<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
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 0-2517
TOREADOR ROYALTY CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-0991164
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4809 Cole Avenue, Suite 108
Dallas, Texas 75205
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 369-0080
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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1999
- -------------------------------- -----------------------------
Common Stock, $0.15625 par value 5,205,671 shares
<PAGE> 2
TOREADOR ROYALTY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
March 31, 1999 and December 31, 1998 (Unaudited) 2
Consolidated Statement of Operations
Three Months Ended March 31, 1999 and 1998 (Unaudited) 3
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1999 and 1998 (Unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
Index to Exhibits 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 264,506 $ 726,187
Short-term investments 1,584,629 1,218,291
Accounts receivable 522,146 517,442
Marketable securities 386,440 374,915
Federal income tax receivable 63,064 63,064
Assets held for sale 161,666 334,489
Other 150,896 61,130
------------ ------------
Total current assets 3,133,347 3,295,518
------------ ------------
Properties and equipment, less accumulated
depreciation, depletion and amortization 16,098,400 16,209,631
Other assets 60,601 78,873
Deferred tax benefit 163,715 198,240
------------ ------------
Total assets $ 19,456,063 $ 19,782,262
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 543,617 $ 587,754
Current portion of long-term debt 720,000 720,000
------------ ------------
Total current liabilities 1,263,617 1,307,754
Long-term debt 7,620,000 7,880,000
------------ ------------
Total liabilities 8,883,617 9,187,754
------------ ------------
Stockholders' equity:
Preferred stock, $1.00 par value, 4,000,000
shares authorized; 160,000 issued 160,000 160,000
Common stock, $0.15625 par value, 10,000,000 shares
authorized; 5,644,071 shares issued 881,886 881,886
Capital in excess of par value 8,205,037 8,202,862
Retained earnings 2,517,598 2,529,371
Accumulated other comprehensive (loss) (37,386) (24,922)
------------ ------------
11,727,135 11,749,197
Treasury stock at cost:
438,400 shares (1,154,689) (1,154,689)
------------ ------------
Total stockholders' equity 10,572,446 10,594,508
------------ ------------
Total liabilities and stockholders' equity $ 19,456,063 $ 19,782,262
============ ============
</TABLE>
The Company uses the successful efforts method of accounting for its oil and
gas producing activities.
See accompanying notes to the consolidated financial statements.
-2-
<PAGE> 4
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------- -----------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Oil and gas sales $ 631,016 $ 635,745
Lease bonuses and rentals 51,351 168,664
Interest and other income 35,084 40,316
Gain on sale of properties 557,227 --
----------- -----------
Total revenues 1,274,678 844,725
----------- -----------
Costs and expenses:
Lease operating expense 144,451 168,713
Dry holes and abandonments -- 71,176
Depreciation, depletion and amortization 221,148 92,775
Geological and geophysical 133,373 58,182
General and administrative 480,426 178,487
Interest expense 176,107 --
----------- -----------
Total costs and expenses 1,155,505 569,333
----------- -----------
Income before federal income taxes 119,173 275,392
Provision for federal income taxes 40,946 93,242
----------- -----------
Net income 78,227 182,150
----------- -----------
Dividends on preferred shares 90,000 --
----------- -----------
Income (loss) applicable to common shares $ (11,773) $ 182,150
=========== ===========
Basic income (loss) per share $ 0.00 $ 0.04
=========== ===========
Diluted income (loss) per share $ 0.00 $ 0.04
=========== ===========
Weighted average shares outstanding
Basic 5,205,671 4,989,060
Diluted 5,217,736 5,063,267
</TABLE>
See accompanying notes to the consolidated financial statements.
