View:
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 and Exchange Act of 1934
For the period ended March 31, 1999
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: 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, Colorado 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
class of common stock, as of the latest practicable date: 516,315
shares, one class only as of May 1, 1999.
INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q)
TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE THREE MONTHS
ENDED MARCH 31, 1999(UNAUDITED).
PART I. FINANCIAL INFORMATION Page
Number
Balance Sheets as of December 31, 1998
and March 31, 1999 3
Statements of Operations for
the Three Months
Ended March 31, 1999 and 1998 5
Statements of Cash Flows
for the Three Months
Ended March 31, 1999 and 1998 6
Notes to Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION 10
Reports on Form 8-K 10
Signatures 10
Forward-looking statements in this report, including without
limitation, statements relating to the Company's plans,
strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are
cautioned that such forward-looking statements involve risks and
uncertainties; including without limitation to, the following:
(i) the Company's plans, strategies, objective, expectations and
intentions are subject to change at any time at the discretion of
the Company; (ii) the Company's plans and results of operations
will be affected by the Company's ability to manage its growth
and inventory (iii) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and
Exchange Commission. Neither the Securities and Exchange
Commission nor any other regulatory body takes any position as to
the accuracy of forward-looking statements.
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
Dec. March
31, 31,
1998 1999
CURRENT ASSETS:
Cash and Cash Equivalents: $ 14,294 $ 6,639
Marketable equity securities 3,125 2,813
Accounts receivable:
Oil and gas purchasers 32,271 39,380
Refundable income taxes 2,900 3,600
Total current assets $ 52,590 $ 52,432
PROPERTY AND EQUIPMENT, AT COST:
Oil & gas properties, successful
efforts method:
Proved properties 636,595 636,595
Unproved properties 97,102 97,102
$ 733,697 $ 733,697
Less accumulated depletion and (288,717) (298,517)
depreciation
Net property and equipment $ 444,980 435,180
Coal investment 11,277 11,277
Total assets $ 508,847 $ 498,889
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
Dec. March
31, 31,
1998 1999
CURRENT LIABILITIES:
Accounts payable $ 19,290 $ 34,572
Accrued liabilities 8,065 13,627
Note payable - Union Bank 23,369 00
Total current liabilities $ 50,724 $ 48,199
CONTINGENCIES (NOTE 2)
STOCKHOLDERS' EQUITY:
Class A preferred stock, no par value;
500,000 shares, none issue
Class B Preferred stock, no par value;
520,000 authorized, 516,505 shares
(1997) and 490,859 shares (1998) 329,559 329,559
issued and outstanding
Common stock, $.10 par value
20,000,000 shares
authorized 579,143 shares issued 57,914 57,914
Capital in excess of par value 552,797 552,797
Accumulated deficit (399,251) (406,684)
$ 541,019 $ 533,586
Less treasury stock at cost, 62,628
shares (1997 and 1998)
in 1996 and 62,828 in 1997 (82,896) (82,896)
Total stockholders' equity $ 458,123 $ 450,143
Total liabilities & equity $ 508,847 $ 498,889
CROFF ENTERPRISES, INC.
Statement of Operations
For months ended March 31, 1998, and 1999
1998 1999
REVENUE:
Oil and gas sales $ 42,730 $ 40,196
Gain on disposal of oil and - -
gas properties
Other income (loss)..... 4,723 47
Total revenue $ 47,453 $ 40,243
COSTS AND EXPENSES:
Lease operating expense 11,052 12,397
Depreciation and depletion 6,000 9,800
General and administrative 22,721 22,539
Rent Expense - Related Party 2,940 2,940
Total cost and expenses $ 42,713 47,676
Net Income (Loss) $ 4,740 $ (7,433
)
Earning (Loss) Per Share $ .01 $ (.01)
CROFF ENTERPRISES, INC.
Statement of Cash Flows
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,740 $ (7,433)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and depletion 6,157 9,800
Change in assets and liabilities:
(Increase) decrease in accounts 688 (7,109)
receivable
(Increase) decrease in other assets (700)
Increase (decrease) in notes payable (23,369)
Increase (decrease) in accounts (2,284) 15,282
payable
Increase (decrease) in accrued 1,130 5,562
liabilities
Increase (decrease) in marketable (2,876) 312
securities
Total adjustments $ 2,815 $ (222)
Net cash provided by operating activities: $ 7,555 $ (7,655)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale/depreciation of marketable equity -
securities
Sale/purchase of producing properties -
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - -
Note payable-Union Bank and Trust 90,000 -
Increase (decrease) in cash 97,555 (7,655)
Cash and cash equivalents at beginning of 166,883 14,294
period
Cash and cash equivalents at end of period $ 264,438 $ 6,639
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
PART I BASIS OF PREPARATION.
The condensed financial statements for the three month
periods ended March 31, 1999 and 1998 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 the 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 year's financial statements to conform to
the 1999 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, 1998, 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 March 31, 1999
as Compared to the Three-Month Period Ended March 31, 1998.
