RESERVE PETROLEUM CO - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☑     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2016

☐     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 Registrant as Specified in Its Charter)

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     ☑     No     ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes     ☑     No     ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes     ☐     No     ☑

As of November 4, 2016, 157,959 shares of the Registrant’s $.50 par value common stock were outstanding.

PART I – FINANCIAL INFORMATION

THE RESERVE PETROLEUM COMPANY

BALANCE SHEETS

ASSETS

See Accompanying Notes

THE RESERVE PETROLEUM COMPANY

BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

See Accompanying Notes

THE RESERVE PETROLEUM COMPANY

STATEMENTS OF OPERATIONS

(Unaudited)

See Accompanying Notes

THE RESERVE PETROLEUM COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

See Accompanying Notes

THE RESERVE PETROLEUM COMPANY

NOTES TO FINANCIAL STATEMENTS

September 30, 2016

(Unaudited)

Note 1 – BASIS OF PRESENTATION

The accompanying balance sheet as of December 31, 2015, which has been derived from audited financial statements, the unaudited interim financial statements and these notes, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures normally included in financial statements prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

In the opinion of Management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring accruals), which are necessary for a fair statement of the results of the interim periods presented. The results of operations for the current interim periods are not necessarily indicative of the operating results for the full year. 

Note 2 – OTHER INCOME/(LOSS), NET

The following is an analysis of the components of Other Income/(Loss), Net:

Note 3 – INVESTMENTS AND RELATED COMMITMENTS AND CONTINGENT LIABILITIES, INCLUDING GUARANTEES

The Company’s Equity Investments include a 33% ownership interest in Broadway Sixty-Eight, Ltd. (the “Partnership”), an Oklahoma limited partnership, which owns and operates an office building in Oklahoma City, Oklahoma. Although the Company invested as a limited partner, it agreed, jointly and severally, with all other limited partners to reimburse the general partner for any losses suffered from operating the Partnership. The indemnity agreement provides no limitation to the maximum potential future payments. To date, no monies have been paid with respect to this agreement.

The Company’s Equity Investments also include a 47% ownership in Grand Woods Development, LLC (the “LLC”) an Oklahoma limited liability company acquired in November 2015. The LLC owns approximately 26.3 acres of undeveloped real estate in northeast Oklahoma City. The Company has guaranteed a loan for which the proceeds were used to purchase a portion of the undeveloped real estate acreage.

Note 4 – PROVISION FOR INCOME TAXES

In 2016 and 2015, the effective tax rate was different than the statutory rate, primarily as a result of allowable depletion for tax purposes in excess of the cost basis in oil and gas properties and the corporate graduated tax rate structure.

Excess federal percentage depletion, which is limited to certain production volumes and by certain income levels, reduces estimated taxable income projected for any year. The federal excess percentage depletion estimates will be updated throughout the year until finalized with the detail well-by-well calculations at year-end. When a provision for income taxes is recorded, federal excess percentage depletion benefits decrease the effective tax rate. When a benefit for income taxes is recorded, federal excess percentage depletion benefits increase the effective tax rate. The benefit of federal excess percentage depletion is not directly related to the amount of pre-tax income recorded in a period. Accordingly, in periods where a recorded pre-tax income is relatively small, the proportional effect of these items on the effective tax rate may be significant.  

Note 5 – ASSET RETIREMENT OBLIGATION

The Company records the fair value of its estimated liability to retire its oil and natural gas producing properties in the period in which it is incurred (typically the date of first sale). The estimated liability is calculated by obtaining current estimated plugging costs from the well operators and inflating it over the life of the property. Current year inflation rate used is 4.08%. When the liability is first recorded, a corresponding increase in the carrying amount of the related long-lived asset is also recorded. Subsequently, the asset is amortized to expense over the life of the property and the liability is increased annually for the change in its present value which is currently 3.25%.

A reconciliation of the Company’s asset retirement obligation liability is as follows:

Note 6 – FAIR VALUE MEASUREMENTS

Inputs used to measure fair value are organized into a fair value hierarchy based on the observability of the inputs. Level 1 inputs consist of quoted prices in active markets for identical assets. Level 2 inputs are inputs, other than quoted prices, for similar assets that are observable. Level 3 inputs are unobservable inputs.

