UNITED STATES
                       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 July 31, 1998

                                       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 1-12835


                         GENERAL AMERICAN ROYALTY, INC.
             (Exact name of registrant as specified in its charter)


           Delaware                                    75-2468002
  (State or other jurisdiction of                   (I.R.S. Employer
  incorporation or organization)                   Identification No.)

                          One Energy Square, Suite 1005
                             4925 Greenville Avenue
                                  Dallas, Texas
                    (Address of principal executive offices)
                                      75206
                                   (Zip Code)
                                 (214) 361-8535
              (Registrants' telephone number, including area code)

         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 ___

         As of July 31, 1998,  there were 1,031,500  shares of the  Registrant's
Common Stock, par value $.001 per share, outstanding.

         Traditional Small Business Disclosure Format (check one):
Yes__ No X

<PAGE>

                         PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                         GENERAL AMERICAN ROYALTY, INC.
                                  BALANCE SHEET
<S>                                                                        <C>    

                                                          July 31, 1998     October 31,
                                                           (Unaudited)          1997
                                                           -----------          ----
                                     ASSETS
Current assets:
   Cash                                                        $ 88,608       $ 14,967
   Accounts receivable-oil & gas                                   --           26,224
   Accounts receivable expense advances- officers                 2,516           --
   Accounts receivable-other                                       --            1,750
   Prepaid expenses                                                --            4,819
                                                            -----------    -----------

Total Current Assets                                             91,124         47,760

Royalty interest in oil and gas properties, less accumulated
   depletion of $87,658                                            --          466,966
Prepaid Consulting Fees                                            --           50,717
Other assets, net of amortization of $6,740 and $7,218            2,525          7,491
                                                            -----------    -----------
Total Assets                                                   $ 93,649       $572,934
                                                            ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                         $     4,619    $    24,886
   Accounts payable-shareholder                                    --            4,808
   Note payable shareholder                                        --          300,000
                                                            -----------    -----------
Total current liabilities                                         4,619        329,694
                                                            -----------    -----------
Commitments

Total liabilities                                                 4,619        329,694
                                                            -----------    -----------
Stockholders' equity: 
Common stock, $.001 par value, 20,000,000 shares
   authorized, 1,031,500 issued and outstanding                   1,032          1,032
Preferred stock, $.001 par value, 4,000,000 shares
   authorized, no shares issued or outstanding
Additional paid-in capital                                    1,245,647      1,245,647
Accumulated deficit                                          (1,157,649)    (1,003,439)
                                                            -----------    -----------
Total stockholders' equity                                       89,030        243,240
                                                            -----------    -----------
      Total liabilities and stockholders' equity            $    93,649    $   572,934
                                                            ===========    ===========
</TABLE>

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

<PAGE>

                         GENERAL AMERICAN ROYALTY, INC.
                             STATEMENT OF OPERATIONS
                                   (Unaudited)

<TABLE>
<S>                                                                         <C>            <C>   

                                                  Three Months Ended              Nine Months Ended
                                                       July 31,                        July 31,
                                               --------------------------    --------------------------
                                                    1998          1997            1998          1997
                                                   ------        ------          ------         -----
Revenues:
Oil and gas royalty income                     $      --      $    34,990    $    53,522    $   153,448
Other income                                          --             --            7,547           --
Gain (Loss) on sale of royalty interests           (61,831)          --           29,100           --
                                               -----------    -----------    -----------    -----------
         Total revenues                            (61,831)        34,990         90,169        153,448
                                               -----------    -----------    -----------    -----------
Cost and expenses:
   Production taxes and transportation costs          --            6,242          5,790         31,595
   General and administrative                       72,307         78,522        186,422        264,741
   Amortization of deferred financing costs           --             --            1,863         25,154
   Depreciation, depletion and amortization            191         14,304         31,545         42,856
   Interest Expense                                  1,227          9,887         18,759         20,147
                                               -----------    -----------    -----------    -----------
         Total Cost and expense                $    73,725    $   108,955    $   244,379    $   384,493
                                               -----------    -----------    -----------    -----------
Net loss                                       $  (135,556)   $   (73,965)   $  (154,210)   $  (231,045)
                                               ===========    ===========    ===========    ===========
Net loss per common share                             (.13)          (.08)          (.15)          (.26)
                                               ===========    ===========    ===========    ===========
Weighted average number of
   common shares outstanding                     1,031,500        921,150      1,031,500        904,870
                                               ===========    ===========    ===========    ===========

