________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 14 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 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 July 30, 2000, there were a total of 3,808,613 shares of registrant's Common
Stock outstanding.
<PAGE> 2
PART I
Item 1. Financial Statements
ROYALE ENERGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
---------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 334,645 $ 1,016,979
Accounts receivable 2,378,276 1,745,408
Note receivable 81,085 84,662
Other current assets 419,083 336,722
---------------- ----------------
Total current assets 3,213,089 3,183,771
---------------- ----------------
Oil and gas properties, at cost
(successful efforts method) 17,701,174 17,178,517
Equipment and fixtures 433,027 391,087
---------------- ----------------
18,134,201 17,569,604
Less accumulated depreciation,
depletion and amortization 5,133,860 4,520,525
---------------- ----------------
13,000,341 13,049,079
---------------- ----------------
Other assets:
Other capitalized costs, net 463,604 618,139
---------------- ----------------
Total Other Assets 463,604 618,139
---------------- ----------------
TOTAL ASSETS $ 16,677,034 $ 16,850,989
================ ================
</TABLE>
(See Notes to Financial Statements)
2
<PAGE> 3
ROYALE ENERGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31,
2000 1999
(Unaudited) (Audited)
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 3,759,654 $ 3,854,159
Deferred revenue from turnkey drilling 1,348,086 1,464,615
---------------- ----------------
Total current liabilities 5,107,740 5,318,774
---------------- ----------------
Long-Term Debt, net of current portion 4,550,000 5,050,000
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 (1,320,911) (1,857,990)
---------------- ---------------
Total paid in capital and accumulated
deficit 7,094,694 6,557,615
Less Cost of treasury stock,
37,500 and 37,500 shares, respectively (94,500) (94,500)
---------------- ---------------
Total Stockholders' equity 7,000,194 6,463,115
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,677,034 $ 16,850,989
================ ================
</TABLE>
(See Notes to Financial Statements)
3
<PAGE>4
ROYALE ENERGY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
<S> <C> <C>
2000 1999
(Unaudited) (Unaudited)
---------------- --------------
Revenues:
Sale of oil and gas $ 1,520,664 $ 1,290,477
Turnkey drilling 2,467,558 2,394,050
Supervisory fees and other 405,257 267,111
---------------- --------------
Total revenues 4,393,479 3,951,638
---------------- --------------
Costs and expenses:
General and administrative 821,396 784,885
Turnkey drilling and development 903,851 1,390,982
Lease operating 470,103 467,975
Lease impairment 50,877 0
Legal and accounting 312,743 169,083
Marketing 307,378 190,674
Depreciation, depletion and amortization 767,870 842,535
---------------- --------------
Total costs and expenses 3,634,218 3,846,134
---------------- --------------
Income from operations 759,261 105,504
Other expense:
Interest 222,182 181,459
---------------- --------------
Income (loss) before income tax expense 537,079 (75,955)
Income tax expense 0 0
---------------- --------------
Net income (loss) $ 537,079 $ (75,955)
=============== ===============
Diluted earnings per share $ 0.14 $ (0.02)
=============== ===============
Basic earnings per share $ 0.14 $ (0.02)
=============== ===============
</TABLE>
(See Notes to Financial Statements)
4
<PAGE> 5
ROYALE ENERGY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
<S> <C> <C>
2000 1999
(Unaudited) (Unaudited)
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 537,079 $ (75,955)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 767,870 842,535
Loss on impairment of assets 50,877 0
(Increase) decrease in:
Accounts receivable (632,868) (37,439)
Receivable from related parties 0 (574)
Prepaid expenses and other current assets (82,361) 12,295
Increase (decrease) in:
Accounts payable and accrued expenses (94,505) 1,638,606
Deferred revenues - DWI (116,529) (1,173,130)
---------------- --------------
Net Cash Provided by Operating Activities 429,563 1,206,338
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties (573,534) (1,408,816)
Other capital expenditures (41,940) (37,991)
---------------- --------------
Net Cash Used by Investing Activities $ (615,474) $ (1,446,807)
---------------- --------------
</TABLE>
(See Notes to Financial Statements)
5
<PAGE> 6
ROYALE ENERGY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
<S> <C> <C>
2000 1999
(Unaudited) (Unaudited)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in receivable from related
parties, net $ 0 $ 0
Decrease in notes receivable 3,577 5,999
Increase in long-term debt 0 0
Principal payments on notes payable (500,000) (200,000)
Treasury stock purchased 0 0
---------------- --------------
Net Cash Used by Financing Activities (496,423) (194,001)
---------------- --------------
Net Decrease in Cash and Cash Equivalents $ (682,334) $ (434,470)
Cash at Beginning of Year 1,016,979 1,016,306
---------------- --------------
Cash at End of Period $ 334,645 $ 581,836
=============== ==============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 222,182 $ 181,459
=============== ==============
Cash paid for taxes $ 0 $ 0
=============== ==============
</TABLE>
(See Notes to Financial Statements)
6
<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 six 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>
Six Months Ended June 30, 2000
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 537,079 3,808,613 $ .14
Effect of dilutive securities
stock options - 2,288
----------- -------------
Diluted EPS
Income available to common
stockholders $ 537,079 3,810,901 $ .14
----------- ------------- ---------
Six Months Ended June 30, 1999
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common
stockholders $ (75,955) 3,808,613 $ (.02)
Effect of dilutive securities stock
options - 294,883
----------- -------------
Diluted EPS
Income available to common
stockholders $ (75,955) 4,103,496 $ (.02)
----------- ------------- ---------
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the six months ended June 30. 2000, Royale Energy achieved a net profit of
$537,079, a $613,034 increase over the net loss in the first six months of
1999 of $75,955. Royale's management attribute this increase to an increase
in oil and gas revenues resulting from higher natural gas prices. Total
revenues for the period were $4,393,479, a $441,841 or 11.2% increase from the
total revenues in 1999 of $3,951,638. For the period in 2000, Royale's net
operating profit was $759,261, a $653,757 or 620% increase over the net
operating profit in the first six months of 1999 of $105,504.
