As filed with the SEC on January 15,2002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 3 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, 2001 |
Commission File No. 0-22750 |
ROYALE ENERGY, INC.
|
California |
33-0224120 |
|
(State or other jurisdiction of incorporation or organization |
(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: 619-881-2800
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, 2001, there were a total of 4,385,654
shares of registrant's Common Stock outstanding after giving retroactive effect to a 15% stock dividend on the registrant's shares which was distributed to shareholders of record on May 25, 2001.PART I
Item 1. Financial Statements
ROYALE ENERGY, INC.
BALANCE SHEETS
|
ASSETS |
March 31, 2001 (Unaudited) ------------------ |
December 31, 2000 (Audited) ----------------- |
|
Current assets: Cash and cash equivalents |
$3,409,188 |
$2,106,841 |
|
Accounts receivable |
3,867,003 |
6,407,397 |
|
Note receivable |
78,119 |
73,010 |
|
Other current assets |
410,780 ------------------ |
415,488 ------------------ |
|
Total Current Assets |
7,765,090 ------------------ |
9,002,736 ------------------ |
|
Oil and gas properties, at cost, (successful efforts method) |
17,949,379 |
18,496,465 |
|
Equipment and fixtures |
468,332 ------------------ |
436,713 ------------------ |
|
18,417,711 |
18,933,178 |
|
|
Less accumulated depreciation, depletion and amortization |
5,895,140 ------------------ |
5,535,530 ------------------ |
|
12,522,571 ------------------ |
13,397,648 ------------------ |
|
|
Other assets: |
||
|
Other capitalized costs, net |
231,802 ------------------ |
309,069 ------------------ |
|
Total Other Assets |
231,802 ------------------ |
309,069 ------------------ |
|
TOTAL ASSETS |
$ 20,519,463 =========== |
$22,709,453 =========== |
(See Notes to Financial Statements)
1
ROYALE ENERGY, INC.
BALANCE SHEETS
|
March 31, 2001 (Unaudited) ------------------ |
December 31, 2000 (Audited) ----------------- |
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||
|
Current liabilities: |
||
|
Accounts payable and accrued expenses |
$5,987,607 |
$6,641,354 |
|
Deferred revenue from turnkey drilling |
1,520,641 ------------------ |
1,635,300 ------------------ |
|
Total Current Liabilities |
7,508,248 ------------------ |
8,276,654 ------------------ |
|
Long-Term Debt, net of current portion |
500,000 |
4,952,089 |
|
Redeemable preferred stock: |
||
|
Series A, convertible preferred stock, no par value, |
||
|
259,250 shares authorized; 10,780 and 10,780 |
||
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shares, respectively, issued and outstanding |
19,100 ------------------ |
19,100 ------------------ |
|
Stockholders' Equity |
||
|
Common stock, no par value, authorized |
||
|
10,000,000 shares, issued and outstanding |
||
|
4,369,451 and 4,369,451 shares, respectively |
8,248,105 |
8,248,105 |
|
Convertible preferred stock, Series AA, no par value, |
||
|
147,500 shares authorized; 50,308 and 50,308 |
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|
shares issued and outstanding, respectively |
175,000 |
175,000 |
|
Accumulated earnings |
4,163,510 ------------------ |
1,133,005 ------------------ |
|
Total paid in capital and accumulated earnings |
12,586,615 |
9,556,110 |
|
Less cost of treasury stock, 37,500 and 37,500 shares, |
||
|
respectively |
(94,500) ------------------ |
(94,500) ------------------ |
|
Total Stockholders' Equity |
12,492,115 ------------------ |
9,461,610 ------------------ |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$20,519,463 =========== |
$22,709,453 =========== |
(See Notes to Financial Statements)
2
ROYALE ENERGY, INC.