-3-
<PAGE> 5
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------- -----------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 78,227 $ 182,150
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 221,148 92,775
Dry holes and abandonments -- 71,176
Gain on sale of oil and gas properties (557,227) --
Decrease (increase) in accounts receivable (4,704) 4,718
Decrease in federal income tax receivable -- 28,512
Decrease (increase) in other current assets (89,766) 5,518
Decrease in accounts payable and accrued liabilities (44,137) (95,627)
Decrease in other assets 18,272 --
Deferred tax expense 40,946 64,730
Other 2,175 --
----------- -----------
Net cash provided (used) by operating activities (335,066) 353,952
----------- -----------
Cash flows from investing activities:
Expenditures for oil and gas property and equipment (76,649) (340,860)
Purchase of short-term investments (366,338) --
Purchases of marketable securities (30,411) --
Proceeds from sale of oil and gas properties 740,050 --
Purchase of furniture and fixtures (43,267) --
----------- -----------
Net cash provided (used) by investing activities 223,385 (340,860)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 166,761
Payment of long-term debt (260,000) --
Payment of preferred dividends (90,000) --
Purchase of treasury stock -- (95,250)
----------- -----------
Net cash provided (used) by financing activities (350,000) 71,511
----------- -----------
Net increase (decrease) in cash and cash equivalents (461,681) 84,603
Cash and cash equivalents, beginning of year 726,187 2,876,652
----------- -----------
Cash and cash equivalents, end of year $ 264,506 $ 2,961,255
=========== ===========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest expense $ 99,385 $ --
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE> 6
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements should be read in the context
of the consolidated financial statements and notes thereto filed with the
Securities and Exchange Commission in the 1998 Annual Report on Form 10-K of
Toreador Royalty Corporation (the "Company"). In the opinion of the Company's
management, the information furnished herein reflects all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results of the interim periods reported herein. Operating
results for the three months ended March 31, 1999 may not necessarily be
indicative of the results for the year ending December 31, 1999.
NOTE 2 - MARKETABLE SECURITIES
Marketable securities at March 31, 1999 consist of several issues of
preferred stock with a fair market value of $386,440 as of March 31, 1999. The
net unrealized loss related to these securities before taxes is $56,646
($37,386 net of tax). The Company has designated these investments as
"securities available for sale" pursuant to Statement of Financial Accounting
Standards No. 115.
NOTE 3 - NON-PRODUCING MINERAL AND ROYALTY INTERESTS
Principal properties include perpetual mineral and royalty interests
acquired by the Company during 1951, 1958 and 1998. These interests total
approximately 1,356,000 net mineral acres underlying approximately 2,579,000
gross acres. These properties include 1,775,000 gross (876,000 net) acres in
Mississippi, Alabama and Louisiana and 804,000 gross (480,000 net) acres
located in the Texas Panhandle and West Texas. It is recognized that the
ultimate realization of the investment in these properties is dependent upon
future exploration and development operations which are dependent upon
satisfactory leasing and drilling arrangements with others and a favorable oil
and gas price environment. Additionally, the Company owns working interests
primarily in Texas, New Mexico and Oklahoma.
-5-
<PAGE> 7
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1999 and 1998
NOTE 4 - ASSET DISPOSITION
Assets held for sale consist of undeveloped mineral and royalty interests which
the Company is currently marketing. In the first quarter of 1999 the Company
sold a portion of the acreage for $777,550 resulting in a pretax gain of
$557,227.
NOTE 5 - INTEREST AND OTHER INCOME
Items in interest and other income consist of:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
------- -------
<S> <C> <C>
Interest $23,043 $37,226
Dividends 11,333 --
Other Income 708 3,090
------- -------
$35,084 $40,316
======= =======
</TABLE>
NOTE 6 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income." Comprehensive
income consists of:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 78,227 $182,150
Unrealized losses on securities (12,464) --
-------- --------
Comprehensive income $ 65,763 $182,150
======== ========
</TABLE>
-6-
<PAGE> 8
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1999 and 1998
NOTE 7 - LONG-TERM DEBT
The credit facility was amended on April 16, 1999 to increase the size
of the facility to $25.0 million. The borrowing base ($2.7 million as of March
31,1999) and all other material terms and conditions will remain the same.
