<PAGE>
 
                   U. S. Securities and Exchange Commission
                            Washington, D. C. 20549

                                  FORM 10-QSB

(Mark One)
           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 [X]       SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 1996


          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 [  ]                       EXCHANGE ACT

                 For the transition period from            to

                          Commission File No. 0-9617

                          TERRITORIAL RESOURCES, INC.
       (Exact name of small business issuer as specified in its charter)

         COLORADO                                 84-0821158
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
 incorporation or organization)

                 450 NORTH SAM HOUSTON PARKWAY EAST, SUITE 140
                             HOUSTON, TEXAS  77060
                   (Address of principal executive offices)

                                 281-931-0604
                          (ISSUER'S TELEPHONE NUMBER)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 November 5, 1996, the issuer had 28,227,354 shares of Common Stock
issued and outstanding.

     Transitional Small Business Disclosure Format     Yes        No   X
                                                          ----        ----

<PAGE>
 
                        PART I.   FINANCIAL INFORMATION

                          TERRITORIAL RESOURCES, INC.
                                Balance Sheets
                                    Assets
                                   ($1,000)
 
                   
                                          Unaudited
                                          September    March
                                          30, 1996   31, 1996
                                          ---------  ---------
 
CURRENT ASSETS:
 
   Cash                                   $       6  $      39
   Accounts Receivable:
      Oil and Gas Sales                           7         10
      Other                                       -          -
   Prepaids                                       9          -
                                          ---------  ---------
         Total Current Assets                    22         49
                                          ---------  ---------
 
NOTE RECEIVABLE                                  10         10
                                          ---------  ---------
INVESTMENT IN SOCO TAMTSAG 
     MONGOLIA, INC.                           2,443      1,744
 
PROPERTY AND EQUIPMENT, AT COST:

   Oil and Gas (full cost accounting)         7,934      7,934


   Less:  Accumulated depreciation, 
          depletion & amortization           (7,803)    (7,792)
                                          ---------   ---------


         Total Property & Equipment             131        142
                                          ---------   --------


TOTAL ASSETS                              $   2,606   $  1,945
                                          ---------   --------

See notes to condensed financial statements.

                                       2
<PAGE>
 
                  PART I.  FINANCIAL INFORMATION - continued

                          TERRITORIAL RESOURCES, INC.
                                Balance Sheets
                     Liabilities and Stockholders' Equity
                                   ($1,000)


                                               Unaudited
                                             September 30,     March 31,
                                                  1996           1996
                                             -------------      --------
 
 
CURRENT LIABILITIES:
 
     Accounts payable                              $   224           15
     Accrued liabilities and other                       -           49
     Due to affiliated party                            55            -
                                                   -------     --------
 
          Total Current Liabilities                    279           64
                                                   -------     --------
 
          Total Liabilities                            279           64
                                                   -------     --------
 
STOCKHOLDERS' EQUITY:
 
     Common stock, no par value, $.001
       stated value; 30,000,000 shares
       authorized; 28,084,854 and 26,066,112
       shares issued at September 30, 1996
       and March 31, 1996, respectively                 28           26
     Additional paid-in capital                      5,895        5,399
     Accumulated deficit, $5,121 deficit
       eliminated in quasi-reorganization
       effective March 31, 1986                     (3,579)      (3,527)
     Treasury stock, 5,456 shares, at cost             (17)         (17)
                                                   -------      -------
     TOTAL STOCKHOLDERS' EQUITY                      2,327        1,881
                                                   -------      -------
 TOTAL LIABILITIES AND STOCKHOLDERS'
          EQUITY                                   $ 2,606      $ 1,945
                                                   -------      -------
See notes to condensed financial statements.

                                       3
<PAGE>
 
                  PART I.   FINANCIAL INFORMATION - continued


                          TERRITORIAL RESOURCES, INC.
                         Income Statements - Unaudited
                          September 30, 1996 and 1995
                                   ($1,000)
 
 
                                         Three Months Ended September 30,
                                         --------------------------------
                                              1996             1995
                                         ---------------  ---------------
 
REVENUES:
 
     Oil & Gas Sales                         $         7      $         5
     Other Income                                      1                1
                                             -----------      -----------
          Total Revenues                               8                6
                                             -----------      -----------
COSTS AND EXPENSES:
 
     Production Costs                                  0                0
     Depreciation, Depletion
       and Amortization                                5                6
     General and Administrative                       48               11
                                             -----------      -----------
          Total Costs & Expenses                      53               17
                                             -----------      -----------
NET INCOME (LOSS) BEFORE INCOME TAXES                (45)             (11)
                                             -----------      -----------
     Income Tax Provision                              -                -
                                             -----------      -----------
NET INCOME (LOSS)                            $       (45)      $      (11)
                                             -----------      -----------
NET INCOME (LOSS) PER SHARE                        (.002)           (.001)
                                             ===========      =========== 
Average Common Shares Outstanding             27,448,987       20,570,656
                                             ===========      ===========

See notes to condensed financial statements.

