<PAGE>

FORM 10-QSB

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

 X   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
---  OF 1934
                   For the quarterly period ended May 31, 1999

     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
---             For the transition period from           to

                             Commission file number


                           ROYAL FINANCIAL CORPORATION
------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


           Nevada                                       13-3961109
------------------------------------------------------------------------------
(State or other jurisdiction of             (IRS Employer Identification No.)
incorporation or organization)


              1000 Ballpark Way, Suite 210, Arlington, Texas 76011
------------------------------------------------------------------------------
                    (Address of principal executive offices)


                                 (817) 861-4000
------------------------------------------------------------------------------
                           (Issuer's telephone number)


------------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if changes since last
                                    report)

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 was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes  X  No

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes  No

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:

7,464,382
---------

Transitional Small Business Disclosure Format (Check one): Yes  No X

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         Interim unaudited consolidated financial statements as of May 31,
1999 and for the nine month and three month periods ended May 31, 1998 and
1999 are attached hereto. These financial statements include the accounts of
the Company and all of its subsidiaries after eliminating all material
inter-company accounts and transactions. They reflect all adjustments that
the Company considers necessary for a fair presentation of the financial
position at such date and the results of operations and cash flows for those
periods. Results of operations for the nine months ended May 31, 1999 are not
necessarily indicative of the results that may be expected for the entire
year. It is suggested that these financial statements be read in conjunction
with the consolidated financial statements and the related notes thereto
included in the Company's Form 10-SB as filed with the Securities and
Exchange Commission in November, 1998.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion should be read in conjunction with the
Company's unaudited financial statements and notes thereto included herein.
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
the Company cautions readers regarding certain forward looking statements in
the following discussion and elsewhere in this report and in any other
statement made by, or on the behalf of the Company, whether or not in future
filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which
relate to future operations, strategies, financial results or other
developments. Forward looking statements are necessarily based upon estimates
and assumptions that are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially
from those expressed in any forward looking statements made by, or on behalf
of, the Company. The Company disclaims any obligation to update forward
looking statements.

OVERVIEW

         The Company was originally organized as Davenport Ventures, Inc.
("Davenport") in the state of Nevada on August 18, 1993. In June 1998,
controlling interest in the Company was acquired by certain shareholders of
Royal Mortgage Corporation. On August 10, 1998 the shareholders of Davenport
and Royal Mortgage Corporation, a Texas corporation ("RMC") approved the
terms of a Restated and Amended Agreement and Plan of Merger between the two
entities. As a result of the merger, the total number of common shares
outstanding as of August 18, 1998 (the effective date of the merger) was
7,464,382. The Company changed its name from Davenport Ventures, Inc. to
Royal Financial Corporation and changed its year end from December 31 to
August 31.

         In March 1999, the Company's Form 10-SB was approved by the
Securities and Exchange Commission and the Company became a reporting company
under the Securities Exchange Act of 1934, as amended.

         The Company is a real estate financial holding company which invests
in the asset backed real estate and mortgage markets. The Company's
investments include residential and commercial non-performing mortgages,
distressed residential properties purchased at foreclosure sale auctions, tax
lien certificates which result from unpaid property taxes owed to municipal
and county taxing authorities, ownership and operation of a manufactured
housing community in Florida, and land for future development of manufactured
housing communities.

SOURCES OF REVENUES

Currently, the majority of the Company's net revenues is derived from net
gains and/or losses from the disposition of investment properties and lot
rental income from the Company's manufactured housing community in Florida.
In addition, substantial revenues have been derived from interest earned on
short term investments. Due to the capital nature of many of the Company's
investments, the timing of cash flows from dispositions as well as funds
needed for investment opportunities which may arise has a certain degree of
uncertainty. Management has concluded that the most prudent use of the
Company's cash reserves at this time is in low risk investments that are
readily convertible into cash. In addition to the current sources of revenue
discussed above, the Company will realize revenues from the sale of new
manufactured homes.

As the Company completes expansion and development of additional manufactured
homesites, the Company will purchase model homes directly from the
Manufacturer and sell the homes to persons that decide to live in the
community and rent a lot from the Company.