NOTE 8 - EARNINGS PER ORDINARY SHARE
The following table reconciles the numerators and denominators of the
basic and diluted earnings per ordinary share computation for earnings from
continuing operations:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Three months ended March 31, 1999:
Net income $ 78,227
Less: Dividends on preferred shares 90,000
-------------
Loss applicable to common shares (11,773)
Basic income per share 5,205,671 $ 0.00
=============
Effect of dilutive securities:
Stock options -- 12,065
------------- -------------
Income applicable to common shares and
assumed conversions $ (11,773) 5,217,736 $ 0.00
============= ============= =============
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Three months ended March 31, 1998:
Net income $ 182,150
Basic income per share 4,989,060 $ 0.04
=============
Effect of dilutive securities:
Stock options -- 74,207
------------- -------------
Income applicable to common shares and
assumed conversions $ 182,150 5,063,267 $ 0.04
============= ============= =============
</TABLE>
-7-
<PAGE> 9
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-Q,
including, without limitation, statements contained in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the Company's financial position, business strategy, plans and
objectives of management of the Company for future operations, and industry
conditions, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
it can give no assurance that such expectations will prove to be correct. Any
forward-looking statements herein are subject to certain risks and
uncertainties inherent in petroleum exploration, development and production,
including, but not limited to the risk that no commercially productive oil and
gas reservoirs will be encountered; the risk that acquisitions of additional
producing properties may not be feasible, or that such acquisitions may not be
profitable; inconclusive results from 3-D seismic projects; delays or
cancellation of drilling operations as a result of a variety of factors;
volatility of oil and gas prices due to economic and other conditions; intense
competition in the oil and gas industry; operational risks (e.g., fires,
explosions, blowouts, cratering and loss of production); insurance coverage
limitations and requirements; and potential liability imposed by intense
governmental regulation of oil and gas production; all of which are beyond the
control of the Company. Any one or more of these factors could cause actual
results to differ materially from those expressed in any forward-looking
statement. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements disclosed in this
paragraph and otherwise in this report.
LIQUIDITY AND CAPITAL RESOURCES
Historically, most of the exploration activity on our acreage has been
funded and conducted by other oil companies. Exploration activity by third
party oil companies typically generates lease bonus and option income to us. If
such drilling is successful, we receive royalty income from the oil or gas
production but bear none of the capital or operating costs. Since the middle of
1996, we have successfully accelerated the evaluation of several areas of our
mineral acreage as well as increased our ownership in any reserves that were
discovered by acquiring working interests of selected 3-D seismic projects and
any wells drilled as a result of such geological activity.
-8-
<PAGE> 10
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We will expand our drilling focus to geologic regions, particularly
those areas with proven and attractive gas reserves, that can provide
potentially better rates of return on our capital resources. We also plan to
evaluate 3-D seismic projects or drilling prospects generated by third party
operators. If judged geologically and financially attractive by our management,
we will enter into joint ventures on those third party projects or prospects
which are within the capital exploration budget approved by our board of
directors.
We also intend to actively evaluate opportunities to acquire producing
properties that for reasons related to the negative impact of current crude oil
prices represent unique opportunities for us to add additional reserves to our
reserve base. Any such acquisitions will be financed using cash on hand, third
party sources, existing credit facilities or any combination thereof.
Our remaining 1999 capital and exploratory budget, excluding any
acquisitions we may make, could range from $500,000 to $750,000, depending on
the timing of any new seismic surveys and drilling of exploratory and
development wells in which we may hold a working interest position.
At the present time, the primary source of capital for financing our
operations is our cash flow from operations and proceeds from oil and gas
properties sold. During the first quarter of 1999, cash flow provided by
operations and oil and gas properties sold was $404,984.
On November 13, 1997 we obtained a credit facility from Compass Bank.