                                       4
<PAGE>
 
                  PART I.   FINANCIAL INFORMATION - continued

                                        
                          TERRITORIAL RESOURCES, INC.
                         Income Statements - Unaudited
                          September 30, 1996 and 1995
                                   ($1,000)
 
 
                                         Six Months Ended September 30,
                                         ------------------------------
                                              1996            1995
                                         --------------  --------------
REVENUES:

     Oil & Gas Sales                        $        16     $        13
     Other Income                                     1               1
                                            -----------     -----------
          Total Revenues                             17              14
                                            -----------     -----------
COSTS AND EXPENSES:
 
     Production Costs                                 1               1
     Depreciation, Depletion
       and Amortization                              10              12
     General and Administrative                      58              24
                                            -----------     -----------
          Total Costs & Expenses                     69              37
                                            -----------     -----------
NET INCOME (LOSS) BEFORE INCOME TAXES               (52)            (23)
                                            -----------     -----------
     Income Tax Provision                             -               -
                                            -----------     -----------
NET INCOME (LOSS)                           $       (52)     $      (23)
                                            -----------     -----------
NET INCOME (LOSS) PER SHARE                       (.002)          (.001)
                                            ===========     ===========
Average Common Shares Outstanding            26,761,328      20,570,656
                                            ===========     ===========
 

See notes to condensed financial statements.

                                       5
<PAGE>
 
                  PART I.   FINANCIAL INFORMATION - continued

                          TERRITORIAL RESOURCES, INC.
                      Statements of Cash Flows - Unaudited
            For the Three Months Ended September 30, 1996 and 1995
                                    ($1,000)
 
                                                Three Months Ended September 30,
                                                --------------------------------
                                                    1996              1995
                                                ---------------  ---------------
 
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                               $      (45)      $      (11)
  Adjustments to reconcile net income to
    cash provided (used) by operations:
      Depreciation, depletion and amortization             5                6
      Changes in operating assets
        and liabilities:
          Accounts receivable                             (1)               2
          Prepaid Expenses                                (1)               -
          Accounts payable                               218               (3)
          Accrued liabilities                            (95)              (1)
                                                  ----------       ----------
 
  Cash provided by (used in) operations                   81               (7)
                                                  ----------       ----------
CASH FLOW FROM INVESTMENT ACTIVITIES:
  Additional Investment in
    SOCO Tamtsag Mongolia, Inc.                         (465)              (3)
  Additions to property and equipment                      -                -
  Proceeds from sales of oil and gas property              -               23
                                                  ----------       ----------
    Cash provided (used in) from
      investment activities                             (465)              20
                                                  ----------       ----------
 CASH FLOW FROM FINANCING ACTIVITIES:
   Note receivable advances                                -              (10)
   Advances from affiliate                                 -                -
   Issuance of debt                                        -                -
   Issuance of common stock                              498                -
   Advance from affiliated party                          55                -
   Conversion of amount due to
     affiliated party to equity                         (250)               -
                                                  ----------       ----------
   Cash provided by (used in)
     financing activities                                303              (10)
                                                  ----------       ----------
   Change in cash balance                                (81)               3
                                                  ----------       ----------
   Cash balance - beginning                               87               47
                                                  ----------       ----------
   Cash balance - ending                          $        6       $       50
                                                  ----------       ----------
See notes to condensed financial statements.

                                       6
<PAGE>
 
                  PART I.   FINANCIAL INFORMATION - continued

                          TERRITORIAL RESOURCES, INC.
                     Statements of Cash Flows - Unaudited
             For the Six Months Ended September 30, 1996 and 1995
                                   ($1,000)


 
                                                Six Months Ended September 30,
                                                ------------------------------
                                                      1996            1995
                                                --------------   -------------
 
