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 September 30 1999
[ ] 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
3
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: 526,315 shares, one class
only as of September 30, 1999.
INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q) TO
THE SECURITIES AND EXCHANGE COMMISSION FOR THE NINE MONTHS ENDED
September 30, 1999 (UNAUDITED).
PART I. FINANCIAL INFORMATION Page Number
Balance Sheets as of December 31, 1998
and September 30, 1999 3
Statements of Operations for Three months &
Nine Months
Ended September 30, 1999 and 1998 5
Statements of Cash Flows
for the Nine Months
Ended September 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 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
subjectto 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. 31, Sept 30,
1998 1999
CURRENT ASSETS:
Cash and Cash Equivalents: $14,294 $25,811
Marketable equity securities 3,125 3,438
Accounts receivable:
Oil and gas purchasers 32,271 48,470
Refundable income taxes 2,900 2,500
Total current assets $52,590 $80,219
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) (318,117)
Net property and equipment $444,980 $415,580
Coal investment 11,277 11,277
Total assets $508,847 $507,076
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
Dec. 31, SEPT 30
1998 1999
CURRENT LIABILITIES: $19,290 $21,095
Accounts payable
Accrued liabilities 8,065 4,043
Note payable - Union Bank 23,369 00
Total current liabilities $50,724 $25,138
CONTINGENCIES (NOTE 2)
STOCKHOLDERS' EQUITY:
Class A preferred stock, no par value;
500,000 shares, none issue
Class B Preferred stock, no par value; 329,559 329,559
520,000 authorized,516,505shares(1997)and
490,859shares(1998)issued and outstanding
Common stock, $.10 par value 20,000,000 57,914 58,914
shares authorized 589,143 shares issued
Capital in excess of par value 552,797 561,797
Accumulated deficit (399,251) (385,435)
$ 541,019 $564,834
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 $481,938
Total liabilities & equity $508.747 $507,076
CROFF ENTERPRISES, INC.
Statement of Operations
For Three and Nine months ended September 1998 and 1999
For Three Months For Nine Months
Ended Ended
9/30/98 9/30/99 9/30/98 9/30/99
Revenue:
Oil & gas sales $51,485 $58,113 $141,890 $145.550
Gain on disposal of Oil - - - -
Gas Properties (363) 406 5,880 412
Other Income $51,122 $58,519 $147,770 $145,962
Costs and Expenses:
Lease Operating Expense 11,572 15,584 32,717 36,718
Depreciation & Depletion 13,000 9,800 26,082 29,400
General & Adminstrative 19,441 18,087 61,433 56,813
Interest Expense 1,638 0 4,766 395
Rent Expense-related Party 2,940 2,940 8,820 8,820
Total cost and expenses 48,591 46,681 133,818 132,146
Net Income(Loss) 2,531 11,839 13,952 13,816
Earnings(loss) Per Share .01 .02 .03 .03
CROFF ENTERPRISES, INC.
Statement of Cash Flows
For Nine Month Ended
September 30, 1999
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,952 13,816
Adjustments to reconcile net income
loss) to net cash provided by
operating activities:
Depreciation and depletion 26,082 29,400
Change in assets and liabilities:
(Increase) decrease in accounts receivable (8,475) (16,199)
(Increase) decrease in other assets 8,550 400
Increase (decrease) in notes payable (46,215) (23,369)
Increase (decrease) in accounts payable (7,869) 1,805
Increase (decrease) in accrued liabilities (445) 4,023
(Increase) decrease in marketable securities (1,813) (313)
Total adjustments $(29,290) (12,299)
Net cash provided by operating activities: $(15,337) 1,517
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable equity securities 15,000 00
Sale/purchase of producing propertie $(208,500) 00
(Purchase ) of Preferred Stock (24,188) 00
Total cash flow change from Investing
Activities: $(217,688) 00
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Option
Sale of Common Stock 00 10,000
Note payable-Union Bank and Trust 90.000
Total cash flow change from financing 90,000 10,000
Increase (decrease) in cash (143,025) 11,517
Cash and cash equivalents at beginning
of period 166,883 14,294
Cash and cash equivalents at end of period 12,858 25,811
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
PART I FINANCIAL INFORMATION
BASIS OF PREPARATION.
