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 January 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 717
                             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 January 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>    
                                                             January 31, 1998  October 31,
                                                               (Unaudited)        1997
                                                             ---------------- ------------
                                      ASSETS
Current assets:
   Cash                                                        $     2,806    $    14,967
   Accounts receivable-oil & gas                                    27,047         26,224
   Accounts receivable-other                                         1,650          1,750
   Prepaid expenses                                                  4,115          4,819
                                                               -----------    -----------

Total Current Assets                                                35,618         47,760

Royalty interest in oil and gas properties, less accumulated
   depletion of $119,723 and $100,230                              447,474        466,966
Prepaid Consulting Fees                                             46,242         50,717
Other assets, net of amortization 
 of $5,822 and $4,496                                                 6,165         7,491
                                                               -----------    -----------
Total Assets                                                   $   535,499    $   572,934
                                                               ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                            $    41,582    $    24,886
   Accounts payable-shareholder                                      2,216          4,808
   Note payable shareholder                                        307,500        300,000
                                                               -----------    -----------
Total current liabilities                                          351,298        329,694
                                                             
Commitments

Total liabilities                                                  351,298        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, 5,000,000 shares authorized,
   no shares issued or outstanding
Additional paid-in capital                                       1,245,647      1,245,647
Accumulated deficit                                             (1,062,478)    (1,003,439)
                                                               -----------    -----------
Total stockholders' equity                                         184,201        243,240
                                                               -----------    -----------
      Total liabilities and stockholders' equity               $   535,499    $   572,934
                                                               ===========    ===========

</TABLE>

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


<PAGE>

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

                                               For the Three Months Ended
                                                        January 31,
                                               --------------------------
                                                    1998           1997
                                               -----------    -----------  
Revenues:
Oil and gas royalty income                     $    41,756    $    54,780
                                               -----------    -----------
Cost and expenses:

   Production taxes and transportation costs         4,481          9,430
   General and administrative                       64,860         84,122
   Amortization of deferred financing costs          1,135         25,154
   Depreciation, depletion and amortization         19,683         14,253
   Interest Expense                                 10,636          5,142
                                               -----------    -----------
          Total Cost and expense               $   100,795    $   138,101
                                               -----------    -----------
Net loss                                       $   (59,039)   $   (83,321)
                                               ===========    ===========
Basic and diluted net loss per common share           (.06)          (.09)
                                               ===========    ===========
Weighted average number of common 
 shares outstanding                              1,031,500        910,000
                                               ===========    ===========











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

<PAGE>


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

                                                           Three Months Ended
                                                                January 31,
                                                           1998         1997
                                                        ---------------------- 
Cash flows from operating activities:
Net loss                                                $ (59,039)   $ (83,321)
   Adjustments to reconcile net loss to net cash used
      in operating activities
         Depletion and amortization                        19,683       14,253
         Amortization of deferred financing costs           1,135       25,154
         Increase in accounts receivable                     (723)     (13,342)
         Decrease in prepaid expenses                       5,179        2,466
         Increase in accounts payable                      14,104       22,522
         Decrease in other assets                            --         (5,873)
                                                        ---------    ---------
Net cash used in operating activities                     (19,661)     (38,141)
                                                      
Cash flows from investing activities:
     Purchase of equipment                                   --         (1,125)
                                                        ---------    ---------
Net cash used in investing activities                           0       (1,125)
                                                       
Cash flows from financing activities:
Proceeds from borrowings                                   15,000      200,000
Payments on borrowings                                     (7,500)    (170,000)
                                                        ---------    ---------
         Net cash provided by financing activities          7,500       30,000
                                                        ---------    ---------
Net decrease in cash                                      (12,161)      (9,266)

Cash at beginning of period                                14,967       37,916
                                                        ---------    ---------
Cash at end of period                                   $   2,806    $  28,650
                                                        =========    =========


Supplemental Information:
   Cash paid for interest                               $  10,586    $   5,143
                                                        =========    =========







