UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
MARK ONE
FORM 10-K/A
Amendment No. 1
(Mark One)
x | |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES |
| | EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
or
| |
|
For the fiscal year ended December 31, 2006 |
|
OR |
☐ | | |
o | | TRANSITION REPORT pursuant to sectionPURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934 |
| | FOR THE TRANSITION PERIOD FROM N/A TO N/A |
For the transition period from _____ to _____
Commission File Number: 000-16731
CROFF ENTERPRISES, 001-00100
THERAPEUTICSMD, INC.
(Exact Name Ofname of Registrant As Specified In Itsas specified in its Charter)
| | | | |
Utah
Nevada | | 3773 Cherry Creek Drive North, Suite 1025
Denver, Colorado
| | 80209
87-0233535 |
(State or other jurisdiction | (I.R.S. Employer Identification No.) |
of Incorporation incorporation or organization) | |
| |
951 Yamato Road, Suite 220 | |
Boca Raton, Florida | 33431 |
(Address of principal executive officesoffices) | (Zip Code) |
561-961-1900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Zip Code
Trading | |
|
(303) 383-1555
| | 87-0233535
|
Registrant’s telephone number, including area code
| | I.R.S. Employer Identification Number
|
|
Securities registered pursuant to Section 12(b) of the Act: 0 |
Securities registered pursuant to Section 12(g) of the Act: 551,244-Common |
|
| | $0.10 Par Value
| | None
| | |
| | Title of each classEach Class | symbol | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | TXMD | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrantregistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO o
Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrantregistrant (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 Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K/A. x
Yes ☒ No ☐Indicate by check mark whether the Registrantregistrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or a non-accelerated.an emerging growth company. See definitionthe definitions of ““large accelerated filer,” “accelerated filer,” “smaller reporting company” and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act:
| | | |
Large Accelerated Filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer x
☐Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES o NO x
Act). Yes ☐ No ☒As of March 1, 2007, June 30, 2021, the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common voting stockequity held by non-affiliates of the Registrant, computed by reference to the averagemarket price at which the common equity was last sold was $444,995,626.
As of April 25, 2022, there were outstanding 433,427,878 shares of the bid and ask price on such date was: $635,000.
As of March 1, 2007, the Registrant had outstanding 551,244 shares ofregistrant’s common stock, (excludes 69,399 common shares held as treasury stock).
par value $0.001 per share.Documents Incorporated by Reference
None
TABLE OF CONTENTS
|
| | | | Page
|
| | PART I
| | |
| | | | |
ITEM 1
| | BUSINESS:
| | |
| | CURRENT EVENTS: CHANGE OF CONTROL AND SALE OF ASSETS
| | 4 |
| | | | |
ITEM 2
| | PROPERTIES
| | 13 |
| | | | |
ITEM 3
| | LEGAL PROCEEDINGS
| | 20 |
| | | | |
ITEM 4
| | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
| | 20 |
| | | | |
| | PART II
| | |
| | | | |
ITEM 5
| | MARKET FOR REGISTRANT’S SECURITIES, RELATED STOCKHOLDER
| | |
| | MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
| | 20 |
| | | | |
ITEM 6
| | SELECTED FINANCIAL DATA
| | 22 |
| | | | |
ITEM 7
| | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
| | |
| | CONDITION AND RESULTS OF OPERATIONS
| | 22 |
| | | | |
ITEM 7A
| | QUANTITATIVE AND QUALITATIVE DISCLOSURES
| | |
| | ABOUT MARKET RISK
| | 27 |
| | | | |
ITEM 8
| | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | 27 |
| | | | |
ITEM 9
| | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
| | |
| | ON ACCOUNTING AND FINANCIAL DISCLOSURES
| | 27 |
| | | | |
ITEM 9A
| | CONTROLS AND PROCEDURES
| | 27 |
| | | | |
ITEM 9B
| | OTHER INFORMATION
| | 28 |
| | | | |
| | PART III
| | |
| | | | |
ITEM 10
| | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
| | 28 |
| | | | |
ITEM 11
| | EXECUTIVE COMPENSATION
| | 30 |
| | | | |
ITEM 12
| | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
| | |
| | AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
| | 31 |
| | | | |
ITEM 13
| | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
| | 31 |
| | | | |
ITEM 14
| | PRINCIPAL ACCOUNTANT FEES AND SERVICES
| | 32 |
| | | | |
| | PART IV
| | |
| | | | |
ITEM 15
| | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | 33 |
| | SIGNATURES
| | 34 |
| | EXHIBITS
| | |
| | CERTIFICATIONS PURSUANT TO THESARBANES-OXLEY ACT OF 2002
| | |
Basis for 10-K Amendment
The following 10-K/A is beingEXPLANATORY NOTE
On March 23, 2022, TherapeuticsMD, Inc., a Nevada corporation (the “Company”), filed by Croff Enterprises, Inc. “The company” or “Croff” to correct what the company regards as certain technical accounting disclosure matters. In all events, the company does not believe that the accounting changed any of the actual performance data, such as, net earnings, cash flows or balance sheet data, but the changes were made primarily to conform to categorizations and description of certain financial information as requested by the SEC. Further, the company does not intend to, for the forgoing reasons, restate any of its prior financial statements or prior filings. Any person wishing to obtain a copy showing the specific amendments in the financial data and narrative information within the 10-K/A may obtain a copy identifying those changed sections from the company upon written request.
CROFF ENTERPRISES, INC.
Annual Report on Form 10-K
for the fiscal year ended December 31, 2006
PART I
ITEM 1. BUSINESS
General
Croff Enterprises, Inc. (“Croff” or the “Company”2021 (the “Original Form 10-K”) is an independent energy company engaged in the business of oil and natural gas production, primarily through ownership of perpetual mineral interests and acquisition of producing oil and natural gas leases. The Company’s principal activity is oil and natural gas production from non-operated properties. 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 acquires and owns producing and non-producing leases and perpetual mineral interestsis filing this Amendment No. 1 on Form 10-K/A (the “Form 10-K/A”) in Alabama, Colorado, Michigan, Montana, New Mexico, North Dakota, Oklahoma, Texas, Utah and Wyoming. Overorder to include the past eleven years,information required by Items 10 through 14 of Form 10-K. This information was previously omitted from the Company’s primary source of revenue has been oil and natural gas production from leases and producing mineral interests. Other companies operate 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.Original Form 10-K consistent with General Instruction G(3) to Form 10-K. The Company presently participates as a working interest owner in 38 single wells and in 10 units of multiple wells. Croff holds small royalty interests in approximately 215 wells.
Summary of Current and Subsequent Material Events – (Discussion of Exchange Agreement terminated on June 1, 2007).
Croff Enterprises, Inc. announced on December 12, 2006, a now terminated Stock Equivalent Exchange Agreement providing foris filing the acquisition of10-K/A to provide the Taiyun Rongan Business Trading Company Limited, hereafter “TRBT”, a Chinese corporation located in the city of Taiyun, Shanxi Province, in the People’s Republic of China. The stock equivalent Exchange Agreement (hereafter “exchange agreement”) provided for a change in control of Croff, a change in the business of Croff, and a new management team.
The essential provisions of the exchange agreement provided for Croff to issue over 11 million new common shares (92.5%) of its common stock to the shareholders of TRBT in exchange for the acquisition of 80% of the outstanding equity and ownership interest in TRBT by Croff. In the event of the completion and closing of the Exchange Agreement, Croff would have owned eighty percent (80%) of all of the issued and outstanding equity interest of TRBT. TRBT owns a seventy-six percent (76%) interest in six shopping malls located in or around the city of Taiyun, China which is located approximately 400 kilometers west of Beijing, China. As a result, Croff would have owned approximately sixty-one percent (61%) net interest in the shopping malls as its sole assets. At closing, TRBT shareholders would have received and owned approximately 92.5% of the common shares of Croff and the Croff shareholders would have continued to hold approximately 7.5% of the then issued and outstanding common shares of Croff.
As a provision of the exchange agreement, Mr. Gerald L. Jensen, Croff’s President, and his affiliated companies, the current principal shareholders of Croff, hereafter the “Croff Principals,” would have, subject to shareholder vote, acquired 67.2% of all of the Preferred B Oil and Gas assets from Croff in exchange for the conveyance to Croff of the 67.2% of the Class B Preferred Shares currently held by these Croff Principals. The Croff Principals would have exchanged three hundred sixty three thousand five hundred thirty five (363,535) shares, or 67.2% of the class “B” shares outstanding, in exchange for 67.2% of the shares of a new subsidiary to which all of the oil and gas assets and related bank accounts of the Company will be transferred. These class “B” preferred shares would have been cancelled by the Company upon assignment. The Croff Principals would have, concurrently, tendered the sum of six hundred thousand dollars ($600,000) in cash to the company, and assume all liabilities of the oil and gas assets, in exchange for the remaining 32.8% of the shares of the new subsidiary holding all of the Croff oil and gas assets.
Croff would have, as part of the exchange closing, converted all remaining preferred “B” shares held by the public, being approximately 32.8% of the issued and outstanding class of preferred “B” shares, to common shares on a ratio of two common shares for each class “B” preferred share cancelled. Upon the closing of the exchange transaction, all class “B” preferred shares would have been cancelled and terminated of record, and all holders of Preferred “B” shares would have received two common shares in exchange. All class “B” preferred shareholders subsequent to closing would have been deemed to hold common shares. As provided in the exchange agreement upon closing, the company would have outstanding only common shares. The company would have been authorized to pay a dividend of twenty cents per share to all common shareholders of record prior to closing. This dividend would not include the new common shares to be issued to the preferred shareholders at closing. The exchange agreement would also have provided that the sum of $530,000 must remain in Croff at closing, after payment of all proxy and closing expenses, dissenting shareholder rights, and the dividend.
A majority of the preferred B shareholders would have beeninformation required to approve the sale of the Preferred B assets and a majority of the common would have been required to approve all the terms for the exchange agreement to be closed as outlined herein.
The exchange agreement would have been subject to the completion of standard due diligence by both entities, dissemination of a proxy statement, and a shareholders vote by Croff common shareholders and Preferred B Shareholders, whose vote must approve this transaction.
If the transaction were closed, the shareholders would have elected a new Board of Directors nominated and designated by TRBT. The new Board could have appointed new officers for the company. As a net result, the business of the company would have changed from oil and gas production to the acquisition, development, and management of retail properties in Taiyuan, China, including the initial six properties as identified. It was expected that the company’s offices in the United States would be moved to the Los Angeles area from Denver, CO.
The exchange agreement would have also required majority approval by the common shareholders to increase the authorized but unissued preferred “A” shares, no par, from five million shares to ten million shares. It also required increasing the authorized common shares, $0.10 par, from 20 million to 100 million shares. Each Croff common shareholder would have had the right to exercise dissenting shareholder rights and obtain cash in lieu of remaining as a common shareholder.
The exchange agreement was anticipated to be approved since the principal shareholders held a majority of the preferred “B” shares and the principal shareholders plus Mr. Julian D. Jensen, a director, held a majority of the common shares.
The exchange agreement was the subject of negotiations for nearly one year, following the initial proposal to Croff by TRBT to have Croff acquire TRBT. After initial discussions beginning in December, 2005, the President of Croff visited Taiyuan, China, in April 2006, and inspected the shopping malls and met with the officers, staff, and owners. The President also met with legal counsel in Beijing, China, to be briefed on the legalities of the transaction under Chinese law. Subsequently negotiations took place from April through November of 2006, with respect to all aspects of the transaction, resulting in the signing of the Exchange Agreement on December 12, 2006. On June 1, 2007 Croff announced the termination of the TRBT Exchange Agreement and filed an 8-K with the SEC announcing this termination.
Other Current Events in 2006
The Company added non-operated working interests in Colorado, Wyoming, and Utah in 2006. The Company sold its principal oil and gas assets in DeWitt County, Texas. These interests were very small non-operated working interest participations.
In the third quarter of 2006, Croff sold the balance of its principal properties in the Yorktown Reentry Program in Dewitt County, Texas. Previously the Company had participated with Tempest Energy Resources, LP., in the Yorktown area. In June 2006, the company reached an agreement to sell all of its assets in the Yorktown program, except a working interest in two wells, one of which was commercial. The Company also attempted to sell these two wells but was unable to find a buyer. The sale of the principal assets included the Eyhorn Lease, including the 20% working interest in the Edward Dixel Gipps well. It also included the Panther Pipeline, approximately 7.2 miles of natural gas gathering line which Croff had acquired in 2006 from Panther Pipeline Limited of Houston, TX. The sale proceeds approximately equaled the Company’s cost in the DeWitt County program. Since the company had written off a portion of its cost in 2005, the sale resulted in a small gain reported in the third quarter of 2006. The Company agreed to sell its interest in the remaining two natural gas wells in Dewitt County, Texas, on or before the closing of the Exchange Agreement.
The Company participated in the drilling of the Shriners 2-10c5 Well in Duchesne County, Utah, which was drilled by El Paso during 2006. The well currently is being completed, but has not produced any revenue. Croff has a working interest of approximately 1.7% of this well and incurred costs of approximately $60,000. The Company also participated in a small interest in three natural gas wells in Lincoln County, Wyoming, which were drilled by Whiting Petroleum. These three natural gas wells were successful and began producing at the end of 2006. The Company also participated, in the fourth quarter of 2006, in the Long knife Well in Eastern Colorado. This well also was successfully completed as a natural gas producer with Croff retaining an approximate one-eighth working interest. Croff expects revenues for this well to begin in 2007.
There were also a number of small royalty interests which began paying revenues due to leases executed by Croff in earlier years on which new wells were drilled. The most significant of these wells were drilled in Uintah County, Utah by EOG Resources.
In 2006, two of the company’s long term directors resigned. Mr. Edwin Piker declined to stand for re-election at the Company’s annual meeting held on December 8, 2006. He was replaced by Mr. Harvey Fenster, a new Director. Mr. Dilworth Nebeker resigned just prior to the annual shareholders meeting, for which he was a candidate as director. The vacancy due to Mr. Nebeker’s resignation has not been filled. More information on these changes in the Board of Directors is found in Part III of this 10-K. All new oil and gas interests described in this section will be part of the class “B” preferred assets to be sold as part of the exchange agreement.
Strategic Direction of the Company - 2005
On April 8, 2005, Croff filed a Form 8-K stating that the Board of Directors had determined to review Croff’s strategic alternatives. The Board stated such a review may include the possible sale or merger of all or part of the Company or the possible sale or disposition of all or part of the assets. In undertaking this review, the Board stated two primary objectives. The first objective was to increase shareholder value. The second was to provide liquidity to shareholders. The Board formed a non-management committee of its Board, excluding Gerald L. Jensen, to review acquisition proposals including an expected proposal from Gerald L. Jensen personally and in conjunction with Jensen Development Company, and C. S. Finance L.L.C, companies wholly owned by Mr. Jensen.
On April, 15, 2005 Jensen Development Company and CS Finance LLC, two companies wholly owned by Gerald L. Jensen, submitted an offer to purchase the assets pledged to the Preferred B shareholders of Croff. The offer was for $2.80 per Preferred B share. The Company filed a Form 8-K on April 19, 2005 reporting this Offer. After meeting to discuss the offer on April 20, 2005, the non-management committee reported to the Offerors that while the committee was generally in favor of a transaction, they had concerns with potential tax consequences and requested an extension. At a May 4, 2005 meeting, the non-management committee rejected this offer based primarily on adverse tax and corporate consequences to the Company, but invited the Offerors to make a tender offer directly to the shareholders.
2005 Tender Offer
On June 7, 2005, the non-management committee received a draft of an issuer tender offer from the Offerors. At a meeting of the Board of Directors on June 8, 2005, Mr. Gerald L. Jensen presented the issuer tender offer to the Board of Directors. On June 15, 2005, the Offerors filed with the SEC an issuer tender offer to all Preferred B shareholders for a cash purchase of $3 per share, for all shares of Preferred B stock not held by the Offerors.
The Offerors received comments from the SEC in response to the Issuer Tender Offer filed by them on June 15, 2005. The Offerors subsequently filed an Amended Third Party Tender Offer on June 29, 2005 and again on July 5, 2005. The non-management committee of the Board of Directors filed a Schedule 14D-9 with the SEC on July 6, 2005 on behalf of Croff. This Schedule included the position of the non-management committee to the Offer as follows: The non-management committee acting as the Board of Directors adopted the following resolution with respect to the Tender Offer: “The majority of the four Directors comprising the non-management committee of the Board of Directors believe that each Preferred B shareholder should decide whether or not to tender shares in this Tender Offer based upon their specific situation and investment objectives. Therefore, the non-management committee was neutral and made no recommendation for or against this Tender Offer.” Each Director on the non-management committee expressed in the SEC filings an inclination to tender all or part of their shares in this tender offer and subsequently did so.
The tender offer expired at 12:00 Midnight, Eastern Time, on August 19, 2005. The Offerors filed a final Amended Third Party Tender Offer with the SEC on August 29, 2005 reporting the results of the tender offer. The Offerors reported that the depository, American National Bank, had received a total of 75,050 shares tendered and not withdrawn prior to the expiration of the Offer, including 11,190 shares tendered subject to delivery. The tendered shares represent approximately 13.9% of the outstanding Class B Preferred stock of Croff Enterprises, Inc. The Offerors accepted and approved for payment all of the tendered shares at $3.00 per share for a total of $225,150. Along with the Class B Preferred shares previously held by Gerald L. Jensen and Jensen Development, the Offerors, after the expiration of the tender offer, collectively held 328,241 Preferred B shares out of 540,659 Preferred B shares issued, or approximately 60.7% of the Preferred B shares of Croff Enterprises, Inc.
Of the 11,190 shares tendered by the expiration of the tender offer, subject to delivery, all but 150 shares were delivered by the deadline established by the Offerors. During the tender offer, two Directors tendered all of their shares of Preferred B stock. After the tender offer, one Director, Richard Mandel sold the majority of his Preferred B shares for a note due in 2006; retaining 8,000 Preferred B shares. After the tender offer, one of the Directors, Julian Jensen, who had tendered approximately one third of his shares, sold the balance of his Preferred B shares at the same price as offered for the tender offer for notes payable during 2006 and 2007. These Additional purchases after the tender offer, by C.S. Finance L.L.C. totaled another 33,418 Preferred B shares, of which 21,663 Preferred B shares were purchased from Julian Jensen, and of which 7,702 shares were purchased from Richard Mandel for the tender offer price. To date, the number of Preferred B shares collectively owned by Gerald L. Jensen, C.S. Finance L.L.C., and Jensen Development Company total 67.2% of the Preferred B shares. The holders of approximately 94,394 Preferred B shares were not located during the tender offer.
Yorktown Re-entry Program
In 2005, the Company continued to participate in the development of oil and gas leases in Dewitt County, Texas. Croff contributed the bulk of its Dewitt leases to a participation agreement with Tempest Energy Resources L.P., for an area of mutual interest in late 2004. Croff and Tempest first drilled the Helen Gips #1 well, which was unsuccessful. The Helen Gips #1 well was plugged and abandoned in 2005, and the Company incurred a loss of $52,638. Tempest and Croff purchased another lease on which there was an existing re-entry well, and an existing producing well, the A.C. Wiggins. The companies’ refraced (fracture or frac refers to the process by which a formation is subject to mechanical or chemical treatment to induce or enhance production) the Wiggins well in 2005 and it is currently producing approximately 50 Mcf per day. The working interest in the Wiggins well is held 75% by Tempest and 25% by Croff. In 2005, Tempest informed Croff that it would not exercise its option, pursuant to the participation agreement, to acquire the additional Croff acreage in Dewitt County. Croff then re-leased certain leases in the former area of mutual interest. In December 2005, Croff prepared a re-entry well, the Dixel Gips, on a portion of its acreage and farmed out this wellbore and acreage, retaining a 20% carried interest through the drilling and completion phase. Croff then agreed to pay its 20% share of production and equipment costs after completion. The Dixel Gips well was completed by Pool Operating Company in the first quarter of 2006, and Croff’s position was then sold, as described above under other Current Events in 2006.
Oil and Natural Gas Reserves
During 2006, the estimated value of the Company’s discounted future net cash flow from proved reserves decreased from $2,838,910 at December 31, 2005 to $2,585,000 at December 31, 2006. This decrease was due to a drop in the Company’s average crude oil price from $55.93 per barrel on December 31, 2005, to $51.95 per barrel on December 31, 2006, and a drop in its average natural gas prices from $7.93 per Mcf on December 31, 2005 to $6.36 per MCF on December 31, 2006. During 2005, the estimated value of the Company’s discounted future net cash flows from proved reserves increased from $1,642,805 at December 31, 2004, to $2,838,910, an increase of $1,196,105 or 72%. This increase in the estimated value of the Company’s discounted future net cash flows was the result of much higher prices at December 31, 2005 as compared to December 31, 2004.
The December 31, 2006 valuation reflected average wellhead prices of $6.36 per Mcf and $51.95 per barrel, while the December 31, 2005 valuation reflected average wellhead prices of $7.93 per Mcf and $55.93 per barrel. At December 31, 2006, approximately 61% of the Company reserve values were from oil. The Company’s proven oil reserves as of December 31, 2006 and 2005 were estimated at 87,116 barrels and 77,696 barrels respectively. During 2006, the Company had production of 7,888 barrels of oil compared to production of 7,630 barrels during 2005. The Company’s proven natural gas reserves as of December 31, 2006 and 2005 were estimated at 443,227 Mcf and 385,811 Mcf, respectively. During 2006, the Company had production of 59,452 Mcf of natural gas compared to production of 59,403 Mcf of natural gas during 2005. The Company’s December 31, 2006, reserve study included an overall increase in the Company’s estimated proven natural gas reserves of 57,416 Mcf and an upward revision of proven oil reserves of 9,420 barrels. The natural gas revisions were primarily in the four corners leases in Colorado, and additional natural gas wells in Utah. The oil increases were from new wells in Utah, and reevaluation of oil wells in Michigan.
Revenues from oil and natural gas sales for 2006 totaled $842,400. Net income for 2006 was $373,015. Net cash provided by operating activities in 2006 totaled $329,840. The Company’s cash flow from operations is highly dependent on oil and natural gas prices. Capital expenditures for 2006 totaled $57,746 and were primarily attributable to participation in new wells in Utah, Colorado, and Wyoming. The Company had no short-term or long-term debt outstanding at December 31, 2006.
History
The Company was incorporated in Utah in 1907 as Croff Mining Company. The Company changed its name to Croff Oil Company in 1952, and in 1996 changed its name to Croff Enterprises, Inc. The Company, however, continues to operate its oil and natural gas properties as Croff Oil Company.
In November 1991, Croff reverse-split the common stock on a ratio of 1 share of common stock for every 10 shares previously held.
In 1996, the Company created a class of Preferred B stock to which the perpetual mineral interests and other oil and natural gas assets were pledged. Thus, the Preferred B stock represents the majority of the Company’s oil and natural gas assets, exclusive of the Company’s prior interests which were held in Dewitt County, Texas. The Preferred B share assets consist of all oil and natural gas assets not located in Dewitt County, Texas, the Preferred B savings account and the checking account, and the receivables and liabilities related thereto. The common share assets consist of the remaining oil and gas assets in Dewitt County, Texas, the common stock savings and checking accounts, and the balance of the Company’s assets. Each common shareholder, as of the February 28, 1996 record date, received one Preferred B share for each common share held, at the time of this restructuring of the capital of the Company. Subsequent to this date, the Company’s securities have been separately traded. The Company’s common stock is listed and occasionally traded on the Over the Counter Bulletin Board (www.otcbb.com) under the symbol “COFF”. The Preferred B shares have limited trading in private transactions. There are currently one million Preferred B shares authorized and 540,659 issued and outstanding. All oil and gas assets presently remaining in the company as of the date of this report are pledged to the preferred “B” shares, except for non-operated working interests in two wells and equipment in Dewitt County, Texas.
Available Information
Our Internet address is www.croff.com. We make available through our website our annual report on Form 10-K quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
Major Customers
Customers which accounted for over 10% of oil and natural gas revenues were as follows for the years ended December 31, 2004, 2005 and 2006:
| | | 2004 | | 2005 | | 2006 |
| | | | | | | |
Jenex Petroleum Corp., a related party | | 18.1% | | 25.8% | | 14.2% |
Merit Energy | | 14.4% | | 20.1% | | 18.1% |
Sunoco, Inc. | | 11.9% | | 12.4% | | 14.7% |
Management believes that the loss of any individual purchaser would not have a long-term material adverse impact on the financial position or results of operations of the Company.
Financial Information About Industry Segments
The Company’s operations presently consist of a single business, oil and natural gas production. During previous years the Company has generated revenues through the sale or leasing of oil and natural gas leasehold interests; however, no significant revenues were generated from this source for the last six years.
Government Regulation
The Company’s operations are affected by political developments and by federal, state and local laws and regulations. Legislation and administrative regulations relating to the oil and natural gas industry are periodically changed for a variety of political, economic, environmental and other reasons. Numerous federal, state and local departments and agencies issue rules and regulations binding on the oil and natural gas industry, some of which carry substantial penalties and sanctions for failure to comply. The regulatory burden on the industry increases the cost of doing business, decreases flexibility in the timing of operations and may adversely affect the economics of capital projects.
In the past, the federal government has regulated the prices at which oil and natural gas could be sold. Prices of oil and natural gas sold by the Company are not currently regulated, but there is no assurance that such regulatory treatment will continue indefinitely into the future. Congress, or in the case of certain sales of natural gas by pipeline affiliates over which it retains jurisdiction, the Federal Energy Regulatory Commission (“FERC”) could re-enact price controls or other regulations in the future.
In recent years, FERC has taken significant steps to increase competition in the sale, purchase, storage and transportation of natural gas. FERC’s regulatory programs allow more accurate and timely price signals from the consumer to the producer and, on the whole, have helped natural gas become more responsive to changing market conditions. To date, the Company believes it has not experienced any material adverse effect as the result of these initiatives. Nonetheless, increased competition in natural gas markets can and does add to price volatility and inter-fuel competition, which increases the pressure on the Company to manage its exposure to changing conditions and position itself to take advantage of changing markets. Additional proposals are pending before Congress and FERC that might affect the oil and natural gas industry. The oil and natural gas industry has historically been heavily regulated at the federal level; therefore, there is no assurance that the less stringent regulatory approach recently pursued by FERC and Congress will continue.
State statutes govern exploration and production operations, conservation of oil and natural gas resources, protection of the correlative rights of oil and natural gas owners and environmental standards. State Commissions implement their authority by establishing rules and regulations requiring permits for drilling, reclamation of production sites, plugging bonds, reports and other matters. There can be no assurance that, in the aggregate, these and other regulatory developments will not increase the cost of operations in the future.
Environmental Matters
The Company’s operations are subject to stringent federal, state and local laws governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous governmental departments such as the federal Environmental Protection Agency (“EPA”) issue regulations to implement and enforce such laws, which are often difficult and costly to comply with and which carry substantial civil and criminal penalties and sanctions for failure to comply. These laws and regulations will require the acquisition of a permit before drilling commences, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with drilling, production and transporting through pipelines, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands, frontier and other protected areas, require some form of remedial action to prevent pollution from former operations such as plugging abandoned wells, and impose substantial liabilities for pollution resulting from operations. In addition, these laws, rules and regulations may restrict the rate of production. The regulatory burden on the oil and natural gas industry increases the cost of doing business and therefore affects profitability. Changes in environmental laws and regulations occur frequently, and changes that result in more stringent and costly waste handling, disposal or clean-up requirements could adversely affect the Company’s operations and financial position, as well as the industry in general.
The Company is not aware of any instance in which it was found to be in violation of any environmental or employee regulations or laws, and the Company is not subject to any present litigation or claims concerning such environmental matters. In some instances the Company could in the future incur liability, even as a non-operator, for potential environmental waste or damages or employee claims occurring on oil and natural gas properties or leases in which the Company has an ownership interest.
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 risk factors and other cautionary statements in this Form 10-K/A. 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 natural 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, expected results or benefits associated with recent acquisitions, business strategies, expansion and growth of the Company’s operations, cash flow and anticipated liquidity, grassroots prospects and development and property acquisition, 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 all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and sale of oil and natural gas. These risks include but are not limited to: general economic conditions, 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 natural 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 this Form 10-K/A.