Recurring Fair Value Measurements

Certain of the Company’s assets are reported at fair value in the accompanying balance sheets on a recurring basis. The Company determined the fair value of the available-for-sale securities using quoted market prices for securities with similar maturity dates and interest rates. At September 30, 2016 and December 31, 2015, the Company’s assets reported at fair value on a recurring basis are summarized as follows:

Non-Recurring Fair Value Measurements

The Company’s asset retirement obligation annually represents a non-recurring fair value liability. The fair value of the non-financial liability incurred in the nine months ended September 30 was $10,855 in 2016 and $22,432 in 2015 and was calculated using Level 3 inputs. See Note 5 above for more information about this liability and the inputs used for calculating fair value.

The impairment losses of $508,964 in the nine months ended September 30, 2016, with $2,394,172 for 2015, also represents non-recurring fair value expenses using the income approach and Level 3 inputs. See Note 7 below for a description of the impairment loss calculation.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, marketable securities, trade payables and dividends payable. At September 30, 2016 and December 31, 2015, the historical cost of cash and cash equivalents, trade receivables, trade payables and dividends payable are considered to be representative of their respective fair values due to the short-term maturities of these items. 

Note 7 - LONG-LIVED ASSETS IMPAIRMENT LOSS 

Note 8 – NEW ACCOUNTING PRONOUNCEMENTS

This discussion and analysis should be read with reference to a similar discussion in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission (hereinafter, the “2015 Form 10-K”), as well as the financial statements included in this Form 10-Q.

Forward Looking Statements

This discussion and analysis includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements give the Company’s current expectations of future events. They include statements regarding the drilling of oil and gas wells, the production that may be obtained from oil and gas wells, cash flow and anticipated liquidity and expected future expenses.

Although management believes the expectations in these and other forward looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that would cause actual results to differ materially from expected results are described under “Forward Looking Statements” on page 8 of the 2015 Form 10-K.

We caution you not to place undue reliance on these forward looking statements, which speak only as of the date of this Form 10-Q, and we undertake no obligation to update this information. You are urged to carefully review and consider the disclosures made in this and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

Financial Conditions and Results of Operations

Liquidity and Capital Resources

Please refer to the Balance Sheets and the Condensed Statements of Cash Flows in this Form 10-Q to supplement the following discussion. In the first nine months of 2016, the Company continued to fund its business activity through the use of internal sources of cash. The Company had cash provided by operations of $1,108,657 and cash provided by the maturities of available-for-sale securities of $8,642,053. Additional cash of $341,395 was provided by property dispositions and an investment distribution for total cash provided of $10,092,105. The Company utilized cash for the purchase of available-for-sale securities of $8,641,014; property additions of $1,267,879; investments activity of $1,030,000; and financing activities of $997,953 for total cash applied of $11,936,846. Cash and cash equivalents decreased $1,844,741 to $12,092,474.

Discussion of Significant Changes in Working Capital. In addition to the changes in cash and cash equivalents discussed above, there were other changes in working capital line items from December 31, 2015. A discussion of these items follows.

Trading securities increased $58,163 (14%) from $410,724 to $468,887. The increase was the result of a $47,764 increase in the trading securities’ market value plus $10,399 of net gain from these securities.

Refundable income taxes increased $71,135 (15%) from $488,052 to $559,187. This increase was due primarily to the estimated current income tax benefit of $70,606 for the nine months ended September 30, 2016, plus $529 of state income tax payments.

Receivables increased $149,208 (23%) to $794,076 from $644,868. This increase was due entirely to higher oil and gas sales receivables. Sales variances are discussed in the “Results of Operations” section below.

Accounts payable increased $59,738 (26%) to $285,386 from $225,648. This increase was primarily due to an increase in drilling activity at September 30, 2016 versus December 31, 2015.

Deferred income taxes and other liabilities increased $111,930 (291%) to $150,423 from $38,493 due to an increase of $60,000 in ad valorem tax accruals and an increase of $51,930 in current deferred income taxes. Ad valorem (property) taxes are primarily for Texas properties and are accrued for the first three quarters each year to be paid in the fourth quarter.