The condensed financial statements for the three month periods ended
September 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 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 September 30, 1999
as Compared to the Three-Month Period Ended September 30, 1998.
OIL AND GAS OPERATIONS
Oil and gas revenue, primarily from royalties, for the three months
ended Sept. 30, 1999, was $58,113 compared to $51,485 for the quarter
ending Sept. 30, 1998. This increase in revenue was caused by the rising
price for oil and natural gas. Prices for oil increased from approximately
$12-$13 per barrel from the September 30, 1998 quarter, to slightly over
$17-$18 per barrel for the quarter ending Sept 30, 1999. Natural gas prices
increased to over $2.60 per mcf by the end of the third quarter, compared to
approximately $1.80 one year ago.
Production costs, which include lease operating expenses and all
production related taxes, for the three months ended September 30, 1999,
were $15,854, an increase from $11,572 for the quarter ending June 30,
1998. The reason for this increase was that operators were increasing
workovers on wells which had been shut in or left alone during the period of
low prices. Overall, operating expenses as a percent of revenue, are due
to the large amount of royalty income. Depletion increased due to the new
wells purchased in the second quarter of 1998 and which are included for the
full nine months this year, and which were not owned for the entire period
one year ago.
OTHER INCOME
During the three month period ended September 30, 1999, the Company
had other income of $406 compared to a loss of $(363) for the quarter ending
September 30, 1998. This was a due to higher interest income this year as
the Company began to accumulate cash since there is no bank debt and
securities have increased, not decreased in value.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the current quarter ending
September 30, 1999, were $18,087 plus rent expense of $2,940 for a total of
$21,027 compared to $19,441 plus rent expense of $2,940 for a total of
$22,381 in the quarter ending September 30, 1998. The Company expects
general and administrative costs to remain stable this year.
Nine-Month period Ended September 30, 1999
as Compared to the Nine-Month Period Ended September 30, 1998
OIL AND GAS OPERATIONS
Oil and gas income, primarily from royalties, for the nine months
ended September 30, 1999 was $145,550 compared to $141,890 for the nine
months ended September 30, 1998. This was due to higher prices for oil and
natural gas during the last four months. Production was increasing
following a period when the wells were being produced at a slower rate, and
the product was not being sold due to the long period of low prices. Oil
prices and natural gas prices rose during the third quarter.
Production costs, which include lease operating expenses and all
production related taxes, for the nine months ended Sept. 30, 1999, were
$36,718 as compared to $32,717 in the same quarter of 1998. There was less
workovers during early 1999 because of low prices. However, workovers
increased the last three months. We expect more activity as prices rise.
OTHER INCOME
During the first nine months of 1999, the Company had other income
of only $412, since cash reserves were low and interest was also low.
During the nine months ending September 30, 1998, we had other income of
$5,880. This was due to higher interest, and the Company also received a
small bonus from leasing acreage during the first nine months of 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the period ending Sept. 30,
1999, were $56,813 plus rent expense of $8.820, for a total of $65,633,
compared to $61,433 plus rent expense of $8,820 for a total of $70,253 for
the nine month period ending September 30, 1998. Most of this difference
was due to not incurring expenses for the annual report, which will be in the
fourth quarter. There was no significant change in general and
administrative expenses.
FINANCIAL CONDITION
As of Sept. 30, 1999, the Company's current assets were $80,219 while
current liabilities were $25,138, for a ratio of 3 to 1. 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 is due to paying off bank debt and paying down
other liabilities as cash flow increased, an a director's stock option being
exercised for $10,000. 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 of Preferred B
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 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 now has its completed accounting year for 1999 on the Roughneck
system. 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 only non-operated properties, 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.
ITEM 6(B) REPORTS ON FORM 8-K
The registrant has filed no reports on Form 8-K for the period ending
September 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: