SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB _______________________________________________________ [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1996 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 0-20047 I.R.S. Employer Identification Number 41-1691930 Royale Investments, Inc. 3430 List Place Minneapolis,MN 55416 Telephone: (612) 920-4078 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 requirements for the past 90 days. Yes X No_____ The number of shares outstanding of the Registrant's stock as of August 10, 1996 was: 1,420,000 Shares of Common Stock Outstanding Royale Investments, Inc. BALANCE SHEETS
June 30, Dec. 31, 1996 1995 (Unaudited) ASSETS REAL ESTATE INVESTMENTS: Property subject to operating leases $25,027,358 $25,027,358 Less: accumulated depreciation 1,680,234 1,403,020 23,347,124 23,624,338 CASH AND CASH EQUIVALENTS 184,031 257,970 MARKETABLE SECURITIES 530,091 580,121 OTHER ASSETS 369,056 316,944 $24,430,302 $24,779,373
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Mortgage notes payable $14,787,795 $14,915,643 Dividends payable 177,500 177,500 Accounts payable and other liabilities 106,581 97,922 15,071,876 15,191,065 STOCKHOLDERS' EQUITY: Common stock - $.01 par value Authorized - 50,000,000 shares Issued - 1,420,000 shares 14,200 14,200 Additional paid-in capital 12,353,398 12,353,398 Distributions in excess of accumulated earnings (3,009,172) (2,779,290) 9,358,426 9,588,308 $24,430,302 $24,779,373
Royale Investments, Inc. STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 INCOME: Rental income $616,616 $609,045 $1,227,662 $1,218,091 Interest income 7,912 14,736 17,262 25,672 624,528 623,781 1,244,924 1,243,763 EXPENSES: Operations and management 101,701 98,652 189,883 180,933 Mortgage and other interest 312,280 309,091 625,871 635,494 Depreciation and amortization 141,771 142,050 283,541 284,100 Administrative and general 4,710 4,175 20,511 20,202 560,462 553,968 1,119,806 1,120,729 NET INCOME $ 64,066 $ 69,813 $ 125,118 $ 123,034 PER COMMON SHARE: Net income $.05 $.05 $.09 $.09 Dividends declared $.13 $.13 $.25 $.25 Weighted average number of shares outstanding 1,420,000 1,420,000 1,420,000 1,420,000 FUNDS FROM OPERATIONS $202,673 $208,420 $402,332 $400,248 PER SHARE $.14 $.15 $.28 $.28
Royale Investments, Inc. STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 125,118 $ 123,034 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 283,541 284,100 Amortization of marketable securities (13,698) Changes in operating assets and liabilities: Increase in receivables (55,876) (Increase) decrease in other assets (2,562) 26,735 Increase (decrease) in accounts payable and other liabilities 8,658 (57,077) Net cash provided by operating activities 345,181 376,792 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity of marketable securities 588,000 Purchase of marketable securities (524,272) - Net cash provided by investing activities 63,728 - CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage loans (127,848) (117,941) Dividends paid (355,000) (479,250) Net cash (used) by financing activities (482,848) (597,191) NET DECREASE IN CASH (73,939) (220,399) CASH AND CASH EQUIVALENTS: Beginning of period 257,970 1,130,864 End of period $ 184,031 $ 910,465 Supplementary data: Income taxes paid $3,125 $2,992 Interest paid $626,514 $642,289
Royale Investments, Inc. NOTES TO FINANCIAL STATEMENTS June 30, 1996 Note 1 - Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 1996, should not be considered indicative of the results that may be expected forthe year ended December 31, 1996. The accompanying financial statements and footnotes thereto should be read in conjunction with the company's annual report on Form 10-KSB for the year ended December 31, 1995. ROYALE INVESTMENTS, INC. ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Results of Operations During the six month periods ended June 30, 1996 and 1995, the Company owned and leased seven properties to operators of retail food stores. Revenues for the second quarter and for the six months ended June 30, 1996, increased slightly over the comparable periods of 1995 due to an increase in rent income from the Minneapolis Cub store, but was offset by a decrease in interest income. Expenses in 1996 were generally consistent with 1995 and with management's expectations. Net income decreased by $6,000 for the second quarter of 1996 compared to the second quarter of 1995, but increased $2,000 for the comparable six month periods ended June 30, 1996 and 1995. This was the result of timing differences in recording expenses. The Company considers Funds from operations ("FFO") in evaluating property acquisitions and its operating performance, and believes that FFO should be considered along with net income and cash flows as a measure of the Company's operating performance and liquidity. Since depreciation expense was consistent in 1996 and 1995, and is the only adjustment that the Company makes to net income in arriving at FFO, the resulting changes of ($6,000) for the second quarter, and $2,000 for the six months ended June 30, 1996, were the same as net income for each of the comparable periods, as previously discussed. Liquidity and Capital Resources The Company's properties are all leased on a triple-net basis, which places the risk of rising operating and maintenance costs on the tenant. The leases generally provide that the tenant is also responsible for roof and structural repairs. Hence, the Company's only demand for funds has been for the payment of operating expenses, dividends and mortgage payments. Property acquisitions have been funded by equity offerings and mortgage borrowings. Net cash provided by operating activities totaled $345,000 and $377,000 for the six months ended June 30, 1996 and 1995, respectively. As discussed previously, net income and FFO were generally consistent in the two periods. Therefore, the decrease was the result of changes in operating assets and liabilities arising from timing differences in receipts and disbursements. The Company considers its liquidity and ability to generate cash to be sufficient to meet its operating and distribution requirements for 1996. The Company invests in short-term treasury securities from time to time, and investing activities reflect those transactions. Net cash used in financing activities totaled $483,000 and $597,000 for the six months ended June 30, 1996 and 1995, respectively, including dividends paid to shareholders. The Company declared a dividend of $177,500, or $.125 per share, on June 17, 1996, payable to shareholders of record on July 1, 1996. The dividend was paid on July 15, 1996. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On May 20, 1996, the Company held its Annual Shareholders Meeting. The following matters were voted upon at the meeting: The election of six directors to serve until the next annual meeting and until their successors are elected and qualified. The results of the election appear below: Abstentions Votes Against and broker Name Votes for or withheld non-votes Vernon R. Beck 1,241,831 24,716 153,453 John Parsinen 1,236,466 30,081 153,453 Orvin J. Hall 1,242,466 24,081 153,453 Kurt Schoenrock 1,242,466 24,081 153,453 Kenneth D. Wethe 1,242,466 24,081 153,453 Allen C. Gehrke 1,242,466 24,081 153,453 No other matters were voted upon at the meeting. Item 6. Exhibits and Reports on Form 8-K a) Exhibits filed with Form 10-QSB Exhibit 27. Financial Data Schedule b) No reports filed on Form 8-K for the quarter ended June 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on it's behalf by the undersigned, thereunto duly authorized. Dated: August 14, 1996 ROYALE INVESTMENTS, INC. By:________________________ Vernon R. Beck Chief Executive Officer By:________________________ Kenneth R. Neubauer Chief Financial Officer