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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, 2004
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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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
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There were 566,900 shares of common stock outstanding on November 4, 2004,
exclusive of 53,243 common shares held in treasury stock.
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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, 2004 (UNAUDITED).
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Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Unaudited financial statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION 12
Item 5. Other Information 12
Item 6. Exhibits and reports on Form 8-K 12
Signatures 12
Certifications 13
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Forward-Looking Statements
Certain information included in this report, other materials filed or to be
filed by the Company with the Securities and Exchange Commission ("SEC"), as
well as information included in oral statements or other written statements made
or to be made by the Company contain or incorporate by reference certain
statements (other than statements of historical or present fact) that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements, other than statements of historical or present facts, that
address activities, events, outcomes or developments that the Company plans,
expects, believes, assumes, budgets, predicts, forecasts, estimates, projects,
intends or anticipates (and other similar expressions) will or may occur in the
future are forward-looking statements. These forward-looking statements are
based on management's current belief, based on currently available information,
as to the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the cautionary statements in this Form 10-Q
and the Company's Annual Report on Form 10-K for the year ended December 31,
2003. Such forward-looking statements appear in a number of places and include
statements with respect to, among other things, such matters as: future capital,
development and exploration expenditures (including the amount and nature
thereof), drilling, deepening or refracing of wells, oil and gas reserve
estimates (including estimates of future net revenues associated with such
reserves and the present value of such future net revenues), estimates of future
production of oil and natural gas, business strategies, expansion and growth of
the Company's operations, cash flow and anticipated liquidity, prospects and
development and property acquisitions, obtaining financial or industry partners
for prospect or program development, or marketing of oil and natural gas. We
caution you that these forward-looking statements are subject to risks and
uncertainties. These risks include but are not limited to: general economic
conditions, the Company's ability to finance acquisitions and drilling, the
market price of oil and natural gas, the risks associated with exploration, the
Company's ability to find, acquire, market, develop and produce new properties,
operating hazards attendant to the oil and gas business, uncertainties in the
estimation of proved reserves and in the projection of future rates of
production and timing of development expenditures, the strength and financial
resources of the Company's competitors, the Company's ability to find and
retain skilled personnel, climatic conditions, labor relations, availability
and cost of material and equipment, environmental risks, the results of
financing efforts, regulatory developments and the other risks described in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way.
The accuracy of any reserve estimate depends on the quality of available data
and the interpretation of that data by geological engineers. In addition, the
results of drilling, testing and production activities may justify revisions
of estimates that were made previously. If significant, these revisions could
change the schedule of any further production and/or development drilling.
Accordingly, reserve estimates are generally different from the quantities of
oil and natural gas that are ultimately recovered.
Should one or more of the risks or uncertainties described above or
elsewhere in this Form 10-Q or presented in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003 occur, or should underlying
assumptions prove incorrect, actual results and plans could differ materially
from those expressed in any forward-looking statements. We specifically
disclaim all responsibility to publicly update any information contained in a
forward-looking statement or any forward-looking statement in its entirety
and therefore disclaim any resulting liability for potentially related damages.
All forward-looking statements attributable to us are expressly qualified
in their entirety by this cautionary statement.
PART I. UNAUDITED FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
The financial statements included herein have been prepared in conformity
with generally accepted accounting principles. The statements are unaudited but
reflect all adjustments, which, in the opinion of management, are necessary to
fairly present the Company's financial position and results of operations. All
such adjustments are of a normal recurring nature.
CROFF ENTERPRISES, INC.