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 and reservoir 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-K/A occur, or should underlying assumptions prove incorrect, our 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.
In addition, the company is in a transition period, with the company considering various “going forward” proposals that may materially alter the financing, structure, and core business of the company, which may, in turn, significantly affect current estimates or projections.
All forward-looking statements attributable to Croff or its management are expressly qualified in their entirety by this cautionary statement.
Fluctuations in Profitability of the Oil and Natural Gas Industry
The oil and natural gas industry is highly cyclical and historically has experienced severe downturns characterized by oversupply and weak demand. Many factors affect our industry, including general economic conditions, international incidents (politics, wars, etc.) consumer preferences, personal discretionary spending levels, interest rates and the availability of credit and capital to pursue new production opportunities. It is possible that the oil and natural gas industry will experience sustained periods of decline in the future. Any such decline could have a material adverse affect on our business.
Competition
The oil and natural gas industry is highly competitive. The Company encounters competition in all of its operations, including the acquisition of exploration and development prospects and producing properties. The Company competes for acquisitions of oil and natural gas properties with numerous entities, including major oil companies, other independents, and individual producers and operators. Almost all of these competitors have financial and other resources substantially greater than those of the Company. The ability of the Company to increase reserves in the future will be dependent on its ability to select and successfully acquire suitable producing properties and prospects for future development and exploration.
Estimates of Oil and Natural Gas Reserves, Production and Replacement
The information on proved oil and natural gas reserves included in this document are simply estimates. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment, assumptions used regarding quantities of oil and natural gas in place, recovery rates and future prices for oil and natural gas. Actual prices, production, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will vary from those assumed in our estimates, and such variances may be significant. If the assumptions used to estimate reserves later prove incorrect, the actual quantity of reserves and future net cash flow could be materially different from the estimates used herein. In addition, results of drilling, testing and production along with changes in oil and natural gas prices may result in substantial upward or downward revisions.
All of the above risk factors and other information on oil and natural gas properties could change in the event the TRBT exchange agreement is adopted. If the exchange agreement, which is discussed under, “Summary of Current Events – Change of Control and Sale of Assets,” in Item 1 of this report, is adopted, the Company will exchange and then sell all of its oil and gas assets. The oil and gas assets, which are pledged to preferred “B” shares will be exchanged for cancellation of all preferred “B” shares. The foregoing analysis will then become irrelevant to the future operations of the Company.
Corporate Offices and Employees
The corporate offices are located at 3773 Cherry Creek Drive North, Suite 1025, Denver, Colorado 80209. The Company is not a party to any lease, but during 2006 paid Jenex Petroleum Corporation, which is owned by the Company’s President, for office space and all office services, including rent, phone, office supplies, secretarial, land, and accounting. The Company’s expenses for these services were $48,000, $50,554, and $49,872 for the years ended 2004, 2005, and 2006, respectively. Although these transactions were not a result of “arms length” negotiations, the Company’s Board of Directors believed the transactions are reasonable.
The Company currently has four (4) directors. One director slot of the normal five directors authorized by the bylaws is currently unfilled. The Company has one employee, the President, and three part-time contract workers, one of which is also an officer. The contract workers are provided to the Company as part of its office overhead agreement. The President and the contract workers work from the Company’s corporate offices. None of the Croff staff is represented by a union.
Foreign Operations and Subsidiaries
The Company has no foreign operations, exports, or subsidiaries at present.
ITEM 2. PROPERTIES
Present Activities
In the third quarter of 2006, Croff sold the balance of its principal properties in the Yorktown Reentry Program in Dewitt County, Texas. Previously the Company had participated with Tempest Energy Resources, LP., in the Yorktown area. In June 2006, the company reached an agreement to sell all of its assets in the Yorktown program except a working interest in two wells, one of which was commercial. The Company also attempted to sell these two wells but was unable to find a buyer. The sale of the principal assets included the Eyhorn Lease, including the 20% working interest in the Edward Dixel Gipps well. It also included the Panther Pipeline, approximately 7.2 miles of natural gas gathering line which Croff had acquired in 2006 from Panther Pipeline Limited of Houston, Texas. The sale proceeds approximately equaled the Company’s cost in the DeWitt County program. Since the Company had written off a portion of its cost in 2005, the sale resulted in a small gain reported in the third quarter of 2006. The Company agreed to sell its interest in the remaining two wells in Dewitt County, Texas, on or before closing of the Exchange Agreement.
The Company participated in the drilling of the Shriner 2-10 Well in Duchesne County, Utah, which was drilled by El Paso during 2006. The Company also participated in a very small interest in three natural gas wells in Lincoln County, Wyoming. The Company also participated, in the fourth quarter of 2006, in the Longknife Well in Eastern Colorado. These participations are more particularly described under “Drilling Activities,” below.
There were also a number of small royalty interests which began paying revenues due to leases executed by Croff in earlier years on which new wells were drilled. None of these wells has a material effect upon revenue or net income.
During 2005, the Company was informed that Tempest Energy Resources, hereafter “Tempest,” pursuant to its 2004 Participation Agreement, declined to participate further in the re-entry program in Dewitt County, Texas. Tempest’s decision followed the determination that the Helen Gips #1 well was non-commercial and, and subsequently, it was plugged and abandoned. In early 2005, Croff, along with Tempest, acquired the Wiggins lease which was not included in the Participation Agreement. This lease has an existing producing well, the Wiggins, as well as one re-entry well, the Gansow. The Company owns a 25% working interest in this lease and Tempest owns the remaining 75%. Tempest and Croff participated in a refrac of the Wiggins well into the Wilcox zone during 2005. This well is currently producing 45-50 Mcf per day of natural gas.
After Tempest had withdrawn from the re-entry program, Croff re-leased several leases for a farmout agreement for the re-entry of the Dixel Gips well. The Company provided the leases, the re-entry wellbore, geological, engineering, and other wellsite improvements for a 20% working interest, carried through completion. Under the Farmout Agreement, the Farmees pay for drilling and completion and all parties, including Croff, pay for production and equipment. The Dixel Gips well was completed in the first quarter of 2006. Croff subsequently purchased a gas gathering system in Dewitt County, and then sold all of these assets in the third quarter of 2006.
In 2004, Croff and Tempest Energy Resources L.P. had entered into a Prospect Participation Agreement which established an area of mutual interest, to participate in the development of the leases around Yorktown in Dewitt County, Texas. The Agreement outlined the Parties intent to potentially develop an area containing approximately 830 acres with eight re-entry prospects, as well as potential new drilling locations. Because Tempest chose not to exercise its options on the remaining acreage following the plugging and abandoning of the Helen Gips well, and Croff subsequently sold its leases, this Agreement is no longer material.
Drilling Activities
The Company participated in the drilling of the Shriner 2-10 Well in Duchense County, Utah, which was drilled by El Paso during 2006. The well currently is being completed, but has not produced any revenue. Croff has a working interest of approximately 1.7% of this well and incurred costs of approximately $60,000. The Company also participated in a very small interest in three natural gas wells in Lincoln County, Wyoming, which were drilled by Whiting Petroleum. These three natural gas wells were successful and began producing at the end of 2006. The Company expects payout within 30 months. The Company also participated, in the fourth quarter of 2006, in the Longknife Well in Eastern Colorado. This well was also successfully completed as a natural gas producer with Croff retaining an approximate one-eighth working interest. Croff expects revenues for this well to begin in 2007. There were also a number of small royalty interests which began paying revenues due to leases executed by Croff in earlier years on which new wells were drilled. The most significant of these were six natural gas wells drilled in the Green River formation in Uintah, County, Utah.
The Company re-entered the Helen Gips #1 well in DeWitt County, Texas, and re-completed the wellbore to the Wilcox formation during 2004. The Helen Gips #1 well was not commercial and was plugged and abandoned by Tempest in 2005.
The Company owns 25% of the Wiggins well and Tempest owns 75%. This well was fractured in the Wilcox formation in 2005. It is presently producing approximately 45 mcf per day of natural gas.
Delivery Commitments
For the years ended December 31, 2006 and 2005, the Company had no delivery commitments with respect to the production of oil and natural gas. The Company is unaware of any arrangements pertaining to any delivery commitments on royalty wells.
General
The Company’s “Developed acreage” consists of leased acreage spaced or assignable to production on wells having been drilled or completed to a point that would permit production of commercial quantities of oil or natural gas. The Company’s “Gross acreage” is defined as total acres in which the Company has an interest; “Net acreage” is the actual number of mineral acres owned or leased by the Company. Most developed acreage is held by production. The acreage is concentrated in Alabama, Michigan, New Mexico, Oklahoma, Texas, and Utah and is widely dispersed in Colorado, Michigan, Montana, North Dakota, and Wyoming.
During 2006, the Company produced approximately 59,452 Mcf of natural gas and 7,888 barrels of crude oil. The Company’s production averaged approximately 163 Mcf of natural gas per day and approximately 21 Bbl of oil per day. The Company’s average daily production during 2005 was 159 Mcf of natural gas and 21 Bbl of oil. “Proved developed” oil and natural gas reserves are reserves expected to be recovered from existing wells with existing equipment and operating methods. “Proved undeveloped” oil and natural gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relative major expenditure is required for re-completion.
The quantities and values in the tables that follow are based on average prices over the year 2006, which averaged, over the 2006 year, were approximately $52.92 per barrel of oil and approximately $5.84 per Mcf of natural gas, or in some cases, constant prices in effect at December 31, 2006. The prices used in the Company’s 2006 reserve study used December 31, 2006, prices of $51.95 per barrel of oil and $6.36 per Mcf of natural gas. Higher prices increase reserve values by raising the future net revenues attributable to the reserves and increasing the quantities of reserves that are recoverable on an economic basis. Price decreases have the opposite effect.
Future prices received from production and future production costs may vary, perhaps significantly, from the prices and costs assumed for purposes of these estimates. There can be no assuranceincorporating that the proved reserves will be developed within the periods indicated or that the prices and costs will remain constant. There can be no assurance that actual production will equal the estimated amounts used in the preparation of reserve projections.
The present values shown should not be construed as the current market value of the reserves. The quantities and values shown in the tables that follow are based on oil and natural gas prices in effect on December 31, 2006. The value of the Company’s assets is in part dependent on the prices the Company receives for oil and natural gas, and a decline in the price of oil or natural gas could have a material adverse effect on the Company’s financial condition and results of operations. The 10% discount factor used to calculate present value, which is specifiedinformation by
reference into other filings with the Securities and Exchange Commission (the “SEC”)
. This Form 10-K/A amends and restates in its entirety Part III, Items 10 through 14 of the Original Form 10-K, to include information previously omitted from the Original Form 10-K consistent with General Instruction G(3) to Form 10-K. Throughout this Form 10-K/A, the terms “we,” “us,” “our,” “TherapeuticsMD,” or “our Company” refer to TherapeuticsMD, Inc.,
is not necessarilya Nevada corporation, and unless specified otherwise, include our wholly owned subsidiaries, vitaMedMD, LLC, a Delaware limited liability company, or VitaMed; BocaGreenMD, Inc., a Nevada corporation, or BocaGreen; and through its divestiture on April 14, 2022, VitaCare Prescription Services, Inc., a Florida corporation, or VitaCare.In addition, as required by Rule 12b-15 under the most appropriate discount rate,Securities Exchange Act of 1934, as amended (the “Exchange Act”), certifications by the Company’s principal executive officer and present value,principal financial officer are filed as exhibits to this Form 10-K/A pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Because no matter what discount rate is used, is materially affected by assumptions as to timing of future production, which may prove to be inaccurate. The calculation of estimated future net revenuesfinancial statements have been included in this Form 10-K/A and this Form 10-K/A does not take into account the effectcontain or amend any disclosure with respect to Items 307 and 308 of various cash outlays, including, among other things, generalRegulation S-K, paragraphs 3, 4 and administrative costs.
There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The data in the tables that follow represent estimates only. Oil and natural gas 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 is a function5 of the
qualitySection 302 certifications have been omitted. We are not including the certifications under Section 906 of
available data and engineering and geological interpretation and judgment. Results of drilling, testing and productionSarbanes-Oxley as no financial statements are being filed with this Form 10-K/A.Except as described above, this Form 10-K/A does not modify or update disclosure in, or exhibits to, the Original Form 10-K. Furthermore, this Form 10-K/A does not change any previously reported financial results, nor does it reflect events occurring after the date of the estimate may justify revisions.Original Form 10-K. Information not affected by this Form 10-K/A remains unchanged and reflects the disclosures made at the time the Original Form 10-K was filed. Accordingly, reserve estimates are often materially different from the quantities of oil and natural gas which are ultimately recovered.
An independent petroleum engineering firm compiled the proved oil and natural gas reserves and future revenues as of December 31, 2004, 2005 and 2006 for the Company’s oil and natural gas assets. Since December 31, 2006, the Company has not filed any estimates of its oil and natural gas reserves with, nor was any such estimates included in any reports to, any state or federal authority or agency, other than the Securities and Exchange Commission. The reserve study provided to the Company for December 31, 2006 for its reserves and used in the preparation of this filing was prepared by McCartney Engineering, LLC, Consulting Petroleum Engineers, 4251 Kipling Street, Suite 575, Wheat Ridge, CO 80033, 303-830-7208.
For additional information concerning oil and natural gas reserves, see Supplemental Information - Disclosures about Oil and Natural Gas Producing Activities - Unaudited, included with the Financial Statements filed as a part of this report.
The following table sets forth summary information with respect to estimated proved reserves at December 31, 2006. (See table F-22 through F-24)
ESTIMATED PROVED RESERVES
As of December 31, 2006
| | | Net Oil | | | Net Natural Gas | | | Standardized Measure of discounted future cash flows related to proved Oil and Gas Reserves | |
Area | | (Bbls) | | | (Mcf) | | | | |
Alabama | | | - | | | | 1,335 | | | $ | 3,075 | |
Colorado | | | - | | | | 101,941 | | | | 277,945 | |
Michigan | | | 58,739 | | | | 126,508 | | | | 1,237,211 | |
Montana | | | 2,258 | | | | - | | | | 25,684 | |
New Mexico | | | 152 | | | | 76,031 | | | | 256,954 | |
North Dakota | | | 6,857 | | | | 3,788 | | | | 78,185 | |
Oklahoma | | | 1,405 | | | | 53,160 | | | | 134,333 | |
Texas | | | 329 | | | | 10,754 | | | | 44,699 | |
Utah | | | 9,153 | | | | 54,123 | | | | 367,292 | |
Wyoming | | | 8,223 | | | | 15,587 | | | | 159,622 | |
Total | | | 87,116 | | | | 443,227 | | | $ | 2,585,000 | |
The above table is a state by state summary of the information disclosed on page F-22.
The following table sets forth summary information with respect to oil and natural gas production for the year ended December 31, 2006.
STATE GEOGRAPHIC DISTRIBUTION OF NET PRODUCTION
| | | Net Oil | | | Net Natural Gas | |
State | | (Bbls) | | | (Mcf) | |
Alabama | | | - | | | | 125 | |
Colorado | | | 41 | | | | 12,323 | |
Michigan | | | 4,571 | | | | 7,429 | |
Montana | | | 152 | | | | - | |
New Mexico | | | 182 | | | | 7,337 | |
North Dakota | | | 636 | | | | 215 | |
Oklahoma | | | 270 | | | | 15,582 | |
Texas | | | 110 | | | | 4,111 | |
Utah | | | 1,465 | | | | 10,027 | |
Wyoming | | | 461 | | | | 2,765 | |
Total | | | 7,888 | | | | 59,915 | |
The following table sets forth summary information with respect to the Company’s estimated number of productive wells as of December 31, 2006.
PRODUCTIVE WELLS AND ACREAGE (1) (2) (3) As of December 31, 2006 | |
Area | | Gross Oil Wells(2) | | | Gross Natural Gas Wells(2) | | | Net Oil Wells | | | Net Natural Gas Wells | | | Net Acreage with Production | |
| Alabama | | | - | | | | 2 | | | | - | | | | .01 | | | | 10 | |
| Colorado | | | 1 | | | | 13 | | | | .04 | | | | .02 | | | | 40 | |
| Michigan | | | 3 | | | | 33 | | | | .98 | | | | .19 | | | | 188 | |
| Montana | | | 1 | | | | - | | | | .05 | | | | - | | | | 5 | |
| New Mexico | | | 1 | | | | 57 | (3) | | | .01 | | | | .03 | | | | 55 | |
| North Dakota | | | 10 | | | | 6 | | | | .12 | | | | .12 | | | | 38 | |
| Oklahoma | | | 3 | | | | 8 | | | | .25 | | | | 1.28 | | | | 173 | |
| Texas | | | 3 | | | | 11 | | | | .38 | | | | .38 | | | | 160 | |
| Utah | | | 121 | | | | 36 | | | | .22 | | | | .19 | | | | 730 | |
| Wyoming | | | 11 | | | | 5 | | | | .14 | | | | .18 | | | | 240 | |
| Total | | | 154 | | | | 171 | | | | 2.19 | | | | 2.40 | | | | 1,639 | |
The Company’s “Gross Wells” are defined as the total number of wells in which the Company has any interest. “Net Wells” are defined as the Company’s total aggregate percentage of interest in all wells in that state. “Net acreage” is the actual number of acres in the producing well unit multiplied by the Company’s percentage interest in that acreage, listed by state.
| (1)
| This chart contains estimates associated with small mineral interests and small leases. |
| (2)
| Form 10-K/A well is included twice if it produces both oil and natural gas, so the actual total gross wells are less than the number shown. |
| (3) | These natural gas wells in New Mexico also produce some condensate. |
The following table sets forth summary information with respect to the Company’s undeveloped acreage as of December 31, 2006.
UNDEVELOPED ACREAGE | |
As of December 31, 2006 | |
| | |
| | | Total Undeveloped Acreage | |
Area | | Proven | | | Unproven | |
| | | Gross Acres | | | Net Acres | | | Gross Acres | | | Net Acres | |
Colorado | | | 80 | | | | 7 | | | | 600 | | | | 40 | |
Montana | | | - | | | | - | | | | 3,800 | | | | 250 | |
Texas | | | 160 | | | | 60 | | | | 160 | | | | 40 | |
Utah | | | 8,000 | | | | 140 | | | | 102,000 | | | | 3,300 | |
Oil and Natural Gas Mineral Interests and Royalties
The Company owns perpetual mineral interests which total approximately 3,300 net mineral acres, of which approximately 1,100 net acres are producing. The mineral interests are located in 102,000 gross acres primarily in Duchesne, Uintah, Carbon and Wasatch Counties in Utah, and approximately 40 net mineral acres in La Plata County, Colorado, and San Juan County, New Mexico.
The Company continues to execute new leases or renewals on its perpetual mineral interests. In 2006, the Company executed new leases on its acreage in Duchesne and Uintah County, Utah. The amount of new leasing activity during 2005 and 2006 was not significant. In 2006, the Company elected to participate in the drilling of a well in Duchesne County, Utah, with El Paso Production Company based on the Company’s mineral ownership in the proposed location. In 2005, new wells were drilled on the recent leases in Uintah County by EOG Resources, Inc. In November and December 2004, the Company leased about 100 net acres in Duchesne and Uintah County, Utah.
As of December 31, 2006, the Company was receiving royalties from approximately 216 producing wells, primarily in the Bluebell-Altamont field in Duchesne and Uintah Counties, Utah and from coal bed methane wells in the four corners region of Colorado and New Mexico. Royalties also were received from scattered interests in Alabama, Michigan, Texas, and Wyoming.
Oil and Natural Gas Working Interests
The Company has sought to increase its production of oil and natural gas through the purchase of producing leases. The Company believes, in general, that it is able to purchase working interests at a more reasonable price than royalty interests. A working interest requires the owner to pay its proportionate share of the costs of producing the well, while a royalty is paid out of the revenues without a deduction for the operating costs of the well. When oil or natural gas prices drop, the proportion of the revenues going to pay the expense of operating the well increases, and when oil and natural gas prices are rising, expenses decrease as a percentage of total revenues. The Company’s purchases of working interests are intended to increase oil and natural gas production over time. The Company also participates in new wells as a royalty owner. A royalty owner generally receives a smaller interest, but does not share in the expense of drilling or operating the wells.
AVERAGE SALES PRICES AND PRODUCTION COST
The following table sets forth summary information with respect to the Company’s approximate average sales price per barrel (oil) and per Mcf (1000 cubic feet of natural gas), together with approximate average production costs for units of production for the Company’s production revenues by geographic area for the last three years.
AVERAGE SALES PRICES AND PRODUCTION COST
Past Three Years by Geographic Area
| Average Sales Price* | | | Average Production Cost* | |
| | | 2006 | | | 2005 | | | 2004 | | | 2006 | | | 2005 | | | 2004 | |
Geographic Area | | Oil | | | Natural
Gas | | | Oil | | | Natural
Gas | | | Oil | | | Natural
Gas | | | Oil | | | Natural Gas | | | Oil | | | Natural
Gas | | | Oil | | | Natural
Gas | |
| Alabama | | $ | - | | | $ | 7.23 | | | $ | - | | | $ | 9.38 | | | $ | - | | | $ | 6.10 | | | $ | - | | | $ | 1.56 | | | $ | - | | | $ | 1.30 | | | $ | - | | | $ | 2.24 | |
| Colorado | | $ | 71.12 | | | $ | 5.46 | | | $ | 58.33 | | | $ | 6.69 | | | $ | 36.01 | | | $ | 5.05 | | | $ | 15.50 | | | $ | .55 | | | $ | 14.76 | | | $ | 0.23 | | | $ | 16.64 | | | $ | 1.11 | |
| Michigan | | $ | 58.38 | | | $ | 7.34 | | | $ | 53.56 | | | $ | 8.29 | | | $ | 38.80 | | | $ | 6.10 | | | $ | 23.20 | | | $ | 1.12 | | | $ | 26.79 | | | $ | 0.92 | | | $ | 16.91 | | | $ | 2.82 | |
| Montana | | $ | 61.82 | | | $ | - | | | $ | 56.40 | | | $ | - | | | $ | 40.45 | | | $ | - | | | $ | 26.43 | | | $ | - | | | $ | 29.55 | | | $ | - | | | $ | 24.30 | | | $ | - | |
| New Mexico | | $ | 61.26 | | | $ | 6.80 | | | $ | 53.14 | | | $ | 7.02 | | | $ | 40.26 | | | $ | 4.73 | | | $ | 16.10 | | | $ | .48 | | | $ | 15.00 | | | $ | 0.02 | | | $ | 3.12 | | | $ | 0.52 | |
| North Dakota | | $ | 55.78 | | | $ | 4.78 | | | $ | 52.16 | | | $ | 4.98 | | | $ | 39.25 | | | $ | 2.12 | | | $ | 18.20 | | | $ | 2.10 | | | $ | 17.18 | | | $ | 2.08 | | | $ | 10.60 | | | $ | 1.63 | |
| Oklahoma | | $ | 50.17 | | | $ | 5.42 | | | $ | 54.05 | | | $ | 6.44 | | | $ | 38.20 | | | $ | 4.66 | | | $ | 22.17 | | | $ | 2.32 | | | $ | 18.96 | | | $ | 2.21 | | | $ | 10.46 | | | $ | 1.74 | |
| Texas | | $ | 61.53 | | | $ | 6.88 | | | $ | 54.61 | | | $ | 7.98 | | | $ | 39.58 | | | $ | 5.33 | | | $ | 14.05 | | | $ | 1.84 | | | $ | 6.71 | | | $ | 1.28 | | | $ | 7.27 | | | $ | 7.27 | |
| Utah | | $ | 58.51 | | | $ | 5.04 | | | $ | 53.92 | | | $ | 6.38 | | | $ | 40.42 | | | $ | 5.07 | | | $ | 2.90 | | | $ | .60 | | | $ | 3.13 | | | $ | 0.25 | | | $ | 6.70 | | | $ | 1.12 | |
| Wyoming | | $ | 51.26 | | | $ | 6.38 | | | $ | 48.40 | | | $ | 7.05 | | | $ | 34.73 | | | $ | 4.64 | | | $ | 9.83 | | | $ | 1.30 | | | $ | 8.66 | | | $ | 1.28 | | | $ | 10.03 | | | $ | 1.67 | |
| (*)
| States with higher production from Croff’s royalty interests such as New Mexico and Utah, reflect a lower average production cost per barrel or Mcf. During 2006 and 2005, different grades of crude oil traded at greater spreads than in prior years. Sour crude traded at a greater discount to sweet crude, and Wyoming and Utah Sweet fell in price, compared to west Texas intermediate. |
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 8, 2006, the annual meeting of shareholders was held. The shareholders elected the five board members listed in the proxy, ratified Ronald Chadwick as a new independent auditor of the Company, and authorized the President to execute the Acquisition Agreement with TRBT. Following the shareholders meeting, the Board accepted Dilworth Nebeker’s resignation from the Board of Directors, which had been previously submitted.
PART II
ITEM 5.
| MARKET FOR REGISTRANT’S SECURITIES, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Company’s common stock is listed and traded on the Over The Counter Electronic Bulletin Board (www.otcbb.com) under the symbol “COFF”. The Company has authorized 20,000,000 shares of common stock, of which only 551,244 shares are outstanding to 1,154 shareholders. The Company has authorized Preferred B stock of which 540,659 is issued and outstanding. The Preferred B shares also have an extremely limited market, but have been traded from time to time through a clearinghouse held by the Company on its website, or in private transactions. The Company acts as its own transfer agent with respect to these Preferred B shares. Shareholders interested in buying or selling Preferred B shares may contact the Company, which will provide information about the buyers and sellers. The Company posts its SEC filings on the Croff website at www.croff.com.
During the year ended December 31, 2005, the Company purchased 1,500 shares of its common stock for $2,362, which were cancelled. In December 2005, the Company purchased on the Over-The-Counter-Bulletin-Board (“OTCBB”) 16,156 shares of its common stock for $24,643 and included in Treasury stock at December 31, 2005. The Company has not repurchased any additional shares of its common stock since December 2005. The total number of common shares in the Treasury as of December 31, 2006 was 69,399.
The trading range for 2004 through 2006 is shown for common shares and preferred B shares as a guide to as to what transactions have either taken place or of which the Company is aware of or the high and low bid or asking price.
| COMMON SHARES — | 551,244 SHARES OUTSTANDING FOR 2005 - (The following data is generated from limited trades on the Over-The-Counter Bulletin Board including purchases by the Company’s management.) | |
| | | |
| | | |
BID RANGE | Year | Calendar Quarter | | Low | | | High | |
| | 2004: | First Quarter | | $ | .55 | | | $ | 1.10 | |
| | | Second Quarter | | $ | .25 | | | $ | 1.60 | |
| | | Third Quarter | | $ | 1.75 | | | $ | 1.80 | |
| | | Fourth Quarter | | $ | 1.01 | | | $ | 2.20 | |
| | 2005: | First Quarter | | $ | 1.40 | | | $ | 1.80 | |
| | | Second Quarter | | $ | 1.20 | | | $ | 1.50 | |
| | | Third Quarter | | $ | 1.45 | | | $ | 2.00 | |
| | | Fourth Quarter | | $ | 1.25 | | | $ | 1.85 | |
| | 2006: | First Quarter | | $ | 1.40 | | | $ | 1.75 | |
| | | Second Quarter | | $ | 1.50 | | | $ | 2.40 | |
| | | Third Quarter | | $ | 1.50 | | | $ | 2.00 | |
| | | Fourth Quarter | | $ | 1.60 | | | $ | 3.00 | |
As of December 31, 2006, there were approximately 1,110 holders of record of the Company’s common stock. The Company has never paid a dividend and has no present plan to pay any dividend.