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

                         GENERAL AMERICAN ROYALTY, INC.
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                           Nine Months Ended
                                                                July 31,
                                                        ------------------------
                                                            1998        1997
                                                           ------      ------
Cash flows from operating activities:
      Net loss                                          $(154,210)   $(231,045)
   Adjustments to reconcile net loss to net cash used
      in operating activities
         Depreciation, depletion and amortization          31,545       42,856
         Amortization of deferred financing costs           1,863       25,154
         Gain on sale of royalty interests                (29,100)        --
         Change in accounts receivable                     25,458        3,373
         Change in prepaid expenses                        55,536       (6,610)
         Change in accounts payable                       (25,075)      (1,224)
         Change in other assets                             2,529         (206)
                                                        ---------    ---------
Net cash used in operating activities                     (91,454)    (167,702)
                                                        ---------    ---------
Cash flows from investing activities:
     Purchase of equipment                                   --         (1,670)
     Sale of royalty interests                            465,095         --
                                                        ---------    ---------
Net cash provided (used) in investing activities          465,095       (1,670)
                                                        ---------    ---------
Cash flows from financing activities:
         Issuance of common stock                            --         55,750
         Proceeds from borrowings                          15,000      500,000
         Payments on borrowings                          (315,000)    (370,000)
                                                        ---------    ---------
Net cash provided (used) by financing activities         (300,000)     185,750
                                                        ---------    ---------
Net increase in cash                                       73,641       16,378

Cash at beginning of period                                14,967       37,916
                                                        ---------    ---------
Cash at end of period                                   $  88,608    $  54,294
                                                        =========    =========


Supplemental Information:
   Cash paid for interest                               $  18,912    $  16,687
                                                        =========    =========


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

<PAGE>

                         GENERAL AMERICAN ROYALTY, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (Unaudited)



<TABLE>
<CAPTION>


                                                           Additional                      Total
                                     Common Stock            Paid-In     Accumulated    Stockholders'
                                  Shares       Amount        Capital       Deficit        Equity
<S>                                                                     <C>            <C>  


Balance at October 31, 1997     1,031,500   $     1,032   $ 1,245,647   $(1,003,439)   $   243,240

Net loss                             --            --            --        (154,210)      (154,210)
                              -----------   -----------   -----------   -----------    -----------
                                            

Balance July 31, 1998           1,031,500   $     1,032   $ 1,245,647   $(1,157,649)   $    89,030
                              ===========   ===========   ===========   ===========    ===========


</TABLE>








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

<PAGE>

                         GENERAL AMERICAN ROYALTY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)



The accompanying  unaudited financial  statements reflect the financial position
as of July 31,  1998 and the  results  of  operations  and cash flows of General
American Royalty, Inc. (the "Company") for the three and nine month period ended
July 31, 1998 and July 31, 1997. The financial  statements have been prepared in
conformity  with  generally  accepted  accounting  principals  and contain  such
adjustments as management feels are necessary to present fairly, in all material
aspects, the financial position and results of operations of the Company.


1.  Summary of Significant Accounting Policies:
    -------------------------------------------

General American Royalty,  Inc. (the "Company") was incorporated on December 28,
1992 in the  state of  Delaware  as  Hermes  Capital  Management,  Inc.  and was
inactive  until it changed  its name on  October  23,  1995 to General  American
Royalty,  Inc.  The Company was engaged in the business of  acquiring,  managing
producing oil and gas royalty, overriding royalty and mineral interests in Texas
and New  Mexico  until  it  became  necessary  for the  Company  to sell all its
interests  to satisfy  short term debt  requirements.  The Company is  currently
investigating  business  situations  and  opportunities  which may or may not be
related to the energy business.

Cash and Cash Equivalents
-------------------------

The Company  considers  all highly  liquid debt  instruments  purchased  with an
original maturity of three months or less to be cash equivalents.

