FORM-10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarter Ended May 31, 1997 Commission File Number 0-9098 OIL CITY PETROLEUM, INC. (Exact name of Registrant as specified in its Charter) Texas 75-1614001 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5579 South Lewis, Tulsa, Oklahoma 74105 (Address of principal executive offices) (Zip Code) (918) 749-0483 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports re- quired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No The Registrant had 14,912,492 shares of common stock, no par value outstanding as of the close of the period covered by this report. OIL CITY PETROLEUM, INC. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Statement of Operations - Nine Months Ended May 31, 1997 and 1996 3 Balance Sheet - May 31, 1997 and August 31, 1996 4 Statement of Cash Flows - Nine Months Ended May 31, 1997 and 1996 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 10 PART I. FINANCIAL INFORMATION Item 1. Financial Statements OIL CITY PETROLEUM, INC. STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended May 31, May 31, 1997 1996 1997 1996 Revenues: Oil and Gas Sales $ 9,916 $ 8,758 $ 39,606 $ 32,525 Rental Income 10,960 9,035 31,824 27,673 Interest and Other Income 324 329 970 1,061 Gain (Loss) on Sale of Assets -- -- 100 (175) 21,200 18,122 72,500 61,084 Costs and Expenses: Oil & Gas Operating Expenses 15,603 18,814 40,084 41,005 Rental Expenses 4,891 6,578 19,534 22,476 Depreciation, Depletion & Amort. 4,974 5,274 14,922 16,041 Administrative and General 26,482 18,309 82,926 77,332 Interest Expense- Non-Affiliates 4,006 4,312 12,256 13,160 Interest Expense- Affiliates 23,413 21,345 68,726 62,620 79,369 74,632 238,448 232,634 Net Income or (Loss) $ (58,169) $ (56,510) $(165,948) $(171,550) Net Income or (Loss) Per Share $ (.01) $ (.01) $ (.01) $ (.01) Average Number of Shares Outstanding 14,912,492 14,912,492 14,912,492 14,912,492 SEE NOTES TO FINANCIAL STATEMENTS OIL CITY PETROLEUM, INC. BALANCE SHEET (UNAUDITED) May 31, Aug. 31, ASSETS 1997 1996 Current Assets: Cash $ 6,210 $ 311 Short-term Investments 25,000 25,000 Accounts Receivable 14,422 15,119 Crude Oil Inventory 4,992 4,992 Other Current Assets 1,871 3,597 Total Current Assets 52,495 49,019 Property and Equipment, at Cost: Oil and Gas Properties, Successful Efforts Method 1,094,018 1,094,018 Field Equipment 7,945 7,945 Building, Land and Office Equipment 261,101 254,331 Total Property and Equipment, at Cost 1,363,064 1,356,294 Less Accumulated Depreciation, Depletion, and Amortization (727,638) (712,716) Net Property and Equipment 635,426 643,578 Other Assets -- -- Total Assets $ 687,921 $ 692,597 SEE NOTES TO FINANCIAL STATEMENTS OIL CITY PETROLEUM, INC. BALANCE SHEET (UNAUDITED) May 31, Aug. 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 Current Liabilities: Accounts Payable and Accrued Expenses $ 13,693 $ 14,670 Current Portion of Long-Term Debt 12,171 12,171 Note and Accrued Interest Payable to Affiliate 1,637,064 1,465,807 Total Current Liabilities 1,662,928 1,492,648 Long-Term Debt Less Current Portion 138,382 147,390 Shareholders' Equity: Common Stock, No Par Value - Authorized 30,000,000 Shares, Issued and Outstanding 14,912,492 Shares 5,692,571 5,692,571 Additional Paid-in Capital 1,567,243 1,567,243 Accumulated Deficit (8,373,203) (8,207,255) Total Shareholders' Equity (Deficit) (1,113,389) (947,441) Total Liabilities and Shareholders' Equity $ 687,921 $ 692,597 SEE NOTES TO FINANCIAL STATEMENTS OIL CITY PETROLEUM, INC. STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended May 31, 1997 1996 Cash Flows from Operating Activities: Net Loss $(165,948) $(171,550) Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation, Depletion, and Amortization 14,922 16,041 Interest Expense - Affiliates 68,726 62,620 Net (Gain) Loss on Sale of Assets (100) 175 Change in Assets and Liabilities: (Increase) Decrease in Receivables 697 979 (Increase) Decrease in Inventory -- -- (Increase) Decrease in Other Current Assets 1,726 1,736 Increase (Decrease) in Accounts Payable and Accrued Expenses (977) (7,983) Total Adjustments 84,994 73,568 Net Cash Used in Operating Activities (80,954) (97,982) Cash Flows from Investing Activities: Decrease (Increase) in Capital Expenditures (6,770) (2,900) Proceeds from Sale of Assets 100 5,090 Net Cash Provided (Used) by Investing Activities (6,670) 2,190 Cash Flows from Financing Activities: Increase in Borrowings from Affiliate 102,531 102,205 Principal Payments on Long-term Debt (9,008) (8,113) Net Cash Provided by Financing Activities 93,523 94,092 Net Increase (Decrease) 5,899 (1,700) Cash at Beginning of Year 311 3,964 Cash at End of Period $ 6,210 $ 2,264 SEE NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine-month period ended May 31, 1997 are not necessarily indicative of the results that may be expected for the year ended August 31, 1997. For further information, refer