PREFERRED “B” SHARES- | 540,659 SHARES OUTSTANDING - (The following data is generated | |
| | | solely from private transactions, internal purchases by the Company, or the | |
| 2005 tender offer described in Part I, Item 1) | |
| | |
BID RANGE | Year | Calendar Quarter | | Bid | | | Asked | |
| | 2004: | First Quarter | | $ | 1.05 | | | $ | 1.05 | |
| | | Second Quarter | | No Trading | | | No Trading | |
| | | Third Quarter | | No Trading | | | No Trading | |
| | | Fourth Quarter | | No Trading | | | No Trading | |
| | 2005: | First Quarter | | No Trading | | | No Trading | |
| | | Second Quarter | | $ | 2.80 | | | $ | 3.00 | |
| | | Third Quarter | | $ | 3.00 | | | $ | 3.00 | |
| | | Fourth Quarter | | $ | 3.00 | | | $ | 3.00 | |
| | 2006: | First Quarter | | $ | 3.00 | | | $ | 3.00 | |
| | | Second Quarter | | $ | 3.00 | | | $ | 3.00 | |
| | | Third Quarter | | $ | 3.00 | | | $ | 3.00 | |
| | | Fourth Quarter | | $ | 3.00 | | | $ | 3.00 | |
Historical Events of Interest
In November 1991, Croff reverse-split the common stock on a ratio of 1 share of common stock for every 10 shares previously held.
On February 28, 1996, the shareholders approved the issuance of the Preferred B stock to be issued to each common shareholder on the basis of one share Preferred B for each share of common stock. The Company issued all of the preferred shares and delivered the Preferred B shares to each of the shareholders for which it had a current address. The oil and gas assets and the proceeds from production were pledged to the Preferred B shares.
In June 2000, the Company approved the increase in the authorized Class B Preferred stock to 1,000,000 shares.
During 2001, the Board determined that the cash of the Company, which had been building during a period of high oil prices, should be formally allocated between the common stock and the Preferred B stock. The Board decided to allocate $250,000 cash to the common stock and the balance of cash remaining with the Preferred B stock. The Board then determined that future oil and gas cash flow from the Preferred B assets would be accumulated for Preferred B shareholders. The Company established separate investment accounts for the Preferred B and common stock investments.
In 2005, the Preferred B shareholders of Croff received a Tender Offer from Jensen Development Company and CS Finance L.L.C., (“Offerors”) two companies wholly owned by Gerald L. Jensen, Chairman, President, and CEO of Croff. The Offerors offered to purchase all outstanding Preferred B shares, not owned by the Offerors for $3 per share. The tender offer was subsequently amended before its conclusion on August 19, 2005. The Offerors reported the results of the tender offer to the SEC on August 29, 2005. The Offerors reported that the depository, American National Bank, had received a total of 75,050 Shares tendered and not withdrawn prior to the expiration of the Offer, including 11,190 Shares tendered subject to delivery. The tendered shares represent approximately 13.9% of the outstanding Class B Preferred stock of Croff Enterprises, Inc. The Offerors accepted and approved for payment all of the tendered shares at $3.00 per share for a total of $225,150. The Offerors acquired additional shares of Preferred B stock through independent stock purchases after the conclusion of the tender offer. Offerors currently hold 363,535 Preferred B shares, or 67.2% of the total Preferred B shares. Please see 2005 Tender Offer under Item 1, for a more complete description of these transactions.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the Company for the five-year period ended December 31, 2006. Future results may differ substantially from historical results because of changes in oil and natural gas prices, production increases or declines and other factors. This information should be read in conjunction with the Financial Statements,Original Form 10-K and notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, presented below, Item 7.
| STATEMENT OF OPERATIONS DATA | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | | | | | | | | | | | |
| | | 2002 | | | 2003 | | | 2004 | | | 2005 | | | 2006 | |
Operations | | | | | | | | | | | | | | | |
Oil and Natural Gas | | $ | 286,602 | | | $ | 392,564 | | | $ | 608,132 | | | $ | 934,525 | | | $ | 842,400 | |
Other Revenues | | $ | 28,726 | | | $ | 23,362 | | | $ | (1,403 | ) | | $ | 7,330 | | | $ | 660 | |
Expenses | | $ | 216,416 | | | $ | 321,817 | | | $ | 434,046 | | | $ | 644,025 | | | $ | 519,716 | |
Net Income | | $ | 98,912 | | | $ | 94,109 | | | $ | 142,116 | | | $ | 289,887 | | | $ | 373,015 | |
Per Common Share(1) | | $ | .04 | (1) | | $ | .01 | (1) | | $ | (0.13 | )(1) | | $ | (0.05 | )(1) | | $ | 0.15 | (1) |
Working capital | | $ | 419,475 | | | $ | 336,471 | | | $ | 330,243 | | | $ | 625,862 | | | $ | 995,498 | |
Dividends per share | | NONE | | | NONE | | | NONE | | | NONE | | | NONE | |
| | |
BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 753,212 | | | $ | 898,221 | | | $ | 1,088,553 | | | $ | 1,807,502 | | | $ | 1,867,161 | |
Long-term debt** | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
Stockholders’ equity | | $ | 736,408 | | | $ | 866,112 | | | $ | 1,051,438 | | | $ | 1,314,320 | | | $ | 1,687,335 | |
** There were no long-term obligations from 2002-2006.
our other filings with the SEC.
TABLE OF CONTENTS
PART III
ITEM 7.
Item 10. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Directors, executive officers, and corporate governance |
Directors
The following table sets forth certain information regarding the current directors of our Company.
Name | Age | Position |
Tommy G. Thompson | 80 | Chairman of the Board (1)(2) |
Hugh O’Dowd | 57 | Chief Executive Officer and Director |
Paul M. Bisaro | 61 | Director (1)(2)(4) |
Cooper C. Collins | 43 | Director (2)(3)(4) |
Karen L. Ling | 58 | Director (3) |
Jules A. Musing | 74 | Director (3) |
Gail K. Naughton, Ph.D. | 66 | Director (1)(2) |
Angus C. Russell | 66 | Director (4) |
| |
(1) | Member of Nominating and Corporate Governance Committee. |
(2) | Member of New Business, Science and Technology Committee. |
(3) | Member of the Compensation Committee. |
(4) | Member of the Audit Committee. |
Tommy G. Thompson has served as the Chairman of the Board of Directors of our Company since May 2012. Secretary Thompson currently serves as the Chief Executive officer of Thompson Holdings. Secretary Thompson also served as interim President of the University of Wisconsin System from June 2020 to March 2022. As the Governor of Wisconsin from January 1987 to February 2001, Secretary Thompson was perhaps best known for his efforts to revitalize the Wisconsin economy, for his national leadership on welfare reform, and for his work toward expanding health care access across all segments of society. As the former Secretary of the U.S. Department of Health & Human Services, or HHS, from February 2001 to January 2005, Secretary Thompson served as the nation’s leading advocate for the health and welfare of all Americans. Secretary Thompson was a partner in the law firm of Akin Gump Strauss Hauer & Feld LLP, or Akin Gump, from March 2005 to January 2012. Secretary Thompson served as an Independent Chairman of the Deloitte Center for Health Solutions, a health care consulting company, from March 2005 to May 2009. At the Deloitte Center for Health Solutions and at Akin Gump, Secretary Thompson built on his efforts at HHS to work toward developing solutions to the health care challenges facing American families, businesses, communities, states, and the nation as a whole. Secretary Thompson has also served as the President of Logistics Health, Inc., a provider of medical readiness and homeland security solutions, from February 2005 to January 2011. Secretary Thompson also serves as a member of the board of directors for the following public companies: United Therapeutics Corporation [NASDAQ: UTHR] and Physicians Realty Trust [NYSE: DOC]. Secretary Thompson also served as a member of the boards of directors of CareView Communications, Inc. [OTCQB: CRVW] from July 2005 to January 2014, Cancer Genetics, Inc. [NASDAQ: CGIX] from 2008 to January 2014, Pure Bioscience, Inc. [NASDAQ: PURE] from February 2006 to August 2009, SpectraScience, Inc. [OTCBB: SCIE] from September 2007 to December 2009, AGA Medical Holdings, Inc. [NASDAQ: AGAM] from August 2005 to November 2010, and CNS Response, Inc. [OTCBB: CNSO.OB] from August 2009 to March 2010. We believe Secretary Thompson’s experience in public service and on the boards of directors of numerous public companies, particularly his services and knowledge related to the healthcare industry as a whole, makes him well suited to serve on our Board of Directors. Secretary Thompson received both his B.S. and J.D. from the University of Wisconsin-Madison.
Hugh O’Dowd has served as Chief Executive Officer and a director of our Company since December 2021 and as President since August of 2021. Prior to joining our Company, Mr. O’Dowd, served as President, Chief Executive Officer, and a member of the Board of Directors of Neon Therapeutics, Inc., a clinical-state immuno-oncology company that developed neoantigen-based therapeutics, from September 2016 until its acquisition by BioNTech SE in May 2020. Prior to Neon Therapeutics, Mr. O’Dowd spent more than 20 years in a variety of senior leadership roles at Novartis Pharmaceuticals Corporation, where he served as Country President and General Manager of the United Kingdom and Ireland from 2015 to 2016, Senior Vice President and Chief Commercial Officer of Novartis Oncology from 2011 to 2015, and Vice President, Latin America Region Head for the Oncology business unit from 2009 to 2011. Mr. O’Dowd currently serves as Director and Non-executive Chairman of ONK Therapeutics Ltd, an innovative natural killer cell therapy company and previously served as a director of Puma Biotechnology, Inc. [NASDAQ: PBYI] from October 2019 through June of 2021. We believe Mr. O’Dowd’s experience as our President and Chief Executive Officer and his significant operating and strategic history with both large and small pharmaceutical companies, including over 20 years at Novartis, makes him well suited to serve on our Board
Critical Accounting Policiesof Directors. Mr. O’Dowd received an MBA from the Kellstadt Graduate School of Business at DePaul University in Chicago and Estimates
a B.A. from Loyola University Chicago.Paul M. Bisaro has served as a director of our Company since March 2020. Mr. Bisaro is an accomplished global business leader with more than 25 years of generic and branded pharmaceutical experience. From May 2018 until August 2019, Mr. Bisaro served as the Executive Chairman of Amneal Pharmaceuticals, Inc. [NYSE: AMRX]. Prior to that appointment, from May 2017 to May 2018, Mr. Bisaro was President and Chief Executive Officer, and member of the Board of Directors, of the Impax Laboratories, Inc. [NASDAQ: IPXL], until its acquisition by Amneal Pharmaceuticals. Prior to joining Impax Laboratories, Mr. Bisaro served as Executive Chairman of Allergan, plc [NYSE: AGN] from July 2014 to November 2016, and as President and Chief Executive Officer of Actavis, plc (and its predecessor firm Watson Pharmaceuticals Inc.) from September 2007 to July 2014. Mr. Bisaro served on the Board of Directors of Allergan (and its predecessor firms) from September 2007 until August 2018. Previously, he served as President, Chief Operating Officer, and a member of the Board of Directors of Barr Pharmaceuticals, Inc., from 1999 to 2007. Between 1992 and 1999, Mr. Bisaro served as General Counsel of Barr, and from 1997 to 1999, served in various additional executive leadership capacities. Prior to joining Barr, he was associated with the law firm Winston & Strawn and a predecessor firm, Bishop, Cook, Purcell and Reynolds, from 1989 to 1992. Mr. Bisaro also served as a Senior Consultant with Arthur Andersen & Co. Throughout his career, Mr. Bisaro has also been named to various boards of public companies, trade associations, and educational institutions. Since 2015 he has served as a member of the Board of Directors of Zoetis, Inc. [NYSE: ZTS], a producer of medicine and vaccinations for pets and livestock. From December 2013 to May 2017, he served on the Board of Directors of Zimmer Biomet Holdings, Inc. [NYSE: ZBH], a musculoskeletal healthcare company. Mr. Bisaro has also been a member of the Board of Visitors of the Catholic University of America’s Columbus School of Law since 2014. We believe Mr. Bisaro’s business, management and leadership experience, his understanding of the pharmaceutical industry, and his public company board experience make him a valuable member of our Board of Directors. Mr. Bisaro holds an undergraduate degree in General Studies from the University of Michigan and a Juris Doctor from The Company’s discussionCatholic University of America in Washington, D.C.
Cooper C. Collins has served as a director of our Company since February 2012. Mr. Collins has served as Chief Executive Officer of Fortis BioPharma since June 2015. Mr. Collins has served as Chief Strategy Officer of Pernix Therapeutics Holdings, Inc. [NASDAQ: PTX], or Pernix, from May 2013 until April 2014, as its President and analysisChief Executive Officer from March 2010 until May 2013, and as a director from March 2010 until February 2014. Mr. Collins joined Pernix Therapeutics, Inc., a predecessor of Pernix, in 2002, where he was appointed as a director in January 2007, its financial conditionPresident in December 2007, and resultsits Chief Executive Officer in June 2008, serving in those three capacities until March 2010. From December 2005 to December 2007, Mr. Collins served as Vice President of operation are based upon Financial Statements,Business and Product Development of Pernix Therapeutics, Inc. and as its Territory Manager from December 2003 to December 2005. We believe Mr. Collins’ specialty pharmaceutical company knowledge and executive experience provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors. Mr. Collins was employed for three years by the National Football League franchise, the New Orleans Saints, in its media relations department. Mr. Collins received a B.A. from Nicholls State University, where he later received an M.B.A.
Karen L. Ling has served as a director of our Company since April 2020. Ms. Ling served as Executive Vice President and Chief Human Resources Officer at American International Group, Inc. [NYSE: AIG] from July 2019 until her retirement in May 2021. From March 2015 until July 2019, Ms. Ling served as Executive Vice President and Chief Human Resources Officer at Allergan plc [NYSE: AGN], a global pharmaceutical company. From July 2014 until March 2015, Ms. Ling served as Senior Vice President, Human Resources and Chief Human Resources Officer at Actavis plc, a global pharmaceutical company, prior to its acquisition of Allergan and name change to Allergan. From January 2014 until July 2014, Ms. Ling was Senior Vice President and Chief Human Resources Officer at Forest Laboratories, a company which have been prepared in accordance with accounting principles generally acceptedwas focused on licensing European pharmaceuticals for sale in the United States, prior to its acquisition by Actavis. Prior to this, from 2011 until January 2014, Ms. Ling was Senior Vice President, Human Resources of America. the Global Human Health and Consumer Care businesses worldwide for Merck & Co., Inc. [NYSE: MRK]. She also served as Vice President, Global Compensation and Benefits, at Merck from November 2009 until 2011. From May 2008 until November 2009, Ms. Ling served as Group Vice President, Global Compensation & Benefits at Schering-Plough prior to its acquisition by Merck. Prior to joining Schering-Plough, Ms. Ling held various positions at Wyeth, LLC. Prior to joining Wyeth, Ms. Ling practiced corporate law with Goldstein and Manello, P.C. in Boston. Since November 2021, Ms. Ling has been a member of the board of directors and a member of the Compensation and Management Development Committee of iRhythm Technologies, Inc., a digital healthcare company focused on abnormal heart rhythm detection. In March 2022, Ms. Ling joined the advisory committee of Galderma, a dermatology company. Ms. Ling also is a member of the board of directors of the JED Foundation and ExpandED Schools, both of which are non-profit organizations. We believe Ms. Ling’s specialty pharmaceutical company knowledge and executive experience provide the requisite qualifications, skills, perspectives, and experience that make her well qualified to serve on our Board of Directors. Ms. Ling holds a J.D. from Boston University School of Law and a B.A. from Yale University.
Jules A. Musing has served as a director of our Company since May 2013. In the course of Mr. Musing’s 44-year career in the pharmaceutical and biotechnology industry, specifically at Johnson & Johnson and its affiliates, he has been responsible for the
worldwide licensing and acquisition of pharmaceutical and biotechnology products and technologies and the establishment of strategic alliances. This included the establishment of new scientific, technology and product collaborations in various therapeutic areas, the negotiation of licensing and alliance agreements with biotechnology and pharmaceutical companies worldwide, and the partnering, spin-out and out-licensing of company pharmaceutical and biotechnology assets. Prior to moving into those roles, Mr. Musing was Vice President Marketing International for the Janssen Pharmaceutical Group of Companies Worldwide from March 1982 to December 1984; a member of the Board of Directors of Johnson & Johnson Pharmaceutical Companies in the UK, Italy and Germany from March 1982 to December 1984; President of Pitman-Moore, Inc., a U.S.-based Johnson & Johnson company from January 1985 to June 1987; Managing Director of Janssen Pharmaceutical in Portugal from July 1987 to March 1990; Chief Executive Officer & President of Ares-Serono, Inc. in the United States and Executive Vice President with responsibilities for North and South America from April 1990 to January 1993; Member of the board of directors of Ortho Biotech, Inc. from January 1993 to October 1999; and Managing Director of Ortho Biotech in France (a Johnson & Johnson affiliate) from October 1999 to January 2003. From January 2003 until his retirement in September 2010, Mr. Musing served as Vice President, Licensing and Acquisitions for the Pharmaceutical Group at Johnson & Johnson, where he was responsible for the worldwide licensing and acquisition of pharmaceutical and biotechnology products in all therapeutic areas. Mr. Musing has served as a director of iBio, Inc. from 2012 to 2014, as a director of Delphi Digital, Inc. since March 2012, as a director and as Chairman of the Board of Zyversa Therapeutics, a biotechnology company, since October 2016 and August 2018, respectively, and as Chairman of the Scientific Board of Advisors for Noble Capital Financial Markets since February 2012. We believe Mr. Musing’s extensive experience in the pharmaceutical and biotechnology industry, including the establishment of numerous strategic and global partnerships and various new product collaborations provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors. Mr. Musing received his Master’s degree in Biological Sciences from the University of Brussels (Belgium) and his Graduate degree in Economics and Financial Sciences from the University of Antwerp (Belgium).
Gail K. Naughton, Ph.D. has served as a director of our Company since March 2020. Dr. Naughton served as the Chief Scientific Officer and Chief Business Development Officer of Histogen, a company Dr. Naughton founded which is focused on the development of novel solutions based on the products of cells grown under simulated embryonic conditions, from April 2017 until May 2021. Dr. Naughton served as the Chairman and Chief Executive Officer of Histogen from June 2007 until April 2017. Prior to Histogen, Dr. Naughton was the Vice Chairman of Advanced Tissue Sciences, Inc., a human-based tissue engineering company, from March 2002 to October 2002, President from August 2000 to March 2002, President and Chief Operating Officer from 1995 to 2000 and Executive Vice President, Chief Operating Officer from 1991 to 1995. Dr. Naughton also served as Dean of the College of Business Administration at San Diego State University from August 2002 to June 2011. She has spent over 30 years extensively researching the tissue engineering process, holds over 105 U.S. and foreign patents, and has founded two regenerative medicine companies. Dr. Naughton has brought several tissue engineered products to market including a product for severe burns (TransCyte), a dermal replacement for diabetic ulcers (Dermagraft), an aesthetic dermal filler (Cosmederm/Cosmeplast), and SkinMedica’s TNS product for skin care. Dr. Naughton has been extensively published and a frequent speaker in the field of tissue engineering. In 2000, Dr. Naughton received the 27th Annual National Inventor of the Year award by the Intellectual Property Owners Association in honor of her pioneering work in the field of tissue engineering. Dr. Naughton has been a member of several public company boards of directors since 1988, including Cytori Therapeutics, Inc. [NASDAQ: CYTX] from July 2014 until January 2018 and C.R. Bard, Inc. [NYSE: BCR] from 2004 until December 2017. We believe Dr. Naughton’s extensive executive experience, her in-depth knowledge of the healthcare industry and regenerative medicine technology, her experience developing FDA-approved products, and her service on other public company boards and committees, provide the requisite qualifications, skills, perspectives, and experience that make her well qualified to serve on our Board of Directors. Dr. Naughton received her B.S. in Biology from St. Francis College, her M.S. in Histology and her Ph.D. in Hematology from the New York University Medical Center and her E.M.B.A. from UCLA.
Angus C. Russell has served as a director of our Company since March 2015. Mr. Russell previously served as Chief Executive Officer of Shire PLC, a biopharmaceutical company, from June 2008 until April 2013. Mr. Russell served as the Chief Financial Officer of Shire from 1999 to 2008 and also served as Executive Vice President of global finance. Prior to joining Shire, Russell served at ICI, Zeneca and AstraZeneca PLC for 19 years, most recently in the role of Vice President, Corporate Finance at AstraZeneca. Mr. Russell is a chartered accountant, having qualified with what is now PriceWaterhouseCoopers LLP. Mr. Russell also serves as a director Lineage Cell Therapeutics, Inc. [NYSE: LCTX] and as the Chairman of the Board of Revance Therapeutics Inc. [NASDAQ: RVNC] and Mallinckrodt PLC. Mr. Russell previously served as a director of Shire PLC [NASDAQ: SHPG], Questcor Pharmaceuticals Inc. [NASDAQ: QCOR] and InterMune Inc. [NASDAQ: ITMN]. We believe Mr. Russell’s extensive experience as a pharmaceutical industry executive and his experience as a director of other publicly traded pharmaceutical companies provides the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors. Mr. Russell holds an honorary Doctor of Business Administration from Coventry University, U.K.
Executive officers
The preparationfollowing table sets forth certain information regarding our current executive officers:
Name | Age | Position |
Hugh O’Dowd | 57 | Chief Executive Officer and Director |
Michael C. Donegan | 54 | Interim Chief Financial Officer, Chief Accounting Officer and Vice President Finance |
Marlan D. Walker | 47 | General Counsel and Secretary |
Mark A. Glickman | 56 | Chief Business Officer |
Listed below are biographical descriptions of theseour executive officers. For Mr. O’Dowd’s information, see the description under “Directors” above.
Michael C. Donegan has served as Interim Chief Financial Statements requiresOfficer of our Company since April 2022, Chief Accounting Officer of our Company since November 2020 and Vice President Finance of our Company since April 2013. Mr. Donegan has a 30-year background in accounting and finance. From August 2012 to April 2013, Mr. Donegan served as an independent consultant exclusively for our Company, where he conceptualized, designed and executed our Sarbanes-Oxley 404 compliance program. From August 2007 to August 2012, Mr. Donegan served as an independent consultant designing and implementing Sarbanes-Oxley 404 compliance programs for various non-accelerated filers and executed on pre-designed Sarbanes-Oxley 404 compliance programs for certain large accelerated filers. From January 2005 to August 2007, Mr. Donegan served as an independent consultant exclusively for Tyco International, where he enhanced and executed the Sarbanes-Oxley 404 compliance model with their corporate headquarters group. From November 2001 to December 2004, Mr. Donegan was Manager of Financial Systems at Tyco International at its global headquarters. From 1994 to 2001, Mr. Donegan held various positions in the global consolidation/SEC reporting group at Sensormatic Electronics Corporation culminating with the acquisition of Sensormatic Electronics Corporation by Tyco International in the fall of 2001 when he was the Manager of Financial Systems. Mr. Donegan began his career at Ernst & Young, LLP where he worked in both the audit and tax departments. Mr. Donegan earned his B.S. in Accounting and his Master of Accounting from the University of Florida.
Marlan D. Walker has served as General Counsel of our Company since March 2016. Mr. Walker previously also served as Chief Development Officer from April 2018 to December 2019 and as our Corporate and Intellectual Property Counsel from June 2013 until he became our General Counsel. Mr. Walker’s experience is focused in management of legal issues and risk in the life science industries across a variety of disciplines. Prior to joining the Company, Mr. Walker’s legal practice included long-term portfolio strategy and management, patent preparation and prosecution, contract negotiation and drafting, life-cycle management, and Hatch-Waxman. After law school, he took a position at Greenberg Traurig, LLP in August 2005. In March of 2009, he moved to make estimatesLuce Forward Hamilton & Scripps. Mr. Walker accepted an in-house position as Intellectual Property Counsel for Medicis Pharmaceutical Corp. in June 2011, which was acquired by Valeant Pharmaceutical International, Inc. in December 2012. In February 2013, Mr. Walker accepted a position at Kilpatrick Townsend & Stockton, but chose to move in-house again in June 2013, when he accepted a position at our Company. Mr. Walker graduated from Arizona State University Sandra Day O’Conner College of Law with his J.D. in 2004, and judgmentsan LL.M. in Intellectual Property Law at The George Washington University Law School in 2005. Mr. Walker holds a Master’s degree in Molecular Biology and a B.S. degree, both earned from Brigham Young University.
Mark Glickman has served as the Chief Business Officer, Commercial of our Company since 2021. Previously, Mr. Glickman served as the Chief Commercial Officer for Esperion Therapeutics [NASDAQ ESPR] from 2018 until December 2020, where he developed and led the commercial division in the launch of the company’s first cardiovascular prescription therapy. From June 2015 to March 2018, Mr. Glickman served as the Chief Commercial Officer for Aralez Pharmaceuticals where he built out and lead the first commercial effort for a previously clinical organization. Prior to that, affectMr. Glickman was Executive Vice President of Sales and Marketing for Auxilium (Endo) where he led all commercial efforts for a portfolio of thirteen pharmaceutical products. Mr. Glickman's previous positions include Senior Vice President of Sales and Marketing and Vice President of Medical Devices for Otuska America Pharmaceuticals Inc.; and marketing head, Regional Sales Director and Vice President of Sales and Operations at Kos Pharmaceuticals (Abbot Labs) where he expanded his skills in the reported amountscommercial products area. Mr. Glickman has over 30 years of assetsexperience in the pharmaceutical and liabilitiesmedical device industry where he began his life sciences career as a diagnostic sales representative and disclosuresprogressed in roles of contingent assetsincreasing responsibility to senior executive positions. Mr. Glickman received a Bachelor of Arts degree in Political Science from S.U.N.Y Oswego, and liabilitiesa Master of Business Administration in Finance and International Management from the N.Y.U. Stern School of Business.
Non-executive officers
The following table sets forth certain information regarding our current significant employees who are not executive officers:
Name | Age | Position |
Brian Bernick, M.D. | 53 | Co-Founder and Chief Scientific & Medical Officer |
Ben Foulk | 52 | Vice President Human Resources |
Kevin McCabe | 52 | Chief Exclusively Officer and Associate General Counsel |
Christine Miller | 64 | Chief Regulatory Affairs & Quality Assurance Officer |
Daniella Silva | 36 | Chief Compliance Officer |
Bharat Warrier | 44 | Chief Manufacturing Officer |
Dr. Brian Bernick has served as co-founder and Chief Scientific & Medical Officer of our Company since October 2011 and co-founder and director of vitaMedMD, from April 2008 to October 2011. Dr. Bernick served as a director of our Company from October 2011 until March 2020. Dr. Bernick currently serves as the Chief Scientific and Medical Officer. Dr. Bernick previously served as our Chief Clinical Officer from November 2013 to May 2018 and as our Chief Medical Officer from February 2012 until November 2013. Dr. Bernick is a board-certified obstetrician/gynecologist with over 25 years of clinical medical experience. Dr. Bernick serves on the Board of Visitors at Northwestern University Weinberg College of Arts and Sciences and the Executive Advisory Board of the Chemistry of Life Processes Institute at Northwestern University. Dr. Bernick was the Department Chair of Obstetrics and Gynecology at Boca Raton Regional Hospital and served on that hospital’s Medical Executive Board and was an affiliate associate professor of obstetrics and gynecology at Florida Atlantic University College of Medicine. Dr. Bernick has served on the American College of Obstetricians and Gynecologists’ (ACOG) national committee on Professional Liability as well as the Board of Directors of the Palm Beach Medical Society and VitalMD Group Holding, LLC, one of the largest physician-owned and physician-managed medical groups in Florida. Dr. Bernick is the recipient of several national and regional awards, including recognition by his peers as one of the top doctors in his specialty by Castle Connolly as well as the recipient of the American Medical Association Foundation’s Leadership Award. Dr. Bernick has over 100 peer-reviewed publications and presentations of original research at medical conferences. Dr. Bernick is responsible for numerous U.S. and foreign patents focusing on drug therapies and analysis. Dr. Bernick holds a B.A. in Economics from Northwestern University, received his Doctorate in Medicine from the Chicago Medical School, and completed his residency at the dateUniversity of Pennsylvania Health System Pennsylvania Hospital.
Ben Foulk has served as the Vice President of Human Resources of our Company since June 2020. Prior to joining our Company, Mr. Foulk served from 2016 to 2020 as the Vice President of Human Resources for Biotest Pharmaceuticals, a subsidiary of Grifols, a Spanish pharmaceutical company which develops, manufactures, and markets plasma proteins and biological medicines. Before relocating to South Florida, Mr. Foulk spent ten years, from 2005 to 2015, with Boehringer Ingelheim, one of the Financial Statementsworld's largest pharmaceutical companies, and the reported amountslargest privately held pharmaceutical company. Mr. Foulk served the first four years supporting the U.S. pharmaceutical and consumer healthcare business in Ridgefield, CT, and subsequently relocated to Ingelheim, Germany where he supported the global pharmaceutical and animal healthcare divisions. Mr. Foulk began his career with General Electric where he served in a variety of revenues roles in human resources, financial services and expenses duringmanufacturing throughout the year. TheU.S., Italy and Japan on expatriate assignments. Mr. Foulk received a Bachelor’s degree in Psychology and Master of Organizational Behavior from Brigham Young University.
Kevin McCabe has served as Chief Exclusivity Officer of our Company analyzes its estimates,since January 2019 and Associate General Counsel of our Company since May 2018. Prior to joining our Company, Mr. McCabe held various roles of expanding responsibility with a series of life sciences companies, including those relatedSenior IP Counsel at Actavis Pharmaceuticals; Senior IP Counsel at Allergan; and Senior Director, Associate General Counsel, US Generics IP at Teva Pharmaceuticals Industries, Ltd. While at Teva, Mr. McCabe managed global legal teams in the US, Canada, and Israel. Prior to oilhis in-house roles, Mr. McCabe was a partner at Sterne, Kessler, Goldstein & Fox PLLC and natural gas revenues, oilan associate at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, both in Washington, DC. While in DC, Mr. McCabe served as the President of the Giles Sutherland Rich American Inn of Court. Mr. McCabe received his J.D. from the George Washington University School of Law in 1998. Mr. McCabe holds a Master’s degree in Molecular Biology from the University of Maryland, Baltimore Country and natural gas properties, marketable securities, income taxesa B.S. degree in Biology from the University of Richmond.
Dr. Christine Miller has served as the Chief Regulatory and contingencies. TheQuality Officer of our Company bases its estimatessince 2021, and previously from 2016 to 2019. Since 2014, Dr. Miller has served in a variety of positions for our Company, including Vice President of Regulatory Affairs; Vice President of Regulatory Affairs, Quality Assurance, and Technical Operations, Chief Compliance Officer; and Sr. Business Development Analyst. Dr. Miller has 40 years of experience in pharmaceutical regulatory affairs and drug development. Her previous experience includes positions as Sr. Vice President, Drug Development for Sirion Therapeutics; Vice President, Regulatory Affairs and
Quality Assurance for Santarus; Global VP, Drug Regulatory Affairs at Bausch & Lomb; and NDA Regulatory Practice Lead at Lachman Consultants. Dr. Miller received her Doctor of Pharmacy degree from the University of Nebraska.
Daniella Silva has served as Chief Compliance Officer of our Company since August 2021. Ms. Silva previously served as Associate General Counsel of our Company from April 2018 to August 2021 and our Corporate Counsel from October 2016 to April 2018. Ms. Silva’s experience is focused on historicalregulatory and transactional legal advice, including compliance with regulations pertaining to fraud and abuse and privacy. Prior to joining our Company, Ms. Silva worked at White & Case within the firm’s capital markets group. Ms. Silva earned her B.A. in International Relations and Economics from Tufts University and J.D. from Emory University, School of Law.
Bharat Warrier has served as our Chief Manufacturing Officer of our Company since December 2018. Mr. Warrier previously served as Vice President of Manufacturing and Product Development of our Company from January 2017 to December 2018, Senior Director of Manufacturing and Product Development of our Company from January 2016 to January 2017 and Director of Technical Operations of our Company from December 2014 to January 2016. Mr. Warrier has been the functional lead on several FDA submissions while also spearheading the scale-up and commercial manufacturing of products--both in-house and at contract manufacturing facilities. Prior to joining the Company, Mr. Warrier held positions at Valeant Pharmaceuticals, Medicis Pharmaceuticals, Novartis Consumer Health, and Morton Grove Pharmaceuticals. Mr. Warrier has more than 18 years of pharmaceutical experience in the areas of manufacturing, technical services, formulation, and various other assumptionsprocess development. Mr. Warrier earned a Bachelor of Pharmacy degree from Sri Ramachandra University, India, an M.S. degree in Pharmaceutical Sciences from the University of Missouri - Kansas City, and a Master’s Certificate in Regulatory Affairs and Quality Assurance from Purdue University.
Corporate governance
Director independence. Our Board of Directors has affirmatively determined, after considering all the relevant facts and circumstances, that are believedeach of Dr. Naughton, Ms. Ling and Messrs. Thompson, Bisaro, Collins, Musing and Russell, is an independent director, and that Mr. J. Martin Carroll was an independent director prior to be reasonablehis resignation in December 2021, as “independence” is defined under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The Company believesapplicable rules and regulations of the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its Financial StatementsSEC and the uncertainties that it could impact our resultslisting standards of operations, financial conditionNasdaq, and cash flows. The Company follows the "successful efforts" method of accounting for its oil and gas properties. Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has proven reserves. If an exploratory well does not result in reserves, the capitalized costs of drilling the well, net of any salvage, are charged to expense. The costs of development wells are capitalized, whether the well is productive or nonproductive. Impairments are recorded when management believes that a property’s net book value is not recoverable based on current estimates of expected future cash flows. The Company provides for depreciation and depletion of its investment in producing oil and natural gas properties on the unit-of-production method, based upon estimates of recoverable oil and natural gas reserves from the property. The Company designated its marketable equity securities as “securities available for sale”.
Liquidity and Capital Resources
At December 31, 2006, the Company had assets of $1,867,161. At December 31, 2006, the Company’s current assets totaled $1,110,629 compared to current liabilities of $115,131. Working capital at December 31, 2006 totaled $995,498, an increase of approximately 59% compared to $625,862 at December 31, 2005. The Company had a current ratio at December 31, 2006 of approximately 10:1. During 2006, net cash provided by operations totaled $329,840, as compared to $412,339 for 2005. This decrease was due to lower prices in 2006. Liquidity increased due to the sale of Panther Pipeline and the Edwards Dixel Gips lease. The cost basis for the Panther pipeline was $40,000 and the cost basis in the Edwards Dixel Gips lease was $102,459, for a total of $142,459. The proceeds from the sale were $255,000 yielding a gross gain for this transaction of $112,543. The Company’s cash flow from operations is highly dependent on oil and natural gas prices; which were at historic highs in 2005, but dropped in 2006. The Company had no short-term or long-term debt outstanding at December 31, 2006. In December, 2005, the Company purchased 16,156 shares of its common stock at a cost of $24,643, which is included in the treasury as of year end.
At December 31, 2006, there were no commitments for capital expenditures. In 2006, the Company committed approximately $42,000 for an 18.75% interest in the Long Knife #23-29 gas well in Colorado. The company decided to participate in the proposed drilling, receiving an 18.75% working interest in the well which was completed at the end of 2006. The company also decided to participate in drilling of the Anderson Canyon wells located in Wyoming. The Company spent approximately $7,000 yielding a working interest in the wells to .0015. The Anderson Canyon wells were completed around July 1, 2006. In late 2005 and early 2006, the Company executed an authorization for the drilling and completion of the Shriners 10-C-2 well in Utah. The estimated costs to Croff for the Shriners 10-C-2 well was around $52,000, and the Company would retain an approximate 1.7% working interest in the well. The well is expected to be completed in early 2007. The drilling and completion of the above named wells, increased proven oil and gas properties. Under the successful efforts method, proved properties increased from $1,016,442 as of December 31, 2005 to $1,074,188 as of December 31, 2006.
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 is generally favorable to the Company since it does not have significant operating expensesa relationship with us (either directly or as a percentpartner, stockholder, or officer of revenues.
Resultsan organization that has a relationship with us) that would interfere with their exercise of Operations
Revenuesindependent judgment in carrying out their responsibilities as directors. Accordingly, a majority of our directors are independent, as required under the applicable Nasdaq rules. Mr. O’Dowd, our Chief Executive Officer, is not considered an independent director because of his executive position with our Company. Mr. Finizio was not considered an independent director prior to his resignation in February 2022 because of his prior executive position. There are no family relationships among any of our directors or officers.Committee charters, corporate governance and code of ethics. Our Board of Directors has adopted charters for 2006 totaled $843,060,the Audit, Compensation, and Nominating and Corporate Governance Committees describing the authority and responsibilities delegated to each committee by our Board of Directors. Our Board of Directors has also adopted Corporate Governance Guidelines, a decreaseCode of approximately 11%Conduct and Ethics, and a Code of Ethics for the Chief Executive Officer and senior financial officers of our Company, including our Chief Financial Officer and principal accounting officer. We post on our website, at www.therapeuticsmd.com, the charters of our Audit, Compensation, and Nominating and Corporate Governance Committees; our Corporate Governance Guidelines, Code of Conduct and Ethics, and Code of Ethics for the Chief Executive Officer and senior financial officers, and any amendments or waivers thereto; and any other corporate governance materials contemplated by the SEC or Nasdaq. These documents are also available in print to any stockholder requesting a copy in writing from $941,855our corporate secretary at our executive offices set forth in 2005. Net income for 2006 totaled $373,015 comparedthis Form 10-K/A.
Executive sessions. We regularly schedule executive sessions in both board and committee meetings in which non-employee directors will meet without the presence or participation of management, with at least one of such board sessions including only independent directors. Mr. Thompson, as the Chairman of our Board of Directors, chairs the board executive sessions, and the respective committee chairs lead executive session as necessary in the various board committees.
Board committees. Our Board of Directors has an Audit Committee, a Compensation Committee, a New Business, Science and Technology Committee, and a Nominating and Corporate Governance Committee, each consisting entirely of independent directors.
Audit Committee. The purpose of the Audit Committee is to $289,887 for 2005.oversee our financial and reporting processes and the audits of our financial statements and to provide assistance to our Board of Directors with respect to its oversight of the integrity of our financial statements, our Company’s compliance with legal and regulatory matters, the independent registered public accountant’s qualifications and independence, and the performance of our independent registered public accountant. The increaseprimary responsibilities of the Audit Committee are set forth in revenue was primarily dueits charter and include various matters with respect to the gain fromoversight of our accounting and financial reporting process and audits of our financial statements on behalf of our Board of Directors. The Audit Committee also selects the saleindependent registered public accountant to conduct the annual audit of our financial statements; reviews the proposed scope of such audit; reviews accounting and financial controls with the independent registered public accountant and our financial accounting staff; and reviews and approves any transactions between us and our directors, officers, and their affiliates. The Audit Committee currently consists of Messrs.
Bisaro, Collins, and Russell with Mr. Russell serving as chair, each an independent director of our Company under the listing standards of Nasdaq as well as under applicable rules and regulations of the Edward Dixel Gips lease in Dewitt County, TX. OilSEC. Our Board of Directors has determined that Messrs. Bisaro and gas sales for the December 31, 2006 year end totaled $842,400, a decreaseRussell (each of approximately 10% from $934,525, for the year ended December 31, 2005. A decrease in oil and gas prices were the factors causing this decrease in oil and gas sales compared to the same period in 2005, while production rose slightly.
Interest income rose from $12,057 for the period ending December 31, 2005 to $49,671 for the year ending December 31, 2006. The interest income increased because there waswhose background is detailed above) each qualify as an increase in interest rates, and additional back interest from the settlement of the Parry v. Amoco Production case. The interest income attributable to the Preferred B and Common account bank accounts was $35,818, and the interest income received from the settlement totaled $13,853 yielding a combined total of $49,671. Other Income as of the December 31, 2006 year end was $660 compared to $7,330 for the period ending December 31, 2005. The $660 was related to lease bonuses received during the year.
Lease operating expenses for 2006, which includes all production related taxes, totaled $205,371 compared to $272,129 for 2005. This decrease was due to the Company not having as many major work over expenses in 2006. The lease operating expenses remained nearly constant for the Company’s existing wells. Proposed drilling program expense was zero as of December 31, 2006, compared to $52,638 for the same period ending December 31, 2005. This decrease is attributed to the sale of the Dewitt County leases in Texas.
General and administrative expenses, including overhead expense paid to related party, for the year ending December 31, 2006 totaled $262,520 compared to $215,766 for the same period in 2005. The increase in general and administrative and overhead expenses is primarily attributed to the costs of the audit increasing, printing and other costs paid to related third parties, and the higher professional fees of the Company. The primary reason for this increase was professional expenses related to the negotiating, drafting, and completing the exchange agreement entered into with TRBT and related SEC filings. These matters are discussed in detail above under Part I, Current Events 2006.
Depletion and depreciation expense for the year ending December 31, 2006 totaled $48,500 compared to $45,000 for the year ending in 2005. This slight increase was due to the small increase in producing assets in 2006. Accretion expense for the Asset Retirement accrual was $10,187 for the year ending December 31, 2005 compared to $5,868 for the year ending December 31, 2006. This decrease occurred because in 2005 the Company established the asset retirement accruals and expensed the additional amount that needed to be expensed.
Net income for the year ending December 31, 2006 was $373,015 compared to $289,887 for the year ending December 31, 2005. The reason for this increase is because the Company had a significant gain on the sale of the Edward Dixel Gips lease in Dewitt County, TX, and because the expenses during the year was lower than the expenses incurred during 2005. Provision for income taxes for the year ending December 31, 2006 totaled $110,000 compared to $82,478 from December 31, 2005. This increase is primarily attributable to an increase in net income for the year, which also results in a higher tax bracket.
Recent accounting pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 123R, "Share-Based Payment." This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method“audit committee financial expert” in accordance with
APB 25. Instead, companies will be required to account for such transactions using a fair-value methodapplicable rules and
recognize the expense in the statements of operations. SFAS 123R became effective for all interim or annual periods beginning after June 15, 2005. SFAS 123R is not expected to have a material impact on the Company’s financial condition or results of operations as the Company currently does not receive employee services in exchange for either equity instrumentsregulations of the
Company or liabilities that are based on the fair valueSEC.Compensation Committee. The purpose of the Company's equity instrumentsCompensation Committee includes, among other things, determining, or thatrecommending to our Board of Directors for determination, the compensation of our Chief Executive Officer, other executive officers and directors, discharging the responsibilities of our Board of Directors relating to our compensation programs. Pursuant to its charter, the Compensation Committee may be settled by the issuancedelegate any of such equity instruments.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29". This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. The Statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company has not entered into these types of nonmonetary asset exchanges during the last five years. Accordingly, the adoption of this pronouncement is not expected to have a material impact on the Company’s financial condition or results of operations.
In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN No. 47”). FIN No. 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refersits responsibilities to a legal obligation to perform an asset retirement activity in which the timing and (or) methodsubcommittee comprised of settlement are conditional on a future event that mayone or may not be within the controlmore members of the entity.Compensation Committee. The obligation to performCompensation Committee currently consists of Ms. Ling and Messrs. Collins and Musing, each an independent director of our Company under the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) methodlisting standards of settlement. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. Fin No. 47 is effective no later than the end of fiscal years ending after December 15, 2005 (December 31, 2005 for calendar-year companies). Retrospective application of interim financial information is permitted but is not required. Management does not expect adoption of FIN No. 47 to have a material impact on the Company’s financial statements.
In May 2005 the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 replaces APB Opinion (“APB”) No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 will apply to all voluntary changes in accounting principleNasdaq as well as
to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net incomeunder applicable rules and regulations of the
periodSEC. Ms. Ling has served as chair of the
changeCompensation Committee since February 2022. Mr. Musing previously served as chair of the
cumulative effectCompensation Committee in 2021 until February 2022. Mr. Carroll served as a member of
changingthe Compensation Committee in 2021 until his resignation from our Board of Directors in December 2021.New Business, Science and Technology Committee. The purpose of the New Business, Science, and Technology Committee is to periodically examine the strategic direction and investment in research, development, acquisition, and technology initiatives for new accounting principle. SFAS No. 154 requires retrospective applicationand improved products. The committee is also tasked with periodic review of our long-term strategic goals and objectives. The New Business, Science and Technology Committee currently consists of Ms. Naughton and Messrs. Bisaro, Collins and Thompson, each an independent director of our Company under the listing standards of Nasdaq. Mr. Thompson serves as chair of New Business, Science and Technology Committee.
Nominating and corporate governance committee. The purpose of the Nominating and Corporate Governance Committee includes the selection or recommendation to our Board of Directors of nominees to stand for election as directors at each election of directors, the oversight of the selection and composition of committees of our Board of Directors, the oversight of the evaluations of our Board of Directors and management, and the development and recommendation to our Board of Directors of a set of Corporate Governance Guidelines applicable to us. Our Nominating and Corporate Governance Committee will consider persons recommended by stockholders for inclusion as nominees for election to our Board of Directors if the information required by the rules adopted by the SEC is submitted in writing in a timely manner addressed and delivered to our corporate secretary at the address of our executive offices set forth in this Form 10-K/A. Our bylaws, as amended, require that, subject to certain exceptions, a stockholder provide information regarding a director nomination to us no earlier than the 120th day and no later than the 90th day prior to the first anniversary of the preceding year’s annual meeting of stockholders and update and supplement such information. |
The Nominating and Corporate Governance Committee identifies and evaluates nominees for our Board of Directors, including nominees recommended by stockholders, based on numerous factors it considers appropriate, some of which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity, and the extent to prior periods'which the nominee would fill a present need on our Board of Directors.
The current members of the Nominating and Corporate Governance Committee are Dr. Naughton and Messrs. Bisaro and Thompson, each an independent director of our Company under the listing standards of Nasdaq. Mr. Bisaro has served as chair of the Nominating and Corporate Governance Committee since February 2022. Mr. Carroll served as chair of the Nominating and Corporate Governance Committee in 2021 until his resignation from our Board of Directors in December 2021.
Board’s role in risk oversight. Risk is inherent in every business. As is the case in virtually all businesses, we face a number of risks, including operational, economic, financial, legal, regulatory, and competitive risks. Our management is responsible for the day-to-day management of the risks we face. Our Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management.
Our Board of Directors’ involvement in our business strategy and strategic plans plays a key role in its oversight of risk management, its assessment of management’s risk appetite, and its determination of the appropriate level of enterprise risk. Our Board of Directors receives updates at least quarterly from senior management and periodically from outside advisors regarding the various risks we face, including operational, cybersecurity and information technology, economic, financial, legal, regulatory, and competitive risks. Our Board of Directors also reviews the various risks we identify in our filings with the SEC as well as risks relating to various specific developments, such as debt and equity issuances and product introductions.
The committees of our Board of Directors assist our Board of Directors in fulfilling its oversight role in certain areas of risks. The Audit Committee oversees the financial and reporting processes of our Company and the audit of the financial statements of changesour Company and
provides assistance to our Board of Directors with respect to the oversight and integrity of the financial statements of our Company, our Company’s compliance with legal and regulatory matters, the independent auditor’s qualification and independence, and the performance of our independent auditor. The Audit Committee also receives reports from our Chief Compliance Officer regarding our compliance program and our Chief Information Officer regarding our cybersecurity and information technology programs. The Compensation Committee considers the risks that our compensation policies and practices may have in accounting principle, unlessattracting, retaining, and motivating valued employees and endeavors to assure that it is impracticable to determine either the period-specific effectsnot reasonably likely that our compensation plans, and policies would create undue risk or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS No. 154 requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial condition).
SFAS 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (‘SFAS No. 155”). This Statement shall be effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. Management does not expect adoption of SFAS No. 155 to have a material impact on the Company’s financial statements.
SFAS 157, “Fair Value Measurements”, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. Management has not evaluated the impact of this statement.
In June 2005, the Emerging Issues Task Force reached a consensus on Issue No. 05-6 (“EITF No. 05-6”), “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination.” EITF No. 05-6 clarifies that the amortization period for leasehold improvements acquired in a business combination or placed in service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes the required lease periods and renewals that are reasonably assured of exercise at the time of the acquisition. EITF No. 05-6 is to be applied prospectively to leasehold improvements purchased or acquired in reporting periods beginning after June 29, 2005. The adoption of EITF No. 05-6 did not have a material impact on the Company’s consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting forUncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. Fin No. 48 is effective for fiscal years beginning after December 15, 2005. Management does not expect adoption of FIN No. 48 to have a material impact on the Company’s financial statements.
ITEM 7A. 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 prices received by the Company during 2006, ranged from an annual average low of $2.39 per Mcf to an annual average high of $7.84 per Mcf. Oil prices received by the Company ranged from an annual average low of $35 per barrel to an annual average high of $63.62 per barrel during 2006. A decline in prices of oil or natural gas could have a material adverse effect on our Company. The New Business, Science and Technology Committee oversees risks associated with our strategic direction and investment in research, development, acquisition, and technology initiatives for new and improved products. The Nominating and Corporate Governance Committee oversees governance-related risks, such as director independence, conflicts of interests, and management succession planning. In addition, our Chief Compliance Officer reports in specific instances to the chair of the Audit Committee. This division of responsibilities is the most effective approach for addressing the risks facing the Company, and the Company’s financial conditionBoard leadership structure supports this approach.Board diversity. We seek diversity in experience, viewpoint, education, skill, and resultsother individual qualities and attributes to be represented on our Board of operations. In 2006,Directors. We believe directors should have various qualifications, including individual character and integrity; business experience and leadership ability; strategic planning skills, ability, and experience; requisite knowledge of our industry and finance, accounting, and legal matters; communications and interpersonal skills; and the ability and willingness to devote time to our Company. We also believe the skill sets, backgrounds, and qualifications of our directors, taken as a 10% reductionwhole, should provide a significant mix of diversity in oilpersonal and natural gas prices would have reduced revenuesprofessional experience, background, viewpoints, perspectives, knowledge, and abilities. Nominees are not to be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability, or any other basis prohibited by approximately $84,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Referencelaw. The assessment of directors is made
in the context of the perceived needs of our Board of Directors from time to time.All of our directors have held high-level positions in business or professional service firms and have experience in dealing with complex issues. We believe that all of our directors are individuals of high character and integrity, are able to work well with others, and have committed to devote sufficient time to the Indexbusiness and affairs of our Company. In addition to Financial Statementsthese attributes, the description of each director’s background sets forth above indicates the specific experience, qualifications, and skills necessary to conclude that each individual should continue to serve as a director of our Company.
Board leadership structure. We believe that effective board leadership structure depends on page F-1 for a listingthe experience, skills, and personal interaction among persons in leadership roles as well as the needs of our Company at any point in time. We currently maintain separate roles between the Chief Executive Officer and Chairman of the Company’s Financial Statements and notes thereto and forBoard of Directors in recognition of the financial statement schedules contained herein.
Management Responsibility for Financial Statements
The Financial Statements have been prepared by management in conformity with accounting principles generally accepted indifferences between the
United States of America. Managementtwo responsibilities. Our Chief Executive Officer is responsible for
the fairnesssetting our strategic direction and
reliabilityday-to-day leadership and performance of our Company. The Chairman of the
Financial StatementsBoard of Directors provides input to the Chief Executive Officer, sets the agenda for board meetings, and
presides over meetings of the full Board of Directors as well as executive sessions of our Board of Directors. Our Board of Directors believes that our current leadership structure provides the most effective leadership model for our Company, as it promotes balance between the Board of Directors’ independent authority to oversee our business and the Chief Executive Officer and his management team, which manage the business on a day-to-day basis.Compensation Recovery Policy. In December 2021, we implemented a claw back policy that provides for retroactive adjustments to any cash or stock-based incentive compensation paid to our executive officers where the payments were predicated upon the achievement of financial results that were subsequently the subject of a financial restatement due to misconduct. We intend to amend the policy covering our annual and long-term incentive award plans and arrangements as necessary after the SEC adopts final rules implementing the requirement of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”).
Anti-hedging and anti-pledging policy.In April 2020, the Board of Directors amended the Company’s Code of Conduct and Ethics to include a policy regarding hedging and pledging transactions. Pursuant to the policy, directors, officers, and employees are prohibited from: (1) directly or indirectly engaging in any hedging transactions with respect to any directly or indirectly owned securities of the Company, which includes the purchase of any financial instrument (including puts, calls, equity swaps, forward contracts, collars , exchange funds or other financial data includedderivative securities) on an exchange or in any other market in order to hedge or offset any decrease in the market value of such securities; (2) engaging in short sale transactions or forward sale transactions or any short-term or speculative transactions in the Company’s securities or in other transactions in the Company’s securities that may lead to inadvertent violations of insider trading laws; and (3) pledging securities of the Company as collateral for a loan or otherwise using securities of the Company to secure a debt, including through the use of traditional margin accounts with a broker.
Board and committee meetings.Our Board of Directors held a total of nine meetings in 2021. No director attended fewer than 75% of the aggregate of (i) the total number of meetings of our Board of Directors and (ii) the total number of meetings held by all committees of our Board of Directors on which such director was a member. In 2021, the Audit Committee held four meetings, the Compensation
Committee held eight meetings, the New Business, Science and Technology Committee held two meetings, and the Nominating and Corporate Governance Committee held five meetings.
Annual meeting attendance. We encourage our directors to attend each annual meeting of stockholders. Eight of nine of our directors attended the annual meeting of stockholders last year.
Communications with directors. Stockholders may communicate with our Board of Directors or specific members of our Board of Directors, including our independent directors and the members of our various board committees, by submitting a letter addressed to our Board of Directors of TherapeuticsMD, Inc. at the address set forth in this report.Form 10-K/A care of any specified individual director or directors. Any such letters are forwarded to the indicated directors. In addition, at the preparationrequest of the Financial Statements, it is necessaryBoard of Directors, communications that do not directly relate to make informed estimatesour Board of Directors’ duties and judgments basedresponsibilities as directors will be excluded from distribution. Such excluded items include, among others, “spam,” advertisements, mass mailings, form letters, and email campaigns that involve unduly large numbers of similar communications; solicitations for goods, services, employment or contributions; and surveys. Additionally, communications that appear to be unduly hostile, intimidating, threatening, illegal, or similarly inappropriate will also be screened for omission. Any excluded communication will be made available to any director upon his or her request.
