<PAGE> 1
________________________________________________________________________________
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 March 31, 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 March 31, 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>
March 31, December 31,
2000 1999
(Unaudited) (Audited)
---------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 665,087 $ 1,016,979
Accounts receivable 1,795,404 1,745,408
Note receivable 84,240 84,662
Other current assets 393,386 336,722
---------------- ----------------
Total current assets 2,938,117 3,183,771
---------------- ----------------
Oil and gas properties, at cost
(successful efforts method) 17,358,435 17,178,517
Equipment and fixtures 431,133 391,087
---------------- ----------------
17,789,568 17,569,604
Less accumulated depreciation,
depletion and amortization 4,814,557 4,520,525
---------------- ----------------
12,975,011 13,049,079
---------------- ----------------
Other assets:
Other capitalized costs, net 540,872 618,139
---------------- ----------------
Total Other Assets 540,872 618,139
---------------- ----------------
TOTAL ASSETS $ 16,454,000 $ 16,850,989
================ ================
</TABLE>
(See Notes to Financial Statements)
<PAGE> 3
ROYALE ENERGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) (Audited)
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 3,185,527 $ 3,854,159
Deferred revenue from turnkey drilling 1,851,211 1,464,615
---------------- ----------------
Total current liabilities 5,036,738 5,318,774
---------------- ----------------
Long-Term Debt, net of current portion 4,792,503 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 (1,715,446) (1,857,990)
---------------- --------------
Total paid in capital and accumulated
deficit 6,700,159 6,557,615
Less Cost of treasury stock,
37,500 and 37,500 shares, respectively (94,500) (94,500)
---------------- --------------
Total Stockholders' equity 6,605,659 6,463,115
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,454,000 $ 16,850,989
================ ================
</TABLE>
(See Notes to Financial Statements)
<PAGE>4
ROYALE ENERGY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
----------------------------
<S> <C> <C>
2000 1999
(Unaudited) (Unaudited)
---------------- --------------
Revenues:
Sale of oil and gas $ 651,512 $ 612,178
Turnkey drilling 994,293 1,136,503
Supervisory fees and other 252,512 140,895
---------------- --------------
Total revenues 1,898,317 1,889,576
---------------- --------------
Costs and expenses:
General and administrative 430,550 337,534
Turnkey drilling and development 281,015 618,862
Lease operating 219,094 233,899
Lease impairment 18,552 0
Legal and accounting 185,583 66,227
Marketing 139,634 47,223
Depreciation, depletion and amortization 371,298 441,894
---------------- --------------
Total costs and expenses 1,645,726 1,745,639
---------------- --------------
Income from operations 252,591 143,937
Other expense:
Interest 110,047 91,813
---------------- --------------
Income before income tax expense 142,544 52,124
Income tax expense 0 0
---------------- --------------
Net income $ 142,544 $ 52,124
Diluted earnings per share $ 0.04 $ 0.01
=============== ===============
Basic earnings per share $ 0.04 $ 0.01
=============== ===============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 5
ROYALE ENERGY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
----------------------------
<S> <C> <C>
2000 1999
(Unaudited) (Unaudited)
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 142,544 $ 52,124
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 371,298 441,894
Loss on impairment of assets 18,552 -
(Increase) decrease in:
Accounts receivable (49,996) (229,121)
Receivable from related parties - 2,487
Prepaid expenses and other current assets (56,664) 376
Increase (decrease) in:
Accounts payable and accrued expenses (668,632) 612,956
Deferred revenues - DWI 386,596 (689,290)
---------------- --------------
Net Cash Provided by Operating Activities 143,698 191,426
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties (198,469) (487,698)
Other capital expenditures (40,046) (2,072)
---------------- --------------
Net Cash Used by Investing Activities $ (238,515) $ (489,770)
---------------- --------------
</TABLE>
(See Notes to Financial Statements)
<PAGE> 6
ROYALE ENERGY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
----------------------------
<S> <C> <C>
2000 1999
(Unaudited) (Unaudited)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in receivable from related
parties, net $ - $ 2,487
Decrease in notes receivable 422 3,999
Principal payments on notes payable (257,497) (625,000)
---------------- --------------
Net Cash Used by Financing Activities (257,075) (618,514)
---------------- --------------
Net Decrease in Cash and Cash Equivalents $ (351,892) $ (916,858)
Cash at Beginning of Year 1,016,979 1,016,306
---------------- --------------
Cash at End of Period $ 665,087 $ 99,448
=============== ==============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 110,047 $ 58,935
=============== ==============
</TABLE>
(See Notes to 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, 2000
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 142,544 3,808,613 $ .04
Effect of dilutive securities
stock options - 2,288
----------- -------------
Diluted EPS
Income available to common
stockholders $ 142,544 3,810,901 $ .04
----------- ------------- ---------
Three Months Ended March 31, 1999
-------------------------------------
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>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first three months of 2000, Royale Energy achieved a net profit of
$142,544, a $90,420 or 173% increase over the net profit in the first three
months of 1999 of $52,124. Royale's management attribute this increase to
higher profits from turnkey drilling. Total revenues for the period were
$1,898,317, a $8,741 or .46% increase from the total revenues in 1999 of
$1,889,576. For the period in 2000, Royale's net operating profit was
$252,591, a $108,654 or 75.5% increase over the net operating profit in the
first three months of 1999 of $143,937.
