<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1 TO FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 14 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999 Commission File No. 0-22750
ROYALE ENERGY, INC.
California
(State or other jurisdiction of
incorporation or organization 33-0224120
(I.R.S. Employer
Identification No.)
7676 Hazard Center Drive, Suite 1500
San Diego, CA 92108
(Address of principal executive offices)
Issuer's telephone number: 619-297-8505
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant has been
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
At April 30, 1999, there were a total of 3,816,846 shares of
registrant's Common Stock outstanding.
<PAGE> 2
On May 25, 1999, Royale Energy, Inc., filed its report on Form
10-QSB for the quarter ended March 31, 1999. The originally filed
report did not include a financial data schedule. This Amendment
No. 1 of the 10-QSB for March 31, 1999, has the financial schedule
attached. No changes in the report have been made.
PART 1
Item 1. Financial Statements
ROYALE ENERGY, INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $99,448 $1,016,306
Accounts receivable 1,760,380 1,531,259
Receivables from related parties 54,076 56,563
Note receivable 114,150 118,149
Other current assets 168,727 169,103
----------- ------------
Total current assets 2,196,781 2,891,380
----------- -------------
Oil and gas properties, at cost,
(successful efforts method) 15,060,879 14,575,667
Equipment and fixtures 357,326 355,254
----------- -------------
15,418,205 14,930,921
Less accumulated depreciation,
depletion and amortization 3,697,722 3,333,094
----------- -------------
11,720,483 11,597,827
----------- -------------
Other assets:
Other capitalized costs, net 849,941 927,208
----------- -------------
Total Other Assets 849,941 927,208
----------- -------------
TOTAL ASSETS $14,767,205 15,416,415
=========== =============
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 3
ROYALE ENERGY, INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $1,862,083 $1,249,127
Deferred revenue from turnkey drilling 2,145,686 2,834,976
----------- -------------
Total current liabilities 4,007,769 4,084,103
----------- -------------
Long-Term Debt, net of current portion 4,375,000 5,000,000
Redeemable preferred stock:
Series A convertible preferred stock,
no par value, authorized 259,250 shares,
issued and outstanding 9,375
and 9,375, respectively 19,100 19,100
----------- -------------
Stockholders' Equity:
Common stock, no par value, authorized
10,000,000 shares, issued and
outstanding 3,808,613 and 3,808,613
shares, respectively 8,240,605 8,240,605
Series AA preferred stock, no par value,
authorized 147,500 shares, issued and
outstanding 43,750 and 43,750,
respectively 175,000 175,000
Accumulated deficit (1,955,769) (2,007,893)
----------- -------------
Total paid in capital and accumulated
deficit 6,365,336 6,313,212
Less Cost of treasury stock, 37,500
and 37,500 shares, respectively (94,500) (94,500)
----------- -------------
Total Stockholders' equity 6,365,336 6,313,212
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $14,767,205 $15,416,415
=========== =============
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 4
ROYALE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
<S> <C> <C>
1999 1998
(Unaudited) (Unaudited)
----------- ------------
Revenues:
Oil and gas sales $612,178 $976,848
Gas distribution 0 0
Turnkey drilling 1,136,503 416,182
Supervisory fees and other 140,895 98,749
----------- ------------
Total revenues 1,889,576 1,491,779
----------- ------------
Costs and expenses:
General and administrative 337,534 388,435
Turnkey drilling and development 618,862 134,423
Cost of Gas Distribution 0 0
Lease operating 233,899 200,377
Lease impairment 0 100,000
Legal and accounting 66,227 187,692
Marketing 47,223 63,265
Depreciation, depletion and amortization 441,894 239,711
----------- ------------
Total costs and expense 1,745,639 1,313,903
----------- ------------
Net income from Operations 143,937 177,876
Other expense:
Interest expense 91,813 68,940
----------- ------------
Net income before income tax 52,124 108,936
Income tax expense 0 2,641
----------- ------------
Net income $52,124 $106,295
=========== ============
Net income per common share $0.01 $0.03
=========== ============
Net income per share - fully diluted $0.01 $0.03
=========== ============
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 5
ROYALE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
<S> <C> <C>
1999 1998
(Unaudited) (Unaudited)
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $52,124 $106,295
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation, depletion and amortization 441,894 239,711
Loss on impairment of assets 0 100,000
(Increase) decrease in:
Accounts receivable (229,121) (453,628)
Receivable from related parties 2,487 (8,266)
Prepaid expenses and other current assets 376 9,685
Increase (decrease) in:
Accounts payable and accrued expenses 612,956 (183,624)
Deferred revenues - DWI (689,290) 475,626
----------- ------------
Net Cash Provided by Operating Activities 191,426 285,799
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties (487,698) (332,556)
Other capital expenditures (2,072) (10,106)
----------- ------------
Net Cash Used by Investing Activities ($489,770) (342,662)
----------- ------------
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 6
ROYALE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
<S> <C> <C>
1999 1998
(Unaudited) (Unaudited)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in receivable
from related parties, net $2,487 $9,652
(Increase) decrease in notes receivable 3,999 3,087
Principal payments on notes payable (625,000) (400,000)
Treasury stock purchased 0 0
Net Cash Provided (Used) by
Financing Activities (618,514) (387,261)
----------- ------------
Net Increase (Decrease) in Cash and
Cash Equivalents (916,858) (444,124)
Cash at Beginning of Year 1,016,306 2,032,001
----------- ------------
Cash at End of Period $99,448 $1,587,877
=========== ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $58,935 $48,703
=========== ============
Cash paid for taxes $0 $2,641
=========== ============
NONCASH TRANSACTIONS:
Series AA Preferred Stock exchanged
for common stock $0 $0
=========== ============
Series A Preferred Stock exchanged
for common stock $0 $30,000
=========== ============
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. In the opinion of management, the accompanying unaudited
financial statements include all adjustments, consisting only of
normally recurring 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 three month period is not, in management's opinion,
indicative of the results to be expected for a full year of
operations. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report.
