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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 1934 For the period ended September 30, 2001
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 ------------ ------------
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CROFF ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Utah 87-0233535
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
621 17th St., Suite 830, Denver, Colorado 80293
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(Address of principal executive offices) (Zip Code)
(303) 383-1555
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(Registrant's telephone number, including area code)
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(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
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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
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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: 526,060 shares, one class only
as of October 31, 2001.
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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, 2001(UNAUDITED).
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Page Number
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PART I. UNAUDITED FINANCIAL INFORMATION
Balance Sheets as of December 31, 2000 and
September 30, 2001 3,4
Statements of Operations for the three and
nine months ended September 30, 2000 and 2001 5
Statements of Stockholders' Equity for the year
ended December 31, 2000 and the nine months
ended September 30, 2001 6
Statements of Cash Flows for nine months ended
September 30, 2000 and 2001 7
Notes to Unaudited Condensed Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 6(B) REPORTS ON FORM 8-K 10
Signatures 10
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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. UNAUDITED FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEETS
(Unaudited)
December 31, September 30,
2000 2001
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ASSETS
Current assets:
Cash and cash equivalents $ 191,634 $ 269,246
Marketable equity securities 6,125 62,892
Accounts receivable 91,742 53,724
Note receivable, related party - 15,446
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289,501 401,308
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Oil and gas properties, successful
efforts method:
Proved properties 611,960 633,665
Unproved properties 97,102 97,102
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709,062 730,767
Accumulated depreciation and depletion (370,391) (400,391)
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338,671 330,376
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Total assets $ 628,172 $ 731,684
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See accompanying notes to unaudited condensed financial statements.
3
CROFF ENTERPRISES, INC.
BALANCE SHEETS
(Unaudited)
(Continued)
December 31, September 30,
2000 2001
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,838 $ 14,419
Accrued liabilities 5,368 17,848
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16,206 32,267
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Stockholders' equity:
Class A Preferred stock, no par value;
5,000,000 shares authorized,
none issued or outstanding - -
Class B Preferred stock, no par value;
1,000,000 shares authorized,
500,659 shares issued and outstanding 475,359 475,359
Common stock, $.10 par value
20,000,000 shares authorized,
589,143 shares issued and outstanding 58,914 58,914
Capital in excess of par value 415,797 415,797
Treasury stock, at cost 62,883
and 63,083 shares, respectively (82,951) (83,151)
Accumulated other comprehensive income - 3,700
Accumulated deficit (255,153) (171,202)
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611,966 699,417
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Total liabilities and
stockholders' equity $ 628,172 $ 731,684
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See accompanying notes to unaudited condensed financial statements.
4
CROFF ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
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2000 2001 2000 2001
-------- -------- -------- --------
Revenues
Oil and gas sales $ 91,586 $ 71,073 $237,456 $286,577
Other income 2,399 2,022 4,821 7,816
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93,985 73,095 242,277 294,393
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Expenses
Lease operating expense 23,472 23,827 69,101 98,134
Depreciation and depletion 10,500 10,000 31,500 30,000
General and administrative 20,323 23,050 70,141 71,508
Rent expense - related party 2,940 3,600 8,820 10,800
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57,235 60,477 179,562 210,442
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Net income $ 36,750 $ 12,618 $ 62,715 $ 83,951
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Net income applicable to
Class B Preferred stockholders' $ 35,794 $ 11,243 $ 57,894 $ 79,003
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Net income applicable to
Common stockholders' $ 956 $ 1,375 $ 4,821 $ 4,948
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Basic and diluted net income
per common share * *$ .01 $ .01
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*-Less than $.01 per share
See accompanying notes to unaudited condensed financial statements.
5
CROFF ENTERPRISES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Preferred Stock Common Stock Capital in other
------------------ ------------------ excess of Treasury comprehensive Accumulated
Shares Amount Shares Amount par Value stock income deficit Total
------- -------- ------- -------- ---------- -------- ------------- ----------- --------
Balance,
December 31, 1999 500,659 $350,359 589,143 $ 58,914 $540,797 $(82,286) $ - $(386,821) $480,353
Purchase of 55 shares
of treasury stock - - - - - (55) - - (55)
Net income for the year
ended December 31, 2000 - - - - - - - 131,668 131,668
Preferred stock
reallocation - 125,000 - - (125,000) - - - -
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Balance,
December 31, 2000 500,659 475,359 589,143 58,914 415,797 (82,951) - (255,153) 611,966
Purchase of 200 shares
of treasury stock - - - - - (200) - - (200)
Unrealized gain on
marketable equity
securities - - - - - - 3,700 - 3,700
Net income for the nine
months ended
September 30, 2001 - - - - - - - 83,951 83,951
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Balance,
September 30, 2001 500,659 $475,359 589,143 $ 58,914 $415,797 $(83,151) $ 3,700 $(171,202) $699,417
======= ======== ======= ======== ========== ======== ========== =========== ========
See accompanying notes to unaudited condensed financial statements.
