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 September 30, 1999
Commission File No. 0-22750
ROYALE ENERGY, INC.
California 33-0224120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
7676 Hazard Center Drive, Suite 1500
San Diego, CA 92108
(Address of principal executive offices)
Issuer's telephone number: 619-881-2800
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 October 31, 1999, there were a total of 3,808,613 shares of
registrant's Common Stock outstanding.
This Amendment No. 1 to the Company's September 30, 1999, quarterly report
revises Part I, Item 1, Financial Statements, by adding financial
information for the three month period ending September 30, 1999, to the nine
months' data reported in the originally filed Form 10-QSB for the period.
Part I, Item 2, the Management's Discussion and Analysis of Financial
Condition and Results of Operations, is also revised to discuss the three
month period. No other changes from the original filing have been made.
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<PAGE>
PART I
Item 1. Financial Statements
ROYALE ENERGY, INC.
BALANCE SHEETS
September 30, December 31,
1999 1998
(Unaudited) (Audited)
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $853,366 $1,016,306
Accounts receivable 1,903,806 1,531,259
Receivables from related parties 67,439 56,563
Note receivable 108,150 118,149
Other current assets 476,927 169,103
------------ -----------
Total current assets 3,409,688 2,891,380
------------ ------------
Oil and gas properties, at cost
(successful efforts method) 16,899,269 14,575,667
Equipment and fixtures 393,245 355,254
------------- -----------
17,292,514 14,930,921
Less accumulated depreciation,
depletion and amortization 4,395,911 3,333,094
-------------- ------------
12,896,603 11,597,827
--------------- ------------
Other assets:
Other capitalized costs, net 695,406 927,208
-------------- -------------
Total Other Assets 695,406 927,208
-------------- --------------
TOTAL ASSETS $17,001,697 $15,416,415
-------------- --------------
-------------- --------------
(See Notes to Financial Statements)
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<PAGE>
ROYALE ENERGY, INC.
BALANCE SHEETS
September 30, December 31,
1999 1998
(Unaudited) (Audited)
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $4,422,527 $1,249,127
Deferred revenue from turnkey drilling 1,264,917 2,834,976
--------------- ----------------
Total current liabilities 5,687,444 4,084,103
--------------- ----------------
Long-Term Debt, net of current portion 5,000,000 5,000,000
Redeemable preferred stock:
Series A convertible preferred stock,
no par value, authorized 259,250 shares,
issued and outstanding 9375 and 9375,
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 (2,025,952) (2,007,893)
-------------- -------------
Total paid in capital and accumulated
deficit 6,389,653 6,407,712
Less Cost of treasury stock, 37,500 and
37,500 shares, respectively (94,500) (94,500)
---------------- --------------
Total Stockholders' equity 6,295,153 6,313,212
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,001,697 $15,416,415
-------------- --------------
-------------- --------------
(See Notes to Financial Statements)
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ROYALE ENERGY, INC.
STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ------------ -----------
Revenues:
Oil and gas sales $ 806,038 $1,139,125 $2,096,515 $3,323,012
Turnkey drilling 1,382,032 478,482 3,776,082 2,600,384
Supervisory fees
and other 147,282 115,055 414,393 326,356
------- --------- ------------ ------------
Total revenues 2,335,352 1,732,662 6,286,990 6,249,752
--------- --------- ------------ ------------
Costs and expenses:
General and
administrative 411,688 420,441 1,196,573 1,247,903
Turnkey drilling
and development 1,055,545 74,255 2,446,527 1,126,961
Lease operating 240,092 252,367 708,067 826,388
Lease impairment 0 80,000 0 280,000
Legal and accounting (51,713) 55,651 117,370 418,630
Marketing 67,252 113,964 257,926 302,191
Depreciation, depletion
and amortization 449,901 283,695 1,292,436 772,586
--------- -------- ---------- ----------
Total costs and
expenses 2,172,765 1,280,373 6,018,899 4,974,659
--------- --------- --------- ----------
Income from
operations 162,587 452,289 268,091 1,275,093
Other expense:
Interest 104,691 96,048 286,150 239,572
--------- ---------- ----------- ----------
Income (loss) before
income tax expense 57,896 356,241 (18,059) 1,035,521
Income tax expense 0 22,979 0 28,020
--------- ---------- ----------- ----------
Net income (loss) 57,896 333,262 ($18,059) $1,007,501
--------- ---------- ------------ ----------
--------- ---------- ------------ ----------
Diluted earnings per
share $0.02 $0.09 ($0.00) $0.26
--------- ---------- ----------- ----------
--------- ---------- ----------- ----------
Basic earnings per share $0.02 $0.09 ($0.00) $0.27
--------- ---------- ------------ ----------
--------- ---------- ------------ ----------
(See Notes to Financial Statements)
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ROYALE ENERGY, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
--------------------------
1999 1998
(Unaudited) (Unaudited)
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($18,059) $1,007,501
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 1,292,436 772,586
Loss on impairment of assets 0 280,000
(Increase) decrease in:
Accounts receivable (372,547) (897,244)
Receivable from related parties (10,876) (40,164)
Prepaid expenses and other current
assets (307,824) 76,159
Increase (decrease) in:
Accounts payable and accrued expenses 3,173,400 43,375
Deferred revenues - DWI (1,570,059) 904,440
------------ ----------
Net Cash Provided by Operating Activities 2,186,471 2,146,653
--------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties (2,321,419) (3,371,949)
Other capital expenditures (37,991) (46,052)
--------------- -----------
Net Cash Used by Investing Activities ($2,359,410) (3,418,001)
--------------- -----------
(See Notes to Financial Statements)
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ROYALE ENERGY, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
------------------
1999 1998
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in receivable from related
parties, net $0 $9,652
Decrease in notes receivable 9,999 39,828
Increase in long-term debt 0 450,000
Treasury stock purchased 0 (386,244)
----------- -----------
Net Cash Used by Financing Activities (9,999) (113,236)
----------- -----------
Net Decrease in Cash and Cash Equivalents (162,940) (1,158,112)
Cash at Beginning of Year 1,016,306 2,032,001
----------- -----------
Cash at End of Period $853,366 $873,889
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest $286,150 $239,572
------------ ------------
------------ ------------
Cash paid for taxes $0 $28,020
------------ ------------
------------ ------------
NONCASH TRANSACTIONS:
Series A Preferred Stock exchanged
for common stock $0 $30,000
------------ ------------
------------ ------------
(See Notes to Financial Statements)
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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 nine 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:
Nine Months Ended September 30, 1999
------------------------------------
Income Shares Pre-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common
stockholders ($18,059) 3,808,613 ($ .00)
-------
Effect of dilutive securities
stock options - 294,883
--------- ---------
Diluted EPS
Income available to common
stockholders ($18,059) 4,103,496 ($ .00)
----------- --------- -------
Nine Months Ended September 30, 1998
------------------------------------
Income Shares Pre-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common
stockholders $1,007,501 3,797,636 $ .27
-------
Effect of dilutive securities
stock options - 128,498
----------- ----------
Diluted EPS
Income available to common
stockholders $1,007,501 3,926,134 $ .26
------------ ----------- ------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 1999, Compared to the Same
Period Last Year
We had net income of $57,896 for the three months ended September 30, 1999,
although we had an overall net loss of $18,059 for the nine months ended
September 30, 1999. We believe that operating losses were common in the oil
and gas industry for the first half of the year, but that many companies
improved their third quarter results. Our experience, recording losses in
the first six months of 1999 followed by a profitable third quarter, appears
to be in line with industry trends.