STATEMENTS OF INCOME
|
Three Months Ended March 31, |
||
|
2001 (Unaudited) |
2000 (Audited) |
|
|
Revenues: |
||
|
Sale of oil and gas |
$ 4,262,858 |
$ 651,512 |
|
Turnkey drilling |
1,521,505 |
994,293 |
|
Supervisory fees and other |
167,504 |
252,512 |
|
Total revenues |
5,951,867 |
1,898,317 |
|
Costs and expenses: |
||
|
General and administrative |
481,054 |
430,550 |
|
Turnkey drilling and development |
754,032 |
281,015 |
|
Lease operating |
301,383 |
219,094 |
|
Lease impairment |
266,454 |
18,552 |
|
Legal and accounting |
154,384 |
185,583 |
|
Marketing |
213,344 |
139,634 |
|
Depreciation, depletion and amortization |
436,877 |
371,298 |
|
Total costs and expenses |
2,607,528 |
1,645,726 |
|
Income from operations |
3,344,339 |
252,591 |
|
Other expense: |
||
|
Interest |
50,312 |
110,047 |
|
Income before income tax expense |
3,294,027 |
142,544 |
|
Income tax expense |
263,522 |
0 |
|
Net income |
$ 3,030,505 |
$ 142,544 |
|
Diluted earnings per share |
$ 0.69 |
$ 0.03 |
|
Basic earnings per share |
$ 0.64 |
$ 0.03 |
(See Notes to Financial Statements)
3
ROYALE ENERGY, INC.
STATEMENTS OF CASH FLOWS
|
Three Months Ended March 31, |
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|
2001 (Unaudited) |
2000 (Audited) |
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||
|
Net income (loss) |
3,030,505 |
142,544 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||
|
Depreciation, depletion and amortization |
436,877 |
371,298 |
|
Loss on impairment of assets |
266,454 |
18,552 |
|
(Increase) decrease in: |
||
|
Accounts receivable |
2,540,394 |
(49,996) |
|
Receivable from related parties |
-0- |
-0- |
|
Prepaid expenses and other current assets |
4,708 |
(56,664) |
|
Increase (decrease) in: |
||
|
Accounts payable and accrued expenses |
(128,995) |
(668,632) |
|
Deferred revenues - DWI |
(114,659) |
386,596 |
|
Net Cash Provided by Operating Activities |
6,035,284 |
143,698 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||
|
Expenditures for oil and gas properties |
(244,120) |
(198,469) |
|
Other capital expenditures |
(31,619) |
(40,046) |
|
Net Cash Used by Investing Activities |
(275,739) |
(238,515) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||
|
(Increase) decrease in receivable from related parties, net |
-0- |
-0- |
|
Decrease in notes receivable |
(5,109) |
422 |
|
Principal payments on notes payable |
(4,452,089) |
(257,497) |
|
Net Cash Used by Financing Activities |
(4,457,198) |
(257,075) |
|
Net Increase (decrease) in Cash and Cash Equivalents |
1,302,347 |
(351,892) |
|
Cash at Beginning of Year |
2,106,841 |
1,016,979 |
|
Cash at End of Period |
$ 3,409,188 |
$ 665,087 |
|
SUPPLEMENTAL INFORMATION: |
||
|
Cash paid for interest |
50,312 |
110,047 |
|
Cash paid for taxes |
20,000 |
0 |
(See Notes to Financial Statements)
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 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.