6
CROFF ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ending
September 30,
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2000 2001
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Cash flows from operating activities:
Net income $ 62,715 $ 83,951
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and depletion 31,500 30,000
Changes in operating assets and liabilities:
(Increase) decrease in marketable securities (1,875) -
(Increase) decrease in accounts receivable (9,394) 38,018
(Increase) decrease in other assets (1,797) (446)
Increase (decrease) in accounts payable 982 3,581
Increase (decrease) in accrued liabilities 454 12,480
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Net cash provided by operating activities 82,585 167,584
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Cash flows from investing activities:
Purchased working interest in proved properties - (21,705)
Purchase of marketable equity securities - (53,067)
Issuance of short-term note receivable - (15,000)
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Net cash used in investing activities - (89,772)
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Cash flows from financing activities:
Purchase of treasury stock (55) (200)
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Net cash used in financing activities (55) (200)
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Increase in cash and cash equivalents 82,530 77,612
Cash and cash equivalents at beginning of period 57,716 191,634
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Cash and cash equivalents at end of period $ 140,246 $ 269,246
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See accompanying notes to unaudited condensed financial statements
7
CROFF ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Basis of preparation
The condensed financial statements for the three and nine month periods
ended September 30, 2001 and 2000 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
nterim periods presented herein. Certain reclassifications have been made to
the prior year's condensed financial statements to conform to the 2001
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, 2000, 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 months ended September 30, 2001 compared to three months ended
September 30, 2000.
Revenues for the third quarter of 2001 totaled $73,095, a 22% decrease
from the prior year period. Net income for the third quarter of 2001 totaled
$12,618, a decrease of 66% compared to the third quarter of 2000. Oil and gas
sales for the third quarter totaled $71,073, a 22% decrease from the prior year
period. This decrease was attributable to declines in both oil and natural gas
prices as well as lower demand for natural gas. The Company's oil and gas
revenues are generally divided approximately equally between royalties and
working interest. Other income for the third quarter of 2001 totaled $2,022, a
16% decrease from the prior year period. This decrease is primarily a result
of lower rates of return earned on the Company's money market investments.
Lease operation expense, which includes all production related taxes for
the third quarter of 2001, totaled $23,827, approximately equal with the third
quarter of 2000, which totaled $23,472.
Depreciation and depletion expense for the third quarter of 2001 totaled
$10,000, a 5% decrease from the prior year period, which totaled $10,500.
General and administrative expense, including rent for the third quarter
of 2001 totaled $26,650, a 15% increase from the prior year period. This
increase is attributable to the fact that costs associated with the Company's
annual report were incurred in the third quarter this year verses the second
quarter last year.
8
Nine months ended September 30, 2001 compared to nine months ended\
September 30, 2000.
Revenues for the nine months ended September 30, 2001 totaled $294,393, a
22% increase from the prior year period. Net income for the nine months ended
September 30, 2001 totaled $83,951, an increase of 34% compared to the prior
year period. Oil and natural gas sales for the nine months ended September 30,
2001 totaled $286,577, an 21% increase from the prior year period. This
increase was primarily attributable to higher oil and natural gas prices.
The Company's oil and gas revenues are divided approximately equally between
royalties and working interest. Other income for the nine months ended
September 30, 2001, total $7,816, a 62% increase from the prior year period.
The Company earned higher interest and dividend income due to an increase in
the value of the Company's cash and cash equivalents.
Lease operating expense, which includes all production related taxes for
the nine months ended September 30, 2001, totaled $98,134, an increase of 42%
compared to the prior year period. The primary reason for this increase was
the expenditure of $22,000 incurred in a five percent participation in an
unsuccessful new well in Oklahoma. The well was completed but has produced a
minimal amount. The remaining increase was due to higher production taxes due
to higher prices and inflation in oil field costs.
Depreciation and depletion expense for the nine months ended September 30,
2001 totaled $30,000, a 5% decrease from the prior year period.
General and administrative expense, including rent for the nine months
ended September 30, 2001 totaled $82,308, compared to $78,961 from the prior
year period. The Company expects general and administrative costs to remain
stable this year.
Financial condition and capital resources
At September 30, 2001, the Company had $731,684 of assets and $699,417 of
stockholders' equity. In the first nine months of 2001, net cash provided by
operations totaled $167,584 as compared to $82,585 for the prior year period.
Working capital at September 30, 2001 totaled $369,041, an increase of 100%
compared to $184,857 at September 30, 2000. The Company's current ratio at
September 30, 2001 is approximately 12:1. At September 30, 2001, there were
no significant commitments for capital expenditures. The Company is currently
accumulating cash and liquid assets to prepare for a possible reverse merger of
the Company. The Company expects to continue to operate at a positive cash flow
for the remainder of this year and resume buying producing oil and natural gas
properties.
In the first nine months 2001, the Company repurchased 200 shares of its
common stock for $200.
On June 15, 2001, the Company loaned $15,000 to a related party
corporation, the President of which is also the President of the Company.
This short-term secured note bears interest at 10% per annum.
9
PART II. OTHER INFORMATION
ITEM 6(B) REPORTS ON FORM 8-K
The registrant has filed no reports on Form 8-K for the quarter ended
June 30, 2001.
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: /s/ Gerald L. Jensen
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Gerald L. Jensen
Chief Executive Officer and Chief Financial Officer
By: /s/ Stuart D. Kroonenberg
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Stuart D. Kroonenberg
Chief Accounting Officer
Dated: November 14, 2001
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