Item 11. | Executive compensation |
2021 Summary compensation table
As a smaller reporting company, the rules of the U.S. Securities and Exchange Commission permit us to omit the Compensation Discussion and Analysis section and to report the compensation of our principal executive officer, each of our two other most highly compensated executive officers who were serving as executive officers on currently availableDecember 31, 2021, our former principal executive officer, and two additional former executive officers for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer on December 31, 2021 (collectively, our NEOs). The following information onincludes the effectsdollar value of salaries, bonus awards, non-equity incentive plan compensation, and certain events and transactions. The Company maintains accounting and other controls which management believes provide reasonable assurance that financial records are reliable, assets are safeguarded and transactions are properly recorded.compensation, if any, whether paid or deferred.
| | | | | | | | | | | | | | | Non-Equity | | | | | | | | |
| | | | | | | | Stock | | | Option | | Incentive Plan | | All Other | | | | | |
| | Salary | | Bonus | | Awards (1) | | | Awards | | Compensation (2) | | Compensation | | | Total | |
Name and Principal Position | Year | ($) | | ($) | | ($) | | | ($) | | ($) | | ($) | | | ($) | |
Hugh O'Dowd (4) | 2021 | | 273,000 | | | 250,000 | | | 4,372,500 | | (5) | | — | | | — | | | 289,495 | | (6) | | 4,934,995 | |
Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | |
James C. D'Arecca (3) | 2021 | | 420,000 | | | — | | | 1,048,669 | | (7) | | — | | | 126,000 | | | 126,985 | | (8) | | 1,721,654 | |
Former Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | |
Marlan D. Walker | 2021 | | 415,000 | | | — | | | 1,090,987 | | (9) | | — | | | 66,400 | | | 24,806 | | (10) | | 1,597,193 | |
General Counsel | | | | | | | | | | | | | | | | | | | | | | | | |
Robert G. Finizio (3) | 2021 | | 600,000 | | | — | | | 4,517,331 | | (11) | | — | | | — | | | 1,930,321 | | (12) | | 7,047,652 | |
Former Chief Executive Officer | 2020 | | 600,000 | | | — | | | 1,524,751 | | (11) | | — | | | 600,000 | | | 21,785 | | (12) | | 2,746,536 | |
John C.K. Milligan, IV (3) | 2021 | | 450,000 | | | — | | | 1,048,669 | | (13) | | — | | | 126,000 | | | 30,104 | | (14) | | 1,654,773 | |
vitaCare Chief Executive Officer | 2020 | | 450,000 | | | — | | | 1,479,105 | | (13) | | — | | | 315,000 | | | 31,285 | | (14) | | 2,275,390 | |
Edward Borkowski (3) | 2021 | | 339,000 | | | — | | | 1,129,331 | | (15) | | — | | | — | | | 950,462 | | (16) | | 2,418,793 | |
Former EVP Operations | 2020 | | 430,000 | | | — | | | 3,516,705 | | (15) | | 83,262 | | | 365,500 | | | 81,687 | | (16) | | 4,477,154 | |
| |
(1) | Represents the fair value on the day of grant of restricted stock units (RSUs) and performance restricted stock units (PSUs) granted under the Company’s 2019 Stock Incentive Plan, as amended. The value reflects the maximum number of PSUs that may vest. The actual number of PSUs that will vest will depend on the Company’s achievement of certain performance goals. |
(2) | Amounts in this column represent the amounts earned under our annual performance-targeted incentive plan, which were earned during the indicated fiscal year but were not paid until after the end of the indicated fiscal year. |
(3) | On April 1, 2022, Mr. D’Arecca ceased serving as the Chief Financial Officer and Principal Financial Officer of the Company. On December 14, 2021, Mr. Finizio ceased serving as the Chief Executive Officer of the Company. On April 8, 2021, Mr. Milligan ceased serving as the President of the Company and began serving as the Chief Executive Officer of vitaCare Prescription Services, Inc. ("vitaCare"), a wholly-owned subsidiary of the Company until its divestiture on April 14, 2022. On September 30, 2021, Mr. Borkowski ceased serving as the Executive Vice President, Operation ("EVP Operations") of the Company. |
ITEM 9.
| |
(4) | Mr. O'Dowd's salary for 2021 represents amount earned by Mr. O'Dowd from the commencement of his employment in August 2021 through December 2021. Mr. O'Dowd's annual salary is $725,000. Mr. O'Dowd's bonus for 2021 represents a sign-on bonus. |
(5) | This amount represents 2,750,000 RSUs with a grant date fair value of $2,186,250 and 2,750,000 PSUs with a grant date fair value of $2,186,250 assuming maximum payout. |
(6) | Other compensation paid to Mr. O'Dowd was related to (i) reimbursed taxable relocation expenses of $282,293, (ii) employer match to 401(k) plan of $2,000, and (iii) health and welfare benefits paid by the Company. |
(7) | For 2021, the amount represents (i) 173,333 RSUs with a grant date fair value of $209,733 and (ii) 693,336 PSUs with a grant date fair value of $838,936 assuming maximum payout. For 2020, the amount represents (i) 651,500 RSUs with a grant date fair value of $781,800 and (ii) 303,000 PSUs with a grant date fair value of $363,600 assuming maximum payout. |
(8) | For 2021, other compensation paid to Mr. D'Arecca was related to (i) reimbursed taxable travel expenses of $102,179 reflecting travel to and from the Company’s headquarters in Florida, (ii) employer match to 401(k) plan of $2,000, and (iii) health and welfare benefits paid by the Company. For 2020, other compensation paid to Mr. D'Arecca was related to(i) reimbursed taxable travel expenses of $61,340, reflecting travel to and from the Company’s headquarters in Florida, (ii) employer match to 401(k) plan of $2,000, and (iii) health and welfare benefits paid by the Company. |
(9) | For 2021, the amount represents (i) 231,130 RSUs with a grant date fair value of $252,051, which includes 57,797 RSUs with a grant date fair value of $42,318 awarded in connection to the 2021 Stock Option Exchange Program, and (ii) 693,336 PSUs with a grant date fair value of $838,936 assuming maximum payout. For 2020, the amount represents (i) 151,500 RSUs with a grant date fair value of $162,105 and (ii) 303,000 PSUs with a grant date fair value of $324,210 assuming maximum payout. |
(10) | For 2021 and 2020, other compensation paid to Mr. Walker was related to (i) employer match to 401(k) plan of $2,000, and (ii) health and welfare benefits paid by the Company. |
(11) | For 2021, the amount represents (i) 746,667 RSUs with a grant date fair value of $903,467 and (ii) 2,986,664 PSUs with a grant date fair value of $3,613,864 assuming maximum payout. For 2020, the amount represents (i) 475,001 RSUs with a grant date fair value of $508,251 and (ii) 950,000 PSUs with a grant date fair value of $1,016,500 assuming maximum payout. |
(12) | For 2021, other compensation paid to Mr. Finizio was related to (i) severance of $1,838,233, (ii) payment for unused vacation of $69,360, (iii) employer match to 401(k) plan of $2,000, and (iv) health and welfare benefits paid by the Company. For 2020, other compensation paid to Mr. Finizio was related to (i) employer match to 401(k) plan of $2,000, and (ii) health and welfare benefits paid by the Company. |
(13) | For 2021, the amount represents (i) 173,333 RSUs with a grant date fair value of $209,733 and (ii) 693,336 PSUs with a grant date fair value of $838,936 assuming maximum payout. For 2020, the amount represents (i) 670,500 RSUs with a grant date fair value of $814,635 and (ii) 621,000 PSUs with a grant date fair value of $664,470 assuming maximum payout. |
(14) | For 2020, other compensation paid to Mr. Milligan was related to (i) $7,500 of car allowance, (ii) employer match to 401(k) plan of $2,000, and (iii) health and welfare benefits paid by the Company. For 2020, other compensation paid to Mr. Milligan was related to (i) $7,500 of car allowance, (ii) employer match to 401(k) plan of $2,000, and (iii) health and welfare benefits paid by the Company. |
(15) | For 2021, the amount represents (i) 186,667 RSUs with a grant date fair value of $225,867 and (ii) 373,332 PSUs with a grant date fair value of $903,464 assuming maximum payout. For 2020, the amount represents (i) 1,310,500 RSUs with a grant date fair value of $2,852,235 and (ii) 621,000 PSUs with a grant date fair value of $664,470 assuming maximum payout. |
(16) | For 2021, other compensation paid to Mr. Borkowski was related to (i) severance of $839,535, (ii) reimbursed taxable travel expenses of $50,153 reflecting travel to and from the Company’s headquarters in Florida, (iii) payment for unused vacation benefits of $40,585, (iv) employer match to 401(k) plan of $2,000, and (v) health and welfare benefits paid by the Company. For 2020, other compensation paid to Mr. Borkowski was related to (i) reimbursed taxable travel expenses of $57,631, reflecting travel to and from the Company’s headquarters in Florida, (ii) employer match to 401(k) plan of $2,000, and (iii) health and welfare benefits paid by the Company. |
2021 Grants of share-based payment awards
Although as a smaller reporting company, the rules of the U.S. Securities and Exchange Commission permit us to omit this section, the below table provides additional information on 2021 grants of PSUs in regard to payouts at threshold, target and maximum under equity incentive plan awards.
The following table sets forth information with respect to grants of share-based payment awards to our NEOs in 2021.
| | | | | | | | | All Other | | | | | |
| | | | | | | | | Stock Awards: | | | Grant Date | |
| | Estimated Future Payouts | | Number of | | | Value of | |
| Equity | Under Equity Incentive Plan Awards | | Shares or | | | Stock | |
| Award | Threshold | Target | | Maximum | | Units of Stock | | | Awards (1) | |
Name | Date | (#) | (#) | | (#) | | (#) | | | ($) | |
Hugh O'Dowd | 08/31/2021 | — | | 2,750,000 | | | 2,750,000 | | | 2,750,000 | | | | 4,372,500 | |
James C. D'Arecca | 07/01/2021 | — | | 346,668 | | | 693,336 | | | 173,333 | | | | 1,048,669 | |
Marlan D. Walker | 07/01/2021 | — | | 346,668 | | | 693,336 | | | 173,333 | | | | 1,048,669 | |
| 09/29/2021 | — | — | | — | | | 57,797 | | (2) | | 42,319 | |
Robert G. Finizio | 07/01/2021 | — | | 1,493,332 | | | 2,986,664 | | | 746,667 | | | | 4,517,331 | |
John C.K. Milligan, IV | 07/01/2021 | — | | 346,668 | | | 693,336 | | | 173,333 | | | | 1,048,669 | |
Edward Borkowski | 07/01/2021 | — | | 373,332 | | | 746,664 | | | 186,667 | | | | 1,129,331 | |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | |
(1) | The amounts represent the aggregate grant date value of (i) estimated future payment under equity incentive plan awards at maximum and (ii) all other stock awards. |
(2) | This grant was made in connection with the Company’s Offer to Exchange Eligible Options for RSUs. |
Outstanding equity awards at fiscal year-end 2021
The following table sets forth information with respect to outstanding equity-based awards held by our NEOs as of December 31, 2021.
| | Option Awards |
| | Number of | | | | |
| | Securities Underlying | Option | | |
| Equity | Unexercised Options | Exercise | | Option |
| Award | Exercisable | | | Unexercisable | Price | | Expiration |
Name | Date | (#) | | | (#) | ($) | | Date |
Marlan D. Walker | 06/21/2013 | | 180,000 | | | | | | | | 2.98 | | 06/21/2023 |
| 10/03/2013 | | 15,000 | | | | | | | | 3.14 | | 10/03/2023 |
| 06/05/2014 | | 295,000 | | | | | | | | 4.02 | | 06/05/2024 |
| 11/21/2014 | | 100,000 | | | | | | | | 4.01 | | 11/21/2024 |
| 07/30/2019 | | 100,000 | | | | | | | | 2.18 | | 07/30/2029 |
Robert G. Finizio | 02/27/2012 | | 300,000 | | | | | | | | 2.20 | | 02/27/2022 |
| 04/16/2012 | | 50,000 | | | | | | | | 2.55 | | 04/16/2022 |
| 11/30/2012 | | 268,474 | | | | | | | | 3.00 | | 11/30/2022 |
| 12/17/2015 | | 950,000 | | | | | | | | 8.92 | | 12/17/2025 |
| 03/15/2017 | | 445,000 | | | | | | | | 6.83 | | 03/15/2027 |
| 03/15/2018 | | 440,000 | | (1) | | | | | | 5.16 | | 03/15/2028 |
| 08/28/2019 | | 1 | | (2) | | | | | | 2.73 | | 08/28/2029 |
John C.K. Milligan, IV | 02/27/2012 | | 300,000 | | | | | | | | 2.20 | | 02/27/2022 |
| 04/16/2012 | | 75,000 | | | | | | | | 2.55 | | 04/16/2022 |
| 11/30/2012 | | 800,000 | | | | | | | | 3.00 | | 11/30/2022 |
| 05/02/2013 | | 50,000 | | | | | | | | 2.80 | | 05/02/2023 |
| 01/06/2014 | | 45,000 | | | | | | | | 5.05 | | 01/06/2024 |
| 12/17/2015 | | 500,000 | | | | | | | | 8.92 | | 12/17/2025 |
| 03/15/2017 | | 260,000 | | | | | | | | 6.83 | | 03/15/2027 |
| 03/15/2018 | | 270,000 | | | | | | | | 5.16 | | 03/15/2028 |
| 08/28/2019 | | 266,667 | | | | 133,333 | | (3) | | 2.73 | | 08/28/2029 |
| | Stock Awards | |
| | | | | | | | | | | | | | | | Equity Incentive | |
| | Number | Value | | | | | | | | | Plan Awards | |
| | of Shares | of Shares | | Number | Value | | Number | Value | |
| | or Units | or Units | | of Shares | of Shares | | of Shares | of Shares | |
| | of Stock | of Stock | | or Units | or Units | | or Units | or Units | |
| | That Have | That Have | | of Stock | of Stock | | of Stock | of Stock | |
| | Vested and | Vested and | | That Have | That Have | | That Have | That Have | |
| Equity | Not Yet | Not Yet | | Not | Not | | Not | Not | |
| Award | Settled | Settled (2) | | Vested | Vested (4) | | Vested | Vested (4) | |
Name | Date | (#) | ($) | | (#) | ($) | | (#) | ($) | |
Hugh O'Dowd | 08/31/2021 | | | | | | | | | 2,750,000 | | (5) | | 990,000 | | | 2,750,000 | | (6) | | 990,000 | |
James C. D'Arecca | 06/18/2020 | | | | | | | | | 434,333 | | (7) | | 156,360 | | | 151,500 | | (8) | | 54,540 | |
| 07/01/2021 | | | | | | | | | 173,333 | | (9) | | 62,400 | | | 173,334 | | (10) | | 62,400 | |
| 07/01/2021 | | | | | | | | | | | | | | | | 86,667 | | (11) | | 31,200 | |
| 07/01/2021 | | | | | | | | | | | | | | | | 86,667 | | (12) | | 31,200 | |
Marlan D. Walker | 12/13/2018 | 230000 | | | | 82,800 | | | | | | | | | | | | | | | |
| 03/30/2020 | | | | | | | | | 101,000 | | (13) | | 36,360 | | | 151,500 | | (8) | | 54,540 | |
| 07/01/2021 | | | | | | | | | 173,333 | | (9) | | 62,400 | | | 173,334 | | (10) | | 62,400 | |
| 07/01/2021 | | | | | | | | | | | | | | | | 86,667 | | (11) | | 31,200 | |
| 07/01/2021 | | | | | | | | | | | | | | | | 86,667 | | (12) | | 31,200 | |
| 09/29/2021 | | | | | | | | | 57,797 | | (14) | | 20,807 | | | | | | | | |
Robert G. Finizio | 03/30/2020 | | 316,666 | | (15) | | 114,000 | | | | | | | | | | | | | | | |
| 03/30/2020 | | 475,000 | | (16) | | 171,000 | | | | | | | | | | | | | | | |
| 11/24/2020 | | 1 | | (15) | | 0 | | | | | | | | | | | | | | | |
| 07/01/2021 | | 746,667 | | (15) | | 268,800 | | | | | | | | | | | | | | | |
| 07/01/2021 | | 1,493,332 | | (16) | | 537,600 | | | | | | | | | | | | | | | |
John C.K. Milligan, IV | 03/30/2020 | | | | | | | | | 207,000 | | (13) | | 74,520 | | | 310,500 | | (8) | | 111,780 | |
| 11/24/2020 | | | | | | | | | 180,000 | | (17) | | 64,800 | | | | | | | | |
| 07/01/2021 | | | | | | | | | 173,333 | | (9) | | 62,400 | | | 173,334 | | (10) | | 62,400 | |
| 07/01/2021 | | | | | | | | | | | | | | | | 86,667 | | (11) | | 31,200 | |
| 07/01/2021 | | | | | | | | | | | | | | | | 86,667 | | (12) | | 31,200 | |
| |
(1) | Includes 133,333 stock options that vested in December 2021 in connection with Mr. Finizio's separation as the Company's Chief Executive Officer. |
(2) | This amount reflects stock options that vested in December 2021 in connection with Mr. Finizio's separation as the Company's Chief Executive Officer. |
(3) | This amount reflects stock options that vest in August 2022. As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested options were immediately vested. |
(4) | The amounts in this column are based on the closing price of our common stock on December 31, 2021 of $0.36. |
(5) | The amount reflects RSUs that vest one-third annually beginning in August 2022. |
(6) | The amount reflects the base number of PSUs that may vest depending on the Company’s achievement of certain market capitalization targets. There are three annual performance measurement dates with the first one occurring in August 2022. |
(7) | The amount reflects RSUs that vest one-half annually beginning in June 2022. Upon Mr. D’Arecca’s resignation on April 1, 2022, his share-based payment awards were forfeited and cancelled. |
(8) | The amount reflects the base number of PSUs that may vest. The actual number of PSUs that will vest will be between zero and two times the base number depending on the Company’s achievement of break-even quarterly EBITDA. The performance measurement period is between the second quarter 2020 and the fourth quarter 2022. Upon Mr. D’Arecca’s resignation on April 1, 2022, his share-based payment awards were forfeited and cancelled. As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested PSUs were immediately vested at target payout. |
| |
(9) | The amount reflects RSUs that vest one-third annually beginning in July 2022. Upon Mr. D’Arecca’s resignation on April 1, 2022, these share-based payment awards were forfeited and cancelled. As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested RSUs were immediately vested. |
(10) | The amount reflects the base number of PSUs that may vest. The actual number of PSUs that will vest will be between zero and two times the base number depending on the Company’s achievement of certain (i) revenue goals for 2023 or (ii) revenue CAGR targets from 2021 to 2023. Upon Mr. D’Arecca’s resignation on April 1, 2022, his share-based payment awards were forfeited and cancelled. As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested PSUs were immediately vested at target payout. |
(11) | The amount reflects the base number of PSUs that may vest. The actual number of PSUs that may vest is between zero and three times the base number depending on the Company’s achievement of break-even quarterly EBITDA. The performance measurement period is between the third quarter 2021 and the fourth quarter 2023. Upon Mr. D’Arecca’s resignation on April 1, 2022, his share-based payment awards were forfeited and cancelled. As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested PSUs were immediately vested at target payout. |
(12) | The amount reflects the number of PSUs that may vest depending on the Company’s achievement of a 2021 EBITDA loss target. Since the Company did not achieve the 2021 EBITDA loss target associated for this share-based payment award, this share-based payment award was forfeited and cancelled in March 2022. Upon Mr. D’Arecca’s resignation on April 1, 2022, his share-based payment awards were forfeited and cancelled. As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested PSUs were immediately vested at target payout. |
(13) | The amount reflects RSUs that vest one-half annually beginning in March 2022.As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested RSUs were immediately vested. |
(14) | The amount reflects RSUs that vest one-third annually beginning in September 2022. |
(15) | The amount reflects RSUs that vested in December 2021 in connection with Mr. Finizio's separation as the Company's Chief Executive Officer. |
(16) | The amount reflects PSUs that vested in December 2021 in connection with Mr. Finizio's separation as the Company's Chief Executive Officer. |
(17) | This amount reflects RSUs that vest one-half annually beginning in November 2022. As a result of the vitaCare divestiture on April 14, 2022, Mr. Milligan’s unvested RSUs were immediately vested. |
Post-employment compensation
Pension Benefits. We do not offer any defined benefit pension plans for any of our employees. We have a 401(k) plan in which employees may participate.
Other Compensation. All of our executive officers are eligible to participate in our employee benefit plans, including medical, dental, life insurance, and tax-qualified Section 401(k) retirement savings plans. These plans are available to all employees and do not discriminate in favor of executive officers. It is generally our policy to not extend significant perquisites to executives that are not broadly available to our other employees. In designing these elements, we seek to provide an overall level of benefits that is competitive with that offered by similarly situated companies in the markets in which we operate based upon our general understanding of industry practice. These benefits are not considered in determining the compensation of our executive officers.
Employment agreements
Hugh O’Dowd has an employment agreement that commenced on August 3, 2021. The agreement provides for a three-year term. After the term, it will automatically renew for additional one-year terms each year on the anniversary of execution unless notice of non-renewal is given by either our company or Mr. O’Dowd at least 90 days prior to such anniversary. The agreement originally provided for: (i) a salary of $725,000 per year, (ii) an annual short-term incentive compensation of 70% of salary, at the discretion of our Board of Directors, (iii) a $250,000 sign-on bonus, (iv) 2,750,000 restricted stock units vesting in equal tranches on August 31, 2022, 2023 and 2024, (v) 2,750,000 performance stock units, vesting if certain market capitalization achievements are accomplished measured on August 31, 2022, 2023 and 2024, (vi) coverage under directors and officers insurance, and (vii) reimbursement of expenses for commuting to the Boca Raton office and relocation of his home to the Boca Raton, Florida area. Mr. O’Dowd will receive employee benefits, vacation, and other perquisites as may be determined from time to time. Conditions of termination call for (i) termination immediately upon death, (ii) termination upon a disability in which Mr. O’Dowd is unable to perform his duties for more than six months during any 12-month period, (iii) voluntary termination by Mr. O’Dowd with prior notice, (iv) involuntary termination by our Company without cause (or 90-day notice when termination is due to the non-extension of the employment term by our Company), (v) termination
for cause upon ten days written notice and, for some circumstances, a 30-day opportunity to cure, and (vi) termination for good reason wherein Mr. O’Dowd will have 90 days from the date of occurrence of a criteria giving rise to good notice provide notice of termination his employment with the Company, which will be effective 31 days after we receive notice and the criteria remains uncorrected.
James D’Arecca had an amended and restated employment agreement that commenced on June 1, 2020. The agreement originally provided for a three-year term. After the initial term, it was to automatically renew for additional one-year terms each year on the anniversary of execution unless notice of non-renewal was given by either our Company or Mr. D’Arecca at least 90 days prior to such anniversary. The agreement originally provided for: (i) a salary of $420,000 per year, (ii) an annual short-term incentive compensation of 75% of salary, at the discretion of our Board of Directors, (iii) 651,000 restricted stock units vesting in equal thirds on June 1, 2021, June 1, 2022, and June 1, 2023, (iv) 151,500 performance share units that would have vested in the Company achieved EBITDA break even on or before December 31, 2022, (v) coverage under directors and officers insurance, and (vi) reimbursement of expenses for commuting to the Boca Raton office and relocation of his home to the Boca Raton, Florida area. Mr. D’Arecca received employee benefits, vacation, and other perquisites as was determined from time to time. Conditions of termination called for (i) termination immediately upon death, (ii) termination upon a disability in which Mr. D’Arecca was unable to perform his duties for more than six consecutive months, (iii) voluntary termination by Mr. D’Arecca with prior notice, (iv) involuntary termination by our Company without cause (or 90-day notice when termination is due to the non-extension of the employment term by our Company), (v) termination for cause upon ten days written notice and, for some circumstances, a 30-day opportunity to cure, and (vi) termination for good reason wherein Mr. D’Arecca had 90 days from the date of occurrence of a criteria giving rise to good notice provide notice of termination his employment with the Company, which would have been effective 31 days after we receive notice and the criteria remains uncorrected. On October 15, 2021, the agreement was amended to clarify that Mr. D’Arecca reported only the Chief Executive Officer. Mr. D’Arecca ceased serving as the Chief Financial Officer and Principal Financial Officer of the Company on April 1, 2022. Mr. D’Arecca did not receive any payments in connection with his separation from the company.
Marlan D. Walker has an amended and restated employment agreement that commenced on December 18, 2018. The amended and restated agreement originally provided for a three-year term. After the term, it will automatically renew for additional one-year terms each year on the anniversary of execution unless notice of non-renewal is given by either our Company or Mr. Walker at least 90 days prior to such anniversary. The agreement originally provided for: (i) a salary of $350,000 per year, (ii) an annual short-term incentive compensation of 30% of salary, at the discretion of our Board of Directors, (iii) 230,000 restricted stock units vesting on December 18, 2021, and (iv) coverage under directors and officers insurance. Mr. Walker will receive employee benefits, vacation, and other perquisites as may be determined from time to time. Conditions of termination call for (i) termination immediately upon death, (ii) termination upon a disability in which Mr. Walker is unable to perform his duties for more than six consecutive months, (iii) voluntary termination by Mr. Walker with prior notice, (iv) involuntary termination by our Company without cause (or 90-day notice when termination is due to the non-extension of the employment term by our Company), (v) termination for cause upon ten days written notice and, for some circumstances, a 30-day opportunity to cure, and (vi) termination for good reason wherein Mr. Walker will have 90 days from the date of occurrence of a criteria giving rise to good notice provide notice of termination his employment with the Company, which will be effective 31 days after we receive notice and the criteria remains uncorrected. On October 15, 2021, the amended and restated agreement was amended to extend the term of Mr. Walker’s original agreement for an additional three years, and reflect his then current salary to $415,000 per year and annual short-term incentive compensation of 40%.
Robert G. Finizio had no disagreementsan amended and restated employment agreement that commenced on accountingNovember 24, 2020 and replaced his employment agreement dated November 8, 2012. The amended and restated agreement provided for a two-year term and would automatically renew for additional one-year terms each year on the anniversary of execution unless notice of non-renewal is given by either our company or Mr. Finizio at least 90 days prior to such anniversary. The agreement originally provided for: (i) a salary of $600,000 per year, (ii) an annual short-term incentive compensation of 100% of salary, at the discretion of our Board of Directors, (iii) one restricted stock unit vesting on November 24, 2022, and (iv) coverage under directors and officers insurance. Mr. Finizio will receive employee benefits, vacation, and other perquisites as may be determined from time to time. Conditions of termination call for (i) termination immediately upon death, (ii) termination upon a disability in which Mr. Finizio is unable to perform his duties for more than six months during any 12-month period, (iii) voluntary termination by Mr. Finizio with prior notice, (iv) involuntary termination by our company without cause with 30-day notice (or 90-day notice when termination is due to the non-extension of the employment term by our company), (v) termination for cause, and (vi) termination for good reason wherein Mr. Finizio will have 90 days from the date of occurrence of a criteria giving rise to good notice provide notice of termination his employment with the company, which will be effective 31 days after we receive notice and the criteria remains uncorrected. Mr. Finizio ceased serving as the Chief Executive Officer of the Company on December 14, 2021. In connection with Mr. Finizio’s separation from the company, he received cash severance equal to the sum of (i) two times his salary, payable on a biweekly basis ratably over 24 months, (ii) target annual incentive compensation for the fiscal year in which such termination of employment occurs, and (iii ) a continuation of welfare benefits for a period of two years after such termination. Additionally, Mr. Finizio was paid his unused vacation pay through his separation date. Furthermore, Mr. Finizio’s unvested options, RSUs and PSUs at target payouts were vested immediately at separation. The aggregate cash severance recorded in 2021 for Mr. Finizio was $1,838,255. The aggregate non-cash severance, based on grant date value, recorded in 2021 for Mr. Finizio was approximately $2,600,000.
Edward Borkowski had an employment agreement that commenced on January 1, 2020. The agreement provided for a three-year term and would automatically renew for additional one-year terms each year on the anniversary of execution unless notice of non-renewal was given by either our Company or Mr. Borkowski at least 90 days prior to such anniversary. The agreement originally provided for: (i) a salary of $430,000 per year, (ii) an annual short-term incentive compensation of 85% of salary, at the discretion of our Board of Directors, (iii) 1,000,000 restricted stock units vesting on January 1, 2023, (iv) an option to purchase 125,000 shares of the company’s common stock, and (v) coverage under directors and officers insurance. Mr. Borkowski received employee benefits, vacation, and other perquisites as may be determined from time to time. Conditions of termination call for (i) termination immediately upon death, (ii) termination upon a disability in which Mr. Borkowski is unable to perform his duties for more than six months during any 12-month period, (iii) voluntary termination by Mr. Borkowski with prior notice, (iv) involuntary termination by our company without cause with 30-day notice (or 90-day notice when termination is due to the non-extension of the employment term by our company), (v) termination for cause, and (vi) termination for good reason wherein Mr. Borkowski will have 90 days from the date of occurrence of a criteria giving rise to good notice provide notice of termination his employment with the company, which will be effective 31 days after the company receives notice and the criteria remains uncorrected. Mr. Borkowski ceased serving as EVP Operations of the Company on September 30, 2021. In connection with Mr. Borkowski’s separation from the company, he received cash severance equal to the sum of (i) his salary, payable on a biweekly basis ratably over 12 months, (ii) target annual incentive compensation for the fiscal year in which such termination of employment occurred, and (iii ) a continuation of welfare benefits for a period of two years after such termination. Additionally, Mr. Borkowski was paid his unused vacation pay through his separation date. Furthermore, Mr. Borkowski’s unvested options, RSUs and PSUs at target payouts were vested immediately at separation. The aggregate cash severance recorded in 2021 for Mr. Borkowski was $839,535. The aggregate non-cash severance, based on grant date value, recorded in 2021 for Mr. Borkowski was approximately $2,100,000.