Note 2 - Earnings Per Share (SFAS 128)
Basic and diluted earnings per share are calculated as follows:
|
Three Months Ended March 31, 2001 |
|||
|
Income (Numerator) |
Shares (Denominator) |
Per-Share Amount |
|
|
Basic Earnings Per Share: |
|||
|
Net income available to common stock |
$ 3,030,505 |
4,369,451 |
$ .69 |
|
Diluted Earnings Per Share: |
|||
|
Effect of dilutive securities and stock options |
315,188 |
($.05) |
|
|
Net income available to common stock |
$ 3,030,505 |
4,684,639 |
$ .64 |
|
Three Months Ended March 31, 2000 |
|||
|
Income (Numerator) |
Shares (Denominator) |
Per-Share Amount |
|
|
Basic Earnings Per Share: |
|||
|
Net income available to common stock |
$ 142,544 |
4,379,905 |
$ .03 |
|
Diluted Earnings Per Share: |
|||
|
Effect of dilutive securities and stock options |
-0- |
315,188 |
$ -0- |
|
Net income available to common stock |
$ 142,544 |
4,695,093 |
$ .03 |
Note 3 - Stock Dividend
The number of outstanding common and preferred shares of the Company's capital stock, on March 31, 2001, and December 31, 2000, have been adjusted retroactively to give effect to the issuance of a stock dividend of 15% of the shares of the Company's capital stock to shareholders of record on May 25, 2001. The per share earnings statement in Note 2 above, also uses per share figures that retroactively reflect the 15% stock dividend.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first three months of 2001, Royale Energy achieved a net profit of $3,030,505, a $2,887,961 or 2026% increase over the net profit of $142,544 in the first three months of 2000. Royale=s management attribute this to an increase in oil and gas sales resulting from increased production and higher natural gas prices. Total revenues for the period were $5,951,867, an increase of $4,053,550 or 214% from the total revenues of $1,898,317 in 2000. For the period in 2001, Royale=s net operating profit was $3,344,339, an increase of $3,091,748 or 1224% over the net operating profit of $252,591 in the first three months of 2000.
Oil and gas revenues for the three months ended March 31, 2001 were $4,262,858 compared to $651,512 for the same period in 2000, which represents a $3,611,346 or 554% increase. This increase in revenues was mainly due to an increase in the quantity sold and price Royale received for its natural gas production during the period in 2001.
Royale=s oil and gas lease operating expenses increased by $82,289, or 37.6%, to $301,383 for the three months ended March 31, 2001, from $219,094 for the same period in 2000. This increase in costs can be attributed to the increase in the number of wells operated by Royale Energy in the first quarter of 2001 when compared to the first quarter of 2000, due to the wells drilled and placed into production during the year in 2000.
Turnkey drilling revenues for the quarter ended March 31, 2001 were $1,521,505 which were offset by drilling and development costs of $754,032. For the same period in 2000, turnkey drilling revenues were $994,293, while drilling and development costs were $281,015. This represents an increase in revenues of $527,212 or 53% and an increase in costs of $473,017 or 168%. The increase in drilling revenues and costs in 2001 was mainly due to the drilling of three wells in the first quarter of 2001 versus the drilling one well during the same period in 2000.
The aggregate of supervisory fees and other income was $167,504 for the quarter ended March 31, 2001, a decrease of $85,008 (33.7%) from $252,512 during the same period in 2000. This decrease was mainly due to partial collection on a stipulated judgement in favor of Royale Energy against a former consultant during the period in 2000.
Depreciation, depletion and amortization expense increased to $436,877 from $371,298, an increase of $65,579 (17.7%) for the quarter ended March 31, 2001, as compared to 2000. This increase in expense can be attributed to the increase in the number of oil and gas assets owned by Royale.
6
General and administration expenses increased by $50,504, or 11.7%, from $430,550 for the quarter ended March 31, 2000 to $481,054 for the same period in 2001. Legal and accounting expense decreased to $154,384 for the period, compared to $185,583 for the quarter in 2000, a $31,199 (16.8%) decrease. This decrease can be attributed to a decrease in litigation costs during the quarter in 2001. Marketing expense for the quarter ended March 31, 2001, increased $73,710 or 52.8%, to $213,344, compared to $139,634 for the same period in 2000. Royale Energy's marketing expense varies from period to period according to the number of marketing events attended by Company personnel and associated travel costs.
Pursuant to SFAS No. 121, we periodically assess the value of significant proved and unproved properties and charges impairments of value to expense. As a result of this assessment, $266,454 was recorded as a lease impairment in the first quarter of 2001. We had capitalized lease and land costs of $1,407,532, of which management estimated that one sixth could possibly be impaired. The impairment occurred because we identified various locations that appeared no longer viable as drilling prospects due to our continuing geological and geophysical analysis. We recorded $18,552 as impaired in the same period in 2000.