2. Earnings Per Share (SFAS 128) -In February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share,"
which was adopted by the Company for the year ended December 31,
1997. SFAS 128 replaces the presentation of primary earnings per
share with a presentation of basic earnings per share based upon
the weighted average number of common shares for the period. It
also requires dual presentation of basic and diluted earnings per
share for companies with complex structures.
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------
<S> <C> <C> <C>
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic EPS
Income available to common stockholders $ 52,124 3,808,613 $ .01
Effect of dilutive securities stock
options - 294,883
------------ ------------- ---------
Diluted EPS
Income available to common stockholders $ 52,124 4,103,496 $ .01
------------ ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------
<S> <C> <C> <C>
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic EPS
Income available to common stockholders $106,295 3,864,845 $ .03
Effect of dilutive securities stock options - 195,990
------------ ------------- ---------
Diluted EPS
Income available to common stockholders $106,295 4,060,835 $ .03
------------ ------------- ---------
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the first three months of 1999, the Company's total revenues
were $1,889,576, a $397,797 or 26.7% increase from the total revenues
in 1998 of $1,491,779. This increase in total revenues can be
attributed to an increase in turnkey drilling during the period in
1999. For the period in 1999, the Company achieved a net operating
profit of $143,937, a $33,939 or 19.1% decrease over the net
operating profit in the first three months of 1998 of $177,876. For
the quarter ended March 31, 1999, the Company reported a net profit
of $52,124, compared to the net profit of $106,295 for the same
period in 1998, a $54,171 or 51% decrease. The Company's management
attribute this decrease in operating and net profit to a decrease in
revenues from oil and gas sales
Turnkey drilling revenues for the quarter ended March 31, 1999 were
$1,136,503 which were offset by drilling and development costs of
$618,862. For the same period in 1998, turnkey drilling revenues
were $416,182, while drilling and development costs were $134,423.
This represents an increase in revenues of $720,321 or 173% and an
increase in costs of $484,439 or 360%. The increase in drilling
revenues in 1999 were mainly due to the drilling of four wells in the
first quarter of 1999. The drilling revenues and costs in the first
quarter of 1998 were a continuation of sales from the Company's 1997
drilling projects.
Oil and gas revenues for the three months ended March 31, 1999 were
$612,178 compared to $976,848 for the same period in 1998, which
represents a $364,670 or 37.3% decrease. This decrease in revenues
was mainly due to a decrease in the Company's natural gas production
during the period in 1999.
The Company's oil and gas lease operating expenses increased by
$33,522, or 16.7%, to $233,899 for the three months ended March 31,
1999, from $200,377 for the same period in 1998. This increase in
costs can be attributed to the increase in the number of wells
operated by the Company in the first quarter of 1999 when compared
to the first quarter of 1998, due to the increase in wells drilled
and placed in production during the year in 1998.
<PAGE> 9
The aggregate of supervisory fees and other income was $140,895 for
the quarter ended March 31, 1999, an increase of $42,146 (42.7%) from
$98,749 during the same period in 1998. This increase was mainly due
to an increase in fees received, during the period in 1999, from new
pipeline and compressors placed in service during the year in 1998.
Depreciation, depletion and amortization expense increased to
$441,894 from $239,711, an increase of $202,183 (84.3%) for the
quarter ended March 31, 1998, as compared to 1998. This increase in
expense can be attributed to the increase in the number of oil and
gas assets owned by the Company.
