212 598,219
Accumulated deficit (289,190) (132,110)
--------- ---------
Total stockholders' equity 341,939 467,019
--------- ---------
Total liabilities and stockholders' equity $ 575,873 $ 650,041
========= =========
The accompanying notes are an integral part of the financial statements.
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
April 30, April 30,
1997 1996 1997 1996
--------- --------- ---------- --------
Revenues:
Oil and gas royalty income, net of
severance and ad valorem taxes $ 47,755 $ 3,473 $ 93,105 $ 3,473
-------- -------- --------- ------
Costs and expenses:
General and administrative 102,097 13,245 186,219 22,661
Amortization of deferred
financing costs - - 25,154 -
Depletion, depreciation and
amortization 14,299 1,342 28,552 1,367
Interest Expense 5,118 - 10,260 -
--------- --------- -------- ------
Total costs and expenses 121,514 14,587 250,185 24,028
--------- -------- --------- -------
Net loss $(73,759) $ (11,114) $(157,080) $(20,555)
======== ======== ========= ========
Net loss per common share $ (.08) $ (.01) $ (.17) $ (.03)
====== ====== ====== ======
Weighted average number of
common shares outstanding 911,055 760,160 910,505 746,310
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
(Unaudited)
Six Months Ended
April 30,
1997 1996
-------- --------
Cash flows from operating activities:
Net loss $(157,080) $(20,555)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depletion, depreciation and
amortization 28,552 1,367
Amortization of deferred financing costs 25,154 -
Decrease (increase) in accounts receivable 1,675 (3,823)
Increase in prepaid expe (3,497) (1,500)
Noncash payment of stock for
services - 508
Increase in accounts payable 20,912 2,666
Increase in other assets (206) (5,554)
---------- ---------
Net cash used in operating activities (84,490) (26,891)
Cash flows from investing activities:
Purchase of equipment (1,125) -
Purchase of royalty and mineral interests - (158,000)
---------- ---------
Net cash used in investing activities (1,125) (158,000)
Cash flows from financing activities:
Issuance of common stock 32,000 42,710
Proceeds from borrowings 200,000 157,000
Payments on borrowings (170,000) -
---------- --------
Net cash provided by financing activities 62,000 199,710
---------- --------
Net decrease in cash (23,615) 14,819
Cash at beginning of period 37,916 -
---------- --------
Cash at end of period $ 14,301 $ 14,819
========= =======
The accompanying notes are an integral part of the financial statements.
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended April 30, 1997
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid - In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ----------- ------------
Balance at October 31,
1996 910,000 $ 910 $ 598,219 $ (132,110) $ 467,019
Exercise of common stock
warrants net of costs 6,500 7 31,993 - 32,000
Net loss - - - (157,080) (157,080)
------- ------ --------- ---------- ---------
Balance at April 30,1997 916,500 $ 917 $ 630,212 $ (289,190) $ 341,939
======= ====== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited financial statements reflect the financial position
as of April 30, 1997 and the results of operations and cash flows of General
American Royalty, Inc. ("Company") for the three and six month periods ended
April 30, 1997 and April 30, 1996. The financial statements have been prepared
in conformity with generally accepted accounting principles and contain such
adjustments as management feels are necessary to present fairly, in all material
aspects, the financial position and results of operations of the Company.
1. Summary of Significant Accounting Policies:
- -----------------------------------------------
The Company was incorporated on December 28, 1992 in the state of Delaware as
Hermes Capital Management, Inc. and was inactive until it changed its name on
October 23, 1995 to General American Royalty, Inc. The Company is engaged in the
business of acquiring and managing producing crude oil and gas royalty,
overriding royalty and mineral interests in Texas and New Mexico.