Royalty Interests in Oil and Gas Properties
-------------------------------------------

Costs  of  acquiring   interests  in  producing  royalty  interests,   including
evaluation  costs,  were capitalized and depleted on a straight-line  basis over
the estimated lives of the related reserves.  The Company estimated the lives of
reserves to be ten years in fiscal  year 1996 and revised the  estimate to seven
years in fiscal year 1997.  The Company sold its  remaining  royalty and mineral
interests effective May 1, 1998,  therefore,  this change in accounting estimate
had no effect on net  income and in basic and  diluted  net income per share for
the three months ended July 31,1998,  however, this change did cause an increase
in the net loss and basic and diluted net loss per share and for the nine months
ended  July  31,  1998 of  $9,292  and  $.009.  The  Company  annually  reviewed
significant properties for impairment by comparing undiscounted estimated future
net cash flows to the carrying amount of the asset. If impairment was indicated,
the asset was written down to its estimated fair value.

<PAGE>



                         GENERAL AMERICAN ROYALTY, INC.
                    NOTES TO FINANCIAL STATEMENTS, Continued



Other Property
--------------

Property and equipment is primarily  office  equipment,  and is carried at cost.
Depreciation is provided using the  straight-line  method over estimated  useful
lives of three years. Gain or loss on retirement or sale or other disposition of
assets is included in income in the period of disposition.

Loss Per Share
--------------

Loss per share is calculated in accordance with Financial  Accounting  Standards
Board  Statement No. 128,  "Earnings  Per Share".  Earnings or loss per share is
based on the  weighted  average  number of shares  of common  stock  outstanding
during the period.  As of July 31, 1998 the Company had no outstanding  options,
warrants or other potentially dilutive securities.

Income Taxes
------------

Income taxes are provided  for the tax effects of  transactions  reported in the
financial  statements  and  consist of taxes  currently  due,  if any,  plus net
deferred taxes related primarily to differences  between the bases of assets and
liabilities  for  financial  and income tax  reporting.  Deferred tax assets and
liabilities  represent the future tax return  consequences of those differences,
which will either be taxable or deductible  when the assets and  liabilities are
recovered  or settled.  Deferred  tax assets  include  recognition  of operating
losses that are available to offset future  taxable  income and tax credits that
are available to offset future income taxes. Valuation allowances are recognized
to limit recognition of deferred tax assets where  appropriate.  Such allowances
may be reversed when circumstances provide evidence that the deferred tax assets
will more likely than not be realized.

Continuation as a Going Concern
-------------------------------

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  The sale of all of its oil and gas
royalty and  mineral  interests  has  positioned  the  Company  with no debt and
positive  working capital of $86,505,  at July 31, 1998, . However,  the Company
has no sources of income  which  raises  substantial  doubt about its ability to
continue  as a going  concern.  It is  management's  opinion  that it can find a
substantial  private  company,   with  demonstrated  success  in  an  attractive
industry, to merge into General American Royalty.

<PAGE>


                         GENERAL AMERICAN ROYALTY, INC.
                    NOTES TO FINANCIAL STATEMENTS, Continued



Use of Estimates and Certain Significant Estimates
--------------------------------------------------

The  preparation  of the  Company's  financial  statements  in  conformity  with
generally accepted accounting  principles  requires the Company's  management to
make  estimates  and  assumptions  that  affect the  amounts  reported  in these
financial  statements and accompanying  notes.  Actual results could differ from
those estimates.


2.  Notes Payable
    -------------

On July 02, 1998, the Company paid off its $39,247 note payable to a shareholder
which was due on March 31, 1998.  The principal  balance of $315,000 was reduced
by $275,753 on March 26, 1998 and $39,247 on July 2, 1998,  using  proceeds from
the sale of royalty  interests.  As of July 31,  1998 the  Company  has no notes
payable.

In  connection  with the note  above,  the Company  recorded  $5,961 of deferred
financing costs. As of July 31, 1998, all remaining  deferred financing costs of
$1,863, had been charged to operations.


3.  Related Party Transactions
    --------------------------

As of July 31, 1998 the Company has accounts receivable from travel advances due
from the Company's president of approximately $2,516.


4.  Equity Transactions
    -------------------

During fiscal 1997, the Company issued  options to three  corporate  entities in
exchange for financial public  relations and investment  banking  services.  The
fair  market  value of the  options at the date of grant was  $590,000.  Of this
amount,  $50,717 was recorded as prepaid  consulting  fees of which  $41,768 and
$50,717 of  amortization  expense was  included  in general  and  administrative
expense for the three and nine months  ended July 31,  1998,  respectively.  The
prepaid  consulting fees were being  amortized over a three year life,  however,
management  determined that these fees no longer have a value to the Company and
elected to expense the  remaining  balance of $41,768 in the quarter  ended July
31, 1998.  The remainder of the fair market value of the options was expensed in
the year ended October 31, 1997.