During the quarter and nine months ended September 30, 1999, the Company's
total revenues were $2,335,352 and $6,286,990, respectively. These third
quarter revenues were $602,690 (35%) higher than the same period in 1998,
while our nine months revenues were only $37,238 (0.60%) higher than total
revenues in the first nine months of 1998. This increase in total revenues
results from an increase in turnkey drilling, most of which occurred in the
third quarter of 1999. Drilling revenue for the third quarter of 1999 was
$1,382,032, a $903,550 (189%) increase from third quarter 1998 revenues of
$478,482. Nine months' drilling revenues were $3,776,082 at September 30,
1999, an increase of $1,175,698 (45%) over the same period in 1998.
Drilling costs showed the same pattern as drilling revenues. Three months'
and nine months' drilling and development expenses were $1,055,545 and
$2,446,527 in 1999. Third quarter drilling costs dramatically increased by
$981,290 from third quarter 1998 drilling costs of $74,255. Nine months'
drilling costs in 1999 and 1998 were $2,446,527 and $1,126,961, respectively.
In the three months and nine months ended September 30, 1999, drilling
revenues exceeded drilling costs by $326,487 and $3,329,555, respectively.
The increase in drilling revenues and costs in 1999 were primarily due to
the drilling of eleven wells during the first nine months of 1999 versus the
drilling of five wells during the same period in 1998.
Oil and gas revenues for the nine months ended September 30, 1999 were
$2,096,515 compared to $3,323,012 for the same period in 1998, which
represents a $1,226,497 or 36.9% decrease. For the third quarter of 1999,
oil and gas revenues were $806,038 compared to $1,139,125 for the third
quarter of 1998, a $333,087 (29%) decrease. The decrease resulted from lower
prices as well as delays in bringing some new wells into production in 1999,
which resulted in lower production.
More than half of our 1999 year to date income from operations came in the
third quarter. For the three months and nine months ended September 30,
1999, were $162,587 and $268,091, which represent decreases of $289,702 (64%)
and $1,007,002 (79%) from comparable 1998 income from operations of $452,289
and $1,275,093, respectively. The reason for the decrease was mainly a
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<PAGE>
decline in oil and gas production income because of lower prices as well as
lower production in 1999.
For the three and nine months ended September 30, 1999, our oil and gas lease
operating expenses decreased by $ 12,275 (5%) and $118,321 (14%), to
$240,092 and $708,067 respectively, from $252,367 and $826,388 for the same
periods in 1998. Our 1998 costs were higher than 1999 primarily because in
1998 we installed dehydrating equipment on many of its natural gas wells to
increase efficiencies within our transportation system.
The aggregate of supervisory fees and other income was $147,282 and $414,393
for the three months and nine months ended September 30, 1999, an increase of
$32,227 (28%) and $88,037 (27%), respectively, from $115,055 and $326,356
during the same periods 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 $449,901 from
$283,695 for the three months ended September 30, 1999, and to $1,292,436
from $772,586 for the nine month period. This represents an increase of
$166,206 (58%) and $519,850 (67%) for the three months and nine month
periods in 1999, as compared to 1998. This increase in expense can be
attributed to the increase in the total of oil and gas assets owned by the
Company.
General and administration expenses decreased by $51,330, or 4.1%, from
$1,247,903 for the nine months ended September 30, 1998 to $1,196,573 for
the same period in 1999. For the three month period, the decrease was $8,753
(2%), from $420,441 in 1998 to $411,688 in 1999. Legal and accounting
expense for the first nine months of 1999 decreased to $117,370, compared to
$418,630 for the same period in 1998, a $301,260 (72%) decrease. In the
third quarter of 1999, we received a $51,713 reimbursement of previously
incurred legal expenses, which lowered our 1999 litigation costs
dramatically. Marketing expense for the three months and nine months ended
September 30, 1999, decreased by $46,712 (41%) and $44,265 (15%), to $67,252
and $257,926, respectively, compared to $113,964 and $302,191 for the same
periods 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 nine months of 1998, $280,000 was recorded as an impairment loss based
on this assessment. There were no such impairment losses recorded in the
first nine months 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 $286,150 for the nine months ended September
30, 1999 from $239,572 for the same period in 1998, a $46,578 or 19.4%
increase.