John C.K. Milligan, IV had an amended and restated employment agreement that commenced on April 8, 2021 to reflect Mr. Milligan ceasing to serve as the President of our company and beginning to serve as the Chief Executive Officer of vitaCare Prescription Services, Inc., our wholly-owned subsidiary that was subsequently divested in April 2022. The amended and restated agreement provided for a two-year term. The amended and restated agreement provided for: (i) a salary of $450,000 per year, (ii) an annual short-term incentive compensation of 70% of salary, at the discretion of our Board of Directors, and (iii) coverage under directors and officers insurance. Mr. Milligan received employee benefits, vacation, and other perquisites as may be determined from time to time. [Conditions of termination call for (i) termination immediately upon death, (ii) termination upon a disability in which Mr. Milligan is unable to perform his duties for more than six months during any 12-month period, (iii) voluntary termination by Mr. Milligan with prior notice, (iv) involuntary termination by our company without cause with 30-day notice (or 90-day notice when termination is due to the non-extension of the employment term by our company), (v) termination for cause, and (vi) termination for good reason wherein Mr. Milligan will have 90 days from the date of occurrence of a criteria giving rise to good notice provide notice of termination his employment with the Company, which will be effective 31 days after we receive notice and the criteria remains uncorrected. As a result of the vitaCare Divestiture on April 14, 2022, Mr. Milligan’s employment with the Company was terminated. In connection with Mr. Milligan’s separation from the company, he received cash severance of $414,000 plus unpaid accrued base salary and unused vacation pay through his termination date. Additionally, Mr. Milligan’s unvested options, RSUs and PSUs at target payouts were vested immediately at separation. The aggregate non-cash severance, based on grant date value, recorded in 2022 for Mr. Milligan was approximately $969,000.
Potential Payments Upon Termination or Change in Control
We have, or previously had, employment agreements with certain of our executive officers as described above. The arrangements reflected in these employment agreements are designed to encourage the officers’ full attention and dedication to our Company currently and, in the event of any proposed change in control, provide these officers with individual financial disclosuresecurity. The employment agreements provide for specified payments and benefits by us to our executive officers only upon a qualifying termination of employment as described below.
Termination by Us Without Good Cause or by Executive with Good Reason — No Change in Control
Under the employment agreements for each of Messrs. O’Dowd and Walker, in the event of termination of the executive’s employment without “cause” (referred to as “good cause” in certain employment agreements) or resignation by the executive for “good reason” (as each term is defined in the employment agreements), the executive would be entitled to, subject to the executive’s signing and not revoking a full and complete release of all claims against the Company and its affiliates, (i) the sum of his salary, payable on a biweekly basis ratably over 12 months, and target annual incentive compensation for the fiscal year in which such termination of employment occurs, (ii) a continuation of welfare benefits for a period of two years after such termination, (iii) unpaid accrued base salary and unused vacation pay through the termination date, and (iv) amounts accrued but unpaid at the time of termination.
Additionally, all outstanding equity awards that vest solely on the passage of time held by such executives would immediately vest in full for each of Messrs. O’Dowd and Walker. Furthermore, the above obligations of the Company are subject to the executive complying with a non-solicitation agreement of employees and customers and a non-competition agreement.
Termination or Resignation in Connection with a Change in Control
In the event of termination of the executive’s employment without “cause” or resignation by the executive for “good reason” (as each term is defined in the employment agreements), in the 12 months following a change in control, Messrs. O’Dowd and Walker would have all the benefits and obligations for termination without a change in control, except that the executives would receive the sum their respective salaries and continuation of welfare benefits for 18 months and each would receive 150% of their targeted annual bonus award.
Termination by Reason of Death or Disability
For Messrs. O’Dowd and Walker, in the event of termination of the executive’s employment by reason of his death or “disability” (as such term is defined in the employment agreements), in addition to those payments and benefits provided to salaried employees generally, including amounts accrued but unpaid at the time of termination, each of the executives would be entitled to (i) pro-rated target annual incentive compensation for the fiscal year in which such termination of employment occurs, payable in a lump sum, subject to the executive’s signing and not revoking a full and complete release of all claims against the Company and its affiliates in the event of a disability, (ii) immediate vesting of all outstanding equity awards that vest solely on the passage of time, (iii) accrued but unused vacation pay through the termination date, payable in a lump sum, and (iv) all other rights and benefits the executive is vested in, pursuant to other plans and programs of our Company.
Nonqualified Defined Contribution and Nonqualified Deferred Compensation
We do not offer any nonqualified defined contribution plans or nonqualified deferred compensation plans for any of our NEOs.
Limitation of Directors’ Liability; Indemnification of Directors, Officers, Employees and Agents
Our Amended and Restated Articles of Incorporation and bylaws, each as amended, provide that we may indemnify to the full extent of our power to do so, all directors, officers, employees, and/or agents. The effect of this provision in the Amended and Restated Articles of Incorporation, as amended, is to eliminate the rights of our Company and our stockholders, either directly or through stockholders’ derivative suits brought on behalf of our Company, to recover monetary damages from a director for breach of the fiduciary duty of care as a director except in those instances described under Nevada law.
Insofar as indemnification by our Company for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to officers and directors of our Company pursuant to the foregoing provisions or otherwise, we are aware that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Director Compensation
We compensate our non-employee directors with a combination of cash and equity. Our Board of Directors receives the following cash compensation for their service: each director receives an annual cash retainer of $57,500; the chairperson of the Board receives an additional $22,500 annual cash retainer; the chairperson of our Audit Committee receives an annual cash retainer of $30,000 and the other members of the Audit Committee receive an annual cash retainer of $15,000; the chairperson of the Compensation Committee receives an annual cash retainer of $20,000 and the other members of the Compensation Committee receive an annual cash retainer of $12,000; and the chairperson of each of our other committees receives an annual cash retainer of $12,500 and the other members receive an annual cash retainer of $7,500. We also reimburse our directors for reasonable expenses related to attendance at Board of Directors and committee meetings. In addition, in 2021, each director received an annual award of 99,174 RSUs, with the exception of the Chairman of the Board who received an annual award of 148,760 RSUs. All RSUs granted to our directors in 2021 represent a contingent right to receive one share of common stock and will vest on the one year anniversary of the date of grant. We do not pay our directors per meeting fees.
The following table and accompanying footnotes detail compensation paid to our directors for services rendered for 2021. Compensation for Messrs. O’Dowd and Finizio is described above under “Executive Compensation.”
| Fees | | | | | | | |
| Earned | | | | | | | |
| or Paid | | Stock | | | | |
| in Cash | | Awards (2)(3) | | Total | |
Name (1) | ($) | | ($) | | ($) | |
Paul Bisaro | | 80,000 | | | 120,001 | | | 200,001 | |
J. Martin Carroll (4) | | 82,000 | | | 120,001 | | | 202,001 | |
Cooper C. Collins | | 92,000 | | | 120,001 | | | 212,001 | |
Karen L. Ling | | 69,500 | | | 120,001 | | | 189,501 | |
Jules A. Musing | | 77,500 | | | 120,001 | | | 197,501 | |
Gail Naughton, Ph.D. | | 72,500 | | | 120,001 | | | 192,501 | |
Angus C. Russell | | 87,500 | | | 120,001 | | | 207,501 | |
Tommy G. Thompson | | 100,000 | | | 180,000 | | | 280,000 | |
| |
(1) | As of December 31, 2021, each of the directors listed in the “Director Compensation” table had the following awards outstanding. |
| Option | | Stock | |
| Awards | | Awards | |
Name | (#) | | (#) | |
Mr. Bisaro | | — | | | 99,174 | |
Mr. Collins | | 570,000 | | | 99,174 | |
Ms. Ling | | — | | | 99,174 | |
Mr. Musing | | 695,000 | | | 99,174 | |
Dr. Naughton | | — | | | 99,174 | |
Mr. Russell | | 350,000 | | | 99,174 | |
Mr. Thompson | | 1,095,000 | | | 148,760 | |
| |
(2) | We grant restricted stock for shares of common stock to non-employee directors. We value our restricted stock by reference to our stock price on the date of grant. We recognize compensation expense for RSUs based on a straight-line basis over the requisite service period of the entire award. For further information, see “Note 10 – Stockholders’ deficit” of the financial statements included in the Original Form 10-K. |
(3) | RSUs depicted in the table above were granted to our current directors for serving on our Board of Directors on July 1, 2021 and will vest on July 1, 2022 for our current directors. |
(4) | On December 13, 2021, Mr. Carroll resigned from our Board of Directors. |
Item 12. | Security ownership of certain beneficial owners and management and related stockholder matters |
Security ownership of principal stockholders, directors and officers
The following table sets forth information regarding the beneficial ownership of our common stock as of April 25, 2022, by the following:
| ● | each of our directors and executive officers; |
| ● | all of our directors and executive officers as a group; and |
| ● | each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock. |
Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she, or it possesses sole or shared voting or investment power of that security, including options and warrants that are currently exercisable or exercisable within 60 days of April 25, 2022. Shares issuable pursuant to stock options, warrants, and convertible securities are deemed outstanding for computing the percentage of the person holding such options, warrants, or convertible securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is care of TherapeuticsMD, Inc., 951 Yamato Road, Suite 220, Boca Raton, Florida 33431.
| Shares Beneficially Owned |
Name of Beneficial Owners | Number | | Percent (1) |
Executive Officers and Directors: | | | | | |
Hugh O’Dowd | — | | * | |
Marlan D. Walker (2) | | 999,408 | | * | |
Mark A. Glickman | — | | * | |
Michael C. Donegan (3) | | 273,368 | | * | |
Tommy G. Thompson (4) | | 1,960,452 | | * | |
Paul M. Bisaro | | 196,864 | | * | |
Cooper C. Collins (5) | | 2,806,864 | | * | |
Karen L. Ling | | 130,309 | | * | |
Jules A. Musing (6) | | 796,364 | | * | |
Gail K. Naughton, Ph.D. | | 96,864 | | * | |
Angus C. Russell (7) | | 540,364 | | * | |
All executives and directors as a group (11 persons) (8) | | 7,800,857 | | 1.8 | % |
5% Stockholders: | | | | | |
BlackRock, Inc. (9) | | 24,894,812 | | 5.74 | % |
Robert J. Smith (10) | | 23,103,292 | | 5.33 | % |
| |
* | Represents less than 1% of the outstanding shares of our common stock. |
(1) | Applicable percentage of ownership is based on 433,427,878 shares of common stock outstanding as of April 25, 2022, as adjusted for each stockholder. |
(2) | Includes (i) 258,908 shares held by Mr. Walker directly, (ii) 50,500 shares issuable to Mr. Walker for vested RSUs and (iii) 690,000 shares issuable to Mr. Walker upon the exercise of vested stock options. |
(3) | Includes (i) 99,3688 shares held by Mr. Donegan directly, (ii) 19,000 shares issuable to Mr. Donegan for vested RSUs and (iii) 155,000 shares issuable to Mr. Donegan upon the exercise of vested stock options. |
(4) | Includes (i) 715,600 shares held by Thompson Family Investments, LLC, an entity solely owned by Thompson Family Holdings, LLC, an entity solely owned by Mr. Thompson, (ii) 148,851 shares held by Mr. Thompson directly, (iii) 1,001 shares held indirectly by Thompson Family Holdings, LLC and (iv) 1,095,000 shares issuable to Mr. Thompson upon the exercise of vested stock options. |
(5) | Includes (i) 2,236,864 shares held by Mr. Collins directly and (ii) 570,000 shares issuable to Mr. Collins upon the exercise of vested stock options. |
(6) | Includes (i) 101,364 shares held by Mr. Musing directly and (ii) 695,000 shares issuable to Mr. Musing upon the exercise of vested stock options. |
(7) | Includes (i) 190,364 shares held by Mr. Russell directly and (ii) 350,000 shares issuable to Mr. Russell upon the exercise of vested stock options. |
(8) | This amount includes all shares directly and indirectly owned by all executive officers and directors, all shares issuable directly and indirectly for vested RSUs held by our executive officers, and all shares issuable directly and indirectly upon the exercise of vested stock options held by our executive officers and directors. |
(9) | BlackRock, Inc. has sole voting power over 24,788,667 shares and sole dispositive power over 24,894,812 shares. BlackRock, Inc.’s address is 55 East 52nd Street, New York, NY 10055. This information is based on Amendment No. 5 to Schedule 13G filed with the SEC on February 1, 2022. Reported ownership includes shares held by subsidiaries listed in the filing. |
(10) | Robert J. Smith has sole voting and dispositive power over 23,103,292 shares. Mr. Smith's address is 13650 Fiddlesticks Blvd., Suite 202-324, Ft. Myers, FL 33912. This information is based on Amendment No. 12 to Schedule 13D filed with the SEC on March 23, 2022. |
Equity Compensation Plan Information
As of December 31, 2021, the following table shows the number of securities to be issued upon exercise of outstanding options under equity compensation plans approved by our stockholders, which plans do not provide for the issuance of warrants or other rights.
| | | | | | | | | | | | | (c) | |
| | | | | | | | | | | | | Number of | |
| | | | | | | | | | | | | Securities | |
| | | | | | | | | | | | | Remaining | |
| | | | | | | | | | | | | Available | |
| | | | | | | | | | | | | For Future | |
| | | | (a) | | | | | | | | Issuance | |
| Number of Securities to be Issued Upon | | (b) | | Under Equity | |
| | | | Vesting | | Vesting | | Weighted- | | Compensation | |
| | | | and | | and | | Average | | Plans | |
| | | | Settlement of | | Settlement of | | Exercise | | (Excluding | |
| Exercise of | | Restricted | | Performance | | Price of | | Securities | |
| Outstanding | | Stock Units | | Stock Units | | Outstanding | | Reflected in | |
| Options | | ("RSUs") | | ("PSUs") (1) | | Options | | Columns (a)) (2) | |
Plan Name | (#) | | (#) | | (#) | | ($) | | (#) | |
Equity Compensation Plans Approved by Stockholders | | | | | | | | | | | | | | | |
2019 Plan (3) | | 3,332,251 | | | 10,173,079 | | | 5,192,931 | | | 2.40 | | | 13,054,491 | |
2012 Plan (4) | | 4,600,974 | | | — | | | — | | | 5.38 | | | — | |
2009 Plan (5) | | 9,721,443 | | | — | | | — | | | 4.84 | | | — | |
Equity Compensation Plans Not Approved by Stockholders | | | | | | | | | | | | | | | |
2021 Inducement Grants (6) | | — | | | 3,410,000 | | | 3,010,000 | | | — | | | — | |
| |
(1) | The number of PSUs represents the base number of PSUs that may vest. The actual number of PSUs that will vest will be between zero and 11,687,530 depending on the Company’s achievement of certain performance goals. |
(2) | The number of remaining shares of common stock available for future issuance is based on an assumption that the maximum performance goals for PSUs were achieved, where applicable. |
(3) | As of December 31, 2021, outstanding options have exercise prices ranging from $1.07 to $2.73 and will expire between January 2022 and June 2030. Unvested RSUs will vest between January 2022 and December 2024. If and when certain performance goals are achieved, then unvested PSUs will vest between June 2022 and March 2024. |
(4) | As of December 31, 2021, outstanding options have exercise prices ranging from $2.55 to $8.92 and will expire between March 2022 and February 2029. |
(5) | As of December 31, 2021, outstanding options have exercise prices ranging from $1.80 to $8.92 and will expire between January 2022 and February 2029. |
(6) | As of December 31, 2021, unvested RSUs will vest between August 2022 and October 2024 and unvested PSUs upon achievement of certain performance goals will vest between October 15, 2022 and August 2024. |
Item 13. | Certain relationships and related transactions and director independence |
Policy Relating to Related Party Transactions
We have a policy that we will not enter into any material transaction in which a director or officer has a direct or indirect financial interest unless the transaction is determined by our Board of Directors to be fair to us or is approved by a majority of our disinterested directors or by our stockholders, as provided for under Nevada law. Generally, our Board of Directors as a whole, other than an affected director, if applicable, determines whether a director or officer has a direct or indirect (i.e., any) financial interest in a transaction deemed material based upon our Code of Conduct and Ethics and Nevada law. From time to time, our Audit Committee, in accordance with its charter, will also review potential conflict of interest transactions involving members of our Board of Directors and our executive officers. The policy with respect to such transactions is provided in our Company’s Code of Conduct and Ethics.
Related Party Transactions
Other than compensation arrangements, we describe below transactions and series of similar transactions, since January 1, 2019, to which we were a party or will be a party, in which:
| ● | the amounts involved exceeded or will exceed lesser of (i) $120,000 or (ii) 1% of the average of our total assets on a consolidated basis at year end for the past two fiscal years; and |
| ● | any of our directors, executive officers, or holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. |
Compensation arrangements for our directors and NEOs are described elsewhere in this Form 10-K/A.
Agreements with Catalent, Inc.
A former member of our Board, Mr. J. Martin Carroll, who resigned in December 2021, is also a director of Catalent. From time to time, we have entered into agreements with Catalent and its affiliates in the normal course of business. From July 2015 to December 2021, agreements with Catalent have been reviewed by independent directors of our Company, or a committee consisting of independent directors of our Company. For manufacturing activities, Catalent billed us $4.1 million, $3.0 million and $6.1 million for 2021, 2020 and 2019, respectively. As of December 31, 2021 and 2020, estimated amounts payable to Catalent was $0.9 million and $0.3 million, respectively.
Agreements with American International Group, Inc.
In April 2020, Ms. Karen L. Ling was appointed to our Board, who was an executive vice president and chief human resources officer of American International Group, Inc. (“AIG”) until May 2021. From time to time, we have entered into agreements with AIG in the normal course of business. From April 2020 to May 2021, agreements with AIG have been reviewed by independent directors of our Company, or a committee consisting of independent directors of our Company. For various insurance premiums, AIG billed us less than $0.1 million and $0.2 million for 2021 and 2020, respectively. As of December 31, 2021 and 2020, we have no amounts payable to AIG.
Independence
See Item 10 – Directors, Executive Officers and Independence – above for a discussion on director independence.
Item 14. | Principal accountant fees and services |
Aggregate fees billed to our Company for 2021 and 2020 by Grant Thornton LLP, our independent registered public accounting firm, during 2004, 2005, 2006, or from January 1, 2007 through the datewere as follows:
| 2021 | | 2020 | |
| ($) | | ($) | |
Audit fees | | 539,829 | | | 440,670 | |
Audit-related fees | | — | | | — | |
Tax fees | | 104,146 | | | 122,867 | |
All other fees | | 5,390 | | | — | |
Audit fees consist of this filing.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report, our Chief Executive Officer and Chief Accounting Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 Act, as amended (the “Exchange Act”) the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers originally concluded that our disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act, and the rules and regulations promulgated thereunder.
Further, there were no changes in our internal control over financial reporting during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
The Company is not aware of any previously undisclosed, but required information since its last filing; that is not included in this 10-K report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors, Officers and Significant Employees.
The Croff Board consists of Gerald L. Jensen, Richard H. Mandel Jr., Harvey Fenster, and Julian D. Jensen. The fifth Director, Dilworth Nebeker, resigned, and a replacement has not been elected. Mr. Edwin Peiker did not stand for reelection at the annual meeting in 2006, and Mr. Harvey Fenster was elected as his replacement. Each director will serve until the next annual meeting of shareholders, or until his successor is duly elected and qualified. The Company has no knowledge of any arrangements or understandings between directors or any other person pursuant to which any person was or is to be nominated or elected to the office of director of the Company. The following is provided with respect to each officer and director of the Company as of March 1, 2007:
GERALD L. JENSEN, 67, PRESIDENT & DIRECTOR
President and Chairman of Croff Enterprises, Inc. since October 1985. Mr. Jensen has been an officer and director of Jenex Petroleum Corporation, a private oil and natural gas company, for over ten years, and an officer and director of other Jenex companies. In 2000, Mr. Jensen became Chairman of Provisor Capital Inc., a private finance company. Mr. Jensen was a director of Pyro Energy Corp., a public company (N.Y.S.E.) engaged in coal production and oil and natural gas, from 1978 until it was sold in 1989. Mr. Jensen is also an owner of private real estate, finance, and oil and natural gas companies.
RICHARD H. MANDEL, JR., 77, DIRECTOR
Mr. Mandel has been a director of Croff Enterprises, Inc. since 1985. Since 1982, Mr. Mandel has been President and a Board Member of American Western Group, Inc., an oil and natural gas producing company in Denver, Colorado. From 1977 to 1984, he was President of Universal Drilling Co., Denver, Colorado. Prior to 1977, Mr. Mandel worked for The Superior Oil Co., Honolulu Oil Co., and Signal Oil and Gas Co. as an engineer and in management. Mr. Mandel was also director of Wichita River Oil, which was on the American Stock Exchange.
HARVEY FENSTER, 66, DIRECTOR
Mr. Fenster currently is the President of BA Capital Company, a financial advisory services company. From 1991 to 1994, he served as Senior Vice President and Chief Financial Officer of The Katz Corporation, a publicly owned international media representation firm. Previously, Mr. Fenster was Executive Vice President and Chief Financial Officer of Pyro Energy Corp., a New York Stock Exchange listed public company engaged in coal mining, oil and gas exploration and development. Mr. Fenster has also served as a director of Uranium Resources, Inc., a public company engaged in uranium exploration and production. Mr. Fenster, a Certified Public Accountant, is retired from public practice.
JULIAN D. JENSEN, 59, DIRECTOR
Mr. Jensen has been a director of Croff Enterprises, Inc. since November 1991. Mr. Jensen is the brother of the Company’s president and has served as legal counsel to the Company for the past twelve years. Mr. Jensen has practiced primarily in the areas of corporate and securities law, in Salt Lake City, Utah, since 1975. Mr. Jensen is currentlyfees associated with the
firmannual audit, the reviews of
Jensen, Duffin & Dibb L.L.P., which actsour annual and quarterly reports, and other filings with the SEC as legal counselwell as comfort letters and consents. Tax fees include the preparation of our tax returns. All other fees consist of fees associated with consulting and advisory services.Audit Committee Pre-Approval Policies and Procedures
The charter of our Audit Committee provides that the duties and responsibilities of our Audit Committee include the pre-approval, or adopting procedures for pre-approval, of all audit, audit-related, tax, and other services permitted by law or applicable SEC regulations (including fee and cost ranges) to be performed by our independent auditor. Any pre-approved services that will involve fees or costs exceeding pre-approved levels will also require specific pre-approval by the Audit Committee. Unless otherwise specified by the Audit Committee in pre-approving a service, the pre-approval will be effective for the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on a review of such forms furnished to the Company and certain written representations from the Executive Officers and Directors, the Company believes that all Section 16(a) filing requirements applicable to its Executive Officers, Directors and greater than ten percent beneficial owners were complied with on a timely basis in 2006.
Audit Committee
The Board has an Audit Committee to assist it in the discharge of its responsibilities including the presentation and disclosures of Croff’s financial condition and results of operations and disclosure controls and procedures.12-month period following pre-approval. The Audit Committee
is presently comprisedwill not approve any non-audit services prohibited by applicable SEC regulations or any services in connection with a
transaction initially recommended by the independent auditor, the purpose of Harvey Fenster and Richard Mandel. both of whom are independent directors of Croff. Mr. Fenster is the Chairman of the Committeewhich may be tax avoidance and the “Audit Committee Financial Expert.” Prior to December 2006,tax treatment of which may not be supported by the Code and related regulations.
To the extent deemed appropriate, the Audit Committee consisted of Dilworth Nebeker, Chairman and “Audit Committee Financial Expert”, and Edwin Peiker, member which conducted all Audit Committee functions during the earlier part of 2006.
During 2006, the Audit Committee selected and recommended the firm of Ronald Chadwick to act as Croff’s auditors for the 2006 yearmay delegate pre-approval authority to the full Board of Directors. The Board of Directors and shareholders approved the retention of Ronald Chadwick. The Audit Committee then negotiated and executed an agreement between Croff and Ronald Chadwick.
The Audit Committee reviewed each of the quarterly Form 10-Q’s filed with the SEC during the year 2006. Members of the Committee discussed each of the filings with management of Croff before the filings were made. The Committee also discussed Croff’s disclosure controls and procedures with management each quarter.
The Audit Committee members have each reviewed this 2006 Form 10-K. Members of the Committee have discussed the Form 10-K and Financial Statements for the year 2006 with management of Croff. The Committee has also discussed Croff’s disclosure controls and procedures with management. The Audit Committee met and discussed the Form 10-K and Financial Statements prior to this filing. The Audit Committee voted to recommend this 2006 Form 10-K and Financial Statements to the Board of Directors for filing with the SEC.
MembersChairperson of the Audit Committee have discussed the audit and financial statements with the appropriate principal of Ronald Chadwick, and Causey, Demgen, and Moore, including those matters required by SAS 61. They also discussed Croff’s disclosure controls and procedures.
The Croff Board of Directors have each received a letter from Ronald Chadwick that as of February 11, 2007, Ronald Chadwick was the independent accountant with respect to Croff, within the meaningor any one or more other members of the Securities Acts administered by the SEC and the requirements of the Independence Standard Board.
ITEM 11. EXECUTIVE COMPENSATION
Remuneration
During the fiscal year ended December 31, 2006, there were no officers, employees or directors whose total cash or other remuneration exceeded $80,000.
Summary Compensation Table
2006 Compensation Gerald L. Jensen, President and Chairman. (No other executive salaries)| | | 2004 | | 2005 | | 2006 | |
| | | | | | | | |
Annual Compensation | | | | | | | |
Salary | | $54,000 | | $54,000 | | $54,000 | |
Bonus | | $0 | | $0 | | $0 | |
Other Annual Compensation | | $0 | | $0 | | $0 | |
| |
Long Term Compensation | | | | | | | |
Awards | | | | | | | |
Restricted Stock Awards | | $0 | | $0 | | $0 | |
Payouts | | | | | | | |
Number of Shares Covered by Option Grant | | 0 | | 0 | | 0 | |
Long Term Incentive Plan Payout | | $0 | | $0 | | $0 | |
All Other Compensation | | $1,620 | (1) | $1,620 | (1) | $1,620 | (1) |
| |
(1) Company IRA Contribution | | | | | | | |
Gerald L. Jensen is employed as the President and Chairman of Croff Enterprises, Inc. Mr. Jensen commits a substantial amount of his time, but not all, to his duties with the Company. Directors, excluding the President, are not paid a salary by the Company, but are paid $350 for each half-day board meeting and $500 for each full-day board meeting. The Chairman of the Company’s Audit Committee is paid $500 per quarter and the otherprovided that any member of the Audit Committee is paidwho has exercised any such delegation must report any such pre-approval decision to the Audit Committee at the rate of $350 per meeting.
Proposed Remuneration:
During 2007, the Company intends to compensate outside directors at the rate of $350 for a half day meeting and $500 for a full dayits next scheduled meeting. The
Chairman of the Company’s Audit Committee will
not delegate to management the pre-approval of services to be
paid $500 per quarterperformed by the independent auditor.Our Audit Committee requires that our independent auditor, in conjunction with our Chief Financial Officer, be responsible for seeking pre-approval for providing services to us and the other member ofthat any request for pre-approval must inform the Audit Committee willabout each service to be paid atprovided and must provide detail as to the rateparticular service to be provided.
All of $350 per meeting. This compensation will be followed during 2007, unless a new Board of Directors is elected if the exchange agreement is closed. Based on the proposed remuneration, for the fiscal year ending December 31, 2007, no officer or director shall receive total cash remuneration in excess of $80,000.
