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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 September 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 September 30, 1998.
INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q) TO THE
SECURITIES AND EXCHANGE COMMISSION FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED).
_________________________________________________________________
PART I. FINANCIAL INFORMATION Page Number
Balance Sheets as of December 31, 1997
and September 30, 1998 3, 4
Statements of Operations for the Three and
Nine months ended September 30, 1998 and 1997 5
Statements of Cash Flows
for the Nine Months
Ended September 30, 1998 and 1997 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
nine months ended September 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
Decembe Septemb
r 31, er 30,
1997 1998
CURRENT ASSETS:
Cash and Cash Equivalents: $ 166,883 $ 23,858
Marketable equity securities 15,687 2,500
Accounts receivable:
Oil and gas purchasers 26,552 35,096
Refundable income taxes 3,200 3,131
Total current assets $ 212,322 $ 64,585
PROPERTY AND EQUIPMENT, AT COST:
Oil & gas properties, successful
efforts method:
Proved properties 429,903 646,769
Unproved properties 97,102 97,102
$ 527,005 $ 743,871
Less accumulated depletion and (250,72 (276,81
depreciation 9) 1)
Net property and equipment $ 276,276 $467,06
0
Coal Investment 16,277 16,277
Total Assets $ 504,875 $ 547,922
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
Decembe Septemb
r 31, er 30,
1997 1998
CURRENT LIABILITIES:
Accounts payable $ 4,378 $ 11,890
Accrued liabilities 2,605 2,160
Note payable - Union Bank 0 46,215
Total current liabilities $ 6,983 $ 60,265
STOCKHOLDERS' EQUITY:
Class A Preferred, none issued
Class B Preferred stock, no par value:
520,000 authorized, 516,265 shares 364,328
issued 12/31/97
520,000 authorized, 490,860 shares 346,232
issued 9/30/98
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 (383,66 (375,80
9) 8)
$ 580,788 $ 570,553
Less common stock at cost, 62,628
shares
in 1996 and 62,878 in 1997 (82,896 (82,896
) )
Total stockholders' equity $ 497,892 $ 487,657
Total Liabilities & Equity $ 504,875 $ 547,922
CROFF ENTERPRISES, INC.
Statement of Operations
For the Three And Nine Months Ended September 30, 1998
(Unaudited)
For Three Months Ended For Nine Months
Ended
9/30/9 9/30/9 9/30/9 9/30/9
7 8 7 8
REVENUE:
Oil and gas sales $ 45,537 $ 51,485 $ 151,05 $ 141,89
4 0
Other income 4,120 (363) 7,364 5,880
(loss).....
Total revenue $ 49,657 $ 51,122 $ 158,41 $ 147,77
8 0
COSTS AND EXPENSES:
Lease operating 7,589 11,572 25,760 32,717
expense
Depreciation and 6,000 13,000 18,000 25,500
depletion
General and 17,668 19,441 58,584 62,015
administrative
Interest Expense 0 1,638 0 4,766
Rent Expense - Related 2,940 2,940 8,820 8,820
Party
Write down of coal 62,000 62,000
investment
Total Expenses $ 96,215 $ 48,591 $ 173,16 $ 133,81
4 8
Net income (loss) $ (46,55 $ 2,531 $ (14,74 $ 13,953
8) 6)
Earnings (Loss) Per Share $ ( $ .01 $ ( $ .02
.09) .03)
CROFF ENTERPRISES, INC.