<PAGE>



                         GENERAL AMERICAN ROYALTY, INC.
                    NOTES TO FINANCIAL STATEMENTS, Continued



5.  Stock Based Compensation
    ------------------------

Incentive Stock Option Plan
---------------------------

In September  1997,  the Board of Directors  approved an incentive  stock option
plan for certain key officers and directors under which 2,500,000  shares of the
Company's common stock may be issued.  The plan must be ratified and approved by
the Company's shareholders. There were 2,100,000 options granted to key officers
and directors during  February,  1998. The options were exercisable at $5.25 per
share and expired in November  2002.  The market  price at the date of grant was
$5.00 per share.

On June 11, 1998,  all of the 2,100,000  options  which had been  granted,  were
terminated at the  direction of the board of directors.  As of July 31, 1998 the
Company has no outstanding stock options.


<PAGE>



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


LIQUIDITY AND CAPITAL RESOURCES


         Since 1996 the Company has relied upon the  proceeds  from the sales of
crude oil and natural gas from royalty and overriding  royalty  interests as its
principal  internal source of liquidity.  Cash generated from such sales did not
reached a sufficient level to cover  administrative and overhead  expenses.  All
crude oil and  natural  gas royalty  interests  owned by the  Company  were sold
during the  current  fiscal  year which  eleminates  these  revenues as a future
source of liquidity.

         The Company  utilized sales of its common stock and secured debt during
the previous  year as its primary  sources of external  capital.  Proceeds  from
these sources were used to acquire royalty  interests in producing crude oil and
natural gas wells and for working  capital.  During 1996, the Company  purchased
royalty,  overriding  royalty and mineral interests in several producing oil and
gas properties.

         After  closing  the unit  equity  offering  in 1997,  the  Company  was
prohibited from obtaining additional equity capital until January 1998 to comply
with securities regulations on integration of offerings. This has restricted the
Company's  ability  to  acquire  royalty  assets  and to repay  short-term  debt
obligations as they become due with permanent equity capital.  During the fiscal
year ended October 1997 and the nine months ended July 31, 1998, the Company did
not acquire any mineral and royalty interests.

         In March  1998  the  Company  sold  its  royalty  interests  in  twelve
Fruitland Coal Seam wells located in San Juan County,  New Mexico. The net sales
proceeds  of  $279,541  were  used  to  reduce  the  Company's  short-term  debt
obligation of $315,000 by $275,753 and the balance was used for working capital.

         In July  1998  the  Company  sold its  remaining  royalty  and  mineral
interests in Texas and New Mexico.  The  transaction  was effective May 1, 1998.
The net sales proceeds of $185,554 were used to payoff the Company's  short-term
debt obligation of $39,247 and payables. These interests had a net book value of
$247,385,  which resulted in a loss of $61,831. During the 22 months the Company
owned the properties,  net revenues of approximately $138,500 were recorded. The
Company now owns no oil and gas royalty or mineral interests.

         The Company is currently  seeking a substantial  private company,  with
demonstrated success in an attractive industry,  to merge with. The Company will
be considering  merger  candidates  engaged in industries  other than the energy
industry.

<PAGE>



RESULTS OF OPERATIONS


Three and Nine Months Ended July 31, 1998 Compared
to the Three and Nine Months Ended July 31, 1997


Revenues

         Oil and Gas  Royalty  Income.  Revenues  for the three and nine  months
         ----------------------------
ended July 31, 1998 were $0 and $53,522  compared  with $34,990 and $153,448 for
the comparable  periods in 1997. The decrease in revenues for the three and nine
months  ended July 31, 1998 as compared to the same periods in 1997 is primarily
attributable  to the sale of all of the Company's oil and gas royalty  interests
in two transactions, effective February 1 and May 1 of 1998.


         Other Income.  In March and April of 1998 the Company  granted  mineral
         ------------
leases  from fee  minerals  owned by the  Company to two  unrelated  oil and gas
entities. In consideration for the granting of those leases the Company received
$7,547.