Discussion of Significant Changes in the Condensed Statements of Cash Flows. As noted in the first paragraph above, net cash provided by operating activities was $1,108,657 in 2016, a decrease of $2,819,964 (72%) from the comparable period in 2015. The decrease was primarily due to decreased operating revenues, partly offset by decreased production, exploration and current income tax expense for 2016 compared to 2015. For more information see “Operating Revenues” and “Operating Costs and Expenses” below.

Cash applied to the purchase of property, plant and equipment in 2016 was $1,267,879, a decrease of $264,174 (17%) from cash applied in 2015 of $1,532,053. In both 2016 and 2015, cash applied to property, plant and equipment additions was mostly related to oil and gas exploration and development activity. See the subheading “Exploration Costs” in the “Results of Operations” section below for additional information.

Material Changes in Results of Operations Nine Months Ended September 30, 2016, Compared with Nine Months Ended September 30, 2015

Net income/(loss) decreased $668,602 (65%) to $(360,611) in 2016 from $(1,029,213) in 2015. Net income/(loss) per share, basic and diluted, decreased $4.21 to $(2.28) in 2016 from $(6.49) in 2015.

A discussion of revenue from oil and gas sales and other significant line items in the statements of operations follows.

Operating Revenues. Revenues from crude oil and natural gas sales decreased $2,253,483 (37%) to $3,902,237 in 2016 from $6,155,720 in 2015. Of the $2,253,483 decrease, crude oil sales decreased $1,464,162; natural gas sales decreased $756,126; and miscellaneous oil and gas product sales decreased $33,195.

Sales from the Robertson County, Texas royalty interest properties provided approximately 20% and 22% of the Company’s first nine months 2015 and 2016 gas sales volumes, respectively. See discussion on page 11 of the 2015 Form 10-K, under the subheading “Operating Revenues,” for more information about these properties.

For both oil and gas sales, the price change was mostly the result of a change in the spot market prices, upon which most of the Company’s oil and gas sales are based. These spot market prices have had significant fluctuations in the past and these fluctuations are expected to continue.

Sales of miscellaneous oil and gas products were $108,122 in 2016 as compared to $141,317 in 2015.

The Company received lease bonuses of $208,992 in the first nine months of 2016 for leases on its owned minerals compared to $753,693 in the first nine months of 2015.

In 2016, 66% of the lease bonuses were for leases on owned minerals in Oklahoma, mostly in Woodward County, and the remainder were for owned minerals in Texas. In 2015, 97% of the lease bonuses were for leases on owned minerals in Oklahoma, mostly in Major County, and the remainder were for owned minerals in Texas.

Operating Costs and Expenses. Operating costs and expenses decreased $3,839,582 (43%) to $5,088,388 in 2016 from $8,927,970 in 2015. Material line item changes are discussed and analyzed in the following paragraphs.

Production Costs. Production costs decreased $436,205 (22%) to $1,566,803 in 2016 from $2,003,008 in 2015. Lease operating expense and transportation and compression expense decreased $339,693 to $1,420,091 in 2016 from $1,759,784 in 2015. This decrease was primarily due to cost control measures implemented by the well operators. Production taxes decreased $96,512 to $146,712 in 2016 from $243,224 in 2015. This decrease was due to lower oil and natural gas sales revenue discussed above in “Operating Revenues.”

Exploration Costs. Total exploration expense increased $117,357 (32%) to $481,963 in 2016 from $364,606 in 2015. The increase is due to an increase in both geological and geophysical expense and dry hole costs. Geological and geophysical expenses totaled $162,449 in 2016 as compared to $76,859 in 2015. Dry hole costs increased $31,767 to $319,514 in 2016 from $287,747 in 2015.

The following is a summary as of October 28, 2016, updating both exploration and development activity from December 31, 2015, for the period ended September 30, 2016.

The Company participated with 10.3% and 10.7% working interests in the completion of two development wells on a Woods County, Oklahoma prospect. The wells were drilled in 2015. Both wells are commercial producers, one gas and the other oil and gas. Capitalized costs for the period were $40,589.

The Company will participate with 8% and 16% working interests in the drilling of two development wells on a Woods County, Oklahoma prospect starting in November 2016.

The Company participated with its 8.4% interest in the acquisition of additional 3-D seismic data on a Thomas County, Kansas prospect and in the drilling of an exploratory well on the prospect. The well was completed as a dry hole. Dry hole costs for the period were $36,406.