BALANCE SHEETS
(Unaudited)
December 31, September 30,
2003 2004
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ASSETS
Current assets:
Cash and cash equivalents $ 154,490 $ 81,175
Investments
Marketable equity securities, available for sale 48,470 -
Mutual fund 77,429 -
Natural gas "put" contracts, at fair value 7,660 -
Accounts receivable 80,531 106,480
---------- ----------
368,580 187,655
Oil and gas properties, at cost,
successful efforts method: 985,565 1,338,341
Accumulated depletion and depreciation (455,924) (487,424)
---------- ----------
529,641 850,917
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Total assets $ 898,221 $1,038,572
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,383 $ 54,542
Accrued liabilities 10,726 18,921
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32,109 73,463
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Stockholders' equity:
Class A Preferred stock, no par value
5,000,000 shares authorized, none issued - -
Class B Preferred stock, no par value; 1,000,000
shares authorized, 540,659 shares issued and
outstanding 559,295 678,898
Common stock, $.10 par value; 20,000,000 shares
authorized, 620,143 shares issued and outstanding 62,014 62,014
Capital in excess of par value 369,761 250,158
Treasury stock, at cost, 53,243 shares issued and
outstanding (83,151) (83,151)
Accumulated other comprehensive loss (41,210) -
Retained earnings (deficit) (597) 57,190
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866,112 965,109
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Total liabilities and stockholders' equity $ 898,221 $1,038,572
========== ==========
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,
------------------ ------------------
2003 2004 2003 2004
-------- -------- -------- --------
Revenues
Oil and gas sales $ 90,612 $176,707 $315,289 $446,849
Gain (loss) on natural gas
"put" contracts 4,644 - (27,177) (7,599)
Gain on sale of marketable
equity securities 19,450 - 19,450 (38,166)
Other income 705 228 3,679 1,851
-------- -------- -------- --------
115,411 176,935 311,241 402,935
-------- -------- -------- --------
Expenses
Lease operating expense including
production taxes 30,619 50,278 97,337 156,981
Yorktown Re-entry Prospect 2,814 16,435 13,787 24,903
General and administrative 21,752 26,543 80,495 88,887
Overhead expense, related party 6,000 12,000 18,000 36,000
Depreciation and depletion 10,000 10,500 30,000 31,500
-------- -------- -------- --------
71,185 115,756 239,619 338,271
-------- -------- -------- --------
Pretax income 44,226 61,179 71,622 64,664
Provision for income taxes 2,000 6,397 6,000 6,877
-------- -------- -------- --------
Net income $ 42,226 $ 54,782 $ 65,622 $ 57,787
======== ======== ======== ========
Net income applicable to
preferred B shareholders 36,460 71,041 58,837 119,603
-------- -------- -------- --------
Net income (loss) applicable to
Common shareholders $ 5,766 $(16,259) $ 6,785 $(61,816)
======== ======== ======== ========
Basic and diluted net income
per common share $ 0.01 $ (0.03) $ 0.01 $ (0.11)
======== ======== ======== ========
Weighted average common shares
outstanding 566,900 566,900 566,900 566,900
======== ======== ======== ========
See accompanying notes to unaudited condensed financial statements.
5
CROFF ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the year ended December 31, 2003 and
the nine months ended September 30, 2004
(Unaudited)
Accumulated
Preferred B stock Common stock Capital in other Retained
------------------ ------------------ excess of Treasury comprehensive Earnings
Shares Amount Shares Amount par value stock loss (deficit)
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at December 31, 2002 540,659 $470,910 629,143 $ 62,914 $ 456,246 $(83,151) $ (65,205) $ (94,706)
Net unrealized gain on marketable
equity securities - - - - - - 23,995 -
Net income for the year ended
December 31, 2003 - - - - - - - 65,622
Common stock issued for services - - 1,000 100 900 - - -
Cancellation of treasury stock - - (10,000) (1,000) 1,000 - - -
Preferred stock allocation - 88,385 - - (88,385) - - -
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at December 31, 2003 540,659 559,295 620,143 62,014 369,761 (83,151) (41,210) (597)
-------- -------- -------- -------- ---------- -------- ------------- -----------
Net loss on marketable equity
securities - - - - - - 41,210 -
Net income for the nine months
ended September 30, 2004 - - - - - - - 57,787
Preferred stock allocation - 119,603 - - (119,603) - - -
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at September 30, 2004 540,659 $678,898 620,143 $ 62,014 $ 250,158 $(83,151) $ - $ 57,190
======== ======== ======== ======== ========== ======== ============= ===========
See accompanying notes to unaudited condensed financial statements.