         Gain on  Sale of  Royalty  Interests.  In  March  of 1998  the  Company
         ------------------------------------
recognized a gain of $90,931,  on the sale of royalty  interests in twelve wells
located  in San  Juan  County,  New  Mexico  and in  July of  1998  the  Company
recognized  a loss of $61,831 on the sale of the  remainder  of its  royalty and
mineral interests located in Texas and New Mexico. These two sales resulted in a
net gain on the sale of royalty interests of $29,100, as of July 31, 1998.


Costs and Expenses

         Production Taxes and  Transportation  Costs. The decrease of production
         -------------------------------------------
taxes and transportation costs for the three and nine months ended July 31, 1998
as  compared  to the three and nine  months  ended  July 31,  1997 is  primarily
attributable  to the sale of all of the Company's  royalty  interests which were
sold effective February 1 and May 1 of 1998.



<PAGE>



         General  and  Administrative   Expenses.   General  and  administrative
         ---------------------------------------
expenses  ("G&A")  decreased  from  $78,522 and  $264,741 for the three and nine
months ended July 31, 1997 to $72,307 and $186,422 for the comparable  period in
1998.  The decrease in G&A expenses for the three and nine months ended July 31,
1998 is  primarily  attributable  to a  decrease  in  salaries  paid to  certain
officers,  a reduction  of travel,  a reduction  in rent  expense,  expensing of
deferred  financing  costs,  and the legal , accounting and  professional  costs
associated  with becoming a public company  incurred in 1997. It should be noted
that the expense to G&A, of the remaining $41,768 balance of prepaid  consulting
fees,  as described in Note 4 of the "Notes To Financial  Statements",  make the
substantial  reduction  in G&A for the three and nine months ended July 31, 1998
less apparent.

         Depletion,  Depreciation and Amortization.  Depletion, depreciation and
         -----------------------------------------
amortization  ("DD&A"),  decreased  to $191 for the three  months ended July 31,
1998  compared to $14,304 for the  comparable  period in 1997.  The decrease was
attributable to the sale of the Company's royalty interests. For the nine months
ended  July 31,  1998 and 1997 DD&A  decreased  from  $42,856  to  $31,545.  The
decrease is attributable primarily to the sale of royalty interests which became
effective February 1 and May 1, 1998, and a change in estimated life used in the
straight  line  depletion  of royalty  interests  in oil and gas  properties  as
described in Note 1 of the "Notes To Financial Statements".

         Interest  expense.  The  decrease in interest  expense  from $9,887 and
         -----------------
$20,147 for the three and nine months  ended July 31, 1997 to $1,227 and $18,759
for the  three  and nine  months  ended  July 31,  1998 is  attributable  to the
reduction  in debt of $268,283  on March 26,  1998 and paying off the  remaining
debt of  $39,217  on July 2,  1998.  Through  out most of  fiscal  year 1997 the
Company's debt was approximately  $200,000 compared to approximately $300,000 in
the current fiscal year.


<PAGE>



                           PART II - OTHER INFORMATION


ITEM 5 - OTHER INFORMATION

         On June  20,  1998  Douglas  Weedon  became a  member  of the  board of
directors of the registrant.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.

     Item 3(i) and (ii). The articles of incorporation and by-laws,  as filed in
Item 2 of Part III of the Company's  Form 10-SB dated March 26, 1997, are hereby
incorporated by reference.

         Item 27      Financial data schedule.

(b)      Reports on Form 8-K.

         On June 11, 1998 the registrant  filed Form 8-K, Item 6, Resignation of
Directors.

         On  July  23,  1998  the  registrant  filed  Form  8-K,  Items 2 and 5,
Disposition of Assets and Other Events


                                   SIGNATURES

         In accordance with the  requirements of the Securities  Exchange Act of
1934,  the  registrant  has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                  GENERAL AMERICAN ROYALTY, INC.
                                                  ------------------------------
                                                          (Registrant)


Date    September 8, 1998                  /s/    James F. Smith
     ----------------------              -----------------------
                                         James F. Smith,
                                         President and Chief Executive Officer


Date    September 8, 1998                  /s/    Sam E. Nicholson
     ----------------------              -------------------------
                                         Sam E. Nicholson,
                                         Treasurer and Chief Financial Officer