RESULTS OF OPERATIONS - THREE MONTHS ENDED MAY 31, 1999 AND 1998

         Total revenues increased approximately $42,000 or 75%, to $98,353 for
the three months ended May 31, 1999, as compared to $55,936 for the three months
ended May 31, 1998. The decrease in gain on sale of loans of approximately
$78,000 is primarily attributable to: (i) fewer loans in the portfolio due to
more direct real estate purchases in 1998 and 1999 (the Company obtains title to
the properties at the time of purchase); and (ii) the age of the portfolio - any
properties remaining in the portfolio which were originally purchased as loans
would be foreclosed upon and reflected as the sale of real estate upon
disposition. The increase in gain on sale of real estate of approximately
$121,000 is primarily attributable to (i) more properties reflected as real
estate in the Company's portfolio for the reasons noted above; and (ii) losses
incurred on two individual properties in the three months ended May 31, 1998
whereby the

                                       2
<PAGE>

Company had to buy out the first lien holder prior to being able to sell the
properties. The increase in lot rental income of $44,375 is attributable to
the acquisition of Walden Woods Retirement Village (Walden Woods), a
manufactured housing community in Florida, in June 1998, providing a new
source of revenue for the Company.

         Total expenses increased approximately $452,000 or 23%, to $784,548
for the three months ended May 31, 1999, as compared to $332,401 for the
three months ended May 31, 1998. The increase in offering costs of
approximately $193,000 was due to the write-off of costs incurred in
connection with the Company's offering of up to $50,000,000 8 1/2% Senior
Notes due 2002. This offering, which was expected to close in May 1999, was
unsuccessful. Accordingly, all related costs which had been deferred were
written off in May, 1999. The decrease in interest expense of approximately
$30,000 is attributable to a lower principal balance outstanding in 1999 due
to $8,560,000 of 8 1/2% Senior Convertible Debentures due March 2000 being
converted into common stock of the Company during 1998. The increase in
salaries and benefits of approximately $56,000 is primarily attributable to
an increased number of personnel in the current quarter over the same period
a year ago and a related increase in health insurance costs. The increase in
professional fees of approximately $76,000 is primarily due to a consulting
agreement entered into in 1999 to provide financial and investment services
to the Company and legal fees incurred for various filings. The increase in
promotional expenses of approximately $99,000 is due to the Company taking
steps to raise awareness and establish a market presence by engaging certain
investor relations firms, establishing an internet web site, and other
promotional activities during the current fiscal quarter. In addition, the
Company incurred advertising costs related to Walden Woods, which were not
incurred during the comparable quarter in 1998 due to the acquisition of
Walden Woods in June 1998. Depreciation expense increased approximately
$22,000 due primarily to the acquisition of Walden Woods as well as leasehold
improvements and other office furniture and equipment purchased in 1998. Real
property maintenance expense increased approximately $19,000 due primarily to
the maintenance of Walden Woods which was acquired in June 1998.

RESULTS OF OPERATIONS - NINE MONTHS ENDED MAY 31, 1999 AND 1998

         Total revenue increased approximately $251,000, or 109%, to $479,875
for the nine months ended May 31, 1999, as compared to $229,321 for the nine
months ended May 31, 1998. A decrease in interest income of approximately
$126,000 is primarily attributable to less idle cash due to increased
investment activities including the acquisition and expansion of Walden
Woods, the purchase of model manufactured homes and other investment
activities. The decrease in gain on sale of loans of approximately $76,000 is
primarily attributable to: (i) fewer loans in the portfolio due to more
direct real estate purchases in 1998 and 1999 (the Company obtains title to
the properties at the time of purchase); and (ii) the age of the portfolio -
any properties remaining in the portfolio which a were originally purchased
as loans would be foreclosed upon and reflected as the sale of real estate
upon disposition. The increase in gain on sale of real estate of
approximately $311,000 is primarily due to : (i) more properties reflected as
real estate in the Company's portfolio for the reasons noted above; and (ii)
losses incurred on two individual properties in the three months ended May
31, 1998 whereby the Company had to buy out the first lien holder prior being
able to sell the properties. The increase in lot rental income of $131,946 is
attributable to the acquisition of Walden Woods Retirement Village, a
manufactured housing community in Florida, in June, 1998, providing a new
source of revenue for the Company.