Oil and gas revenues for the six months ended June 30, 2000 were $1,520,664
compared to $1,290,477 for the same period in 1999, which represents a
$230,187 or 17.8% increase. This increase in revenues was mainly due to
an increase in the price Royale received for its natural gas production during
the period in 2000. At the same time in 2000, Royale's oil and gas lease
operating expenses increased only by $2,128, or .45%, to $470,103 for the six
months ended June 30, 2000, from $467,975 for the same period in 1999.
Turnkey drilling revenues for the six months ended June 30, 2000 were
$2,467,558 which were offset by drilling and development costs of $903,851.
For the same period in 1999, turnkey drilling revenues were $2,394,050, while
drilling and development costs were $1,390,982. This represents an increase in
revenues of $73,508 or 3.1% and a decrease in costs of $487,131 or 35%. The
decrease in drilling costs in 2000 were mainly due to the drilling of more
wells in the first six months of 1999 as compared to the same period in 2000
and the expensing of more land and geological and geophysical in the 1999
period.
The aggregate of supervisory fees and other income was $405,257 for the six
months ended June 30, 2000, an increase of $138,146 (51.7%) from $267,111
during the same period in 1999. This increase was mainly due to partial
collection on a stipulated judgement in favor of Royale Energy against a
former investor consultant.
Depreciation, depletion and amortization expense decreased to $767,870 from
$842,535, a decrease of $74,665 (8.9%) for the six months ended June 30, 2000,
as compared to 1999. The depletion rate is calculated using production as a
percentage of reserves, and the decrease in the depletion rate was due to
increased reserves during the year in 1999.
General and administration expenses increased by $36,511, or 4.7%, from
$784,885 for the six months ended June 30, 1999 to $821,396 for the same
period in 2000. Legal and accounting expense increased to $312,743 for the
period, compared to $169,083 for the period in 1999, a $143,660 (85%)
8
<PAGE> 9
increase. This increase can be attributed to higher cost of regulatory
compliance and litigation costs during the first six months of 2000.
Marketing expense for the six months ended June 30, 2000, increased $116,704
or 61.2%, to $307,378, compared to $190,674 for the same period in 1999.
Royale's marketing expense varies from period to period according to the
number of marketing events attended by Company personnel and associated travel
costs.
Royale Energy periodically assesses the value of significant proved and
unproved properties and charges impairments of value to expense. During the
first six months of 2000, $50,877 was recorded as a lease impairment based on
this assessment. There were no such impairment losses recorded in first six
months of 1999.
During the year in 1998, Royale extended an existing credit line from a major
commercial bank. Because of borrowings pursuant to this credit line and an
increase in the rate of interest, interest expense increased to $222,182 for
the six months ended June 30, 2000 from $181,459 for the same period in
1999, a $40,723 or 22.4% increase.
CAPITAL RESOURCES AND LIQUIDITY:
At June 30, 2000, Royale Energy had current assets totaling $3,213,089 and
current liabilities totaling $5,107,740, a $1,894,651 working capital deficit.
The primary reason for this working capital deficit is Royale's obligation to
complete wells on behalf of investors who bought fractional working interests
from it. Royale 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
Royale Energy has sufficient liquidity for the short term.
OPERATING ACTIVITIES. For the six months ended June 30, 2000, cash provided
by operating activities totaled $429,563 compared to $1,206,338 provided by
operating activities for the same period in 1999. This decrease in cash
provided can be mainly attributed to the decrease in accounts payable for the
period in 2000 when compared to 1999.
INVESTING ACTIVITIES. Net cash used by investing activities, primarily in
capital acquisitions of oil and gas properties, amounted to $615,474 for the
first six months of 2000, compared to $1,446,807 used by investing activities
for the same period in 1999. 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 2000.
FINANCING ACTIVITIES. For the six months ended June 30, 2000, net cash used
by financing activities was $496,423, compared to cash used by financing
activities for the same period in 1999 of $194,001. This increase in net cash
used was mainly due to the decrease in the use of Royale's credit line during
the period in 2000 when compared to 1999.
9
<PAGE> 10
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the second quarter of 2000.
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: August 14, 2000
/s/ Donald H. Hosmer
--------------------------------------
Donald H. Hosmer, President and
Chief Executive Officer
10