The credit facility contains borrowing base restrictions and various
affirmative and negative covenants. These covenants, among other things, limit
additional indebtedness, the sale of assets and the payment of dividends,
change of control and require us to meet certain financial tests. We must
maintain a ratio of current assets to current liabilities of at least 1:1.
The credit facility was amended on April 16, 1999 to increase the size
of the facility to $25.0 million. The borrowing base ($2.7 million as of March
31,1999) and all other material terms and conditions will remain the same.
We may reinvest proceeds from option and lease bonuses by taking a
working interest in 3-D seismic projects or in wells. To the extent cash flow
from operations does not significantly increase and external sources of capital
are limited or unavailable, our ability to make the capital investment to
participate in 3-D seismic surveys and increase our interest in projects on our
acreage will be limited. Future funds are expected to be provided through
production from existing producing properties and new producing properties that
may be discovered through exploration of our acreage by third parties or by
ourselves. Funds may also be provided through external financing in the form of
debt or equity. There can be no assurance as to the extent and availability of
these sources of funding.
-9-
<PAGE> 11
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We maintain our excess cash funds in interest-bearing deposits,
managed funds in short-term securities and in marketable securities. In
addition to the properties described above, we also may acquire other producing
oil and gas assets, which could require the use of debt, including the
aforementioned credit facility or other forms of financing. Our management
believes that sufficient funds are available from internal sources and other
third party sources to meet anticipated capital requirements for fiscal 1999.
From October 10, 1995 through April 30, 1999 we have used $1,190,946
of our cash reserves to purchase 451,700 shares of our Common Stock pursuant to
three share repurchase programs approved by the board of directors. On July 23,
1998, our board of directors suspended the policy of share repurchases for the
time being to instead use the Company's excess cash resources toward funding
our participation in third party operated 3-D projects or drilling prospects
and acquisition of producing oil and gas properties. On March 23, 1999, our
board of directors reinstated the common stock repurchase program enabling the
Company to purchase the remaining shares available under the third stock
repurchase plan from time to time and depending on market conditions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 VS.
THREE MONTHS ENDED MARCH 31, 1998
Revenues for the first quarter of 1999 were $1,274,678 versus $844,725
for the same period in 1998. Oil and gas sales were $631,016 on volumes of
38,843 Bbls of oil and 177,987 Mcf of natural gas for the first quarter of 1999
as compared to $635,745 on volumes of 19,977 Bbls and 147,656 Mcf in 1998. This
slight decrease in oil and gas sales reflects an increase in oil and gas volumes
from the Howell Mineral Acquisition which was offset by a substantial decrease
in oil and gas prices. The average price for first quarter 1999 oil sales
decreased 44% to $8.56/Bbl compared to $15.33/Bbl for the same quarter in 1998.
The average price for first quarter 1999 gas sales decreased 25% to $1.68/Mcf
compared to $2.23/Mcf for the same period in 1998. Lease bonuses and rentals for
the first quarter of 1999 were $51,351 versus $168,664 for the same period in
1998. Interest and other income were $35,084 in the first quarter of 1999 versus
$40,316 for the first quarter of 1998. Gain on sale of properties was $557,227
for the first quarter of 1999, primarily due to the sale of approximately 49,700
net mineral acres in Oldham County, Texas which were deemed as non-essential
holdings.
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<PAGE> 12
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Costs and expenses for the first quarter of 1999 were $1,155,505
versus $569,333 for the same period in 1998. Lease operating expenses decreased
14% to $144,451 in 1999 from $168,713 in 1998. Dry holes and abandonments were
zero for the first quarter of 1999 as compared to $71,176 for the same period
in 1998. Depreciation, depletion and amortization increased 138% to $221,148
for the first quarter of 1999 from $92,775 in 1998, primarily reflecting
depletion related to the Howell Mineral Acquisition. Geological and geophysical
expenses increased 129% to $133,373 for the first quarter of 1999 from $58,182
in 1998, primarily reflecting the Company's participation in a 3-D seismic
project in south Texas referred to as the South Orange Grove Project. General
and administrative expenses increased 169% to $480,426 in the first quarter of
1999 from $178,487 for the same period a year ago. This increase in general and
administrative expense resulted primarily from nonrecurring costs incurred
related to the Howell Mineral Acquisition. The nonrecurring costs approximate
$180,000 and include mainly legal and professional costs related to regulatory
matters. The remaining increase related to increased payroll costs due to the
addition of new employees.