Restatement of Accounts
- -----------------------
The previously filed January 31, 1997 financial statements included in the
Company's Form 10-SB have been restated to 1) increase additional paid-in
capital by $109,000 to reflect the value of common stock transferred to a lender
from the Company's president in connection with the completion of July 1996
financing by the Company and 2) increase the loss from operations for the three
months ended January 31, 1997 by $25,154 in deferred financing expenses and 3)
increase the accumulated deficit by $83,846 for the amortization expense in the
prior year in connection with the transaction.
Royalty Interests in Oil and Gas Properties
- -------------------------------------------
Costs of acquiring interests in producing royalty interests, including
evaluation costs, are capitalized and depleted on a straight line basis over a
period of 10 years, since overall U.S. proved reserves are about 8 to 10 times
overall production. The Company owns a large number of interests whose
acquisition costs are not individually significant. The Company annuaIly reviews
significant properties for impairment comparing estimated future cash flows to
the carrying amount of the asset. If impairment is indicated, the asset is
written down to its fair value based upon its expected future discounted cash
flows.
Income Taxes
- ------------
The Company follows Statement of Financial Standards No. 109, "Accounting for
Income Taxes," which requires the recognition of deferred tax liabilities and
assets based on the difference between the financial statement and the tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
Use of Estimates
- -----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
2. Notes Payable
- -----------------
As of April 30, 1997 the Company had a $200,000 note payable to State Bank &
Trust Company, Dallas. The loan was collateralized with mortgages and deeds of
trust on certain royalty interests in oil and gas properties owned by the
Company.
The loan required monthly installments of $6,667 commencing June 21, 1997 and a
final payment of unpaid principal on January 21, 1998, plus monthly interest at
a fluctuating rate per annum equal to 2% in excess of the corporate rate of
interest published in the Wall Street Journal. The loan was repaid in June 1997
(see Note 6).
3. Stockholders Equity
- -----------------------
As of April 30, 1997, 6,500 of the 90,000 warrants, from the Company's initial
offering, were exercised. The net proceeds to the Company from the exercise of
these warrants was $32,000. Subsequent to April 30, 1997 an additional 5,000
warrants have been exercised netting the Company an additional $25,000 in equity
capital. The remaining 78,500 warrants expired on July 31, 1997.
4. Related Party Transactions
- ------------------------------
As of April 30, 1997 the Company has accounts receivable for travel advances due
from one officer of approximately $5,070.
5. Income Taxes:
- -----------------
The Company has net loss carryforwards which will begin to expire in 2011. None
of the benefit of the net operating loss has been recognized in the financial
statements.
6. Subsequent Event:
- ---------------------
On June 20, 1997, the Company entered into a $300,000 financing agreement with
Eagle Equity Oil & Gas L.P., a Dallas based lender and shareholder of the
Company. The Company has collateralized the loan with mortgages and deeds of
trust on certain royalty interests in crude oil and gas properties, a personal
guarantee by James F. Smith, President of the Company and a term life insurance
policy on Mr. Smith for $300,000.
The full principal amount of $300,000 plus any accrued interest is payable on
December 31, 1997, and bears interest at a 14% rate per annum. Interest is
payable monthly commencing on July 20, 1997.
7. Year-end Balance Sheet:
- ---------------------------
The year-end condensed balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
<PAGE>
GENERAL AMERICAN ROYALTY, INC.
For the three and six months ended April 30, 1997
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Sales of crude oil and natural gas from royalty and overriding royalty
interests have been the Company's principal internal source of liquidity.
Monthly sales have not reached a sufficient level to cover administrative and
overhead expenses. Growth in the Company's sales is expected to be the result of
acquiring additional producing crude oil and natural gas royalty interests.
The Company has completed offerings of its equity securities and incurred
bank debt during the past year as its primary sources of external capital.
Proceeds from these financings were used to acquire royalty interests in
producing crude oil and natural gas wells and for working capital. The Company
intends to direct its efforts and resources toward developing opportunities to
increase its crude oil and natural gas reserves.
Specifically, the Company anticipates that proceeds from the sale of its
equity securities in public and private offerings will serve as the principal
source of capital for acquisition of royalty interests and retirement of debt.