6
CROFF ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2003 and 2004
(Unaudited)
2003 2004
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Cash flows from operating activities:
Net income $ 65,622 $ 57,787
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depletion and depreciation 30,000 31,500
Realized (gain) loss on marketable
equity securities (19,450) 38,166
Loss on natural gas "put" contracts 31,821 7,599
Changes in operating assets and
liabilities:
Accounts receivable (19,149) (25,949)
Accrued interest on notes receivable (704) -
Accounts payable 3,674 33,159
Accrued liabilities 5,833 8,195
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Net cash provided by operating activities 93,003 150,457
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Cash flows from investing activities:
Purchase of natural gas contracts (58,041) -
Proceeds from sale of natural gas contracts - 61
Acquistion of property leases and improvements (135,473) (352,766)
Purchase of working interest in proved properties (30,000) -
Proceeds from sale of marketable equity securities - 51,514
Proceeds from sale of mutual fund - 77,429
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Net cash used in investing activities (166,999) (223,772)
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Cash flows from financing activities:
Payment on note receivable from a director 10,600 -
Payment on note receivable from a related party 10,022 -
---------- ----------
Net Cash provided by financing activities 20,622 -
---------- ----------
Net decrease in cash and cash equivalents (53,374) (73,315)
Cash and cash equivalents at beginning of period 316,473 154,490
---------- ----------
Cash and cash equivalents at end of period $ 263,099 $ 81,175
========== ==========
Supplemental disclosure of non-cash investing and financing activities:
During the nine month period ended September 30, 2004, the Company had unrealized
gains on available for sale securities in the amount of $18,665. During the nine
month period ended September 30, 2003, the Company had net losses on natural gas
contracts of $27,177.
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 six month periods ended June 30,
2003 and 2004 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 information in footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America 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, 2003, which report has been
filed with the Securities and Exchange Commission, and is available from the
Company or at www.croff.com.
Subsequent events
On November 8, 2004, Croff entered into a Prospect Participation Agreement
("Agreement") related to its Yorktown Re-entry Program with Tempest Energy
Resources, LP ("Tempest") of Dallas, Texas. The parties intend to complete
wells in the Wilcox formation for natural gas and condensate. The prospects
will be jointly developed in an area containing up to 1,100 acres with 8
re-entry prospects as well as new drilling locations. The Agreement
provides for the parties to work together in this area of mutual interest for
a period of up to 5 years. Under the general terms of the Agreement Croff
will retain a 40% working interest and Tempest will acquire a 60% working
interest in the first well bore. Tempest will be the operator of the well.
Tempest has the right to acquire a 75% working interest in all leases in this
area of mutual interest. Croff recovered approximately $150,000 of costs
expended in the re-entry of the first well at the closing with Tempest. A
more detailed description of the Agreement is disclosed out in the
contemporaneously filed Form 8-K report by Croff.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Croff Enterprises, Inc. ("Croff" or the "Company") was incorporated in
Utah in 1907. Croff is an independent energy company engaged in the business
of oil and natural gas exploration and production, primarily through the
acquisition of producing oil and natural gas leases as well as the ownership
of perpetual mineral interests. Other companies operate almost all of the
wells from which Croff receives revenues and Croff has no control over the
factors which determine royalty or working interest revenues, such as markets,
prices and rates of production. Today, Croff participates as a working
interest owner in approximately 50 wells or units of several wells. Croff
also holds small royalty interests in approximately 200 wells.
Croff's business strategy is focused on targeting opportunities that are
of lower risk with the potential for stable cash flow and long asset life
while seeking to keep operating costs low. The Company has no short-term or
long-term debt outstanding. The Company over the last four years acquired
three wells in Michigan, one well in Montana, six wells in Oklahoma and eight
wells in Texas.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and
results of operations are based upon financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the year. The Company
analyzes its estimates, including those related to oil and gas revenues,
oil and gas properties, marketable securities, income taxes and
contingencies. The Company bases its estimates on historical experience
and various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes the following
critical accounting policies affect its more significant judgments and
estimates used in the preparation of its financial statements and the
uncertainties that it could impact results of operations, financial
condition and cash flows. The Company accounts for its oil and gas
properties under the successful efforts method of accounting. Depletion,
depreciation and amortization of oil and gas properties and the periodic
assessments for impairment are based on underlying oil and gas reserve
estimates and future cash flows using then current oil and gas prices
combined with operating and capital development costs. There are numerous
uncertainties inherent in estimating quantities of proved oil and gas
reserves and in projecting future rates of production and timing of
development expenditures. The Company has designated its marketable
equity securities as "securities available for sale". The Company
follows SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivatives' fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Historically, oil and gas prices have experienced significant fluctuations and
have been particularly volatile in recent years. Price fluctuations can result
from variations in weather, levels of regional or national production and
demand, availability of transportation capacity to other regions of the
country and various other factors. Increases or decreases in oil and gas
prices received could have a significant impact on future results.
Liquidity and Capital Resources
At September 30, 2004, the Company had assets of $1,038,572 and current
assets totaled $187,655 compared to current liabilities of $73,463. Working
capital at September 30, 2004 totaled $114,192, a decrease of 66% compared
to $336,471 at December 31, 2003. The Company had a current ratio at
September 30, 2004 of approximately 3:1. During the first quarter of 2004,
the Company sold its portfolio of marketable equity securities and a mutual
fund for a net realized loss of $38,166. In addition, the Company sold its
remaining natural gas "put" contracts during the first quarter of 2004 for a
realized loss of $7,599. During the nine month period ended September 30,
2004, net cash provided by operations totaled $150,457, as compared to
$93,003 for the same period in 2003. This increase in net cash provided by
operations is primarily attributable to the higher oil and natural gas
prices, combined with slight increases in oil production levels. The
Company's cash flows from operations are highly dependent on oil and gas
prices. The Company had no short-term or long-term debt outstanding at
September 30, 2004.
Capital expenditures for nine months ended September 30, 2004, totaled
$352,776. These capital expenditures were all related to the Yorktown
Re-entry Program located in DeWitt County, Texas; including $188,832 for
the phase I re-entry on the Helen Gips #1. Croff has recently entered a
Prospect Participation Agreement as earlier described. In addition, a
more detailed description of the Agreement is set-out in the
contemporaneously filed Form 8-K report by Croff.
The Company believes that borrowings from financial institutions,
projected operating cash flows and the cash on hand will be sufficient to
cover its working capital requirements for the next 12 months.
While certain costs are affected by the general level of inflation,
factors unique to the oil and natural gas industry result in independent
price fluctuations. Over the past five years, significant fluctuations have
occurred in oil and natural gas prices. Although it is particularly difficult
to estimate future prices of oil and natural gas, price fluctuations have
had, and will continue to have, a material effect on the Company. Overall,
it is management's belief that inflation, especially in commodity prices, is
generally favorable to the Company.
Results of Operations
Three months ended September 30, 2004 compared to three months ended
September 30, 2003.
Revenues for the third quarter of 2004 totaled $176,935, a 53% increase
from the same period in 2003. Net income for the three months ended
September 30, 2004 and 2003 totaled $54,782 and $42,226, respectively. Oil
and gas sales for the third quarter of 2004 totaled $176,707, a 95% increase
from the same period in 2003. A combination of increased oil and natural
gas prices, combined with slight increases in oil production levels during
the third quarter of 2004, were major factors causing this increase in oil
and gas sales compared to the same period in 2003. The Company's average
sale price per barrel of oil in the third quarter of 2004 was approximately
$30 per barrel compared to $27.46 per barrel for the same period in 2003.
The Company's average sale price of natural gas in the third quarter of 2004
was approximately $5.20 per Mcf (Mcf equates to one thousand cubic feet),
compared to $4.45 per Mcf for the same period in 2003. Production of crude
oil primarily increased due to the acquisition of a working interest in a
well in Michigan and a well in Texas. Other income for the three months
ended September 30, 2004 and 2003 totaled $705 and $228, respectively.
Lease operation expense, which includes all production related taxes
for the third quarter of 2004 totaled $50,278 and is compared to the $30,619
incurred for the same period in 2003. Lease operating expenses primarily
increased due to the Company's acquisition of a working interest in a well
in Michigan and a well in Texas.
Depletion and depreciation expense for the third quarter of 2004 totaled
$10,500 and is comparable to the $10,000 incurred for the same period in 2003.
Yorktown Re-entry Prospect expense incurred during the third quarter of
2004 totaled $16,435 compared to the $2,814 incurred for the same period in
2003. In accordance with the "successful efforts" method of accounting,
certain geological and geophysical activities are charged to expense as
incurred and are not capitalized as part of the drilling program. In
addition, Yorktown Re-entry expense includes certain professional fees and
travel expenses incurred in connection with the drilling program.
General and administrative expense, including overhead expense paid to
a related party, for the third quarter of 2004, totaled $38,543 compared to
$27,752 for the same period in 2003. Overhead expense paid to a related
party for the third quarter of 2004 totaled $12,000 compared to the $6,000
incurred for the same period in 2003. In November 2003, the Company's Board
of Directors authorized an increase in the overhead from $2,000 per month to
$4,000 per month, due to the amount of additional services being rendered to
the Company from Jenex Petroleum Corporation, which is owned by the Company's
President.
Provision for income taxes for the third quarter of 2004 totaled $6,397
compared to $2,000 from the same period in 2003.
Nine months ended September 30, 2004 compared to nine months ended
September 30, 2003.
Revenues for the nine months ended September 30, 2004 totaled $402,935,
a 29% increase from the prior year period. Net income for the nine months
ended September 30, 2004 and 2003 totaled $57,787 and $65,622, respectively.
During the first quarter of 2004, the Company sold its portfolio of
marketable equity securities and mutual funds for a net realized loss of
$38,166 and sold its remaining natural gas "put" contracts for a realized
loss of $7,599. The Company's liquidation of its marketable equity
securities, mutual fund and natural gas "put" contracts combined for a net
realized loss of $45,765.
Oil and gas sales for the nine months ended September 30, 2004 totaled
$446,849, a 42% increase from the same period in 2003. The increase in oil
and gas sales in 2004 compared to 2003 is primarily attributable to
increased oil and natural gas prices as well as slightly higher oil
production levels during 2004. Production of crude oil primarily increased
due to the Company's acquisition of a working interest in a well in Michigan
and a well in Texas
Lease operation expense, which includes all production related taxes
for the nine months ended September 30, 2004 totaled $156,981, a 61%
increase from the prior year period. Included in the 2004 lease operating
expense is approximately $20,000 for well workover costs. In addition,
acquisitions of oil well working interests have increased the operating
expenses for 2004 as compared to 2003.
Depletion and depreciation expense for the nine months ended
September 30, 2004 totaled $31,500 and is comparable to the $30,000 incurred
for the same period in 2003.
Yorktown Re-entry Prospect expense for the nine months ended
September 30, 2004 totaled $24,903 compared to $13,787 incurred for the same
period in 2003.
General and administrative expense, including overhead expense paid to
a related party, the nine months ended September 30, 2004 totaled $124,887
compared to $98,495 for the same period in 2003. Overhead expense paid to
a related party for the nine months ended September 30, 2004 totaled
$36,000 compared to the $18,000 incurred for the same period in 2003. This
increase in overhead expenses is primarily attributable to the additional
time incurred establishing the Yorktown Re-entry Prospect. The Company has
also incurred additional costs during 2004 associated with compliance with
the Sarbanes-Oxley Act of 2002 compared to 2003.