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                               $     (52)     $      (23)
  Adjustments to reconcile net income to
    cash provided (used) by operations:
      Depreciation, depletion and amortization           10              12
      Changes in operating assets
        and liabilities:
          Accounts receivable                             3              18
          Prepaid Expenses                               (9)             (3)
          Accounts payable                              209             (18)
          Accrued liabilities                           (48)             (3)
                                                  ---------      ----------
  Cash provided by (used in) operations                 113             (17)
                                                  ---------      ----------
CASH FLOW FROM INVESTMENT ACTIVITIES:
  Additional Investment in
    SOCO Tamtsag Mongolia, Inc.                        (699)             (2)
  Additions to property and equipment                     -               -
  Proceeds from sales of oil and gas property             -              29
                                                  ---------      ----------
  Cash provided (used in) from
    investment activities                              (699)             27
                                                  ---------      ----------
CASH FLOW FROM FINANCING ACTIVITIES:
  Note receivable advances                                -             (10)
  Advances from affiliate                                 -               -
  Issuance of debt                                        -               -
  Issuance of common stock                              498               -
  Advance from affiliated party                          55               -
                                                  ---------      ----------
  Cash provided by (used in)
    financing activities                                553             (10)
                                                  ---------      ----------
  Change in cash balance                                (33)              0
                                                  ---------      ----------
  Cash balance - beginning                               39              50
                                                  ---------       ---------
  Cash balance - ending                           $       6       $      50
                                                  ---------       ---------
See notes to condensed financial statements.

                                       7
<PAGE>
 
                  PART I.   FINANCIAL INFORMATION - continued

                          TERRITORIAL RESOURCES, INC.
                    Notes to Condensed Financial Statements
                        September 30, 1996 (Unaudited)

(1)  The information presented in this report on Form 10-QSB is condensed from
     what would appear in annual financial statements.  Accordingly, the
     financial statements included  herein should be read in conjunction with
     the consolidated financial statements and notes thereto contained in the
     Territorial Resources, Inc., March 31, 1996 Form 10-KSB.  The financial
     statements included herein include all adjustments that in the opinion of
     management are necessary in order to make the financial statements not
     misleading.

(2)  The results for the interim period are not necessarily indicative of
     results to be expected of the Company for the fiscal year ended March 31,
     1997, due to seasonal or other factors.  The Company believes that the
     interim period reports filed on Form 10-Q are representative of its
     financial position, changes in financial position and results of operations
     for the periods covered thereby.

(3)  There is no provision for income taxes for the six-month period ended
     September 30, 1996.

(4)  Subsequent Transactions.  In October 1996, Territorial issued to certain
     non-U.S. persons 112,500 shares (the "Series B Preferred Shares") of its
     newly designated voting Preferred Stock, Series B, $0.10 par value each, a
     majority of which were acquired by affiliates of the Company.  Each Series
     B Preferred Share is convertible, after March 31, 1997, following certain
     events, into five shares of Common Stock.  In early November 1996,
     Territorial also issued, again to non-U.S. persons, an aggregate of 142,500
     shares of Common Stock.  The Company received an aggregate of approximately
     (US) $206,300 in connection with the sale of such Common Stock and such
     Series B Preferred Shares, and these proceeds were used to reduce the
     outstanding amounts payable balance (see Item 2 - Management's Discussion
     and Analysis or Plan of Operations).



Item 2. Management's Discussion and Analysis or Plan of Operation

     During the second quarter ended September 30, 1996, the primary focus of
operations of Territorial Resources, Inc. ("Territorial" or the "Company")
continued to be its varying direct and indirect interests in certain oil and gas
related rights which it holds in the Tamtsag Basin of northeastern Mongolia.  A
portion of those interests are owned indirectly by Territorial as a result of
its interests in SOCO Tamtsag Mongolia, Inc., a Delaware close corporation
("SOTAMO").

     Results of Drilling Program.  In mid-October 1996, Territorial announced
the results of the 1996 drilling program in the Tamtsag Basin.  The SOTAMO 19-2
well, located in a contract area in which Territorial owns approximately a
13.22% interest, was drilled in late 1995 and suspended for the winter of 1995-
96, and is being completed as a low rate producing oil well.  The well was
stimulated and swabbed during the summer of 1996 in efforts to clean out
drilling mud and lost circulation material. The well produced 41 degrees API oil
at various rates by swabbing from perforations between 8,865 feet and 8,944 feet
and will be placed on production by pump. Production rates are yet to be
determined. The oil pay zone was severely damaged due to lost circulation when
the well was drilled. A number of seismically-controlled structures have been
identified in close proximity to the 19-2 well. The Company intends to drill a
delineation well in early 1997.

                                       8
<PAGE>
 
     The SOTAMO 22-1 well, located in a contract area in which Territorial again
owns approximately a 13.23% interest, was drilled in the summer of 1996 to a
total depth of approximately 8,589 feet.  No oil shows were encountered in the
Lower Cretaceous-Upper Jurassic interval penetrated; however, approximately
2,100 feet of reservoir quality sands with porosities as high as 28% were
encountered above basement.