Statement of Cash Flows
For the Nine Months
Ended
September 30, 1998
1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (14,74 $ 13,952
6)
Adjustments to reconcile net income to net
cash
provided by operating activities and
depletion:
Depreciation and depletion 18,000 26,082
Write down of coal investment 62,000 0
Decrease(Increase) in receivables 11,850 (8,475
)
Decrease(Increase) in other assets 0 8,555
Decrease(Increase) in accounts payable 1,713 (7,869
)
Decrease(Increase) in notes payable (46,21
5)
Decrease(Increase) in accrued liabilities 493 445
(Gains) on marketable securities (1,813
)
Total adjustments 90,630 (29,29
0)
Net cash provided by operating activities: $ 75,884 $ (15,33
7)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)Sale of oil & gas properties: (38,49 (208,5
6) 00)
(Purchase) of Preferred Stock (24,18
8)
Sale of marketable equity securities (4,750 15,000
)
$ (43,24 $ (217,6
6) 88)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (250)
Proceeds from Note Payable 0 90,000
Increase (decrease) in cash: 32,388 (143,0
25)
Cash at beginning of period: 184,56 166,88
5 3
Cash at end of period: $ 216,95 $ 23,858
3
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1998
BASIS OF PREPARATION
The condensed financial statements for the three and nine month
periods ended September 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 1998 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 September 30, 1998,
as Compared to the Three Month Period Ended September 30, 1997.
OIL AND GAS OPERATIONS
Oil and gas income, primarily from royalties, for the three months
ended September 30, 1998, was $51,485 compared to $45,537 for the quarter
ending September 30, 1997. This small increase in revenue was caused by
the increased production from new leases purchased during the last year,
offset by the drastic drop in oil prices and a smaller drop in natural
gas prices. 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 continued their decline to a level of more than
twenty percent lower than one year ago. Production increased as the
Company has added nine new producing leases this year, which produce
primarily natural gas.
Production costs, which include lease operating expenses and all
production related taxes, for the three months ended September 30, 1998,
due to new operating leases, increased to $11,572 in 1998, compared to
$7,589 during the same quarter year of 1997. The operating expenses
increased on the new working interests, which were purchased since last
year. Overall, operating expenses are low due to the large amount of
royalty income. Depletion doubled due to the purchase of the new wells.
Nine Month Period Ended September 30, 1998,
as Compared to the Nine Month Period Ended September 30, 1997.
OIL AND GAS OPERATIONS
Oil and gas income, primarily from royalties, for the nine months
ending September 30, 1998, was $141,890 compared to $151,054 for the same
time period of the prior year. This decrease was due to the drastic drop
in oil prices and significant drop in natural gas prices. During this
nine month period some wells were shut-in, revenue dropped from all
wells, and activity slowed. Because of the new leases, production
increased, but with such low prices, overall revenue fell.
Production costs, which include lease operating expenses and all
production related taxes, for the nine months ended September 30, 1998,
increased when compared to the same time period of the prior year,
$32,717 in 1998 compared to $25,760 in 1997. This increase was due to
the operating costs of the additional nine working interests purchased in
late 1997 and in 1998.
OTHER INCOME
During the three month period ended September 30, 1998, the Company
had a loss on other income of ($363) compared to a gain of $4,120 for the
quarter ending September 30, 1997. This was due to a loss on securities
held in 1998, and a decrease in interest income because the Company
invested the large cash balances it held in 1997 in new oil and gas
leases, so interest income is now insignificant.
During the nine month period ended September 30, 1998, the Company
had other income of $5,880, primarily from interest, dividends, and
lease bonuses. During the first nine months of 1997, the Company had
other income of $7,364, primarily from the dividends and interest. The
decrease was due to the Company's receiving lower interest in 1998 due to
lower cash balances after buying leases.
GENERAL AND ADMINISTRATIVE.
General and administrative expenses for the nine month period ending
September 30, 1998, were $62,015 plus rent expense of $8,820, for a total
of $70,835, compared to $58,584 plus rent expense of $8,820 for a total
of $64,528 for the nine month period ending September 30, 1997. This
increase was due to a small cost increase, reflecting inflation, of the
Company's overhead payment for general and administrative expenses.
FINANCIAL CONDITION
As of September 30, 1998, the Company's current assets were $64,585,
which exceeded current liabilities of $60,265, for ratio of 1.1 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 is repaying the $90,000 debt over one year, and expects its'
current ratio to reach 2:1 by the end of the 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, with the cash flow being used to repay bank debt.
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 six 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 September 30, 1998.
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