to the financial statements and notes thereto included in the Registrant's annual report on Form 10-K for the year ended August 31, 1996. NET LOSS PER SHARE Loss per share is computed based on the net loss for the period, divided by the weighted average number of common shares outstanding during each period. Common equivalent shares are not included in the computation because of their anti-dilutive effect. LONG-TERM DEBT Since 1987, cash advances have been made to the Registrant by National Oil & Gas, Inc., an affiliated entity, in order to finance working capital deficits. The terms of the notes representing such cash advances are 6% to 9% interest with all principal and accrued interest due on demand. Outstanding principal and accrued interest of $1,662,928 at May 31, 1997 are classified on the balance sheet as a current liability as these notes are payable on demand. National Oil & Gas, Inc. is an affiliated company controlled by Mr. William G. Moser, Chairman of the Board of the Registrant. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION In view of the continuing volatile conditions in the oil and gas industry and the significant sales of oil and gas properties in recent years, the Registrant anticipates that cash flow from operations will not be sufficient to provide for the payment of its indebtedness, necessitating the renewal or refinancing of such indebtedness at maturity. No assurance can be given that the Registrant will be able to renew or refinance such indebtedness or that additional cash infusions will be available. RESULTS OF OPERATIONS Three Months Ended May 31, 1997 and 1996 Oil and gas sales of $9,916 for the period ended May 31, 1997 increased $1,158 from the same quarter of the prior year. This increase is primarily due to increased production from well workovers performed during the prior year. Rental income of $10,960 increased $1,925 from the same quarter of the prior year due to a higher occupancy rate in the current year. Oil & Gas operating expenses of $15,603 decreased $3,211 from $18,814 experienced in the same quarter of the prior year since grass fires were not an issue in the current year as they were in the same period of the prior year. Rental expenses of $4,891 decreased $1,687 from the same quarter of the prior year, due to lower utility bills and less interest expense on the building mortgage. Depreciation and depletion expense of $4,974 decreased $300 from $5,274 experienced during the same quarter of the prior year due to lower depletion rates on oil leases, and due to the sale of a depreciating storage building in Louisiana. Administrative and general expense of $26,482 increased $8,173 from that experienced during the same period of the prior year, primarily due to additional work done by consultants. Interest expense to affiliates increased $2,068 from that experienced in the same period of the prior year because the Registrant's debt to affiliates has increased $136,064 since that time. Nine Months Ended May 31, 1997 and 1996 Oil and gas sales of $39,606 for the period ended May 31, 1997 increased $7,081 from $32,525 experienced during the same period of the prior year. The increase is primarily due to increased production from well workovers performed during the prior year. Rental income of $31,824 increased $4,151 from the same period of the prior year due to a higher occupancy rate in the current year. Oil & gas operating expenses of $40,084 decreased $921 from $41,005 experienced during the same period of the prior year since grass fires were not an issue in the current year as they were in the same period of the prior year. This cost savings was offset by downhole pump repairs performed in an attempt to increase production, and bulldozer work to improve access roads on one of the leases. Rental expenses of $19,534 decreased $2,942 from $22,476 experienced during the same period of the prior year, due to lower utility bills and less interest expense on the building mortgage. Depreciation and depletion expense of $14,922 decreased $1,119 from $16,041 experienced during the same period of the prior year due to lower depletion rates on oil leases, and due to the sale of a depreciating storage building in Louisiana. Administrative and general expense of $82,926 increased $5,594 from $77,332 experienced during the same period of the prior year, due to higher fees from consultants. Interest expense to affiliates increased $6,106 from that experienced in the same period of the prior year because the Registrant's debt to affiliates has increased $136,064 since that time. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-X: None. (b) Reports on Form 8-K during the three months ended May 31, 1997: None. SIGNATURE 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 thereunto duly authorized. OIL CITY PETROLEUM, INC. Date: July 11, 1997 s/b Herman E. Nichols, Jr. Herman E. Nichols, Jr. President