Provision for income taxes for 2004 totaled $6,877 compared to $6,000
from the same period in 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is in the pricing applicable to
its oil and natural gas production. Realized pricing is primarily driven by
the prevailing domestic price for oil and natural gas. Historically, prices
received for oil and natural gas production have been volatile and
unpredictable. Pricing volatility is expected to continue. Natural gas
price realizations during 2003 and the nine months ended September 30, 2004,
ranged from a monthly low of $2.05 per Mcf to a monthly high of $7.17 per
Mcf. Oil prices ranged from a monthly low of $20.05 per barrel to a monthly
high of $40.70 per barrel during 2003 and the first quarter of 2004. A
decline in prices of oil or natural gas could have a material adverse effect
on the Company's financial condition and results of operations. For the
nine months ended September 30, 2004, a 10% reduction in oil and natural gas
prices would have reduced revenues by approximately $45,000.
ITEM 4. CONTROLS AND PROCEDURES
Croff's principal executive officer and principal financial officer have
evaluated the effectiveness of Croff's "disclosure controls and procedures,"
as such term is defined in Rule 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934, as amended, within 90 days of the filing date of this
Quarterly Report on Form 10-Q. Based upon their evaluation, the principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, since the date the controls were
evaluated.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Subsequent events
On November 8, 2004, Croff entered into a Prospect Participation Agreement
("Agreement") related to its Yorktown Re-entry Program with Tempest Energy
Resources, LP ("Tempest") of Dallas, Texas. The parties intend to complete
wells in the Wilcox formation for natural gas and condensate. The prospects
will be jointly developed in an area containing up to 1,100 acres with 8
re-entry prospects as well as new drilling locations. The Agreement
provides for the parties to work together in this area of mutual interest for
a period of up to 5 years. Under the general terms of the Agreement Croff
will retain a 40% working interest and Tempest will acquire a 60% working
interest in the first well bore. Tempest will be the operator of the well.
Tempest has the right to acquire a 75% working interest in all leases in this
area of mutual interest. Croff recovered approximately $150,000 of costs
expended in the re-entry of the first well at the closing with Tempest. A
more detailed description of the Agreement is disclosed out in the
contemporaneously filed Form 8-K report by Croff.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following documents are filed as exhibits to this
Quarterly Report on Form 10-Q:
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. *
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. *
32.1 Certification of Chief Executive Officer, dated November 12, 2004,
pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of
the Sarbanes-Oxley Act of 2002. *
32.2 Certification of Chief Financial Officer, dated November 12, 2004,
pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of
the Sarbanes-Oxley Act of 2002. *
* Filed herewith
(b) The following report on Form 8-K was filed by Registrant during the
quarter ended September 30, 2004:
The Company filed a current report on Form 8-K on August 11, 2004 to
furnish the information required under Item 5 related to the August 11,
2004 press release announcing the Company's successful completion of
the overshot re-entry on the Helen Gips #1.
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.
Date: November 12, 2004 By: /S/Gerald L. Jensen
------------------ ------------------------------
Gerald L. Jensen, President,
Chief Executive Officer
Date: November 12, 2004 By: /s/Stuart D. Kroonenberg
------------------ ------------------------------
Stuart D. Kroonenberg,
Chief Financial Officer
Exhibit 31.1
CERTIFICATIONS
I, Gerald L. Jensen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Croff
Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 12, 2004 By: /S/Gerald L. Jensen
------------------ ------------------------------
Gerald L. Jensen, President,
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Stuart D. Kroonenberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Croff
Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 12, 2004 By: /s/Stuart D. Kroonenberg
------------------ ------------------------------
Stuart D. Kroonenberg,
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Croff Enterprises, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gerald L. Jensen, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) I further certify to the best of my knowledge that the information
contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
Date: November 12, 2004 By: /S/Gerald L. Jensen
------------------ ------------------------------
Gerald L. Jensen, President,
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Croff Enterprises, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stuart D. Kroonenberg, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) I further certify to the best of my knowledge that the information
contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
Date: November 12, 2004 By: /s/Stuart D. Kroonenberg
------------------ ------------------------------
Stuart D. Kroonenberg,
Chief Financial Officer