The Company participated with its 10.5% interest in a 3-D seismic survey on a Thomas County, Kansas prospect and in the drilling of an exploratory well on the prospect. The well was completed as a dry hole. Dry hole costs for the period were $28,622.

The Company participated with its 16% working interest in the drilling of two step-out wells on a Chase County, Nebraska prospect. One well was completed as a commercial oil producer and the other is awaiting the installation of pumping equipment. Testing indicates that it will be a commercial oil producer. Capitalized costs for the period were $115,829.

The Company is participating with its 14% interest in the development of a Hansford County, Texas prospect for waterflooding. The initial well has been drilled and completed as an oil producer. Capitalized costs for the period were $123,026.

Since February 2016, the Company has paid $161,067 for a 16% interest in 13,804.7 net acres of leasehold on a Chase County, Nebraska prospect. A 3-D seismic survey of the prospect has been completed. The Company participated in the drilling of an exploratory well on the prospect that was completed as a dry hole. Seismic costs for the period were $92,599 and dry hole costs were $43,875.

In March 2016, the Company purchased a 35% interest in 16,472.55 net acres of leasehold on a Crockett and Val Verde Counties, Texas prospect for $345,923. The Company is participating in the development of the prospect and a geologic study of the prospect area has been completed. The Company has entered into a letter of intent to sell a portion of its interest. Geological and geophysical costs for the period were $14,158.

In April 2016, the Company purchased a 14% interest in three prospects in Okfuskee and Seminole Counties, Oklahoma for $57,415. The Company participated in the drilling of exploratory wells on two of the prospects. Both wells were completed as dry holes. Dry hole costs for the period were $80,819.

In May 2016, the Company purchased a 14% interest in 640 net acres of leasehold and 3-D seismic data on a Lavaca County, Texas prospect for $56,000. The Company participated in the drilling of an exploratory well on the prospect that is awaiting completion. Capitalized costs for the period were $116,320.

In July 2016, the Company purchased a 16% interest in 2,071.6 net acres of leasehold on a Kingman County, Kansas prospect for $26,516. The Company participated in the re-entry and washdown of two old wellbores on the prospect. Both re-entries were unsuccessful and will be plugged. Dry hole costs for the period were $89,382. 

Other Income/(Loss), Net. This line item increased $271,981 (392%) to $341,356 in 2016 from $69,375 in 2015. See Note 2 to the accompanying financial statements for an analysis of the components of this item.

Trading securities gains in 2016 were $57,264 as compared to losses of $(34,690) in 2015, resulting in an increase in “Other Income” of $91,954. In 2016, the Company had unrealized gains of $47,764 from adjusting securities, held at September 30, to estimated fair market value and net realized trading gains of $9,507. In 2015, the Company had unrealized losses of $(26,649) and net realized trading losses of $(8,041).

Other income increased $155,570 (255%) to $216,536 in 2016 from $60,966 in 2015. The increase was mostly due to $155,000 in other investment income in 2016 compared to $50,000 in 2015 and $55,000 of loan guarantee fees received in 2016 from Grand Woods Development, LLC discussed in Note 3 to the accompanying financial statements with no similar fees in 2015.

Income Tax Provision/(Benefit). Income taxes increased $644,071 to a $(274,390) tax benefit in 2016 from a $(918,461) tax benefit in 2015. The income tax increase was the result of a $1,312,673 decrease in the pre-tax loss to $(635,001) in 2016 from $(1,947,674) in 2015. Of the 2016 income tax benefit, the estimated current tax benefit was $(70,606) and the estimated deferred tax benefit was $(203,784). Of the 2015 income tax benefit, the estimated current tax expense was $568,747 and the estimated deferred tax benefit was $(1,487,208). See Note 4 to the accompanying financial statements for additional information on income taxes.

Material Changes in Results of Operations Three Months Ended September 30, 2016, Compared with Three Months Ended September 30, 2015

Net income/(loss) increased $1,191,023 (110%) to $113,018 in 2016 from $(1,078,005) in 2015. The significant changes in the statements of operations are discussed below.

Operating Revenues. Revenues from oil and gas sales decreased $409,420 (21%) to $1,512,304 in 2016 from $1,921,724 in 2015. The decrease was the result of a decrease in gas sales of $63,796 (9%) to $643,058; a decrease in oil sales of $351,770 (30%) to $825,505; and an increase in miscellaneous oil and gas product sales of $6,146 to $43,740.

