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 September 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 November 11, 1996 was: 1,420,000 Shares of Common Stock Royale Investments, Inc. BALANCE SHEETS
Sept. 30, Dec. 31, 1996 1995 (Unaudited) ASSETS REAL ESTATE INVESTMENTS: Property subject to operating leases $25,027,358 $25,027,358 Less: accumulated depreciation 1,818,840 1,403,020 23,208,518 23,624,338 CASH AND CASH EQUIVALENTS 143,799 257,970 MARKETABLE SECURITIES 537,235 580,121 OTHER ASSETS 362,150 316,944 $24,251,702 $24,779,373
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Mortgage notes payable $14,718,451 $14,915,643 Dividends payable 177,500 177,500 Accounts payable and other liabilities 86,023 97,922 14,981,974 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 (3,097,870) (2,779,290) 9,269,728 9,588,308 $24,251,702 $24,779,373
Royale Investments, Inc. STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 INCOME: Rental income $616,525 $609,045 $1,844,187 $1,827,136 Interest income 7,858 11,392 25,120 37,065 624,383 620,437 1,869,307 1,864,201 EXPENSES: Operations and management 79,153 80,832 269,276 261,765 Mortgage and other interest 310,941 316,135 936,812 951,630 Depreciation and amortization 141,771 141,610 425,312 425,710 Administrative and general 3,715 7,034 23,987 27,236 535,580 545,611 1,655,387 1,666,341 NET INCOME $ 88,803 $ 74,826 $ 213,920 $ 197,860 PER COMMON SHARE: Net income $.06 $.05 $.15 $.14 Dividends declared $.13 $.13 $.38 $.38 Weighted average number of shares outstanding 1,420,000 1,420,000 1,420,000 1,420,000 FUNDS FROM OPERATIONS $227,410 $213,433 $629,741 $613,681 PER SHARE $.16 $.15 $.44 $.43
Royale Investments, Inc. STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended Sept 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 213,920 $ 197,860 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 425,312 425,710 Amortization of marketable securities (20,842) - Changes in operating assets and liabilities: (Increase) decrease in other assets (54,697) 12,102 Decrease in accounts payable and other liabilities (11,899) (169,536) Net cash provided by operating activities 551,794 466,136 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: Refund of mortgage acquisition costs - 11,188 Principal payments on mortgage loans (197,193) (175,562) Dividends paid (532,500) (532,500) Net cash (used) by financing activities (729,693) (696,874) NET DECREASE IN CASH (114,171) (230,738) CASH AND CASH EQUIVALENTS: Beginning of period 257,970 1,130,864 End of period $ 143,799 $ 900,126 Supplementary data: Income taxes paid $4,542 $4,542 Interest paid $944,952 $951,247
Royale Investments, Inc. NOTES TO FINANCIAL STATEMENTS September 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 nine months ended September 30, 1996, should not be considered indicative of the results that may be expected for the 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 nine month periods ended September 30, 1996 and 1995, the Company owned and leased seven properties in five states to operators of retail food stores. Revenues for the third quarter and for the nine months ended September 30, 1996, increased slightly over the comparable periods of 1995 due to an increase in rent income from the Minneapolis Cub store, which was partially offset by a decrease in interest income. Expenses in 1996 were generally consistent with 1995 and with management's expectations. Mortgage interest decreased in 1996, and is the primary reason for the increase in net income. Net income increased to $89,000 for the third quarter of 1996 versus $75,000 for the third quarter of 1995, a 19% increase. For the nine months ended September 30, 1996, net income increased 8% to $214,000 from $198,000 in the first nine months of 1995. The Company considers Funds from operations ("FFO") along with net income and cash flows as a measure of the Company's operating performance and liquidity. FFO is essentially net income computed in accordance with generally accepted accounting principles, but excluding depreciation expense and gains (or losses) from the sales of property. For the third quarter of 1996, FFO increased 6.5% to $227,000 from $213,000 in 1995. For the nine months ended September 30, 1996, FFO increased to $630,000 versus $614,000 for the first nine months of 1995. Liquidity and Capital Resources The Company's properties are all leased on a triple-net basis, which places the risk of rising property costs, such as maintenance insurance and property taxes, 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 management and administrative expenses, dividends and mortgage payments. Property acquisitions have been funded by equity offerings and mortgage borrowings. Net cash provided by operating activities totaled $552,000 and $466,000 for the nine months ended September 30, 1996 and 1995, respectively. The increase was primarily the result of changes in operating assets and liabilities arising from timing differences in receipts and disbursements from year to year. The Company considers its liquidity to be sufficient to meet its operating and distribution requirements for the remainder of 1996. The Company invests in short-term treasury securities from time to time, and net cash provided by investing activities reflect those transactions. Net cash used in financing activities totaled $730,000 and $697,000 for the nine months ended September 30, 1996 and 1995, respectively, including dividends paid to shareholders. The increase is due primarily to the increase in mortgage amortization. The Company declared a dividend of $177,500, or $.125 per share, on September 24, 1996, payable to shareholders of record on September 30, 1996. The dividend was paid on October 15, 1996. PART II OTHER INFORMATION 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 September 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: November 14, 1996 ROYALE INVESTMENTS, INC. By:________________________ Vernon R. Beck Chief Executive Officer By:________________________ Kenneth R. Neubauer Chief Financial Officer