In June 1997 the Company borrowed $300,000 from an entity controlled by a
shareholder and used the proceeds to repay a $200,000 bank loan. Debt secured by
producing royalty interests will be a source of short term financing for royalty
acquisition activities.
The Company's revenues are substantially affected by prevailing prices for
natural gas, crude oil and condensate. These prices are affected by numerous
factors over which the Company has no control. Historically the energy markets
have been very volatile, and there can be no assurances that crude oil and
natural gas prices will not be subject to material fluctuations in the future. A
material or long term decline in crude oil and gas prices could have an adverse
effect on the Company's financial position and results of operations, affecting
the economic productivity of an indeterminable number of producing properties in
which the Company has royalty or overriding royalty interests. Natural gas
accounts for approximately 90% of the Company's crude oil and natural gas sales.
<PAGE>
RESULTS OF OPERATIONS
Three and Six Months Ended April 30, 1997 Compared
to the Three and Six Months Ended April 30, 1996
Revenues
Revenues for the three months and six months ended April 30, 1997 are
significantly higher than the same periods in 1996 due to an increase in crude
oil and natural gas sales that resulted from the acquisition of additional
royalty and overriding royalty interests. The acquired interests comprise
approximately 80 % of the Company's current total producing reserves. The
revenues for periods in 1996 consisted of one month of production from fewer
wells.
Costs and Expenses
General and Administrative Expenses. General and administrative
expenses ("G&A") increased from $13,245 and $22,661, respectively, for the three
and six months ended April 30, 1996 to $102,097 and $186,219 for the comparable
periods in 1997. The increase in G&A expenses for 1997 resulted from the
expansion of the Company's operational activities and the costs incurred in
connection with becoming a publicly traded entity.
Depletion, Depreciation and Amortization. Depletion, depreciation and
amortization ("DD&A"), increased to $14,299 and $28,552, respectively, for the
three and six months ended April 30, 1997 compared to $1,342 and $1,367,
respectively for the comparable period in 1996. The increase is primarily due to
the acquisition of additional producing royalty and overriding royalty
interests. The DD&A expense for the periods in 1996 was calculated based on one
month of production from interests in wells that comprise approximately 20% of
the Company's reserves.
Interest expense. The Company had not incurred any interest bearing
debt as of April 30, 1996. The interest expense for the three and six months
ended April 30, 1997 was incurred on a $200,000 note payable to a financial
institution.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
On May 15, 1997, Ben C. Burkett, II resigned as a member of the registrants
board of directors. His resignation was not a result of any disagreements with
the registrant on any matters relating to the registrant's operations, policies
or practices.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GENERAL AMERICAN ROYALTY, INC.
------------------------------
(Registrant)
Date August 12, 1997 /s/ James F. Smith
------------------- ------------------------------------
James F. Smith
President and Chief Executive Officer
Date August 12, 1997 /s/ Sam E. Nicholson
------------------- ------------------------------------
Sam E. Nicholson,
Treasurer and Chief Financial Officer
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule contains Summary Financial Information
extracted from April 30, 1997 Financial Statements and
is qualified in its entirety by reference to such.
</LEGEND>
<CIK> 0001014491
<NAME> General American Royalty, Inc.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 14,301
<SECURITIES> 0
<RECEIVABLES> 27,648
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,349
<PP&E> 568,322
<DEPRECIATION> 49,883
<TOTAL-ASSETS> 575,873
<CURRENT-LIABILITIES> 233,934
<BONDS> 0
0
0
<COMMON> 917
<OTHER-SE> 341,022
<TOTAL-LIABILITY-AND-EQUITY> 575,873
<SALES> 93,105
<TOTAL-REVENUES> 93,105
<CGS> 0
<TOTAL-COSTS> 214,771
<OTHER-EXPENSES> 25,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,260
<INCOME-PRETAX> (157,080)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157,080)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