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


<PAGE>


<TABLE>
<CAPTION>

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


<S>                                                                               <C>            <C>       

                                                                 Additional                       Total
                                         Common Stock             Paid-In       Accumulated    Stockholders'
                                    ----------------------      -----------     -----------    ------------
                                      Shares       Amount         Capital         Deficit         Equity
                                    ---------    ---------      -----------     -----------    ------------
Balance at October 31, 1997         1,031,500    $   1,032      $ 1,245,647    $ (1,003,439)   $ 243,240

Net loss                                 -            -                -            (59,039)     (59,039)
                                    ----------    ----------     ----------     -----------      -------

Balance January 31, 1987            1,031,500    $   1,032      $ 1,245,647    $ (1,062,478)   $ 184,201
                                    ==========    =========      ==========     ===========      =======

</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 January 31, 1998 and the results of  operations  and cash flows of General
American Royalty,  Inc. (the "Company") for the three month period ended January
31, 1998 and January 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 is engaged in the business of acquiring  and managing
producing oil and gas royalty, overriding royalty and mineral interests in Texas
and New Mexico.

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, are 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.  This change in  accounting  estimate  resulted in an
increase  in the net loss and basic and diluted net loss per share for the three
months ended January 31,1998 of $5,314 and $.005, respectively. The Company owns
a large  number  of  interests  whose  acquisition  costs  are not  individually
significant.  The Company annually reviews significant properties for impairment
by comparing undiscounted estimated future net cash flows to the carrying amount
of the asset.  If  impairment  is  indicated,  the asset is 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  January  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 Company has  negative  working
capital of $315,680 at January 31, 1998 and has suffered significant losses from
operations,  which  raise  substantial  doubt about its ability to continue as a
going concern. It is management's  opinion that sufficient capital can be raised
from various  sources to provide  funding to repay short term debt and allow the
Company to acquire  additional  producing  royalty  interests that will generate
sufficient cash flow to cover general and administrative expenses.


<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.  Significant  assumptions  are required in the  estimation  of
future net cash flows,  which as described  above may affect the amount at which
oil and gas properties are recorded.  It is at least  reasonably  possible those
estimates  could be  revised  in the  near  term and  those  revisions  could be
material.


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

As of January 31, 1998, the Company has a $307,500 note payable to a shareholder
that bears  interest at 14% and is due on March 31, 1998.  Interest on this note
is  payable   monthly  with  the  principal   due  at  maturity.   The  note  is
collateralized  by all royalty and overriding  royalty  interests of the Company
and is personally guaranteed by the Company's president.

In  connection  with the note  above,  the Company  recorded  $5,961 of deferred
financing costs during fiscal 1997. For the three months ended January 31, 1998,
$1,135 of this amount was charged to operations.


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

As of January  31,  1998 the  Company  has a  non-interest  bearing  payable for
unreimbursed expenses due to the Company's president for approximately $2,200.


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  $4,475 of
amortization expense was included in general and administrative  expense for the
three  months  ended  January 31, 1998.  The prepaid  consulting  fees are being
amortized over the three year life of the contracts.


<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 the three months ended  January 31, 1998.  The options are
exercisable,  beginning November 1998, at $5.25 per share and expire in November
2002. The market price at the date of grant was $5.00 per share.























<PAGE>







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



LIQUIDITY AND CAPITAL RESOURCES


         Sales of crude oil and natural gas from royalty and overriding  royalty
interests  have been the  Company's  principal  internal  source  of  liquidity.
Monthly sales have not reached a sufficient  level to cover  administrative  and
overhead expenses. Growth in the Company's sales is expected to be the result of
acquiring additional  producing crude oil and natural gas royalty interests.  As
of January  31,  1998 the  Company had  acquired,  for  approximately  $567,000,
royalty and mineral  interests that have generated net revenues of approximately
$243,000 since their acquisition by the Company.


         The Company  completed  offerings of its common stock and incurred bank
debt  during the  previous  year as its  primary  sources of  external  capital.
Proceeds  from  these  financings  were used to  acquire  royalty  interests  in
producing crude oil and natural gas wells and for working  capital.  The Company
intends  to direct its  efforts  and  resources  toward  the  acquisition(s)  of
producing royalty and mineral interests..