During the first quarter of 1999 the Company incurred $176,107 in
interest expense and paid $90,000 for preferred dividends related to the
financing for the Howell Mineral Acquisition.
The Company recognized net income of $78,227, or $0.00 per share
(basic and diluted), for the first quarter of 1999 versus net income of
$182,150, or $0.04 per share (basic and diluted), for the same period in 1998.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
record derivatives on the balance sheet as assets and liabilities, measured at
fair value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This statement is not expected to
have a material impact on the Company's consolidated financial statements. This
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999, with earlier adoption encouraged.
-11-
<PAGE> 13
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 PROJECT
Many computer software systems, as well as certain hardware and
equipment using date-sensitive data, were structured to use a two-digit field
meaning that they may not be able to properly recognize dates in the year 2000.
This problem would most typically be caused by erroneous data calculations,
which results from using two digits to signify a year (century implied),
handling leap years incorrectly or the use of "special" values that can be
confused with legitimate calendar dates. We have developed a plan to address
this issue and are taking steps to review various information technology
systems, such as computer hardware and software, as well as non-information
technology systems, including computer controlled equipment involved in
processing and interpreting 3-D seismic data.
We have completed the initial phases of the plan by identifying all
computerized systems and completing an inventory of our equipment and component
parts. Both information technology and non-information technology systems may
contain embedded technology, which complicates our Year 2000 identification,
assessment, remediation and testing efforts. We are also currently reviewing
all of our systems to determine which are not Year 2000 compliant and will need
to be replaced or modified. This current phase includes comparisons of
inventory to manufacturer's information and/or performance testing. If problems
are identified, we will undertake remediation, replacement or alternative
procedures for non-compliant equipment or facilities on a business priority
basis. Our identification and assessment efforts to date have not identified
any computer equipment or software currently being used which will require
replacement or modification. In addition, in the ordinary course of replacing
computer equipment and software, we intend to obtain replacements that are Year
2000 compliant. We currently anticipate that our identification, assessment,
remediation and testing efforts will continue and depending upon the results of
the assessment efforts, be completed by the end of the second quarter of 1999.
As of March 31, 1999, all costs incurred by us in connection with our
Year 2000 compliance efforts were included within our normal general and
administrative expenses. As of March 31, 1999, the cost incurred was
approximately $19,100. We are currently expensing, as incurred, all costs
related to the assessment and remediation of the Year 2000 issue and funding
such expenses through operating cash flow. However, in certain instances, we
may determine that it would be more practical to replace existing equipment. An
accurate cost cannot be determined prior to the completion of such testing, but
we do not expect that such costs will exceed $25,000.
-12-
<PAGE> 14
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table summarizes the current overall status of the
project with anticipated completion dates:
<TABLE>
<CAPTION>
Phase
------------------------------------------------------------------------------
Component Inventory Assessment/Prioritization Remediation/Contingency
--------- --------- ------------------------- -----------------------
<S> <C> <C> <C>
Software Complete Complete Complete
Hardware Complete Complete Complete
Business Partners Complete Complete 6/30/99
</TABLE>
Risks/Contingency. The failure to remediate critical systems
(software, hardware or embedded systems), or the failure of a material business
partner to resolve critical Year 2000 issues could have a serious adverse
impact on our ability to continue operations and meet obligations. Material
contingencies include the risk that gas pipelines to which our gas wells are
connected suspend operations due to Year 2000 problems or operations and other
payors to the Company are unable to calculate or make payment of our share of
revenues from production. However, until all assessment phases have been
completed, it is impossible to accurately identify the risks, quantify
potential impacts or establish a contingency plan. We have not yet clearly
identified the most likely worst case scenario if we and our material business
partners do not achieve Year 2000 compliance on a timely basis. We currently
intend to complete our contingency planning by June 30, 1999.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Inapplicable.