     The SOTAMO 21-1 well, located in a contract area in which Territorial owns
approximately an 11.24% interest, was also drilled in the summer of 1996 and
penetrated approximately 26 feet of oil saturated sand with approximately 18
percent porosity in the upper part of the Lower Cretaceous-Upper Jurassic
Tsagaantsav Formation.  A drill-stem test of the interval between 6,272.6 feet
and 6,307.4 feet recovered 886 feet of medium gravity oil.  The well has been
suspended until completion and production equipment can be installed.  A number
of prospects and well locations have been identified offsetting 21-1 which are
expected to be drilled after the well is evaluated.

     Administrative Expenses.  During the quarter ended September 30, 1996, the
Company incurred additional administrative expenses primarily as a result of its
establishment of an office in Calgary, Alberta, Canada, and certain related
costs and expenses incurred in order to attract management and administrative
personnel at the Calgary office.

     Transaction with Asia Energy Ltd.  In mid-July 1996, Territorial issued to
Asia Energy Ltd. ("AEL") 1,918,750 shares of common stock, no par value ("Common
Stock"), of Territorial primarily in exchange for approximately $223,000 in
cash, five shares of SOTAMO, the elimination of a payable to AEL of $25,000, and
the cancellation of an option agreement pursuant to which AEL had been granted
the right to acquire certain shares of SOTAMO from Territorial.  Territorial
also agreed to pay certain administration-related costs and expenses on behalf
of AEL in the future.

     Subsequent Transactions.  In October 1996, Territorial issued to certain
non-U.S. persons 112,500 shares (the "Series B Preferred Shares") of its newly
designated voting Preferred Stock, Series B, $0.10 par value each, a majority of
which were acquired by affiliates of the Company.  Each Series B Preferred Share
is convertible, after March 31, 1997, following certain events, into five shares
of Common Stock.  In early November 1996, Territorial also issued, again to non-
U.S. persons, an aggregate of 142,500 shares of Common Stock.  The Company
received an aggregate of $206,300 in connection with the sale of such Common
Stock and such Series B Preferred Shares.

     Other.  Management does not anticipate revenues to be generated from the
Company's Mongolian operations in the short term.  As a result, the Company will
seek additional, outside sources of working capital in order to fund its
operations and commitments, including its mandatory financial contributions
arising under an agreement among the shareholders of SOTAMO.

     Management currently estimates that Territorial's minimum working capital
commitments through the end of the current fiscal year will require it to secure
additional funds of approximately $200,000.  Such estimate is subject to change
based on a number of factors, including among other additional costs that may be
incurred in connection with its investment in SOTAMO.  Such additional working
capital funds may be sought through the sale of direct or indirect interests in
Territorial's projects and assets or, when appropriate, the sale of Territorial
securities or borrowing (or a combination of one or more of the foregoing).
There can be no assurance, however, that such additional funds will be available
to the Company upon terms deemed acceptable to management.  In the event such
funds are not secured, Territorial may be required to forfeit all or a portion
of its interests in SOTAMO.

                                       9
<PAGE>
 
                         PART II.   OTHER INFORMATION

Item 1.  Legal Proceedings

      In September 1996, a summary judgment was entered in favor of TRI
Mongolia, Inc., a subsidiary of Territorial, and certain other parties in a
previously reported action styled, Leo T. Metcalf, III vs. Amgol, Inc., SOCO
International, Inc., Exploration Associates International, Inc., et al, Cause
No. 94-29503, in the 113th Judicial District Court of Harris County, Texas. It
is not clear at this time whether or not the plaintiff will appeal the summary
judgment.

Item 5.  Other Information

      Jimmy M. McCarroll, President of McCarroll Energy, Inc., an independent
oil and gas operator on the Texas Gulf Coast, was appointed an additional
director of Territorial in October 1996. Mr. McCarroll resides in Houston,
Texas.

      Subsequent to September 30, 1996, Territorial issued an aggregate of
142,500 shares of its Common Stock and 112,500 of its newly designated Preferred
Stock, Series B.  See "Subsequent Transactions" under Item 2 above.

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

     3.1 Amendment to the Articles of Incorporation of Territorial, dated
     October 30, 1996.

     27. Financial Data Schedule
   
(b)  Report on Form 8-K

     On August 1, 1996, a Report on Form 8-K reporting under item 5 thereof the
     issuance to Asia Energy Ltd. of the 1,918,750 shares of Territorial common
     stock on July 19, 1996, and the related transactions, was filed with the
     Securities and Exchange Commission.

                                       10
<PAGE>
 
                                  SIGNATURES


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


                                  TERRITORIAL RESOURCES, INC.



Dated:   November 13, 1996        By: /s/ Daniel A. Mercier
                                      -----------------------
                                      Daniel A. Mercier
                                      Chairman of the Board and
                                      Chief Executive Officer

                                       11