         Specifically,  the Company  anticipates  that proceeds from the sale of
its  equity  securities  in  public  and  private  offerings  will  serve as the
principal source of capital for acquisition of royalty  interests and retirement
of debt.  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,  the  Company did not acquire any mineral and royalty
interests.


         In June 1997 the Company borrowed $300,000 from an entity controlled by
a  shareholder  and used the  proceeds  to repay a  $200,000  bank  loan and for
working capital.  This obligation is due on March 31, 1998 and is expected to be
repaid with proceeds from the sale of producing  royalty  interests owned by the
Company, a private placement of equity securities or by refinancing with another
lender.  If the Company is unable to satisfy or extend this obligation,  it will
have a severe  adverse  impact on the Company.  In the future,  short-term  debt
secured by producing  royalty interests will be utilized as an interim source of
financing for royalty  acquisition  activities.  When  necessary the Company may
sell  certain  of its  mineral  and  royalty  interests  to  satisfy  such  debt
obligations.


<PAGE>



         The Company's revenues are substantially  affected by prevailing prices
for natural gas, crude oil and condensate. These prices are affected by numerous
factors over which the Company has no control.  Historically  the energy markets
have been very volatile and prices have been subject to material fluctuations. A
material  or lengthy  decline in crude oil and gas prices  could have an adverse
effect on the Company's financial position and results of operations,  affecting
the economic productivity of an indeterminable number of producing properties in
which the Company  has  royalty or  overriding  royalty  interests.  Natural gas
accounts for approximately 90% of the Company's oil and gas sales.



RESULTS OF OPERATIONS


Three Months Ended January 31, 1998 Compared
to the Three Months Ended January 31, 1997


Revenues

         Revenues  for the three  months  ended  January 31,  1998 were  $41,756
compared  with  $54,780 in 1997.  The  decrease in revenues for the three months
ended  January  31,  1998 are due to the  decreased  crude oil and  natural  gas
production  of  approximately  18% and a 14.5%  decrease in the price of natural
gas, although oil prices were comparable for both periods.

Costs and Expenses

         Production  Taxes  and  Transportation  Costs.   Production  taxes  and
         ---------------------------------------------
transportation  costs, as a percentage of gross revenues,  decreased 7%, for the
three  months  ended  January 31, 1998 as  compared  to the three  months  ended
January 31, 1997. The decrease is attributable to a new gas sales contract which
eliminated  processing and transportation  costs on properties which account for
approximately 48% of the Company's revenues.

         General  and  Administrative   Expenses.   General  and  administrative
         ---------------------------------------
expenses  ("G&A")  decreased from $84,122 for the three months ended January 31,
1997 to $64,860 for the comparable  period in 1998. The decrease in G&A expenses
for 1998 was primarily  attributable  to a decrease in salaries paid to certain
officers.

         Depletion,  Depreciation and Amortization.  Depletion, depreciation and
         -----------------------------------------
amortization  ("DD&A"),  increased to $19,683 for the three months ended January
31, 1998 compared to $14,253 for the comparable  period in 1997. The increase is
primarily  due to a change,  from 10 years to 7 years, in the estimate life used
in the  straight-line  depletion  of  the  royalty  interests  in  oil  and  gas
properties, as described in Note 1. 

<PAGE>


         Interest expense.  The increase in interest expense from $5,142 for the
         ----------------
three  months  ended  January  31, 1997 to $10,636  for the three  months  ended
January 31, 1998 is two fold,  more debt and a higher interest rate. The Company
had debt of  $200,000 at a rate of 10% in 1997 as compared to $307,500 at a rate
of 14% in 1998.























<PAGE>



                           PART II - OTHER INFORMATION


ITEM 5 - OTHER INFORMATION


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. None filed.




                                   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    March 17, 1998                   ------------------------------
     -------------------                 James F. Smith,                      
                                         President and Chief Executive Officer 
                                                                             
                                         



Date    March 17, 1998                   ------------------------------
     ------------------                  Sam E. Nicholson,                      
                                         Treasurer and Chief Financial Officer