-13-
<PAGE> 15
TOREADOR ROYALTY CORPORATION
March 31, 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- Inapplicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to a letter agreement dated March 15, 1999, the Company and
the holders of all of the Company's Series A Convertible Preferred Stock (the
"Series A Preferred Stock") agreed to certain changes of the rights of the
Company and the holders of the Series A Preferred Stock, including:
1. The Company shall not exercise its option under paragraph 2 of the
Certificate of Designation of Series A Preferred Stock of the Company (the
"COD") to pay dividends in additional shares of Series A Preferred Stock
and shall instead pay all dividends in cash.
2. The Company shall not exercise its right of redemption under paragraph 6
of the COD prior to December 1, 2004. In the event of an optional
redemption on or after December 1, 2004, the optional redemption price to
be paid to a holder of the Series A Preferred Stock will be calculated in
accordance with a certain formula expressed in greater detail in the
letter agreement.
3. The mandatory redemption under paragraph 7 of the COD shall not be
recognized by either the Company or the holders of the Series A Preferred
Stock. Instead, the Series A Preferred Stock will continue to accrue and
pay dividends and remain in full force and effect as otherwise provided by
the COD.
The foregoing is only a summary and does not purport to be complete. The
express provisions of the letter agreement should be reviewed in their
entirety.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- Inapplicable.
ITEM 5. OTHER INFORMATION -- Inapplicable
-14-
<PAGE> 16
TOREADOR ROYALTY CORPORATION
March 31, 1999
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein:
No. Description of Exhibit:
--- -----------------------
3.1 Form of letter agreement regarding Series A Convertible
Preferred Stock dated March 15, 1999, between Toreador
Royalty Corporation and the holders of Series A
Convertible Preferred Stock (previously filed as
Exhibit 3.10 to Toreador Royalty Corporation Annual
Report on Form 10-K for the year ended December 31,
1998, and incorporated herein by reference).
27 Financial Data Schedule
(b) Current Report on Form 8-K/A dated March 1,1999, pursuant to
Item 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOREADOR ROYALTY CORPORATION,
Registrant
/s/ G. Thomas Graves III
-------------------------
G. Thomas Graves III,
President and Chief Executive Officer
May 13, 1999
-15-
<PAGE> 17
TOREADOR ROYALTY CORPORATION
March 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------- --------------------------------------------------------
<S> <C> <C>
3.1 - Form of letter agreement regarding Series A Convertible
Preferred Stock dated March 15, 1999, between Toreador
Royalty Corporation and the holders of Series A
Convertible Preferred Stock (previously filed as Exhibit
3.10 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference).
27 - Financial Data Schedule
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOREADOR
ROYALTY CORPORATION UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR
THE THREE MONTHS ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 264,506
<SECURITIES> 1,971,069
<RECEIVABLES> 522,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,133,347
<PP&E> 18,969,941
<DEPRECIATION> 2,871,541
<TOTAL-ASSETS> 19,456,063
<CURRENT-LIABILITIES> 1,263,617
<BONDS> 0
0
160,000
<COMMON> 881,886
<OTHER-SE> 9,530,560
<TOTAL-LIABILITY-AND-EQUITY> 19,456,063
<SALES> 631,016
<TOTAL-REVENUES> 1,274,678
<CGS> 0
<TOTAL-COSTS> 979,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,107
<INCOME-PRETAX> 119,173
<INCOME-TAX> 40,946
<INCOME-CONTINUING> 78,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,227
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