OIL AND GAS OPERATIONS
Oil and gas revenue, primarily from royalties, for the three
months ended March 31, 1999, was $40,196 compared to $42,730 for
the quarter ending March 31, 1998. The primary cause for this
decrease was the lower average price for oil, which remained at
historic low prices until just before the quarter ended. In
1998, the prices declined throughout the quarter, but averaged
higher. Natural gas prices were also lower, declining in the
first quarter by over ten percent. These decreases were
partially offset by an increase in natural gas production.
Production costs, which includes lease operating expenses
and all production related taxes, for the three months ended
March 31, 1999, increased slightly to $12,397 when compared to
the production costs of $11,052 incurred during the quarter ended
March 31, 1998. This increase was due to the ownership of six
larger working interests in Oklahoma natural gas wells that were
acquired in the second quarter of 1998.
OTHER INCOME
During the three month period ended March 31, 1999, the
Company had other income of $47 from interest. This was a
decrease from $4,723 in the same period in 1998. The decrease
was due to less interest and dividend income, due to lower cash
balances and no lease bonus income in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the quarter ending
March 31, 1999, were $22,539 plus rent expense of $2,940 for a
total of $25,479 compared to $22,721 plus $2,940 for a total of
$25,661 in the same period in 1998. These were essentially
unchanged from one year ago. The Company expects general and
administrative costs to remain stable this year.
YEAR 2,000 DISCLOSURE
There has been increasing concern about the effect upon the
financial results of all public companies due to the year 2000
problem. The year 2000 problem is based on the concern that
certain computer programs and computers are not presently
configured to recognize the year 2000 or succeeding years. This
defect in computer functions could have an adverse impact upon
our company and other industries in which we deal if the various
programs and applications cease to function or function
erroneously as we approach the year 2000. Programs dealing with
accounting and financial functions of the Company could cease to
function if they are not year 2000 compliant. Our Company has
viewed the year 2000 problem hereafter "Y2K" compliance, in three
general categories. The first is the impact on the Company's own
information technology system consisting of its computers,
software, and financial records. The second is the possible
failure of other equipment which the Company uses such as
security systems, telephone systems, vehicles, and gas meters
which rely on computer components. The third, are third party
service and product suppliers, including payment by the various
companies which operate oil and natural gas wells which pay the
Company.
The Company has addressed the first problem, its own
accounting and financial records, and its well records by
confirming the software systems are Y2K compliant. The Company
financial records, are being transferred to the "Roughneck"
system which has been Y2K compliant for two years and amply
tested. This system is owned and operated by Jenex Petroleum
Corp. which provides it to the Company as part of its overhead
services. The Company intends to have its complete 1999 records
on the Roughneck system and fully compliant by June 30, 1999.
The previous records of the Company are also being kept on a Y2K
compliant system, primarily on Excel, which has been upgraded to
a Y2K compliant status. The Company anticipates no further
problems with its own records in order to be fully Y2K compliant.
With respect to other IT systems which may fail on or around
the advent of the year 2000, the Company is conferring with its
supplier of services, Jenex, and has confirmed that its
telephone, fax, and email systems are Y2K compliant. The Company
does not anticipate any major problems with these systems.
Because the Company does not operate any of its oil or natural
gas wells, it is in a position to withstand, without any material
adverse consequences, a break down of days or even weeks in these
systems.
With respect to the third possibility, the third party
suppliers from which the Company derives its cash flow being
unable to operate wells and or pay timely for the Company's
production, the Company has begun a program of reserving cash, as
a contingency in the event of a disruption in its cash flow. The
Company believes in its capacity as a low overhead company with
no operations of its own, and that this problem can be addressed
by simply having adequate cash reserves to replace at least two
months of total revenue. The Company plans to be in this
position by the end of 1999.
Under the Company's agreements, the Company's costs to
become Y2K compliant, will not increase its overhead from its
normal operations. The Company feels its efforts are adequate to
handle any Y2K problems that can be reasonably anticipated.
FINANCIAL RESOURCES AND LIQUIDITY
As of March 31, 1999, the Company's current assets exceeded
current liabilities by $4,233. As of December 31, 1998, the
Company's current assets exceeded current liabilities by $1,866.
The Company's current ratio is approximately 1:1. On March 23,
1998, the Company borrowed $90,000 from its bank in order to
provide sufficient cash to close on the purchase of working
interests in six natural gas wells in Oklahoma. The Company
reduced its cash reserves in purchasing these working interests
in April of 1998, but paid off its bank loan in March of 1999.
The Company expects to continue to operate at a positive
cash flow for the remainder of this year, even with low oil
prices. The Company intends to use its' cash flow to achieve a
more liquid position and improve its current ratio.
PART II. OTHER INFORMATION
ITEM 6(B) REPORTS ON FORM 8-K
The registrant has filed no reports on Form 8-K for the
period ending March 31, 1999.
SIGNATURES
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
Dated: