<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8157
THE RESERVE PETROLEUM COMPANY
(Exact name of small business issuer as specified in its charter)
Delaware 73-0237060
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6801 N. Broadway, Suite 300, Oklahoma City OK 73116-9092
(Address of principal executive offices)
(405) 848-7551
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) 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 May 10, 1996, 169,344.73 shares of the Registrant's $.50 par value
common stock were outstanding.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
<PAGE> 2
PART 1
FINANCIAL INFORMATION
2
<PAGE> 3
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------- --------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 576,066 $ 175,014
Available for Sale Securities 2,313,355 2,689,546
Trading Securities 379,255 372,705
Receivables 308,986 154,012
Prepayments & Deferred Income Taxes 6,734 8,577
---------------- --------------
3,584,396 3,399,854
---------------- --------------
Investments
Partnership and Limited
Liability Companies 488,286 495,379
Other 16,230 11,430
---------------- --------------
504,516 506,809
---------------- --------------
Property, Land & Equipment
Oil and Gas Properties, at Cost Based on the
Successful Efforts Methods of Accounting
Unproved Properties 500,178 488,859
Proved Properties 4,730,190 4,660,881
---------------- --------------
5,230,368 5,149,740
Less - Valuation Allowance and
Accumulated Depreciation,
Depletion and Amortization 3,656,866 3,270,087
---------------- --------------
1,573,502 1,879,653
---------------- --------------
Other Property & Equipment, at Cost 323,136 323,136
Less - Accumulated Depreciation,
Depletion & Amortization 178,960 176,460
---------------- --------------
144,176 146,676
---------------- --------------
1,717,678 2,026,329
---------------- --------------
Other Assets 383,541 267,089
---------------- --------------
$ 6,190,131 $ 6,200,081
================ ==============
</TABLE>
(Continued)
See Accompanying Notes
3
<PAGE> 4
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
(Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------- -----------------
<S> <C> <C>
Current Liabilities;
Accounts Payable $ 87,989 $ 86,229
Income Taxes Payable 73,828 16,280
Other Current Liabilities
Gas Balancing Commitments 53,401 53,401
Dividends Payable, Current Portion 10,000 10,000
--------------- ---------------
225,218 165,910
--------------- ---------------
Dividends Payable 118,102 119,277
--------------- ---------------
Deferred Income Taxes ---- 54,864
--------------- ---------------
Commitments & Contingencies: (Note 2)
Stockholders' Equity
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 5,844,788 5,854,105
--------------- ---------------
6,002,156 6,011,473
Less: Treasury Stock, at Cost 155,345 151,443
--------------- ---------------
5,846,811 5,860,030
--------------- ---------------
$ 6,190,131 $ 6,200,081
=============== ===============
</TABLE>
See Accompanying Notes
4
<PAGE> 5
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1996 1995
---------------- --------------
<S> <C> <C>
Operating Revenues:
Oil and Gas Sales $ 629,920 $ 252,362
Lease Bonuses and Other 80 18,000
--------------- --------------
630,000 270,362
--------------- --------------
Operating Costs and Expenses:
Production 92,531 69,080
Exploration and Development 50,701 21,128
Depreciation, Depletion, Amortization
and Valuation Provisions 389,279 54,602
General, Administrative and Other 215,190 153,251
--------------- --------------
747,701 298,061
--------------- --------------
(Loss) from Operations (117,701) (27,699)
Other Income, Net 21,442 44,115
--------------- --------------
Income (Loss) Before Income Taxes (96,259) 16,416
Provision for (Benefit From)
Income Taxes (86,942) 2,789
--------------- --------------
Net Income (Loss) $ (9,317) $ 13,627
=============== ==============
Per Share Data
Net Income (Loss) - $ (.06) $ .08
=============== ==============
Weighted Average Shares
Outstanding 169,455 169,847
=============== ==============
</TABLE>
See Accompanying Notes
5
<PAGE> 6
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 135,705 $ 16,172
--------------- --------------
Cash Flows from Investing Activities:
Sale and Maturity of Available
for Sale Securities 376,191 200,617
Purchase of Available for Sale Securities ---- (130,392)
Property Dispositions 13,417 10,057
Property Additions (127,882) (106,434)
Cash Distributions from Equity Investments 13,500 -----
Cash Payments for Equity Investments (4,800) -----
--------------- --------------
Net Cash Provided by
(Applied to) Investing Activities 270,426 (26,152)
--------------- --------------
Cash Flows from Financing Activities:
Decrease in Dividends Payable (1,176) (2,244)
Purchase of Treasury Stock (3,903) (3,360)
--------------- --------------
Cash Applied to Financing Activities (5,079) (5,604)
--------------- --------------
Net Change in Cash and Cash Equivalents 401,052 (15,584)
Cash and Cash Equivalents,
Beginning Period 175,014 112,564
--------------- --------------
Cash and Cash Equivalents,
End of Period $ 576,066 $ 96,980
=============== ==============
Supplemental Disclosures of
Cash Flow Information,
Cash Paid During the Periods for:
Interest $ 3,750 $ 3,752
Income Taxes $ 8,000 $ 4,000
</TABLE>
See Accompanying Notes
6
<PAGE> 7
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
Note 1 - ADJUSTMENTS
In the opinion of Management, the accompanying financial statements
reflect all adjustments which are necessary for a fair statement of
the results of the interim periods presented.