General and administration expenses decreased by $50,901, or 13.1%,
from $388,435 for the quarter ended March 31, 1998 to $337,534 for
the same period in 1999. Legal and accounting expense decreased to
$66,227 for the period, compared to $187,692 for the quarter in 1998,
a $121,465 (64.7%) decrease. This decrease can be attributed to
lower litigation costs during the quarter in 1999. Marketing expense
for the quarter ended March 31, 1999, decreased $16,042 or 25.4%, to
$47,223, compared to $63,265 for the same period in 1998. Marketing
expense for the Company varies from period to period according to the
number of marketing events attended by Company personnel and
associated travel costs.
The Company periodically assesses the value of significant proved and
unproved properties and charges impairments of value to expense.
During the first quarter of 1998, $100,000 was recorded as an
impairment loss based on this assessment. There were no such
impairment losses recorded in first quarter of 1999.
During the year in 1998, the Company extended an existing credit line
from a major commercial bank. Because of borrowings pursuant to this
credit line, interest expense increased to $91,813 for the quarter
ended March 31, 1999 from $68,940 for the same period in 1998, a
$22,873 or 33.2% increase.
CAPITAL RESOURCES AND LIQUIDITY:
At March 31, 1999, the Company had current assets totaling $2,196,781
and current liabilities totaling $4,007,769, a $1,810,988 working
capital deficit. The primary reason for this working capital deficit
is the Company's obligation to complete wells on behalf of investors
who bought fractional working interests from the Company. The
Company records these obligations as deferred revenue from turnkey
drilling until the drilling projects are completed. For the industry
as a whole, a working capital deficit is not uncommon. Management
believes that the Company has sufficient liquidity for the short
term.
OPERATING ACTIVITIES. For the quarter ended March 31, 1999, cash
provided by operating activities totaled $191,426 compared to
$285,799 provided by operating activities for the same period in
1998. This decrease in cash provided can be mainly attributed to the
decrease in oil and gas sales for the period in 1999 when compared
to 1998.
INVESTING ACTIVITIES. Net cash used by investing activities,
primarily in capital acquisitions of oil and gas properties, amounted
to $489,770 for the quarter in 1999, compared to $342,662 used by
investing activities for the same period in 1998. The increase in
cash used can be primarily attributable to the increase in turnkey
drilling which occurred during the period in 1999 when compared the
period in 1998.
<PAGE> 10
FINANCING ACTIVITIES. For the quarter ended March 31, 1999, net
cash used by financing activities was $618,514, primarily for
principal reduction of the Company's line of credit, compared to cash
used by financing activities for the same period in 1998 of $387,261.
This increase in net cash used was mainly due to the principal
reduction of the Company's line of credit during the period in 1999.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation of Royale Energy, Inc.,
incorporated by reference to Exhibit 3.1 of the Company's Form
10-SB Registration Statement.
3.2 Certificate of Amendment to the Articles of Incorporation of
Royale Energy, Inc. (effecting reverse stock split and defining
certain rights of equity security holders), incorporated by
reference to Exhibit 3.1 of the Company's Form 8-K dated
October 31, 1994.
3.3 Bylaws of Royale Energy, Inc., incorporated by reference to
Exhibit 3.2 of the Company's Form 10-SB Registration Statement.
4.1 Certificate of Determination of the Series A Convertible
Preferred Stock, incorporated by reference to Exhibit 4.1 of
the Company's Form 10-SB Registration Statement.
<PAGE> 11
4.2 Certificate of Determination of the Series AA Convertible
Preferred Stock, incorporated by reference to Exhibit 4.2 of
the Company's Form 10-SB Registration Statement.
10.1 Wellbore Farmout Agreement between Royale Energy Funds, Inc.,
and Pacific Gas & Electric Co., dated March 15, 1993,
incorporated by reference to Exhibit 10.2 of the Company's
Form 10-SB Registration Statement.
10.2 Form of Indemnification Agreement, incorporated by reference
to Exhibit 10.3 of the Company's Form 10-SB Registration
Statement.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the first quarter of
1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROYALE ENERGY FUNDS, INC.
Date: May 25, 1999 /s/ Donald H. Hosmer
------------- -------------------------------
Donald H. Hosmer, President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 99,448
<SECURITIES> 0
<RECEIVABLES> 1,928,606
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,196,781
<PP&E> 15,418,205
<DEPRECIATION> (3,697,722)
<TOTAL-ASSETS> 14,767,205
<CURRENT-LIABILITIES> 4,007,769
<BONDS> 0
19,100
175,000
<COMMON> 8,240,605
<OTHER-SE> (2,050,269)
<TOTAL-LIABILITY-AND-EQUITY> 14,767,205
<SALES> 1,748,681
<TOTAL-REVENUES> 1,889,576
<CGS> 852,761
<TOTAL-COSTS> 1,745,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,813
<INCOME-PRETAX> 52,124
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,124
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