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<PAGE>
CAPITAL RESOURCES AND LIQUIDITY:
At September 30, 1999, the Company had current assets totaling $3,409,688 and
current liabilities totaling $5,687,444, a $2,277,756 working capital
deficit. The primary reason for this working capital deficit is an increase
in the Company's accounts payable due to drilling and completion of a greater
number of wells during the period in order to fulfill much of the Company's
drilling obligations on behalf of investors who bought fractional working
interests. 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 nine months ended September 30, 1999, cash
provided by operating activities totaled $2,186,471 compared to $2,146,653
provided by operating activities for the same period in 1998. This increase
in cash provided can be mainly attributed to an increase in accounts payable
related to increased drilling activity 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 $2,359,410 for
the first nine months of 1999, compared to $3,418,001 used by investing
activities for the same period in 1998. The decrease in cash used in 1999
can be primarily attributable to an increase in pipeline and dehydrating
equipment acquired during the period in 1998.
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<PAGE>
FINANCING ACTIVITIES. For the nine months ended September 30, 1999, net
cash provided by financing activities was $9,999, primarily from a decrease
in notes receivable, compared to cash provided by financing activities for
the same period in 1998 of $113,236. This decrease in net cash provided was
mainly due to the Company's repurchase of its own common stock in order to
retire it, during the period in 1998.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held on August 19,1999.
At the meeting, the shareholders voted to re-elect each of the Company's
seven directors to serve until the 2000 annual meeting. The board of
directors and management had solicited proxies in favor of each of the
proposals and election of seven directors. No proxies were solicited in
opposition to any proposal nor opposing the nominees for director that were
recommended by the board, and the following seven directors were re-elected:
Harry E. Hosmer, Donald H. Hosmer, Stephen M. Hosmer, Rodney Nahama, Oscar A.
Hildebrandt, Gilbert C. L. Kemp, and George Watters. Each director was re-
elected by a vote of 2,768,515 for, 0 against, 15,700 not voting.
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<PAGE>
The shareholders also voted to approve the appointment of Brown, Armstrong,
Randall, Reyes, Paulden and McCown Accoutancy Corporation as the Company's
independent accountants by a vote of 2,766,085 for, 6,200 against, 11,930
not voting.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
We filed no reports on Form 8-K during the third quarter of 1999.
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: November 15, 1999 /s/ Donald H. Hosmer
--------------------------
Donald H. Hosmer, President and
Chief Executive Officer
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> $ 835,366
<SECURITIES> $ 0
<RECEIVABLES> $ 2,079,395
<ALLOWANCES> $ 0
<CURRENT-ASSETS> $ 3,409,688
<PP&E> $17,292,514
<DEPRECIATION> $ 4,395,911
<TOTAL-ASSETS> $17,001,697
<CURRENT-LIABILITIES> $ 5,867,444
<BONDS> $ 0
$ 19,100
$ 175,000
<COMMON> $ 8,240,605
<OTHER-SE> $ 1,931,452
<TOTAL-LIABILITY-AND-EQUITY> $17,001,697
<SALES> $ 5,872,597
<TOTAL-REVENUES> $ 6,286,990
<CGS> $ 3,154,954
<TOTAL-COSTS> $ 6,018,899
<OTHER-EXPENSES> $ 0
<LOSS-PROVISION> $ 0
<INTEREST-EXPENSE> $ 286,150
<INCOME-PRETAX> $ (18,059)
<INCOME-TAX> $ 0
<INCOME-CONTINUING> $ (18,059)
<DISCONTINUED> $ 0
<EXTRAORDINARY> $ 0
<CHANGES> $ 0
<NET-INCOME> $ (18,059)
<EPS-BASIC> $ 0
<EPS-DILUTED> $ 0
</TABLE>