         Total expenses increased approximately $313,000 or 17% to $1,988,040
for the nine months ended May 31, 1999, as compared to $1,675,069 for the
nine months ended May 31, 1998. The increase in offering costs of
approximately $193,000 was due to the write-off of costs incurred in
connection with the Company's offering of up to $50,000,000 8 1/2% Senior
Notes due 2002. This offering, which was expected to close in May 1999, was
unsuccessful. Accordingly, all related costs which had been deferred were
written off in May, 1999. The decrease in interest expense of approximately
$531,000 is attributable to a lower principal balance outstanding in 1999 due
to $8,560,000 of 8 1/2% Senior Convertible Debentures due March 2000 being
converted into common stock of the Company during 1998. The increase in
salaries and benefits of approximately $193,000 is due to an increased number
of personnel in the current year over the comparable period in the prior year
and a related increase in health insurance costs. During 1998, seven
additional personnel were hired, two of which to operate and manage Walden
Woods. Four personnel were terminated in 1999 due to a shift in the Company's
investment strategy and utilization of existing personnel. The increase in
promotional expenses of approximately $211,000 is due to the Company taking
steps to raise awareness and establish a market presence by engaging certain
investor relations firms, establishing an internet web site, and other
promotional activities during the current fiscal year. In addition, the
Company incurred advertising costs related to Walden Woods, which were not
incurred during the comparable period in 1998 due to the acquisition of
Walden Woods in June 1998. Travel and lodging expense decreased approximately
$78,000 primarily due to the shareholder meeting held in Florida in January,
1998. The increase in general and administrative expense of approximately
$50,000 is primarily attributable to: (i) the corporate office in Naples,
Florida not being fully operational until February, 1998 and; (ii)
administrative expenses related to Walden Woods which were not incurred
during the comparable period in 1998 due to the acquisition of Walden Woods
in June 1998. Depreciation expense increased approximately $74,000 due to the
acquisition of Walden Woods as well as leasehold improvements and other
office furniture and equipment purchased in 1998. The increase in insurance
expense of approximately $29,000 is due to: (i) insurance carried on Walden
Woods; (ii) insurance carried on both the Arlington, Texas and Naples,
Florida offices for a longer period during the current year due to the
Naples, Florida office not being fully operational until February, 1998 and
(iii) insurance carried on more investment properties for a longer period of
time in the current year. The increase in taxes payroll and other of
approximately $119,000 is primarily due to the staffing changes discussed
above and real estate taxes incurred as holding costs on the Company's real
estate investments. Real property maintenance expense increased approximately
$72,000 due to the maintenance of Walden Woods which was acquired in June
1998 and the maintenance of the Company's other investment properties for a
longer period in the current year.

LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents were $.5 million and $3.9 million at May 31,
1999 and August 31, 1998, respectively. The decrease is attributable to
approximately $2.3 million of cash used in operating activities, approximately
$917,000 and $136,000 used in

                                       3
<PAGE>

investing and financing activities, respectively. The outflow of cash from
operating activities is primarily attributable to corporate and property
operations, the payment of $350,000 to certain consulting firms who have been
engaged to assist the Company in obtaining financing and establishing a
market presence, and purchases of model manufactured homes for Walden Woods
totalling approximately $827,000. The Company utilized $917,000 of cash flow
primarily in the following investing activities: (i) the purchase of
residential and commercial properties ($1.3 million); (ii) the purchase of
mortgage loans ($589,000); (iii) expansion of the Walden Woods park
development ($797,000); (iv) investment in Florida tax lien certificates
($232,000) and; (v) investments in land parcels in Florida ($507,000) on
which the Company plans to develop additional manufactured housing
communities.

         The Company has entered into certain agreements and/or letters of
intent, as discussed below, to purchase various parcels of land in the state
of Florida. The Company intends to develop this land into manufactured
housing retirement communities over the next six to nine months.