PART IV
Item 15. | Exhibits and financial statement schedules |
30 | (a) | Financial statements and financial statements schedules |
| (1) | All financial statements are omitted for the reason that they are not required, or the information is otherwise supplied in Item 8. “Financial Statements and Supplementary Data” in the Original Form 10-K. |
| (2) | No financial statement schedules are included because such schedules are not applicable, are not required, or because required information is included in the consolidated financial statements or notes thereto contained in the Original Form 10-K. |
Options, Warrants or Rights
The Company had no outstanding stock options, warrants or rights as of December 31, 2005 or 2006.Exhibit No. | | Description |
| | |
2.1 | | Agreement and Plan of Reorganization, dated July 6, 2009, among Croff Enterprises, Inc., AMHN Acquisition Corp., America’s Minority Health Network, Inc., and the Major Shareholders(1) |
2.2 | | Agreement and Plan of Reorganization, dated June 11, 2010, among AMHN, Inc., SHN Acquisition Corp., Spectrum Health Network, Inc., and the Sole Shareholder of Spectrum Health Network, Inc.(2) |
2.3 | | Croff Enterprises, Inc. Plan of Corporate Division and Reorganization, dated October 25, 2007(3) |
2.4 | | Agreement and Plan of Merger, dated July 18, 2011, among vitaMedMD, LLC, AMHN, Inc., and vitaMed Acquisition, LLC(4) |
2.5***+ | | Stock Purchase Agreement, dated March 6, 2022, by and between TherapeuticsMD, Inc. and GoodRx, Inc.(37) | |
3.1 | | Articles of Conversion of AMHN, Inc. filed in the State of Nevada, dated July 20, 2010(5) |
3.2 | | Articles of Incorporation of AMHN, Inc. filed in the State of Nevada, dated July 20, 2010(5) |
3.3 | | Composite Amended and Restated Articles of Incorporation of the Company, as amended(6) | |
3.4 | | Bylaws of the AMHN, Inc.(7) | |
3.1 | | First Amendment to Bylaws of the Company, dated December 17, 2015(8) | |
4.1 | | Form of Certificate of Common Stock(9) | |
4.2 | | Description of Securities of the Company(10) | |
10.1 | | Form of Common Stock Purchase Warrant(11) | |
10.2* | | Form of Non-Qualified Stock Option Agreement(11) | |
10.3* | | TherapeuticsMD, Inc. 2019 Stock Incentive Plan(12) | |
10.4* | | First Amendment to the TherapeuticsMD, Inc. 2019 Stock Incentive Plan(31) | |
10.5* | | Amended and Restated 2012 Stock Incentive Plan(13) | |
10.6* | | 2009 Long Term Incentive Compensation Plan, as amended(14) | |
10.7* | | TherapeuticsMD, Inc. 2020 Employee Stock Purchase Plan(15) | |
10.8 | | Common Stock Purchase Warrant to Lang Naturals, Inc., dated October 23, 2011(16) | |
10.9 | | Form of Common Stock Purchase Warrant, dated February 24, 2012(17) | |
10.10 | | Common Stock Purchase Warrant, issued to Plato & Associates, LLC, dated January 31, 2013(18) | |
10.11 | | Form of Warrant to Purchase Common Stock, dated August 5, 2020(6) | |
10.12 | | Amendment to Company Warrant issued by the Company to the Subscribers party to that certain Subscription Agreement, dated as of August 5, 2020, dated November 8, 2020(19) | |
10.13 | | Second Amendment to Company Warrant issued by the Company to the Subscribers party to that certain Subscription Agreement, dated as of August 5, 2020(20) | |
10.14 | | Warrant issued by the Company to Robert Finizio(20) | |
ITEM 12.
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
| | |
Exhibit No. | | Description |
| | | |
10.15 | | Amendment to Warrant issued by the Company to Robert Finizio(20) | |
10.16* | | Warrant issued by the Company to John C.K. Milligan, IV(20) | |
10.17* | | Amendment to Warrant issued by the Company to John C.K. Milligan, IV(20) | |
10.18*** | | Financing Agreement, dated April 24, 2019, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(21) | |
10.19 | | Amendment No. 1 to the Financing Agreement, dated December 27, 2019, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(11) | |
10.20 | | Amendment No. 2 to the Financing Agreement, dated April 17, 2020, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(6) | |
10.21 | | Amendment No. 3 to the Financing Agreement, dated May 1, 2020, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(6) | |
10.22 | | Amendment No. 4 to the Financing Agreement, dated May 13, 2020, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(6) | |
10.23 | | Amendment No. 5 to the Financing Agreement, dated August 5, 2020, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(6) | |
10.24 | | Amendment No. 6 to the Financing Agreement, dated November 8, 2020, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(19) | |
10.25 | | Amendment No. 7 to the Financing Agreement, dated January 13, 2021, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(20) | |
10.26*** | | Amendment No. 8 to the Financing Agreement, dated March 1, 2021, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(20) | |
10.27*** | | Amendment No. 9 to the Financing Agreement, dated March 8, 2022, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(37) | |
10.28 | | Pledge and Security Agreement, dated April 24, 2019, by and among TherapeuticsMD, Inc. as the Borrower, vitaMedMD, LLC, BocaGreenMD, Inc. and vitaCare Prescription Services, Inc. as the Guarantors, TPG Specialty Lending, Inc., Top IV Talents, LLC and Tao Talents, LLC as the Lenders(21) | |
10.29 | | Subscription Agreement, dated August 5, 2020, by and among TherapeuticsMD, Inc. and the Subscribers identified on the Schedule of Subscribers attached thereto(6) | |
10.30*** | | Commercial Supply Agreement, dated September 28, 2018, by and between TherapeuticsMD, Inc. and QPharma AB(22) | |
10.31** | | Softgel Commercial Supply Agreement, dated April 20, 2016, by and between TherapeuticsMD, Inc. and Catalent Pharma Solutions, LLC(23) | |
10.32*** | | Amendment No. 2 to the Commercial Supply Agreement, dated September 29, 2020, between TherapeuticsMD, Inc. and Catalent Pharma Solutions, LLC(19) | |
The following table sets forth the beneficial ownership of common stock and Preferred B stock of the Company as of March 1, 2007, by (a) each person who owned of record, or beneficially, more than five percent (5%) of the Company’s $.10 par value common stock, its common voting securities, and (b) each director and nominee and all directors and officers as a group.Exhibit No. | | Description |
| | | |
10.33** | | Softgel Commercial Supply Agreement, dated June 24, 2016, by and between TherapeuticsMD, Inc. and Catalent Pharma Solutions, LLC(24) | |
10.34*** | | Amendment No.1 to Softgel Commercial Supply Agreement, dated December 1, 2017, by and between TherapeuticsMD, Inc. and Catalent Pharma Solutions, LLC(19) | |
10.35*** | | Amendment No.2 to Softgel Commercial Supply Agreement, dated September 29, 2020, by and between TherapeuticsMD, Inc. and Catalent Pharma Solutions, LLC(19) | |
10.36*** | | License Agreement, dated July 30, 2018, by and between TherapeuticsMD, Inc. and The Population Council, Inc.(25) | |
10.37* | | Agreement to Forfeit Non-Qualified Stock Options, dated May 8, 2013, between the Company and Robert G. Finizio(26) | |
10.38*** | | Lease, dated October 5, 2018, by and between 951 Yamato Acquisition Company, LLC and TherapeuticsMD, Inc.(27) | |
10.39* | | Executive Employment Agreement, dated as of August 3, 2021, by and between TherapeuticsMD, Inc. and Hugh O’Dowd(32) | |
10.40* | | TherapeuticsMD, Inc. Inducement Grant Restricted Stock Unit Agreement, dated as of August 31, 2021, by and between TherapeuticsMD, Inc. and Hugh O’Dowd(33) | |
10.41* | | Employment Agreement, dated June 1, 2020, between the Company and James C. D’Arecca(6) | |
10.42* | | Amendment to Employment Agreement, dated October 15, 2021, between TherapeuticsMD, Inc. and James C. D’Arecca(34) | |
10.43* | | Executive Employment Agreement, dated October 15, 2021, by and between TherapeuticsMD, Inc. and Mark Glickman(35) | |
10.44* | | TherapeuticsMD, Inc. Inducement Grant Restricted Stock Unit Agreement, dated October 15, 2021, by and between TherapeuticsMD, Inc. and Mark Glickman(36) | |
10.45* | | Amended and Restated Employment Agreement, dated November 24, 2020, between the Company and Michael Donegan(28) | |
10.46* | | Amended and Restated Employment Agreement, dated November 24, 2020, between the Company and Robert G. Finizio(28) | |
10.47* | | Amended and Restated Employment Agreement, dated November 24, 2020, between the Company and John C.K. Milligan, IV(28) | |
10.48* | | Amendment, dated April 8, 2021, to the Amended and Restated Employment Agreement, dated as of November 24, 2020, by and between TherapeuticsMD, Inc. and John C.K. Milligan, IV(30) | |
10.49* | | Employment Agreement, October 30, 2019, between the Company and Edward J. Borkowski(20) | |
10.50* | | Amendment to Employment Agreement between the Company and Edward J. Borkowski(20) | |
10.51*** | | License and Supply Agreement, dated June 6, 2019, by and between TherapeuticsMD, Inc. and Theramex HQ UK Limited(21) | |
10.52* | | Form of Indemnification Agreement between TherapeuticsMD, Inc. and each of its executive officers and directors(19) | |
10.53 | | Controlled Equity OfferingSM Sales Agreement, dated November 27, 2020, by and between TherapeuticsMD, Inc. and Cantor Fitzgerald & Co.(28) | |
10.54 | | Controlled Equity OfferingSM Sales Agreement, dated March 3, 2021, by and between TherapeuticsMD, Inc. and Cantor Fitzgerald & Co.(29) | |
10.55*††† | | 2022 Executive Retention and Performance Bonus Plan. (ERB-Plan) | |
21.1 | | Subsidiaries of the Company(10) | |
31.1† | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) | |
31.2† | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) | |
104† | | Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set | |
| | | |
| | | Shares of Common Stock Owned Beneficially | | Percentage of Class of Common Stock | | Shares of Preferred B Stock Owned Beneficially | | Percentage of Class B Preferred Stock |
| | | | | |
| | | | | |
| | | | | |
| |
Gerald L. Jensen | | 257,878(1) | | 47% | | 363,535(1) | | 67.2% |
3773 Cherry Creek Drive N, #1025 | | | | | | | | |
Denver, Colorado 80209 | | | | | | | | |
| |
Richard H. Mandel, Jr. | | 18,100 | | 3.2 % | | 8,000 | | 1.5% |
3333 E. Florida #94 | | | | | | | | |
Denver, Colorado 80210 | | | | | | | | |
| |
Julian D. Jensen | | 31,663 | | 5.7% | | 0 | | 0% |
311 South State Street, Suite 380 | | | | | | | | |
Salt Lake City, Utah 84111 | | | | | | | | |
| |
Harvey Fenster | | 0 | | 0% | | 0 | | 0% |
| |
Directors as a Group | | 307,641 | | 55.9% | | 371,535 | | 68.7% |
* | Indicates a contract with management or compensatory plan or arrangement. |
(1)
** | Includes 132,130 shares of CommonCertain confidential material contained in the document has been omitted and 240,584 shares Preferred B held by Jensen Development Companyfiled separately with the Securities and CS Finance L.L.C., both of which are wholly owned by Gerald L. Jensen.Exchange Commission. Confidential treatment has been granted with respect to this omitted information. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*** | Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(2). The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed. |
+ | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
††† | Filed as an exhibit to the Original Form 10-K, filed on March 23, 2022. |
(1) | Filed as an exhibit to Form 8-K filed with the Commission on July 10, 2009 and incorporated herein by reference (SEC File No. 000-16731). |
(2) | Filed as an exhibit to Form 8-K filed with the Commission on June 14, 2010 and incorporated herein by reference (SEC File No. 000-16731). |
(3) | Filed as an exhibit to Form 10-K for the year ended December 31, 2007 filed with the Commission on May 1, 2008 and incorporated herein by reference (SEC File No. 000-16731). |
(4) | Filed as an exhibit to Form 8-K filed with the Commission on July 21, 2011 and incorporated herein by reference (SEC File No. 000-16731). |
(5) | Filed as an exhibit to Form 10-Q for the quarter ended June 30, 2010 filed with the Commission on August 3, 2010 and incorporated herein by reference (SEC File No. 000-16731). |
(6) | Filed as an exhibit to Form 10-Q for the quarter ended June 30, 2020 filed with the Commission on August 7, 2020 and incorporated herein by reference (SEC File No. 001-00100). |
(7) | Filed as an exhibit to Definitive 14C Information Statement filed with the Commission on June 29, 2010 and incorporated herein by reference (SEC File No. 000-16731). |
(8) | Filed as an exhibit to Form 8-K filed with the Commission on December 22, 2015 and incorporated herein by reference (SEC File No. 001-00100). |
(9) | Filed as an exhibit to Form S-3 filed with the Commission on January 25, 2013 and incorporated hereby by reference (SEC File No. 333-186189). |
(10) | Filed as an exhibit to Form 10-K for the year ended December 31, 2019 filed with the Commission on February 24, 2020 and incorporated herein by reference (SEC File No. 001-00100). |
(11) | Filed as an exhibit to Form 8-K filed with the Commission on October 11, 2011 and incorporated herein by reference (SEC File No. 000-16731). |
(12) | Filed as an exhibit to Form S-8 filed with the Commission on June 21, 2019 and incorporated herein by reference (SEC File No. 333-232268). |
(13) | Filed as an exhibit to Form 8-K filed with the Commission on August 22, 2013 and incorporated herein by reference (SEC File No. 001-00100). |
(14) | Filed as an exhibit to Registration Statement on Form S-8 filed with the Commission on October 15, 2013 and incorporated herein by reference (SEC File No. 333-191730). |
(15) | Filed as an appendix to the Definitive Proxy Statement filed with the Commission on May 4, 2020 and incorporated herein by reference (SEC File No. 000-00100). |
(16) | Filed as an exhibit to Form 8-K filed with the Commission on October 24, 2011 and incorporated herein by reference (SEC File No. 000-16731). |
(17) | Filed as an exhibit to Form 8-K filed with the Commission on February 24, 2012 and incorporated herein by reference (SEC File No. 000-16731). |
(18) | Filed as an exhibit to Form 8-K filed with the Commission on February 6, 2013 and incorporated herein by reference (SEC File No. 000-16731). |
(19) | Filed as an exhibit to Form 10-Q filed with the Commission on November 9, 2020 and incorporated herein by reference (SEC File No. 000-00100). |
(20) | Filed as an exhibit to Form 10-K for the year ended December 31, 2020 filed with the Commission on March 4, 2021 and incorporated herein by reference (SEC File No. 001-00100). |
In 2006, the Company entered into the exchange agreement with TRBT described under Item 1. This Transaction would have included the exchange of the principal shareholders Preferred “B” shares for shares of a new subsidiary which would be assigned the Company’s oil and gas assets. This potential conflict is now moot.(21) | Filed as an exhibit to Form 10-Q for the quarter ended June 30, 2019 filed with the Commission on August 9, 2019 and incorporated herein by reference (SEC File No. 001-00100). |
(22) | Filed as an exhibit to Form 10-Q for the quarter ended September 30, 2019 filed with the Commission on November 8, 2019 and incorporated herein by reference (SEC File No. 001-00100). |
(23) | Filed as an exhibit to Form 10-Q for the quarter ended June 30, 2018 filed with the Commission on July 30, 2018 and incorporated herein by reference (SEC File No. 001-00100). |
(24) | Filed as an exhibit to Form 10-K for the year ended December 31, 2018 filed with the Commission on February 27, 2019 and incorporated herein by reference (SEC File No. 001-00100). |
(25) | Filed as an exhibit to Form 10-Q for the quarter ended September 30, 2018 filed with the Commission on November 8, 2018 and incorporated herein by reference (SEC File No. 001-00100). |
(26) | Filed as an exhibit to Form 10-Q for the quarter ended March 31, 2013 filed with the Commission on May 10, 2013 and incorporated herein by reference (SEC File No. 001-00100). |
(27) | Filed as an exhibit to Form 10-Q for the quarter ended September 30, 2019 filed with the Commission on November 8, 2019 and incorporated herein by reference (SEC File No. 001-00100). |
(28) | Filed as an exhibit to Form 8-K filed with the Commission on November 27, 2020 and incorporated herein by reference (SEC File No. 001-00100). |
(29) | Filed as an exhibit to Registration Statement on Form S-3 filed with the Commission on March 4, 2021 and incorporated herein by reference (SEC File No. 333-253851). |
(30) | Filed as an exhibit to Form 8-K filed with the Commission on April 12, 2021 and incorporated herein by reference (File No. 001-00100). |
(31) | Filed as an appendix to the Definitive Proxy Statement filed with the Commission on April 14, 2021 and incorporated herein by reference (File No. 001-00100). |
(32) | Filed as an exhibit to Form 8-K filed with the Commission on August 9, 2021 and incorporated herein by reference (File No. 001-00100). |
(33) | Filed as exhibit to Form S-8 filed with the Commission on August 31, 2021 and incorporated herein by reference (File No. 333-259221) |
(34) | Filed as an exhibit to Form 10-Q for the quarterly period ended September 30, 2021 filed with the Commission on November 11, 2021 and incorporated herein by reference (SEC File No. 001-00100). |
(35) | Filed as an exhibit to Form S-8 filed with the Commission on October 15, 2021 and incorporated herein by reference (File No. 333-260295). |
(36) | Filed as an exhibit to Form S-8 filed with the Commission on October 15, 2021 and incorporated herein by reference (File No. 333-260295). |
(37) | Filed as an exhibit to Form 8-K filed with the Commission on March 10, 2022 and incorporated herein by reference (File No. 001-00100). |
In 2005, the Company’s Preferred B Shareholders received a tender offer from Jensen Development Company and C.S. Finance L.L.C., companies wholly owned by Gerald L. Jensen, President and Chairman of the Company. This tender offer is fully described under Item 1 of the 2005 Form 10-K and is incorporated herein by reference.
The Company currently has an office sharing arrangement with Jenex Petroleum Corporation, hereafter “Jenex”, which is owned by the Company’s President. The Company is not a party to any lease, but during 2006 paid Jenex for office space and all office services, including rent, phone, office supplies, secretarial, land, and accounting. These arrangements were entered into to reduce the Company’s overhead and are currently on a month-to-month basis. The Company’s expenses for these services were $49,872, $50,554, and $48,000 for the years ended 2006, 2005, and 2004, respectively. Although these transactions were not a result of “arms length” negotiations, the Company’s Board of Directors believes the transactions are reasonable.
The Company retains the legal services of Jensen, Duffin, & Dibb, LLP. Julian Jensen, a Director of the Company, is part of this professional firm. Legal fees paid to this law firm for the years ending 2006, 2005, and 2004, were $23,493, $16,920, and $2,410, respectively. The reason for the increase in legal fees in 2005 and 2006 is the added time and expense related to the strategic alternatives for the Company, the exchange agreement, and increased compliance costs.
The Company has working interests in five Oklahoma natural gas wells, which are operated by Jenex, a company wholly owed by Gerald Jensen, the Company’s President. As part of the 1998 purchase agreement, Jenex agreed to rebate to Croff $150 of operating fees per well, each month, which now totals $750 per month, as long as Jenex operated the wells and Croff retained its interest.
The Company compensated Richard H. Mandel, Jr., a member of its Board of Directors, 1,000 and 2,000 shares of common stock during 2003 and 2004, respectively, for consulting services rendered in connection with the Company’s Yorktown Re-entry Program in South Texas. The common shares were valued at $1.00 per share.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
Ronald Chadwick was recommended by the Audit Committee of the Board and approved by the Company stockholder’s for appointment as the registered public accounting firm for the Company for the fiscal year ended December 31, 2006. Ronald Chadwick is registered with the Public Company Accounting Oversight Board. Ronald Chadwick is in the first year of acting as independent accountant for the company, and his fees for each quarterly review are $1,250 and the fee for the 2006 year end audit is $10,000. Previously, Causey Demgen and Moore, “CDM,” has been acting as independent accountants for the Company for over fifteen years. Aggregate fees for professional services rendered by CDM in connection with its audit of the Company’s Financial Statements as of and for the year ended December 31, 2005, and its limited reviews of the Company’s unaudited condensed quarterly Financial Statements during 2005 totaled $14,145. During 2006, CDM did not perform any additional services for the Company.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
See index to Financial Statements, financial statement schedules and supplemental information as referenced in Part II, Item 8, and the financial index on page F-1 hereof, which follow the exhibits below.
Reports on Form 8-K:
8-K: December 15, 2006 Croff Announces Merger Plan
(Includes definitive Stock for Stock Exchange Agreement filed as an exhibit)
8-K: December 6, 2006 Resignation of Dilworth Nebeker from Board of Directors
8-K: July 24, 2006 Completion of Acquisition or Disposition of Assets
8-K/A: April 13, 2006 Changes in Registrants Certifying Accountant
8-K: March 31, 2006 Changes in Registrants Certifying Accountant
Other Filings:
Schedule 14A; November 8, 2006- 2006 Proxy Statement
10Q; November 9, 2006 For the Quarter and Nine Months ended September 30, 2006
10Q; August 16, 2006 For the Quarter and Six Months ended Ended June 30, 2006
10Q; May 15, 2006 For the Quarter Ended March 31, 2006
10K; March 28, 2006 For the Fiscal Year Ended December 31, 2005
Exhibit Index
23.1 Consent letter from Ronald R. Chadwick, P.C.
23.2 Consent letter from Causey Demgen & Moore Inc.
31.1 Certification by C.E.O.
31.2 Certification of C.A.O
32.1 Section 906 Certification by C.E.O.
32.2 Section 906 Certification by C.A.O
SIGNATURES
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report2021 10-K/A Report to be signed on its behalf by the undersigned, thereunto duly authorized.
authorized, on April 29, 2022 | | REGISTRANT:
|
| | THERAPEUTICSMD, INC. |
| | CROFF ENTERPRISES, INC.
|
| | | | | |
Date:
| 08/27/2007 | | By
| | Hugh O’Dowd |
| | | | | Gerald L. Jensen, President,
Hugh O’Dowd |
| | | | | (Principal Executive Officer) |
| | | | | |
Date:
| | | By
| | /s/ Gerald L. Jensen
|
| | | | | Gerald L. Jensen
|
| | | | | Acting Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the date indicated have signed this report below.
Date:
| | | By
| | /s/ Gerald L. Jensen
|
| | | | | Gerald L. Jensen, Chairman
|
| | | | | |
Date:
| | | By
| | /s/ Richard H. Handel, Jr.
|
| | | | | Richard H. Mandel, Jr., Director
|
| | | | | |
Date:
| | | By
| | /s/ Harvey Fenster
|
| | | | | Harvey Fenster, Director
|
| | | | | |
Date:
| | | By
| | /s/ Julian D. Jensen
|
| | | | | Julian D. Jensen, Director
|
CROFF ENTERPRISES, INC.
FINANCIAL STATEMENTS
December 31, 2005 and 2006
WITH
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
CROFF ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS, SCHEDULES
AND SUPPLEMENTAL INFORMATION
| | Page Number
|
| | |
I. | Financial Statements
| |
| | |
| Report of Registered Public Accounting Firm
| F-2
|
| | |
| Report of Registered Public Accounting Firm
| F-3
|
| | |
| Balance Sheets as of December 31, 2005 and 2006
| F-4
|
| | |
| Statements of Operations for the years ended December 31,
| |
| 2004, 2005 and 2006
| F-5
|
| | |
| Statements of Stockholders' Equity for the years ended
| |
| December 31, 2004, 2005 and 2006
| F-6
|
| | |
| Statements of Cash Flows for the years ended December 31,
| |
| 2004, 2005 and 2006
| F-7
|
| | |
| Notes to Financial Statements
| F-8
|
| | |
II.
| Supplemental Information - Disclosures About Oil and
| |
| | |
| Gas Producing Activities – Unaudited
| F-20
|
RONALD R. CHADWICK, P.C.
Certified Public Accountant
2851 South Parker Road, Suite 720
Aurora, Colorado 80014
Telephone (303)306-1967
Fax (303)306-1944
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Croff Enterprises, Inc.
Denver, Colorado
I have audited the accompanying balance sheet of Croff Enterprises, Inc. as of December 31, 2006, and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Croff Enterprises, Inc. as of December 31, 2006, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Aurora, Colorado Ronald R. Chadwick, P.C.
March 22, 2007 RONALD R. CHADWICK, P.C.
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Croff Enterprises, Inc.
We have audited the balance sheets of Croff Enterprises, Inc. at December 31, 2005, and the related statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2005. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Croff Enterprises, Inc. as of December 31, 2005, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.
Denver, Colorado | |
March 17, 2006 | CAUSEY DEMGEN & MOORE INC. |
CROFF ENTERPRISES, INC.
BALANCE SHEETS
December 31, 2005 and 2006
| | | 2005 | | | | 2006 | | |
| |
ASSETS | | | | | | | | |
| |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 902,257 | | | | $ | 985,729 | | |
Accounts receivable | | | 157,959 | | | | | 124,900 | | |
| | | | 1,060,216 | | | | | 1,110,629 | | |
| |
Oil and gas properties, at cost, successful efforts method: | | | | | | | | | | |
Proved properties | | | 1,016,442 | | | | | 1,074,188 | | |
Unproved properties | | | 266,174 | | | | | 266,174 | | |
| | | | 1,282,616 | | | | | 1,340,362 | | |
Accumulated depletion and depreciation | | | (535,330 | ) | | | | (583,830 | ) | |
| | | | 747,286 | | | | | 756,532 | | |
| |
Total assets | | $ | 1,807,502 | | | | $ | 1,867,161 | | |
| |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
| |
Current liabilities: | | | | | | | | | | |
Accounts payable | | $ | 37,945 | | | | $ | 58,756 | | |
Farmout agreement liability | | | 300,621 | | | | | - | | |
Current portion of ARO liability | | | 23,000 | | | | | 23,000 | | |
Accrued liabilities | | | 72,788 | | | | | 33,375 | | |
| | | | 434,354 | | | | | 115,131 | | |
| |
Long-term portion of ARO liabilities | | | 58,828 | | | | | 64,695 | | |
| |
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 | | | 1,089,233 | | | | | 1,380,387 | | |
Common stock, $.10 par value; 20,000,000 shares authorized, | | | | | | | | | | |
622,143 and 620,643 shares issued and outstanding at | | | | | | | | | | |
December 31, 2005 and 2006 | | | 62,064 | | | | | 62,064 | | |
Capital in excess of par value | | | 155,715 | | | | | 155,715 | | |
Treasury stock, at cost, 69,399 and 69,399 shares issued and | | | | | | | | | | |
outstanding at December 31, 2005 and 2006 | | | (107,794 | ) | | | | (107,794 | ) | |
Retained earnings | | | 115,102 | | | | | 196,963 | | |
| | | | 1,314,320 | | | | | 1,687,335 | | |
| |
Total liabilities and stockholders’ equity | | $ | 1,807,502 | | | | $ | 1,867,161 | | |
| |
| |
See accompanying notes to the financial statements. | | | | | | | | | | |
CROFF ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
For the years ended December 31, 2004, 2005 and 2006
| | | 2004 | | | 2005 | | | 2006 | |
Revenues | | | | | | | | | |
Oil and natural gas sales | | $ | 615,731 | | | $ | 934,525 | | | $ | 842,400 | |
Loss on natural gas “put” contracts | | | (7,599 | ) | | | -- | | | | -- | |
Other income (lease payments) | | | 6,196 | | | | 7,330 | | | | 660 | |
| | | | 614,328 | | | | 941,855 | | | | 843,060 | |
Expenses | | | | | | | | | | | | |
Lease operating expense including | | | | | | | | | | | | |
production taxes | | | 192,187 | | | | 272,129 | | | | 205,371 | |
Proposed drilling program | | | 30,825 | | | | 52,638 | | | | -- | |
General and administrative | | | 112,157 | | | | 165,212 | | | | 212,648 | |
Overhead expense, related party | | | 48,000 | | | | 50,554 | | | | 49,872 | |
(Gain) on sale of equipment | | | -- | | | | (14,173 | ) | | | (112,543 | ) |
Accretion expense | | | -- | | | | 10,187 | | | | 5,868 | |
Depletion and depreciation | | | 42,000 | | | | 45,000 | | | | 48,500 | |
| | | | 425,169 | | | | 581,547 | | | | 409,716 | |
Income from operations | | | 189,159 | | | | 360,308 | | | | 433,344 | |
Other income (expense) | | | | | | | | | | | | |
Gain (loss) on sale of marketable equity securities | | | (38,166 | ) | | | -- | | | | -- | |
Interest income | | | -- | | | | 12,057 | | | | 49,671 | |
| | | | (38,166 | ) | | | 12,057 | | | | 49,671 | |
Income before income taxes | | | 150,993 | | | | 372,365 | | | | 483,015 | |
Provision for income taxes | | | 8,877 | | | | 82,478 | | | | 110,000 | |
Net income | | $ | 142,116 | | | $ | 289,887 | | | | 373,015 | |
| | |
Net income applicable to | | | | | | | | | | | | |
preferred B shares | | | 213,634 | | | | 316,304 | | | | 291,154 | |
| | |
Net income (loss) applicable to | | | | | | | | | | | | |
common shares | | $ | (71,518 | ) | | $ | (26,417 | ) | | $ | 81,861 | |
| | |
Basic and diluted net income | | | | | | | | | | | | |
(loss) per common share | | $ | (0.13 | ) | | $ | (0.05 | ) | | $ | 0.15 | |
See accompanying notes to the financial statements.
