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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
and Exchange Act of 1934For the period ended June 30, 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 June 1, 1999.
INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q) TO
THE SECURITIES AND EXCHANGE COMMISSION FOR THE SIX MONTHS ENDED
JUNE 30, 1999(UNAUDITED).
PART I. FINANCIAL INFORMATION Page Number
Balance Sheets as of December 31, 1998
and June 30, 1999 3
Statements of Operations for 3 months &
the Six Months
Ended June 30, 1999 and 1998 5
Statements of Cash Flows
for the Six Months
Ended June 30, 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 2 CHANGES IN SECURITIES 9
ITEM 5 OTHER INFORMATION 10
ITEM 6 B REPORTS ON FORM 8-K 11
Signatures 11
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
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
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 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 31, June 30,
1998 1999
CURRENT ASSETS:
Cash and Cash Equivalents: $14,294 $7,535
Marketable equity securities 3,125 3,063
Accounts receivable:
Oil and gas purchasers 32,271 46,796
Refundable income taxes 2,900 4,300
Total current assets $52,590 $61,694
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 depreciation (288,717) (308,317)
Net property and equipment $ 444,980 425,380
Coal investment 11,277 11,277
Total assets $508,847 $498,351
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
Dec. 31, June 30,
1998 1999
CURRENT LIABILITIES:
Accounts payable $19,290 $20,417
Accrued liabilities 8,065 17,834
Note payable - Union Bank 23,369 -
Total current liabilities $50,724 $38,251
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) issued and outstanding 329,559 329,559
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) (397,274)
$541,019 $542,996
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 $460,100
Total liabilities & equity $508,847 $498,351
CROFF ENTERPRISES, INC.
Statement of Operations
For months ended June 30, 1998 and 1999
[S]
FOR THREE MONTHS ENDED FOR SIX MONTHS ENDED
REVENUE:Oil and gas sales $ 47,675 $46,929 $90,405 $87,437
Gain on disposal of oil and
gas properties - - - -
Other income (loss)..... 1,521 271 6,243 6
Total revenue $ 49,196 $47,200 $96,648 $87,443
COSTS AND EXPENSES:
Lease operating expense 10,179 8,465 21,252 18,602
Depreciation and depletion 6,657 9,800 12,815 19,600
General and administrative 20,510 16,585 43,052 40,990
Interest 2,228 - 2,228 395
Rent Expense - Related Party 2,940 2,940 5,880 5,880
Total cost and expenses $42,514 $37,790 $85,227 $85,467
Net Income (Loss) $ 6,682 $9,410 $11,421 $1,976
Earning (Loss) Per Share $.01 $.02 $.02 $.01
CROFF ENTERPRISES, INC.
Statement of Cash Flows
For Six Month Ended
June 30, 1999
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net INCOME (LOSS) $ 11,921 $1,976
Adjustments to reconcile net income
(loss) to net cash provided by
Operating activities:
Depreciation & deletion 12,315 19,600
Change in assets and liabilities:
(Increase) decrease in accounts
receivable 1,382 (15,925)
(Increase) decrease in other assets (2,422) -
Increase (decrease) in notes payable - (23,369)
Increase (decrease) in accounts payable (9,869) 1,127
Increase (decrease) in accrued liabilities (234) 9,766
(Increase) decrease in marketable
securities (3,829) 62
Total adjustments $(2,657) $(8,735)
Net cash provided by operating activities $9,264 $(6,759)
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 (6,759)
Cash and cash equivalents at 166,883 14,294
beginning of period4,294
Cash and cash equivalents at end
of period 48,459 $7,535
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1999
PART I FINANCIAL INFORMATION
BASIS OF PREPARATION.
The condensed financial statements for the three month periods ended June 30,
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 presentan
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 June 30, 1999
as Compared to the Three-Month Period Ended June 30, 1998.
OIL AND GAS OPERATIONS
Oil and gas revenue, primarily from royalties, for the three months ended
June 30, 1999, was $46,929 compared to $47,675 for the quarter ending June 30
, 1998. This slight decrease in revenue reflected a rising price for oil and
natural gas which was offset by lower production due to wells which were shut
in, or sales which were held back, awaiting higher prices. Prices for oil
increased from approximately $14-$15 per barrel from the March 31, 1999
quarter, to slightly over $16-$17 per barrel for the quarter June 30, 1999.
Natural gas prices increased to over $2 per mcf by the end of the second
quarter.
Production costs, which include lease operating expenses and all production
related taxes, for the three months ended June 30, 1999, decreased from
$10,179 in the quarter ending June 30, 1998, to $8,465 in the quarter ending
June 30, 1999. The reason for this decrease was that operators were doing
minimal work on the wells because of low prices, and no work-overs for the
same reason. Overall, operating expenses are low due to the large amount of
royalty income. Depletion increased due to the purchase of new well in 1998,
which were not fully reflected one year ago.
OTHER INCOME
During the three month period ended June 30, 1999, the company had other
income of $271 compared to $1,521 for the quarter ending June 30, 1998.
This was a due to higher interest income last year as the Company held
accumulated cash which was used to pay off bank debt, thus reducing other
assets and cash, hence, reducing interest this year.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the current quarter ending June 30,
1999, were $16,585 plus rent expense of $2,940 for a total of $19,525
compared to $20,510 plus rent expense of $2,940 for a total of $23,450 in the
current quarter ending June 30, 1998. The Company expects general and
administrative costs to remain stable this year.
Six-Month period Ended June 30, 1999
as Compared to the Six-Month Period Ended June 30, 1998
OIL AND GAS OPERATIONS
Oil and gas income, primarily from royalties, for the six months ending June
30, 1999, was $87,437 compared to $90,405 for the six months ended June 30,
1998. This slight decrease was caused, despite recovering prices, by lower
oil and gas production. Production decreased due to wells being produced
slower and product not being sold due to the long period of low prices. Oil
prices and natural gas prices rose during the second quarter.
Production costs, which include lease operating expenses and all production
related taxes, for the six months ended June 30, 1999, were $18,602 as
compared to $21,252 in the same quarter of 1998. Less work on the wells in
1999 after a sustained period of low prices was the primary reason.
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 1999, the Company had other income of only $6 since cash
reserves were low and interest was also low. The drop was also due to
receiving a small bonus from leasing acreage during the fist six months of
1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the period ending June 30, 1999,
were $40,990 plus rent expense of $5,880, for a total of $46,870, compared to
$43,052 plus rent expense of $5,880 for a total of $48,932 for the six month
period ending June 30, 1998. There was no significant change in general and
administrative expenses.
FINANCIAL CONDITION
As of June 30, 1999, the Company's current assets were $61,694 while current
liabilities were $38,251, for a ratio of 3 to 2. As of December 31, 1998 the
Company's current assets were $52,590, and current liabilities were $50,724,
giving the Company a working capital position of near zero, and a ratio of
1 to 1. This increase was due to paying off bank debt ad paying down other
liabilities as cash flow increased. The Company has no current bank debt.
The current recovering energy prices have increased the Company's cash flow,
so 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 clearinghouse where it
brings together buyers and sellers of its Preferred B stock, which is not
otherwise traded. Probably because of the low oil and natural gas prices,
there were few purchasers this year and less than 1,000 shares were traded.
ITEM 5. OTHER INFORMATION
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 approch 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 ofits 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 September 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. 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.
ITEM 6(B) REPORTS ON FORM 8-K
The registrant has filed no reports on Form 8-K for the period ending
June 30, 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:__________________