         In December, 1998, the Company paid a $112,500 deposit in connection
with a contract to purchase approximately 30 acres in Charlotte County,
Florida. Upon closing of the contract, which is subject to the resolution of
certain contingencies, an additional payment of $217,500 will be required.

         In April, 1999, the Company paid a $270,000 deposit in connection
with a contract to purchase approximately 330 acres in Wildwood, Florida. The
purchase price is $1,400,000. The closing of this contract is conditioned
upon the resolution of certain contingencies.

         The Company entered into an agreement on March 25, 1999 to purchase
approximately 65 acres in Charlotte County, Florida for $725,000. The Company
signed a letter of intent on March 18, 1999 to purchase 15 acres located in
Punta Gorda, Florida for $172,500. Both of these transactions closed in June,
1999. Approximately $500,000 of the purchase price was paid with proceeds
from the sale of a multi-family property the Company owned in California.

         The Company's offering of up to $50,000,000 8 1/2% Senior Notes due
2002, ("Notes") under Regulation S of the Securities Act of 1933, which was
scheduled to close in May, 1999, was unsuccessful. Obtaining this financing
was critical to the Company's success. A significant component of the
Company's growth strategy is the acquisition and development of manufactured
housing retirement communities, the purchase of model homes as well as other
real estate related investments. The Company believes that the proceeds from
the ongoing dispositions of loans, real estate properties and model homes, as
a part of the Company's normal business operations, along with existing cash
will be sufficient to meet the Company's working capital needs for at least
the next twelve months. However, in order to finance certain strategic
acquisition and developement opportunities, the Company will require
additional funding sources and is currently pursuing alternative sources of
financing. There can be no assurance that the Company will be successful in
implementing its growth strategy or that adequate sources of capital will be
available in the future as needed on terms acceptable to the Company.

         The agreements that the Company had entered into on March 23, 1999
with certain consulting firms to provide financial public relations and
marketing and other corporate advisory services geared to assist the Company
and its growth were terminated in May, 1999. In connection therewith, the
options to purchase 150,000 shares of the Company's common stock that were
issued the principals of one firm were cancelled. In addition, the obligation
to grant options to a second firm to purchase 300,000 shares of the Company's
common stock at $.01 per share in lieu of fees was also cancelled. The
Company no longer has any obligations under these agreements and in June
1999, received a partial refund of approximately $150,000 of amounts paid to
such consulting firms.

YEAR 2000 COMPLIANCE

         The Year 2000 ("Y2K") issue relates to whether computer systems will
properly recognize date-sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. Systems that do
not properly recognize such information could generate erroneous information
or fail. The Company has developed a plan to ensure its mission critical
Information Technology ("IT") systems, such as in-house accounting, network
operating systems, and desktop software systems are compliant with system
requirements to process transactions after the year 1999. In June, 1998, the
Company installed a new financial accounting and reporting package. The
software utilized for these functions is licensed by third party vendors who
have warranted that their systems are Y2K compliant. As a result, although no
assurances can be given, the Company does not expect that any costs relating
to the Y2K issue will be material to its financial condition or result of
operations.

         The Company believes that the greatest exposure lies with third
parties, such as its tenants, service providers, vendors, financial
institutions and the Company's transfer agent and other unaffiliated parties
the Company conducts business with. The Company depends on its tenants for
rents and cash flows, its financial institutions for availability of cash,
its transfer agent to maintain and track investor information, its service
providers and vendors for day-to-day services and other unaffiliated parties
to be able to close on real estate transactions. If any of these third
parties are unable to meet their obligations to the Company because of the
year 2000 problem, such a failure may have a material adverse effect on the
financial condition or results of operations of the Company. Although the
Company is in the process of working with such third parties in order to
attempt to eliminate its year 2000 concerns, the cost and timing of the third
party year 2000 compliance is not within the Company's control, and no
assurance can be given with respect to the cost and timing of such efforts or
the potential effects of any failure to comply. The Company anticipates,
although no assurances can be given, that it would be able to switch
suppliers, banks or service providers if any were unable to convert their
systems appropriately.

