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10
FORM 10-Q/QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 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: 1-100
CROFF ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0233535
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 Broadway, Suite 1030, Denver, CO 80202
(Address of principal executive offices) (Zip Code)
(303)628-1963
-
(Registrant's telephone number, including area code)
_________________________________________________________________
______
(Former name, former address and former fiscal year, if changed
since last report.)
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 has required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes ______ No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
_____ Yes ______ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
516,265 shares, one class only, as of June 30, 1998.
INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q)
TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 1998 (UNAUDITED).
_________________________________________________________________
PART I. FINANCIAL INFORMATION Page Number
Balance Sheets as of December 31, 1997
and June 30, 1998 3, 4
Statements of Operations for the Three and
Six Months Ended June 30, 1997 and 1998 5
Statements of Cash Flows
for the Six Months
Ended June 30, 1997 and 1998 6
Notes to Financial Statements 7
Management's' Discussion and Analysis of Financial
Condition and Results of Operations
9
PART II. OTHER INFORMATION
Changes in Securities 9
Other Information 9
Exhibits and Reports on Form 8-K 10
Signatures. 10
_________________________________________________________________
The condensed financial statements included herein are for the
Registrant, Croff Enterprises, Inc. The financial statements for
the six months ended June 30, 1998 and 1997 are unaudited;
however, they reflect all adjustments which, in the opinion of
management, are necessary to present fairly the results of the
interim periods. All adjustments necessary to a fair
representation of the financial statements are of a normal
recurring nature.
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
December 31, June
30,
1997 1998
CURRENT ASSETS:
Cash and Cash Equivalents: $166,883
$48,459
Marketable equity securities
15,687 3,125
Accounts receivable:
Oil and gas purchasers 26,552
22,970
Refundable income taxes 3,200
5,400
Total current assets $212,322
$79,954
PROPERTY AND EQUIPMENT, AT COST:
Oil & gas properties, successful
efforts method:
Proved properties $429,903
$640,825
Unproved properties 97,102
97,102
527,005
737,927
Less accumulated depletion and depreciation
(250,729) (263,544)
Net property and equipment 276,276
474,383
Coal Investment 16,277
16,277
Total Assets $ 504,875
$570,614
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
December 31 June
30,
1997 1998
Current Liabilities:
Accounts payable $ 4,378
$14,247
Accrued liabilities 2,605
2,839
Note payable
0 68,402
Total current liabilities
6,983 $85,488
Stockholders' equity:
Class A Preferred, none issued
Class B Preferred stock, no par value;
520,000 authorized, 516,265 shares issued 12/31/97
364,328
520,000 authorized, 490,860 shares issued 6/30/98
346,232
Common stock, $.10 par value 20,000,000 shares
authorized 579,143 shares issued
57,914 57,914
Capital in excess of par value
542,215 542,215
Accumulated deficit (383,669)
(378,339)
580,788
568,022
Less common stock at cost, 62,628 shares
in 1996 and 62,878 in 1997
(82,896) (82,896)
Total stockholders' equity 497,892
485,126
$504,875
$570,614
CROFF ENTERPRISES, INC.
Statement of Operations
For the Three And Six Months Ended June 30, 1998
(Unaudited)
For Three Months For Six Months,
Ended Ended
6/30/97 6/30/98 6/30/97
6/30/98
______ ______ _______
_______
Revenue:
Oil and gas sales........ $ 47,515 $47,675
105,517 $90,405
Other income (loss)..... 1,772
1,521 3,994 6,243
Total revenue $ 49,287 $49,196
$109,511 96,648
Costs and expenses:
Lease operating expense.. $ 8,897 10,179
18,171 21,252
Depreciation and depletion 6,000 6,657
12,000 12,815
General and administrative 21,631 20,510
41,648 43,052
Interest Expense
2,228 2,228
Rent Expense - Related Party 2,940 2,940
5,880 5,880
$ 39,468
$42,514 $77,699 $85,227
Net income (loss) $ 9,819 $ 6,682 $ 31,812
$11,421
Earnings (Loss) Per Share $ .01 $ .01
$ .06 $ .02
CROFF ENTERPRISES, INC.
Statement of Cash Flows
For the Six
Months Ended
June 30,
1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $31,812
11,421
Adjustments to reconcile net income to net cash
provided by operating activities and depletion:
12,000 12,815
Change in assets and liabilities:
Decrease(Increase) in Receivables 4,041
1,382
Decrease(Increase) in other assets 0
(2,422)
Decrease(Increase) in accounts payable 1,688
(9,869)
Decrease(Increase) in accrued liabilities (1,409)
(234)
(Gains) on marketable securities 0
(3,829)
Total adjustments 16,320 )
(2,157)
Net cash provided by operating activities: 48,132
9,264
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)Sale of oil & gas properties:
(19,052) (208,500)
(Purchase) of Preferred Stock
(24,188)
Sale of marketable equity securities 750
15,000
(18,302)
(217,688)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (250)
Proceeds from Note Payable
90,000
Increase (decrease) in cash: 29,580
(118,424)
Cash at beginning of period: $
184,565 $ 166,883
Cash at end of period: $ 214,145
$ 48,459
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998
BASIS OF PREPARATION
The condensed financial statements for the three and six
month periods ended June 30, 1998 and 1997 in this report have
been prepared by the Company without audit pursuant to the rules
and regulations of the Securities and Exchange Commission and
reflect, in the opinion of management, all adjustments necessary
to present fairly the results of the operations of the interim
periods presented herein. Certain reclassifications have been
made to the prior years' financial statements to conform to the
1997 presentation. Certain information in footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company
believes the disclosures presented herein are adequate to make
the information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1997, which report has been filed with the Securities and
Exchange Commission, and is available from the Company.
MANAGEMENT'S' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three-Month Period Ended June 30, 1998,
as Compared to the Three-Month Period Ended June 30, 1997.
OIL AND GAS OPERATIONS
Oil and gas income, primarily from royalties, for the three
months ended June 30, 1998 was $47,675 compared to $47,515 for
the quarter ending June 30, 1997. This slight increase in
revenue was caused by the drastic drop in oil prices and a
smaller drop in natural gas prices, that offset the additional
production from new leases. Prices for oil decreased from
approximately $17-$18 per barrel in this quarter in 1997, to
slightly over $12-$13 per barrel, this year. Natural gas prices
declined by approximately ten percent. Production increased as
the Company purchased five new producing leases this quarter
which produce primarily natural gas.
Production costs, which include lease operating expenses and
all production related taxes, for the three months ended June 30,
1998, due to new operating leases, increased to $10,179 in 1998,
compared to $8,897 during the same quarter year of 1997. The
operating expenses increased on working interests, which were
purchased. Overall, operating expenses are low due to the large
amount of royalty income. Depletion increased due to the
purchase of new wells.
OTHER INCOME
During the three month period ended June 30, 1998, the
Company had other income of $1,521 compared to $1,772 for the
quarter ending June 30, 1997. This was due to higher interest
income last year as the Company held accumulated cash which was
used to purchase oil leases, reducing interest this year.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the quarter ending
June 30, 1998, were $20,510 plus rent expense of $2,940 for a
total of $23,450 compared to $21,631, plus rent expense of
$2,940, for a total of $24,571 in the same period in 1997. The
Company expects general and administrative costs to remain stable
this year.
Six Month Period Ended June 30, 1998,
as Compared to the Six Month Period Ended June 30, 1997.
OIL AND GAS OPERATIONS
Oil and gas income, primarily from royalties, for the six
months ending June 30, 1998, was $90,405 compared to $105,517
for the six months ended June 30, 1997. This decrease was caused
by much lower prices for oil, approximately five dollars a barrel
less this year, and a drop of about twenty-five cents per MCF for
natural gas. This drastic drop in price was offset somewhat by
higher oil and natural gas production, primarily increased
natural gas from coal seam methane wells, and the new working
interests in natural gas wells in Oklahoma.
Production costs, which include lease operating expenses and
all production related taxes, for the six months ended June 30,
1998, were $21,252 in 1998, an increase from $18,171 during the
six months ended June 30, 1997. The higher production costs were
due primarily to the purchase of working interests in five new
wells in Oklahoma in 1998, and the purchase of working interests
in Texas and Michigan in the fourth quarter of 1997.
OTHER INCOME.
During the six month period ended June 30, 1998, the Company
had other income of $6,243, primarily from interest, dividends,
and lease bonuses. During the first six months of 1997, the
Company had other income of $3,994, primarily from the dividends
and interest. The increase was due to receiving a small bonus
from leasing acreage during the first six months of 1998.
GENERAL AND ADMINISTRATIVE.
General and administrative expenses for the period ending
June 30, 1998, were $43,052 plus rent expense of $5,880, for a
total of $48,932, compared to $41,648 plus rent expense of $5,880
for a total of $47,528 for the six month period ending June 30,
1997. There was no significant change in general and
administrative expenses.
FINANCIAL CONDITION
As of June 30, 1998, the Company's current assets were
$79,954 which were exceeded by current liabilities of $85,488,
for a negative ratio of .9 to 1. As of December 31, 1997, the
Company's current assets were $212,322, and current liabilities
were $6,983, giving the Company a working capital position of
over $200,000, and a ratio of 30 to 1. This decrease was due to
the Company spending much of its accumulated cash and borrowing
an additional $90,000 to purchase oil and gas leases during late
1997 through April 1, 1998. The Company intends to repay its
current bank debt during the next year. Although the current low
energy prices greatly reduce the Company's cash flow, the Company
expects to continue to operate at a positive cash flow for the
calendar year.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
For the last two years the Company has conducted a clearing
house where it brings together buyers and sellers of its
Preferred B stock, which is not otherwise traded. At the
conclusion of the trading period, one large purchaser was unable
to complete its intended purchases, due to lack of financing.
The Board of Directors discussed this matter, and determined to
purchase the tendered shares at the request of the sellers. In
April, 1998, the Company completed these transactions, purchasing
25,646 shares of the Preferred B stock for the purchase price of
$24,188.20. This purchase reduced the issued and outstanding
Preferred B shares these 25,646 shares, leaving a balance of
issued and outstanding Preferred B shares remaining of 490,860
shares. The Board of Directors did this as a response to a
unique situation, and does not intend to be a bidder at the next
clearing house.
ITEM 5. OTHER INFORMATION
On April 7, 1998, the Company purchased five working
leasehold interests in oil and gas wells in Oklahoma. The
Company paid the sum of $208,000 for the working and minor
royalty interests in these leases. The wells are commonly known
as the Harper #1 and Miller Wells in Woodward County, Oklahoma,
the Fanny Brown Well in Caddo County, Oklahoma, the Dickerson and
Mueggenborg Wells in Kingfisher County, Oklahoma, and the Duncan
Well in LeFlore County, Oklahoma. In addition, Jenex Operating
Company, which is owned by the President of Croff Enterprises,
Inc., and which is the operator of these wells, agreed to provide
a credit of $150 per month per well against the operating
expenses of these wells for each month that Croff Oil Company was
the owner of such wells. In order to complete this purchase the
Company borrowed the sum of $90,000 from Union Bank and Trust
Company on a one-year note payable monthly in twelve
installments. The balance was paid from the Company's cash
reserves. The effective date of this transfer was April 1, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The registrant has filed no reports on Form 8-K for the
period ending June 30, 1998.
EXHIBITS:
A. Purchase Agreement of April 7, 1998, with St. James Oil,
Ltd.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
REGISTRANT: CROFF
ENTERPRISES, INC.
By: ____________
_____________________
Gerald L. Jensen
Chief Executive Officer and
Chief Financial Officer
By_________________________________
Beverly Licholat
Chief Accounting Officer
Date: ___________________, 1998