The decrease in gas sales was the result of a decline in the average price of $0.05 per MCF to $2.47, for a negative price variance of $11,184, and a decrease in the volume of gas sold of 20,878 MCF to 260,075 MCF, for a negative volume variance of $52,613. See the “Results of Operations” section above for the nine months ended September 30, 2016 for additional discussion of gas sales variances.

The decrease in oil sales was the result of a decline in the average price received of $2.93 per Bbl to $40.19, for a negative price variance of $60,149, and a decrease in the volume of oil sold of 6,763 Bbls to 20,540 Bbls, for a negative volume variance of $291,621. See the “Results of Operations” section above for the nine months ended September 30, 2016 for additional discussion of the oil sales variances.

Other operating revenues increased $53,855 (50%) to $160,909 for 2016, due to an increase in lease bonuses.

Operating Costs and Expenses. Operating costs and expenses decreased $2,099,627 (57%) to $1,611,679 in 2016 from $3,711,306 in 2015. The decrease was the net result of a decrease in production costs of $130,638; an increase in exploration costs charged to expense of $303,685; a decrease in depreciation, depletion, amortization and valuation provisions (DD&A) of $2,244,087; and a decrease in general administrative and other expense (G&A) of $28,587. The significant changes in these line items are discussed below.

Production Costs. Production costs decreased $130,639 (20%) to $517,953 in 2016 from $648,592 in 2015. Most of the decrease is due to lower lease operating expenses for 2016 versus 2015, due to the decline in revenues from oil and gas sales discussed above in “Operating Revenues.” For more information about these changes, see the production costs discussion in the “Results of Operations” section above for the nine months ended September 30, 2016.

Exploration Costs. Exploration costs increased $303,685 to $314,541 in 2016 from $10,856 in 2015. Most of the increase is due to a $288,824 increase in dry hole costs for 2016 compared to 2015. 

Other Income/(Loss), Net. See Note 2 to the accompanying financial statements for an analysis of the components of other income/(loss), net. In 2016, this line item increased $95,771 (418%) to income of $72,879 from loss of $(22,892) in 2015.

Trading securities gains increased $103,804 in 2016 to $55,544 compared to losses of $(48,260) in 2015. The gains and losses were primarily unrealized.

Income Tax Provision/(Benefit). Income taxes increased $648,810 (103%) to a $21,395 tax provision in 2016 from a $(627,415) tax benefit in 2015. The increase was due to the increase in income before income taxes of $1,839,833 to $134,413 in 2016 from a loss of $(1,705,420) in 2015. Of the 2016 income tax provision, the estimated current tax benefit was $(81,261) and the estimated deferred tax provision was $102,656. Of the 2015 income tax benefit, the estimated current tax provision was $156,096 and the estimated deferred tax benefit was $(783,511). See discussions above in “Results of Operations” section and Note 4 to the accompanying financial statements for additional explanation of the changes in the provision for income taxes.

There were no additional material changes between the quarters, which were not covered in the discussion in the “Results of Operations” section above for the nine months ended September 30, 2016.

Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements relate to Broadway Sixty-Eight, Ltd., an Oklahoma limited partnership, and Grand Woods Development, LLC, an Oklahoma limited liability company. The Company does not have actual or effective control of these entities. Management of these entities could at any time make decisions in their own best interest, which could materially affect the Company’s net income or the value of the Company’s investment. For more information about these entities, see Note 3 to the accompanying financial statements.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.     CONTROLS AND PROCEDURES

As defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, they concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2016.

Internal Control over Financial Reporting

As defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act, the term "internal control over financial reporting" means a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles and includes those policies and procedures that:

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

During the quarter ended September 30, 2016, the Company did not have any material legal proceedings brought against it or its properties.

ITEM 1A.  RISK FACTORS

Not applicable.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

¹The Company has no formal equity security purchase program or plan. The Company acts as its own transfer agent, and most purchases result from requests made by stockholders receiving small odd lot share quantities as the result of probate transfers.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.     OTHER INFORMATION

None.

ITEM 6.     EXHIBITS

The following documents are exhibits to this Form 10-Q. Each document marked by an asterisk is filed electronically herewith.

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.

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