                                       4
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         The Company is currently involved as plaintiff in various lawsuits
of a nature regularly incurred in the ordinary course of the Company's
business. Neither the Company nor any of its subsidiaries is involved in any
litigation, arbitration or other proceedings relating to claims which are
material to the Company's financial position or results of operations. To the
best of management's knowledge, there is no pending or threatened litigation
against the Company or any of its subsidiaries.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)    Exhibits

         2.1      Restated and Amended Agreement and Plan of Merger*

         3.1      Articles of Incorporation, as amended of Davenport Ventures,
                  Inc.*

         3.2      By Laws of Davenport Ventures, Inc.*

         3.3      Articles of Merger of Royal Mortgage Corporation into
                  Davenport Ventures, Inc.*

         3.4      Articles of Incorporation, as amended, of Royal Mortgage
                  Corporation*

         3.5      By Laws of Royal Mortgage Corporation

         3.6      Articles of Incorporation, as amended, of Royal Mortgage
                  Brokerage, Inc.*

         3.7      By Laws of Royal Mortgage Brokerage, Inc.*

         3.8      Authorization to Transact Business in Florida of Royal
                  Mortgage Brokerage, Inc.*

         3.9      Articles of Incorporation of Walden Woods of Sugarmill, Inc.*

         3.10     By Laws of Walden Woods of Sugarmill, Inc.*

         3.11     Articles of Incorporation of Walden Woods of Sugarmill
                  Sales, Inc.*

         4.1      8 1/2% Convertible Senior Debenture due 2000 (filed as
                  Exhibit No. 4.1 for the fiscal quarter ended February 28,
                  1999 and incorporated herein by reference)

         27       Financial Data Schedule (filed herewith)

         * filed as exhibits with the same numbers as indicated above on Form
         10-QSB and incorporated herein by reference.

         (b) No reports on Form 8-K have been filed during the period for
which this report is filed

                                       5
<PAGE>

                                   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.

                                    ROYAL FINANCIAL CORPORATION
                                           (Registrant)



Date:  July 13, 1999                  /s/ Michael J. Pilgrim
                                    ----------------------------------------
                                      Michael J. Pilgrim, President & CEO

Date:  July 13, 1999                  /s/ Mark J. Teinert
                                    ----------------------------------------
                                      Mark J. Teinert, Secretary/Treasurer


Date:  July 13, 1999                  /s/ Susan M. Stein
                                    ----------------------------------------
                                      Susan M. Stein, V.P. - Finance







                                       6
<PAGE>

                         ROYAL FINANCIAL CORPORATION

                    Condensed Consolidated Balance Sheets

                                   ASSETS

<TABLE>
<CAPTION>

                                                                            May 31,         August 31,
                                                                             1999              1998
                                                                        ----------------  ---------------
                                                                           (Unaudited)
CURRENT ASSETS:
<S>                                                                     <C>               <C>
     Cash and cash equivalents                                          $        545,931  $     3,912,255
     Prepaid expenses and other current assets                                   528,145          149,009
     Manufactured home inventory                                                 854,443           27,700
                                                                        ----------------  ---------------

          Total Current Assets                                          $      1,928,519  $     4,088,964

INVESTMENTS:
     Mortgage loan portfolio, net                                              3,168,345        2,808,902
     Real estate portfolio, net                                                  680,887        1,357,744
     Other                                                                        24,167          164,156
                                                                        ----------------  ---------------

          Total Investments                                                    3,873,399        4,330,802

PROPERTY AND EQUIPMENT, NET                                                    3,493,778        2,198,979

OTHER ASSETS                                                                      55,758          136,979
                                                                        ----------------  ---------------

          Total Assets                                                  $      9,351,454  $    10,755,724
                                                                        ----------------  ---------------
                                                                        ----------------  ---------------

         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable and accrued liabilities                           $        184,145  $        80,250

8 1/2% SENIOR CONVERTIBLE DEBENTURES DUE MARCH 2000                            1,290,000        1,290,000
                                                                        ----------------  ---------------

          Total Liabilities                                                    1,474,145        1,370,250

COMMITMENTS

STOCKHOLDERS' EQUITY
     Common stock, $.001 par value; authorized 50,000,000 shares;
          issued and outstanding, 7,464,382 shares                      $          7,464  $         7,464
     Additional paid-in capital                                               14,062,657       14,062,657
     Accumulated deficit                                                      (6,192,812)      (4,684,647)
                                                                        ----------------  ---------------

          Total Stockholders' Equity                                           7,877,309        9,385,474
                                                                        ----------------  ---------------

               Total Liabilities and Stockholders' Equity               $      9,351,454  $    10,755,724
                                                                        ----------------  ---------------
                                                                        ----------------  ---------------
</TABLE>

         The accompanying notes are an integral part of these financial
statements.