Note 2 - MATERIAL CONTINGENCY
In August 1993, the Company filed an action in the District Court of
Leon County, Texas to quiet title to its 13/32nd interest in
approximately 203 mineral acres associated with two producing oil and
gas wells completed in 1988. The Company claims title through deeds
recorded in 1932; the defendants claim title under a deed nine years
prior to the Company's deeds, but not recorded until seven years
after the Company's deeds were recorded. Approximately $850,000 of
proceeds from oil and gas sales were held in suspense by the unit
operator at March 31, 1996, and have not been recorded as revenue by
the Company. The Company has expended $430,000 in drilling,
completion and operating costs for these wells, of which $230,000 was
included in the Company's net investment in oil and gas properties at
March 31, 1996. If the Company is successful in quieting title to
its mineral interests in this litigation and recovers the suspended
oil and gas proceeds, management believes the outcome will have a
material favorable effect on the Company and its financial condition.
If the Company is unsuccessful in this litigation, management
believes that such outcome will not have a material adverse effect on
the Company's financial condition. The case is set for trial in
early August, 1996.
Note 3 - CHANGE IN ACCOUNTING PRINCIPAL
In March 1955, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statements
121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The statement is effective for fiscal
years beginning after December 15, 1995.
As a result of this change in accounting principal, certain oil and
gas producing properties are deemed to be impaired because the assets
are not expected to recover their entire carrying value through
future cash flows. An impairment loss totaling $297,000 has been
included in the Statement of Operations for the quarter ending March
31, 1996, in the Depreciation, Depletion, Amortization and Valuation
Provisions.
7
<PAGE> 8
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1996
This discussion and analysis of financial condition and results of
operations should be read with reference to a similar discussion in
the Company's December 31, 1995, Form 10-KSB filed with the
Securities and Exchange Commission, as well as the condensed
financial statements included in this Form 10-QSB.
1. Liquidity and Capital Resources
The Company's net working capital at March 31, 1996, was $3,359,178 an
amount which, along with the cash flow from operations, is adequate to
fund all currently budgeted investing and financing activities.
Management is unaware of any material trends, demands, commitments,
events or uncertainties which would impact liquidity and capital
resources to the extent that the discussion presented in Form 10-KSB
for December 31, 1995, would not be representative of the Company's
current position.
2. Material Changes in Results of Operations Quarter Ended March 31,
1994, Compared with Quarter Ended March 31, 1995
Operating Revenues. Oil and gas sales increased $377,558 (150%) to
$629,920. Crude oil sales increased $85,057 (78%) to $193,229 and
natural gas sales increased $296,710 (218%) to $432,705. Plant
products and miscellaneous sales declined $4,209 to $3,986.
The volume of crude oil sales increased 4,126 barrels (Bbls) to 10,977
resulting in favorable volume variance of $65,150. Approximately
$55,000 of additional revenue resulting from increased volume was from
the initial flush production from newly producing royalty interests.
Future revenue from these royalty interests is expected to decline
significantly. The average price per Bbl received for crude oil sales
increased $1.81 to $17.60 per Bbl resulting in a favorable price
variance of $19,907. The increase in crude oil price was the result
of industry market forces.
The volume of natural gas sales increased 169,942 thousand cubic
feet (MCF) to 254,048 MCF resulting in a favorable volume variance of
$275,306. For the most part, the increase in volume was the result of
initial receipts from the #1 Brounkowski, a Robertson County, Texas
royalty interest well, which contributed $226,000 to first quarter
revenues. Natural gas sales also increased $21,404 as a result of a
$.08 per MCF increase in the average price received to $1.70 per MCF.
Operating Costs and Expenses. Production costs increased $23,451
(34%) to $92,531. For the most part, the increase was the result of
costs for reworking an injection well. Exploration and development
expense increased $29,573 because of geological and geophysical
expenses related to the Company's exploration program. Depreciation,
depletion, amortization and valuation provisions increased $334,677
to $389,279, mostly as the result of the change in accounting
principal as discussed in Note 3 to the Condensed Financial
Statements. General, administrative and other expense was $215,190
in the current
8
<PAGE> 9
quarter as compared to $153,251 in 1995. Additional legal fees of
$51,000 related to the quiet title action discussed in Note 2 to the
Condensed Financial Statements was the most significant reason for
the increase.
Other Income, Net. This line item fell $22,673 (51%) to $22,673.
The most significant items contributing to the decline were interest
income, $3,543; equity investments, $4,132; asset sales, $9,532; and
trading securities, $4,391.
Provision for (Benefit from) Income Taxes. The Company had a
calculated benefit from income taxes in the first quarter of 1996, as
the net increase in deferred tax assets of $152,490 exceeded current
tax expense of $65,548 by $86,942. Significant factors contributing
to the overall benefit were the impairment loss discussed in Note 3
to the Condensed Financial Statements and the utilization of
statutory depletion deductions.
9
<PAGE> 10
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule.
(b) No reports on Form 8-K were required to be filed by the Registrant
for the three months ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
THE RESERVE PETROLEUM COMPANY
-----------------------------
(Registrant)
Date: May 10, 1996 MASON McLAIN
------------- ------------------------------------------
Mason McLain,
President
Date: May 10, 1996 JERRY L. CROW
------------- ------------------------------------------
Jerry L. Crow
Principal Financial and Accounting Officer
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS FORM
10-QSB FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 576,066
<SECURITIES> 2,692,610
<RECEIVABLES> 308,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,584,396
<PP&E> 5,553,504
<DEPRECIATION> 3,835,826
<TOTAL-ASSETS> 6,190,131
<CURRENT-LIABILITIES> 225,218
<BONDS> 0
<COMMON> 0
0
92,368
<OTHER-SE> 5,754,443
<TOTAL-LIABILITY-AND-EQUITY> 6,190,131
<SALES> 629,920
<TOTAL-REVENUES> 630,000
<CGS> 0
<TOTAL-COSTS> 92,531
<OTHER-EXPENSES> 439,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (96,259)
<INCOME-TAX> (86,942)
<INCOME-CONTINUING> (9,317)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,317)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