Turnkey drilling revenues for the quarter ended March 31, 2000 were $994,293
which were offset by drilling and development costs of $281,015. For the same
period in 1999, turnkey drilling revenues were $1,136,503, while drilling and
development costs were $618,862. This represents a decrease in revenues of
$142,210 or 12.5% and a decrease in costs of $337,847 or 54.6%. The decrease
in drilling revenues and costs in 2000 were mainly due to the drilling of one
well in the first quarter of 2000 versus the drilling four wells during the
same period in 1999.
Oil and gas revenues for the three months ended March 31, 2000 were $651,512
compared to $612,178 for the same period in 1999, which represents a $39,334
or 6.4% increase. This increase in revenues was mainly due to a increase in
the price Royale received for its natural gas production during the period in
2000.
Royale's oil and gas lease operating expenses decreased by $14,805, or 6.3%,
to $219,094 for the three months ended March 31, 2000, from $233,899 for the
same period in 1999. This decrease in costs can be attributed to operating
efficiencies realized by changes made in compression facilities during 1999.
The aggregate of supervisory fees and other income was $252,512 for the
quarter ended March 31, 2000, an increase of $111,617 (79.2%) from $140,895
during the same period in 1999. This increase was mainly due to a litigation
settlement in favor of the Company against a former consultant.
Depreciation, depletion and amortization expense decreased to $371,298 from
$441,894, a decrease of $70,596 (16%) for the quarter ended March 31, 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 $93,016, or 27.6%, from
$337,534 for the quarter ended March 31, 1999 to $430,550 for the same period
in 2000. Legal and accounting expense increased to $185,583 for the period,
<PAGE> 9
compared to $66,227 for the quarter in 1999, a $119,356 (180%) decrease.
This increase can be attributed to higher litigation costs during the quarter
in 2000. Marketing expense for the quarter ended March 31, 2000, increased
$92,411 or 196%, to $139,634, compared to $47,223 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 quarter of 2000, $18,552 was recorded as a lease impairment
based on this assessment. There were no such impairment losses recorded in
first quarter 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 $110,047
for the quarter ended March 31, 2000 from $91,813 for the same period in
1999, a $18,234 or 19.9% increase.
CAPITAL RESOURCES AND LIQUIDITY:
At March 31, 2000, Royale Energy had current assets totaling $2,938,117 and
current liabilities totaling $5,036,738, a $2,098,621 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 quarter ended March 31, 2000, cash provided by
operating activities totaled $143,698 compared to $191,426 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 $238,515 for the
quarter in 2000, compared to $489,770 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 quarter ended March 31, 2000, net cash used by
financing activities was $257,075, compared to cash used by financing
activities for the same period in 1999 of $618,514. This decrease in net cash
used was mainly due to the decrease in the use of Royale's credit line during
the period in 1999 when compared to 2000.
<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
On March 20, 2000, we filed an 8-K reporting the settlement of a lawsuit and
entry of a judgment in favor of Royale and against a former consultant to the
company.
On March 31, 2000, we filed an 8-K reporting our explanation of Royale's
recent stock prices, and reporting on our financial results for the last
quarter of 1999 and first 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: May 15, 2000
/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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 665,087
<SECURITIES> 0
<RECEIVABLES> 1,879,644
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,938,117
<PP&E> 17,789,568
<DEPRECIATION> 4,814,557
<TOTAL-ASSETS> 16,454,000
<CURRENT-LIABILITIES> 5,036,738
<BONDS> 0
19,100
175,000
<COMMON> 8,240,605
<OTHER-SE> (1,809,946)
<TOTAL-LIABILITY-AND-EQUITY> 16,454,000
<SALES> 1,645,805
<TOTAL-REVENUES> 1,898,317
<CGS> 500,109
<TOTAL-COSTS> 1,645,726
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,047
<INCOME-PRETAX> 142,544
<INCOME-TAX> 0
<INCOME-CONTINUING> 142,544
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,544
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