                                       7
<PAGE>


                                            ROYAL FINANCIAL CORPORATION

                                      Consolidated Statements of Operations

                                                   (Unaudited)

<TABLE>
<CAPTION>

                                                     Three Months Ended                  Nine Months Ended
                                                ------------------------------   -----------------------------------
                                                   5/31/99         5/31/98           5/31/99            5/31/98
                                                --------------  --------------   ----------------   ----------------
   <S>                                          <C>             <C>              <C>               <C>
   Interest                                     $       14,679  $       63,193   $         93,060  $         219,056
   Gains (losses) on sales of
        operating assets
             Loans                                       5,930          84,265              5,930             82,073
             Real Estate                                29,359         (91,522)           239,518            (71,808)
   Lot rental income                                    44,375            ----            131,946               ----
   Other                                                 4,010            ----              9,421               ----
                                                --------------  --------------   ----------------   ----------------

             TOTAL REVENUE                              98,353          55,936            479,875            229,321

   EXPENSES
        Offering Costs                                 192,502            ----            192,502               ----
        Interest                                        39,940          69,771            129,070            659,798
        Salaries and benefits                          132,201          76,273            420,982            227,958
        Professional fees                              119,639          43,614            257,640            246,087
        Contract Labor                                   ----            4,000              ----              58,000
        Promotional                                    100,046             662            215,879              5,355
        Travel and lodging                               1,674           5,322             14,175             92,401
        General and administrative                      26,923          29,850            142,446             92,318
        Depreciation                                    45,127          22,984            129,390             55,640
        Office rent                                     30,267          22,985             98,144             84,479
        Insurance                                        9,641           3,572             34,899              6,287
        Taxes - payroll and other                       49,220          43,137            194,911             75,430
        Real property maintenance                       23,929           4,560             78,234              6,350
        Due diligence                                   13,440           5,671             79,768             64,966
                                                --------------  --------------   ----------------   ----------------

        TOTAL EXPENSES                                 784,548         332,401          1,988,040          1,675,069
                                                --------------  --------------   ----------------   ----------------

             NET LOSS                           $     (686,195) $     (276,465)  $     (1,508,165)  $     (1,445,748)
                                                --------------  --------------   ----------------   ----------------
                                                --------------  --------------   ----------------   ----------------

   Loss per share - basic and diluted           $        (0.09) $        (0.05)  $          (0.20)  $          (0.39)
                                                --------------  --------------   ----------------   ----------------
                                                --------------  --------------   ----------------   ----------------

   Weighted average shares outstanding               7,464,382       5,210,181          7,464,382          3,694,316
                                                --------------  --------------   ----------------   ----------------
                                                --------------  --------------   ----------------   ----------------
</TABLE>




    The accompanying notes are an integral part of these financial statements.

                                       8

<PAGE>

                                            ROYAL FINANCIAL CORPORATION

                                      Consolidated Statements of Cash Flow

                                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                       -----------------------------------
                                                                           5/31/99            5/31/98
                                                                       -----------------  ----------------
     <S>                                                               <C>                <C>
     Cash flows from operating activities
          Net loss                                                     $      (1,508,165) $     (1,445,748)
          Adjustments to reconcile net loss to net cash
               used in operating activities
                    Depreciation                                                 129,390            55,640
                    Amortization/write-off of debenture and
                         offering costs                                          217,078            41,407
                    Write off of loan                                                ---            11,368
                    (Gain)/loss on sale of real estate                          (239,518)           71,808
                    Gain on disposition of loans                                  (5,930)          (93,441)
                    Changes in operating assets and liabilities
                         Prepaid expenses and other assets                    (1,010,651)         (135,762)
                         Accounts payable and accrued liabilities                103,895          (261,382)
                                                                       -----------------  ----------------