During 2000, Royale extended an existing credit line from a major commercial bank. Because of a decrease in borrowings pursuant to this credit line, interest expense decreased to $50,312 for the quarter ended March 31, 2001 from $110,047 for the same period in 2000, a $59,735 or 54.3% decrease.
CAPITAL RESOURCES AND LIQUIDITY:
At March 31, 2001, Royale Energy had current assets totaling $7,765,090 and current liabilities totaling $7,508,248, netting a $256,842 working capital reserve. Our capital expenditure commitments occur as we decide to drill wells to develop its prospects. We generally do not decide to drill any prospect until we have sold enough of the working interest in a prospect to third parties to assure that we have sufficient funds on hand to drill each prospect. We place funds that we receive from third party investors into an escrow account until they are required for expenditures on each well. We have only negligible capital expenditure needs in addition to those needs that are satisfied from selling part of the working interest in prospects. We have not, in past years, experienced shortages of funds needed to satisfy our capital expenditure requirements. We expect that our available credit and cash flows from operations will be sufficient any capital expenditure needs that are not satisfied from sales of working interests.
We had cash and cash equivalents at March 31, 2001 of $3.4 million, consisting primarily of short-term money market investments, compared to $2.1 million at December 31, 2000. Our available but unused line of committed bank credit totaled approximately $5.5 million at March 31, 2001. We repaid all existing bank debt in the second quarter, increasing our unused line of credit to $6 million. The debt was repaid using revenues from current operations.
7
We ordinarily fund our operations and cash needs from current revenues from operations. We receive a large percentage of the revenue generated by our sales of working interests to third parties during the fourth quarter of each year, as individual high net worth investors make investments according to their own year end financial planning. We also incur a large percentage of our costs for drilling activities in the third and fourth quarters of each year. We believe that we have sufficient liquidity to fund all of our operating and capital expenditure requirements for the remainder of 2001 and do not foresee any liquidity demands that cannot be met from cash flow from operations.
We had approximately $1.2 million in drilling and development costs, capitalized and expensed, for the three months ended March 31, 2001. We expect capital expenditures for the remainder of 2001 to be approximately $3.3 million. We expect that cash flow from operations should supply sufficient funds to fulfill capital expenditure requirements for the remainder of 2001. Occasionally we analyze significant oil and gas property acquisitions from other industry members. If such an acquisition occurs, we may use our existing credit facility to fund the acquisition.
OPERATING ACTIVITIES. For the quarter ended March 31, 2001, cash provided by operating activities totaled $6,035,284 compared to $143,698 provided by operating activities for the same period in 2000. This increase in cash provided can be mainly attributed to increased oil and gas sales during the period in 2001.
INVESTING ACTIVITIES. Net cash used by investing activities, primarily in capital acquisitions of oil and gas properties, amounted to $275,739 for the first quarter in 2001, compared to $238,515 used by investing activities for the same period in 2000. The increase in cash can be primarily attributable to an increase in turnkey drilling which occurred during the period in 2001.
FINANCING ACTIVITIES. For the quarter ended March 31, 2001, net cash used by financing activities was $4,457,198, compared to cash used by financing activities for the same period in 2000 of $257,075. This increase in net cash used was mainly due to the decrease in the use of Royale=s credit line during the period in 2001 when compared to 2000.
8
PART II
Item 5 Other Information
15% STOCK DIVIDEND DECLARED
On March 27, 2001, the board of directors declared a 15% stock dividend, payable only shares of our common stock, to all shareholders of record as of May 25, 2001. Based on the number of shares outstanding on March 31, 2001 572,042 shares would be issued to existing shareholders in the dividend payment.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
None
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.
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ROYALE ENERGY, INC. |
|
|
Date: January 14, 2002 |
Stephen Hosmer |
|
Stephen M. Hosmer, Chief Financial Officer and Director |
9