                              Net cash used in operating activities           (2,313,901)       (1,756,110)

     Cash provided by (used in) investing activities

          Purchase of land                                                      (507,406)              ---
          Investment in park development                                        (797,222)              ---
          Expenditures for property and equipment                               (119,562)         (222,491)
          Purchases of tax lien certificates                                    (232,143)              ---
          Principal collections on tax lien certificates                         335,496           430,111
          Purchases of loans                                                    (589,299)       (3,540,761)
          Collections on loans                                                    97,757           395,842
          Sale of real estate properties                                       2,207,205           761,878
          Purchases of real estate properties                                 (1,348,028)          (24,084)
          Sale of other investments                                               36,636               ---
          Loan to Davenport Ventures, Inc.                                           ---        (1,600,000)
                                                                       -----------------  ----------------

          Net cash used in investing activities                                 (916,566)       (3,799,505)

     Cash provided by (used in) financing activities

          Sale of common stock, net of offering costs                                ---         3,190,997
          Additional stock offering costs                                            ---           (44,930)
          Debentures issued                                                          ---           150,000
          Expenditures for debenture offering                                   (135,857)              ---
                                                                       -----------------  ----------------
     Net cash (used in) provided by financing activities                        (135,857)        3,296,067

     Net decrease in cash and cash equivalents                                (3,366,324)       (2,259,548)

     Cash and cash equivalents, beginning of period                            3,912,255         6,167,633
                                                                       -----------------  ----------------

     Cash and cash equivalents, end of period                          $         545,931  $      3,908,085
                                                                       -----------------  ----------------
                                                                       -----------------  ----------------
</TABLE>

     The accompanying notes are an integral part of these financial statements.

                                       9
<PAGE>

                           ROYAL FINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements

NOTE A - ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

         Royal Financial Corporation (together with it subsidiaries, the
"Company") is a diversified real estate investment company specializing in the
acquisition and development of retirement manufactured housing communities, the
acquisition of single-family residential properties and tax lien certificates,
and to a lesser extent, the purchase of non-performing and under-performing
mortgage loans at a discount from the balances of the loans. Most of the
Company's current investment properties are located in the state of Florida.

         The Company came into being in August 1998 when Royal Mortgage
Corporation and Davenport Ventures, Inc. merged and the name was changed to
Royal Financial Corporation. The controlling shareholder group of both companies
prior to the merger was substantially the same. Accordingly, the merger was
treated as a combination of entities under common control. The results of
operations reflected in the accompanying consolidated statements of operations
for 1998 include only Royal Mortgage Corporation due to Davenport Ventures, Inc.
having been a non-operating company until June, 1998 when it acquired Walden
Woods Retirement Village (Walden Woods), a manufactured housing community in
Homosassa, Florida.

BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In management's opinion, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation of
the unaudited interim financial statements have been included. Operating results
for interim periods reflected are not necessarily indicative of the results that
may be expected for a full fiscal year. These financial statements should be
read in conjunction with the financial statements and notes thereto for the year
ended August 31, 1998 included in the Company's Form 10-SB which was filed in
November, 1998.

NOTE B - NEW ACCOUNTING STANDARDS

         In March 1998, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB")issued EITF 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions," which provides that
internal costs of identifying and acquiring operating property should be
expensed as incurred. This pronouncement has no material impact on the Company's
financial statements.

         In June 1997, the FASB issued Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131), which required that a public company report financial
and descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available and is used regularly by management in assessing
segment performance and for making operating decisions. This pronouncement is
effective for the Company's financial statements for the year ending August 31,
1999.

NOTE C - LOSS PER SHARE

         In 1998, the Company adopted the provisions of SFAS No. 128, "Earnings
per Share". In accordance with SFAS 128, the Company computes basic earnings
(loss) per common share based on the weighted average number of common shares
outstanding. Diluted earnings per share is computed based on the weighted
average number of common shares outstanding plus the number of additional common
shares that would have been outstanding if dilutive potential common shares had
been issued. No effect has been given to convertible debentures, stock options
or warrants because the effect of assumed conversion or exercise is
anti-dilutive.

NOTE D - CASH FLOW INFORMATION

         Supplemental information on cash flows and noncash investing and
financing transactions is as follows:

<TABLE>
<CAPTION>
                  <S>                                                                 <C>
                  Supplemental Cash Flow Information:
                                Interest paid                                         $   109,650

                  Supplemental Schedule of Non-cash
                                Investing and Financing Activities:
                                     Real estate acquired through foreclosure of loans    111,489
</TABLE>

                                       10

<PAGE>

NOTE E - PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>

         Property and equipment at May 31, 1999 consist of the following:
                  <S>                                                                 <C>
                  Land - future development sites                                     $   508,549
                                     Walden Woods                                       1,368,282
                  Land improvements and buildings (Walden Woods)                          301,337
                  Development in progress (Walden Woods)                                  936,018
                  Furniture, fixtures and equipment - Walden Woods                         83,371
                                                      Other                               230,292
                  Leasehold Improvements                                                  335,063
                                                                                      -----------
                                                                                        3,762,912
                  Less accumulated depreciation                                          (269,134)
                                                                                      -----------
                                                                                      $ 3,493,778
                                                                                      -----------
                                                                                      -----------
</TABLE>

NOTE F - CHANGES IN STOCK OPTIONS

         On May 27, 1999, the stock options that the Company had granted to a
public relations firm in February, 1999 to purchase 150,000 shares of the
Company's common stock at an exercise price of $2.00 per share were cancelled in
connection with the termination of the service agreement with such firm, as
further discussed in NOTE G.

         As of May 31, 1999 there were a total of 1,498,667 options outstanding
at a weighted average exercise price of $2.15.

NOTE G - COMMITMENTS

         The agreement that the Company had entered into on August 24, 1998 with
a financial public relations firm whereby the Company was to pay $15,000 per
month for twelve months beginning August 4, 1998, grant 250,000 options at
various exercise prices and issue 70,000 free-trading shares of common stock
upon filing of a Form S-1 was terminated in December, 1998. The Company no
longer has any obligations under this agreement.

         The agreements that the Company had entered into on March 23, 1999 with
certain consulting firms to provide financial public relations and marketing and
other corporate advisory services geared to assist the Company and its growth
were terminated in May, 1999. In connection therewith, the options to purchase
150,000 shares of the Company's common stock that were issued the principals of
one firm were cancelled. In addition, the obligation to grant options to a
second firm to purchase 300,000 shares of the Company's common stock at $.01 per
share in lieu of fees was also cancelled. The Company no longer has any
obligations under these agreements.

         In December 1998, the Company paid a $112,500 deposit in connection
with a contract to purchase approximately 30 acres in Charlotte County, Florida.
Upon closing of the contract, which is subject to the resolution of certain
contingencies, an additional payment of $217,500 will be required.

          In April, 1999, the Company paid a $270,000 deposit in connection with
a contract to purchase approximately 330 acres in Wildwood, Florida. The
purchase price is $1,400,000. The closing of this contract is conditioned upon
the resolution of certain contingencies.

NOTE H - ADDITIONAL FINANCING

         The Company's offering of up to $50,000,000 8 1/2% Senior Notes due
2002, ("Notes") under Regulation S of the Securities Act of 1933, which was
scheduled to close in May, 1999, was unsuccessful. Costs of approximately
$193,000 related to this offering, which had been deferred, were written off in
May, 1999.

NOTE I - SUBSEQUENT TRANSACTIONS

         The Company entered into an agreement on March 25, 1999 to purchase
approximately 65 acres in Charlotte County, Florida for $725,000. The Company
signed a letter of intent on March 18, 1999 to purchase 15 acres located in
Purta Gorda, Florida for $172,500. Both of these transactions closed in June
1999. Approximately $500,000 of the $897,500 total purchase price for these
properties was paid with proceeds from the sale of a multi-family property the
Company owned in California.

                                       11