CROFF ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended December 31, 2004, 2005 and 2006
| | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | |
| | | | | | | | | | | | | | | | | Capital in | | | | | | | | | | other | | | | | Retained | |
| | | Preferred B stock | | Common stock | | | | excess of | | | | | Treasury | | | | | comprehensive | | | | | earnings | |
| | | Shares | | | Amount | | Shares | | | | | Amount | | | | par value | | | | | stock | | | | | loss | | | | | (deficit) | |
| |
Balance at December 31, 2003 | | 540,659 | | $ | 559,295 | | 620,143 | | | | $ | 62,014 | | | $ | 369,761 | | | | $ | (83,151 | ) | | | $ | (41,210 | ) | | | $ | (597 | ) |
Realization of net loss on | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
marketable equity securities | | - | | | - | | - | | | | | - | | | | - | | | | | - | | | | | 41,210 | | | | | - | |
Net income for the year ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2004 | | - | | | - | | - | | | | | - | | | | - | | | | | - | | | | | | | - | | | | | 142,116 | |
Common stock issued for services | | - | | | - | | 2,000 | | | | | 200 | | | | 1,800 | | | | | - | | | | | | | - | | | | | - | |
Preferred stock reallocation | | - | | | 213,634 | | - | | | | | - | | | | (213,634 | ) | | | | - | | | | | | | - | | | | | - | |
| |
Balance at December 31, 2004 | | 540,659 | | | 772,929 | | 622,143 | | | | | 62,214 | | | | 157,927 | | | | | (83,151 | ) | | | | | | - | | | | | 141,519 | |
Net income for the year ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2005 | | - | | | - | | - | | | | | - | | | | - | | | | | - | | | | | | | - | | | | | 289,887 | |
Cancellation of treasury stock | | - | | | - | | (1,500 | ) | | | | (150 | ) | | | (2,212 | ) | | | | - | | | | | | | - | | | | | - | |
Purchase of treasury stock | | - | | | - | | - | | | | | - | | | | - | | | | | (24,643 | ) | | | | | | - | | | | | - | |
Preferred stock reallocation | | - | | | 316,304 | | - | | | | | - | | | | - | | | | | - | | | | | | | - | | | | | (316,304 | ) |
| |
Balance at December 31, 2005 | | 540,659 | | | 1,089,233 | | 620,643 | | | | | 62,064 | | | | 155,715 | | | | | (107,794 | ) | | | | | | - | | | | | 115,102 | |
Net income for the year ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2006 | | - | | | - | | - | | | | | - | | | | - | | | | | - | | | | | | | - | | | | | 373,015 | |
Preferred stock reallocation | | - | | | 291,154 | | - | | | | | - | | | | - | | | | | - | | | | | | | - | | | | | (291,154 | ) |
| |
Balance at December 31, 2006 | | 540,659 | | $ | 1,380,387 | | 620,643 | | | | $ | 62,064 | | | $ | 155,715 | | | | $ | (107,794 | ) | | | $ | | | - | | | $ | | 196,963 | |
See accompanying notes to the financial statements.
CROFF ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2004, 2005 and 2006
| | | 2004 | | | 2005 | | | 2006 | |
Cash flows from operating activities: | | | | | | | | | |
Net income | | $ | 142,116 | | | $ | 289,887 | | | $ | 373,015 | |
Adjustments to reconcile net income to | | | | | | | | | | | | |
net cash provided by operating activities: | | | | | | | | | | | | |
Depletion, depreciation, and accretion | | | 42,000 | | | | 55,187 | | | | 54,368 | |
Loss on abandonment | | | - | | | | 56,089 | | | | -- | |
(Gain) on sale of equipment | | | - | | | | (14,173 | ) | | | (112,000 | ) |
Realized (gain) loss on marketable equity securities | | | 38,166 | | | | -- | | | | -- | |
Loss on natural gas “put” contracts | | | 7,599 | | | | -- | | | | -- | |
Other items, net | | | 2,000 | | | | -- | | | | -- | |
| Accounts receivable | | | (29,160 | ) | | | (48,268 | ) | | | 33,059 | |
| Accounts payable | | | 7,027 | | | | 9,535 | | | | 20,811 | |
| Accrued liabilities | | | (2,021 | ) | | | 64,082 | | | | (39,413 | ) |
Net cash provided by operating activities | | | 207,727 | | | | 412,339 | | | | 329,840 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Proceeds from natural gas “put” contracts | | | 61 | | | | -- | | | | -- | |
Proceeds from sale of investments | | | 128,943 | | | | -- | | | | -- | |
Proceeds from sale of equipment | | | -- | | | | 48,500 | | | | 112,000 | |
Net participation fees received | | | 77,500 | | | | -- | | | | -- | |
Purchase of treasury stock | | | -- | | | | (24,643 | ) | | | -- | |
| | | | | | | | | | | | | |
Acquisition of oil and gas properties and improvements | | | (311,054 | ) | | | (92,228 | ) | | | (57,746 | ) |
Net cash used in investing activities | | | (104,550 | ) | | | (68,371 | ) | | | 54,254 | |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from Farmout agreement | | | - | | | | 450,000 | | | | -- | |
Costs incurred for the benefit of Farmout agreement | | | - | | | | (149,378 | ) | | | (300,622 | ) |
Net cash provided by financing activities | | | - | | | | 300,622 | | | | (300,622 | ) |
Net increase (decrease) in cash and cash equivalents | | | 103,177 | | | | 644,590 | | | | 83,472 | |
Cash and cash equivalents at beginning of year | | | 154,490 | | | | 257,667 | | | | 902,257 | |
Cash and cash equivalents at end of year | | $ | 257,667 | | | $ | 902,257 | | | $ | 985,729 | |
Supplemental disclosure of non-cash investing and financing activities:
During the years ended December 31, 2004, the Company issued 2,000 shares of its common stock to a Director for services rendered valued at $2,000. During the year ended December 31, 2005, the Company purchased 1,500 shares of its common stock for $2,362 and the shares were cancelled.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
1. ORGANIZATIONS AND NATURE OF BUSINESS
Croff Enterprises, Inc. (“Croff” or the “Company”) is an independent energy company engaged in the business of oil and natural gas production, primarily through ownership of perpetual mineral interests and acquisition of producing oil and natural gas leases. The Company’s principal activity is oil and natural gas production from non-operated properties. The Company’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 acquires and owns producing and non-producing leases and perpetual mineral interests in Alabama, Colorado, Michigan, Montana, New Mexico, North Dakota, Oklahoma, Texas, Utah, and Wyoming. Over the past eleven years, the Company’s primary source of revenue has been oil and natural gas production from leases and producing mineral interests. Other companies operate almost all of the wells from which the Company receives revenues and the Company has no control over the factors which determine royalty or working interest revenues, such as markets, prices and rates of production. The Company presently participates as a working interest owner in 34 single wells and in 10 units of multiple wells. The Company holds small royalty interests in approximately 215 wells.
The Company was incorporated in Utah in 1907 as Croff Mining Company. The Company changed its name to Croff Oil Company in 1952, and in 1996 changed its name to Croff Enterprises, Inc. The Company continues to operate its oil and natural gas properties as Croff Oil Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Producing activities
The Company follows the "successful efforts" method of accounting for its oil and gas properties. Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has proven reserves. If an exploratory well does not result in reserves, the capitalized costs of drilling the well, net of any salvage, are charged to expense. The costs of development wells are capitalized, whether the well is productive or nonproductive.
The Company re-entered the Helen Gips #1 well in Dewitt County, Texas, and re-completed the wellbore to the Wilcox formation during 2004. Under the successful efforts method of accounting the Company has capitalized $65,213 as of December 31, 2004, for costs incurred on this unevaluated exploratory well. The capitalized costs associated with this unevaluated exploratory well have been excluded from depletion and depreciation during the 2004. In 2005, the Helen Gips #1 was deemed noncommercial and was plugged and abandoned, and $52,638 of the capitalized costs was expensed to drilling operations for the year ended December 31, 2005. The amount to be recovered from the tubing of $13,000 remains capitalized at December 31, 2005.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
In 2005, the Company purchased a 25% working interest in a lease on which there is an existing re-entry well and a producing well. (A.C. Wiggins). The Wiggins well was refraced in 2005 and is currently producing gas.
The Company was informed that Tempest Energy Resources, pursuant to its 2004 Participation Agreement, declined to participate in the re-entry program in Dewitt County, Texas. Although the Company abandoned most of these leases, it did renew several leases for a farmout agreement for the re-entry of the Dixel Gips well, in December 2005. The Company provided the leases, the re-entry wellbore, geological, engineering and other wellsite improvements for a 20% working interest, carried through completion. Under the Farmout Agreement, the Farmees pay for drilling and completion and all parties, including The Company, pay for production and equipment.
The Dixel Gips well was completed in the first quarter of 2006 and sold in the third quarter of 2006. The proceeds from the sale of the Panther Pipeline and the Edward Dixel Gips lease in Dewitt County Texas was $255,000. The cost of the pipeline and lease were $142,459 and yielded a gain of $112,543.
Maintenance and repairs are charged to expense; improvements of property are capitalized and depreciated as described below.
Lease bonuses
The Company defers bonuses received from leasing minerals in which unrecovered costs remain by recording the bonuses as a reduction of the unrecovered costs. Bonuses received from leasing mineral interests previously fully expensed are taken into income. For federal income tax purposes, lease bonuses are regarded as advance royalties (ordinary income). The Company received lease bonuses totaling $3,743, $2,415 and $660, for the years ended December 31, 2004, 2005, and 2006, respectively, which were included in other income.
Depreciation, depletion, and accretion
The Company provides for depreciation and depletion of its investment in producing oil and gas properties on the unit-of-production method, based upon estimates of recoverable oil and gas reserves from the property.
The Company has established a working interest reserve relating to the Asset Retirement Obligation (“ARO”) for the four wells that the Company operates. The reserve, based on the estimates of management, complies with the Financial Standards Board Rule 143 (FAS 143). The accretion of $10,187 and $5,868 for the years ended December 31, 2005 and 2006, respectively, represent an increase in the ARO liability based on the discounted cash flow of the future retirement costs.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
Recent accounting pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 123R, "Share-Based Payment." This revised standard addresses the accounting for share- based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and recognize the expense in the statements of operations. SFAS 123R became effective for all interim or annual periods beginning after June 15, 2005. SFAS 123R is not expected to have a material impact on the Company’s financial condition or results of operations as the Company currently does not receive employee services in exchange for either equity instruments of the Company or liabilities that are based on the fair value of the Company's equity instruments or that may be settled by the issuance of such equity instruments.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29". This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. The Statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company has not entered into these types of nonmonetary asset exchanges during the last five years. Accordingly, the adoption of this pronouncement is not expected to have a material impact on the Company’s financial condition or results of operations.
In May 2005 the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 replaces APB Opinion (“APB”) No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 will apply to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS No. 154 requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial condition).
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
Recent accounting pronouncements (continued)
In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN No. 47”). FIN No. 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. Fin No. 47 is effective no later than the end of fiscal years ending after December 15, 2005 (December 31, 2005 for calendar-year companies). Retrospective application of interim financial information is permitted but is not required. Management does not expect adoption of FIN No. 47 to have a material impact on the Company’s financial statements.
SFAS 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (‘SFAS No. 155”). This Statement shall be effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. Management does not expect adoption of SFAS No. 155 to have a material impact on the Company’s financial statements.
SFAS 157, “Fair Value Measurements”, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. Management has not evaluated the impact of this statement.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
Recent accounting pronouncements (continued)
In June 2005, the Emerging Issues Task Force reached a consensus on Issue No. 05-6 (“EITF No. 05-6”), “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination.” EITF No. 05-6 clarifies that the amortization period for leasehold improvements acquired in a business combination or placed in service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes the required lease periods and renewals that are reasonably assured of exercise at the time of the acquisition. EITF No. 05-6 is to be applied prospectively to leasehold improvements purchased or acquired in reporting periods beginning after June 29, 2005. The adoption of EITF No. 05-6 did not have a material impact on the Company’s consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting forUncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. Fin No. 48 is effective for fiscal years beginning after December 15, 2005. Management does not expect adoption of FIN No. 48 to have a material impact on the Company’s financial statements.
Revenue recognition
Oil and gas revenues are accounted for using the sales method. Under this method, revenue is recognized based on the cash received rather than the Company's proportionate share of the oil and gas produced. Oil and gas imbalances and related value at December 31, 2004, 2005 and 2006 were insignificant.
Risks and uncertainties
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 prices received could have a significant impact on future results.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
Comprehensive Income
The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting comprehensive income. In addition to net income, comprehensive income includes all changes in equity during a period, except those resulting from investments and distributions to the owners of the Company. The components of other comprehensive income net of the related tax effects for the twelve months ended December 31, 2003 totaled $23,995, and was related to net unrealized gains (losses) on the Company’s marketable equity securities, which were available for sale. The Company liquidated its marketable equity securities and recognized a net realized loss of $38,166 for the year ended December 31, 2004.
Fair value of financial instruments
The carrying amounts of financial instruments including cash and cash equivalents, marketable equity securities, accounts receivable, notes receivable, accounts payable and accrued liabilities approximate fair value as of December 31, 2005 and 2006.
Concentrations of credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents and accounts receivable. The Company places its cash with high quality financial institutions. At times during the year, the balance at any one financial institution may exceed FDIC limits.
Derivative instruments and hedging activities
On March 21, 2003, the Company purchased a series of put contracts for 10,000 MMBTU’s per month of natural gas beginning in June 2003 and ending May 2004 at the strike price of $4.75. The Company paid $58,044 for these twelve contracts. The Company realized a loss during 2003 and 2004 of $45,022 and $7,599, respectively, related to its purchase of these natural gas “put” contracts. During the years ended December 31, 2006, 2005 and 2004, the Company did not enter into commodity derivative contracts or fixed-price physical contracts to manage its exposure to oil and gas price volatility.
Stock options and warrants
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123R "Share-Based Payment" related to its stock options and warrants. Since December 2001, the Company has had no outstanding stock options or warrants.
Cash equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
Accounts receivable
The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become un-collectible, they will be charged to operations when that determination is made.
Income taxes
The provision for income taxes is based on earnings reported in the financial statements. Deferred income taxes are provided using a liability approach based upon enacted tax laws and rates applicable to the periods in which the taxes become payable.
Net income per common share
In accordance with the provisions of SFAS No. 128, "Earnings per Share," basic income per common share amounts were computed by dividing net income after deduction of the net income attributable to the preferred B shares by the weighted average number of common shares outstanding during the period. Diluted income per common share assumes the conversion of all securities that are exercisable or convertible into either preferred B or common shares that would dilute the basic earnings per common share during the period.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
The Company retains the services of a law firm in which a partner of the firm is a director of the Company. Legal fees paid to this firm for the years ended December 31, 2004, 2005 and 2006 amounted to $2,410, $16,920 and $23,493, respectively.
The Company currently has an office sharing arrangement with Jenex Petroleum Corporation, hereafter “Jenex”, which is owned by the Company’s President. The Company is not a party to any lease, but paid Jenex for office space and all office services, including rent, phone, office supplies, secretarial, land, and accounting. The Company’s expenses for these services were $48,000, $50,554, and $49,872 for the years ended 2004, 2005 and 2006, respectively. Although these transactions were not a result of “arms length” negotiations, the Company’s Board of Directors believes the transactions are reasonable.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has working interests in five Oklahoma natural gas wells, which are operated by Jenex, a company solely owed by Gerald Jensen, the Company’s President. As part of the 1998 purchase agreement, Jenex agreed to rebate to the Company $150 of operating fees per well, each month, which now totals $750 per month, as long as Jenex operated the wells and the Company retained its interest. During the years ending December 31, 2004, 2005 and 2006, $9,000, $9,000, and $9,000 respectively, have been offset against lease operating expense, in this manner. Total trade accounts receivable from Jenex as of December 31, 2005, and 2006, totaled $35,307 and $16,973, respectively.
The Company compensated a member of its Board of Directors 2,000 shares of common stock during 2004 for consulting services rendered in connection with the Company’s Yorktown Re-entry Program in South Texas. The common shares were valued at $1.00 per share
In 2005, the Preferred B Shareholders received a tender offer from Jensen Development Company and C.S. Finance L.L.C., companies wholly owned by Gerald L. Jensen, President and Chairman of the Company. This tender offer is fully described in Footnote 4 below, and incorporated herein by reference.
4. PREFERRED B STOCK TENDER OFFER
In April, 2005, the Company’s Board of Directors reviewed the Company’s strategic alternatives, including the possible sale or merger of all or part of the Company. The two objectives were to increase shareholder value and to provide liquidity to the shareholders. The Board of Directors formed a non-management committee to review the objectives, and any opportunities related to these objectives. The Preferred B shareholders of the Company received a tender offer from C.S. Finance L.L.C. and Jensen Development Company, “Offerors,” two companies wholly owned by Gerald L. Jensen, to purchase all of the outstanding shares of Preferred B stock at $3 per share.
The Offerors Preferred B tender offer was filed with the SEC in June 2005. The Company filed a Form 14D9 with the SEC outlining the position of the non-management committee of the Board of Directors which was neutral as to the tender offer, and advised shareholders to consider the offer based on each individual’s situation. The results of the tender offer were reported to the SEC in September 2005. There were 75,050 shares tendered and accepted prior to the expiration of the tender offer, or 13.9% of the Preferred B stock, at a cost of $225,150.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
4. | PREFERRED B STOCK TENDER OFFER (CONTINUED) |
During the tender offer, two Directors tendered all of their shares of Preferred B stock. After the tender offer a Director, sold the majority of his Preferred B shares at the tender price for a note due in 2006; retaining 8,000 Preferred B shares. Also after the tender offer, a Director who had tendered one third of his shares, sold the balance of his Preferred B shares at the tender price for notes payable during 2006 and 2007. These subsequent purchases at $3 per share by C.S. Finance L.L.C. totaled another 33,418 Preferred B shares, of which 29,365 Preferred B shares were purchased from the two Directors. To date, the number of Preferred B shares collectively owned by Gerald L. Jensen, C.S. Finance L.L.C., and Jensen Development Company total 363,535, or 67.2% of the Preferred B shares. The holders of approximately 94,394 Preferred B shares were unable to be located during the tender offer.
During 2001, the Board determined that the cash of the Company, which had been building during a period of high oil prices, should be formally allocated between the common stock and the Preferred B stock. The Board decided to allocate $250,000 cash to the common stock and the balance of cash remaining with the Preferred B stock. The Board then determined that future oil and gas cash flow from the Preferred B assets would be accumulated for Preferred B shareholders. The Company established separate investment accounts for the Preferred B and common stock investments.
During the year ended December 31, 2005, the Company purchased 1,500 shares of its common stock for $2,362 and the shares were cancelled. In December 2005, the Company purchased on the Over–The-Counter-Bulletin-Board (“OTCBB”) 16,156 shares of its common stock for $24,643 and included in Treasury stock at December 31, 2005. The Company has not repurchased any additional shares of its common stock since December 2005.
The Company has no outstanding stock options, warrants or rights as of December 31, 2005 or 2006.
The Class A Preferred stock was authorized for possible future capitalization and funding purposes of the Company and has not yet been designated as voting or non-voting. Presently, there are no plans or intentions to issue these shares.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
5. STOCKHOLDERS’ EQUITY (Continued)
In 1996, the Company created a class of Preferred B stock to which the perpetual mineral interests and other oil and gas assets were pledged. Thus, the Preferred B stock represents the current oil and gas assets of the Company, along with all Preferred B checking and savings accounts and receivables owed to these accounts. The common stock represents the 2004 Yorktown Re-entry Program and all of the oil and natural gas assets in Dewitt County, Texas, along with all common stock checking and savings accounts and receivables owed to these accounts. Each common shareholder received an equal number of Preferred B shares, one for one, at the time of this restructuring of the capital of the Company. The Class B Preferred stock has no par value and limited voting privileges. The Class B Preferred stockholders are entitled exclusively to all dividends, distributions, and other income, which are based directly or indirectly on the Preferred B oil and natural gas assets. In addition, in the event of liquidation, distribution or sale of the Company, the Class B Preferred stockholders have an exclusive preference to the net asset value of the natural gas and oil assets over all other classes of common and preferred stockholders.
6. INCOME TAXES
The provisions for income taxes from operations consist of the following:
| | | 2004 | | | 2005 | | | 2006 | |
| Current tax expense | | $ | 8,877 | | | $ | 82,478 | | | $ | 110,000 | |
| Deferred income tax expense | | | - - | | | | - - | | | | - - | |
| | | $ | 8,877 | | | $ | 82,478 | | | $ | 110,000 | |
A reconciliation of the Company’s effective income tax rate and the United States statutory rate is as follows:
| | | | | | | | | | |
| | | 2004 | | | 2005 | | | 2006 | |
| United States statutory rate | | | 34.00 | % | | | 34.00 | % | | | 34.00 | % |
| State income taxes, net of Federal income tax benefit | | | 2.55 | | | | 2.55 | | | | 2.55 | |
| Reduction of valuation allowance (used NOL) | | | (2.55 | ) | | | (0.45 | ) | | | (0.45 | ) |
| Percentage depletion | | | (29.79 | ) | | | (15.62 | ) | | | (14.45 | ) |
| Book depletion & depreciation in excess of tax | | | 1.67 | | | | 1.67 | | | | 1.12 | |
| | | | 5.88 | % | | | 22.15 | % | | | 22.77 | % |
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
6. INCOME TAXES (continued)
At December 31, 2006, the Company had capital loss carry-forwards of approximately $31,000. The loss was due to the sale of marketable securities and hedging transactions during fiscal year December 2002. The capital loss has indefinite life and can only used to reduce gains created by sale of capital assets.
Deferred taxes results primarily from state net operating loss carry forwards and capital loss carry forwards and asset basis differences between book and income tax depreciation and depletion methods. In addition, the Company uses percentage depletion which does not create a basis difference between book and tax above the book/tax cost depletion. The net operating loss carry forward is only for two of the states the Company operates in and expires in 2006. The income tax percentage depletion continues to exceed book depletion and is considered a permanent difference.
At December 31, 2004, 2005 and 2006, total deferred tax assets, liabilities and valuation allowance are as follows:
Deferred tax assets resulting from:
| | | | | | | | | | |
| | | 2004 | | | 2005 | | | 2006 | |
| Net operating loss carry forwards | | $ | 10,220 | | | $ | 7,688 | | | $ | 5,156 | |
| Capital loss carry forward | | | 10,540 | | | | 10,540 | | | | 10,540 | |
| Depreciation & depletion differences | | | (2,532 | ) | | | (2,532 | ) | | | (5,425 | ) |
| Total deferred tax asset | | | 18,228 | | | | 15,696 | | | | 10,271 | |
| Less valuation allowance | | | (18,228 | ) | | | (15,696 | ) | | | (10,271 | ) |
| | | $ | -- | | | $ | -- | | | $ | -- | |
A 100% valuation has been established against the deferred tax assets, as utilization of the net operating and capital loss carry forwards cannot be reasonably assured.
7. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share information is based on the weighted average number of shares of common stock outstanding during each year, approximately 568,401 shares in 2004, 568,027 shares in 2005, and 551,244 shares in 2006.
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2005 and 2006
8. MAJOR CUSTOMERS
Customers which accounted for over 10% of oil and natural gas revenues were as follows for the years ended December 31, 2003, 2004 and 2005:
200420052006
Jenex Petroleum Corp., a related party 18.1% 25.8% 14.2%
Merit Energy 14.4% 20.1% 18.1%
Sunoco, Inc. 11.9% 12.4% 14.7%
Management believes that the loss of any individual purchaser would not have a long-term material adverse impact on the financial position or results of operations of the Company.
NOTE: The following footnote is now moot since the Exchange Agreement referred to herein, was terminated on June 1, 2007.
The Company executed a definitive Stock Equivalent Exchange Agreement (the “Exchange Agreement”) on December 12, 2006. The Exchange Agreement is between Taiyuan Rongan Business Trading Company Limited, (TRBT), a private Chinese company. The Exchange Agreement provides that Croff will issue over eleven million shares (92.5%) of its common stock to the shareholders of TRBT in exchange for 80% of TRBT. Upon closing of the transaction Croff will own approximately sixty-one percent (61%) of the assets controlled by TRBT. The existing shareholders of record of Croff will hold approximately seven and half percent (7.5%) of the issued and outstanding common stock.
As part of the Exchange Agreement the Preferred B shareholders will exchange their shares and cash for all of the oil and gas properties and related cash of Croff. The properties will be transferred into a newly formed entity that is controlled by the CEO of Croff for approximately (67.2%) or three hundred sixty three thousand five hundred thirty five shares of the Preferred B and is part of the Exchange Agreement. In addition, theses shareholders of the new entity will contribute cash of approximately six hundred thousand dollars ($600,000) to purchase the balance of the properties that represents the Preferred B shareholders who did not participate in the Preferred B tender offer. These Preferred B shareholders will receive 2 for 1 common shares for their Preferred B stock. Lastly, the Exchange Agreement provides for a payment of a $0.20 per share dividend to all common shareholders of record prior to the closing. Croff will have $530,000 in cash remaining to provide for the dividend and other closing related expenses, including dissenting shareholder rights cases.
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES – UNAUDITED
In November, 1982, the Financial Accounting Standards Board issued and the SEC adopted Statement of Financial Accounting Standards No. 69 (SFAS 69) "Disclosures about Oil and Gas Producing Activities". SFAS 69 requires that certain disclosures be made as supplementary information by oil and gas producers whose financial statements are filed with the SEC. The Company bases these disclosures upon estimates of proved reserves and related valuations. Independent petroleum engineering firms compiled oil and gas reserve and future revenues as of December 31, 2004, 2005 and 2006 for the Company’s most significant wells, and consolidated estimates for the balance of the wells.
The standardized measure of discounted future net cash flows relating to proved reserves as computed under SFAS 69 guidelines may not necessarily represent the fair value of the Company’s oil and gas properties in the market place. Other factors, such as changing prices and costs and the likelihood of future recoveries differing from current estimates, may have significant effects upon the amount of recoverable reserves and their present value.
The standardized measure does not include any "probable" and "possible" reserves, which may exist and may become available through additional drilling activity.
The standardized measure of discounted future net cash flows is developed as follows:
1. | Estimates are made of quantities of proved reserves and the future periods during which they are expected to be produced based on year-end economic conditions. |
2. | The estimated future production of proved reserves is priced on the basis of year-end prices except that future prices of gas are increased for fixed and determinable escalation provisions in contracts (if any). |
3. | The resulting future gross revenue streams are reduced by estimated future costs to develop and produce the proved reserves, based on year-end cost and timing estimates. |
4. | A provision is made for income taxes based upon year-end statutory rates. Consideration is made for the tax basis of the property and permanent differences and tax credits relating to proved reserves. The tax computation is based upon future net cash inflow of oil and gas production and does not contemplate a tax effect for interest income and expense or general and administrative costs. |
5. | The resulting future net revenue streams are reduced to present value amounts by applying a 10% discount factor. |
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES – UNAUDITED
Changes in the standardized measure of discounted future net cash flows are calculated as follows:
1. | Acquisition of proved reserves is based upon the standardized measure at the acquisition date before giving effect to related income taxes. |
2. | Sales and transfers of oil and gas produced, net of production costs, are based upon actual sales of products, less associated lifting costs during the period. |
3. | Net changes in price and production costs are based upon changes in prices at the beginning and end of the period and beginning quantities. |
4. | Extensions and discoveries are calculated based upon the standardized measure before giving effect to income taxes. |
5. | Purchase of reserves are calculations based on increases from the Company's acquisition activities. |
6. | Revisions of previous quantity estimates are based upon quantity changes and end of period prices. |
7. | The accretion of discount represents the anticipated amortization of the beginning of the period discounted future net cash flows. |
8. | Net change in income taxes primarily represents the tax effect related to all other changes described above and tax rate changes during the period. |
All of the Company's oil and gas producing activities are in the United States.
OIL AND GAS PRICES
During the year ended December 31, 2006, crude oil and natural gas prices remained highly volatile. The average sale price of oil per barrel in 2006 for the Company was $51.95, compared to $55.93 in 2005. The average sale price of natural gas per Mcf in 2006 for the Company was $6.36 per Mcf, compared to $7.93 per Mcf in 2005. The ultimate amount and duration of oil and gas price fluctuations and their effect on the recoverability of the carrying value of oil and gas properties and future operations is not determinable by management at this time.
EXPLANATION OF REVISIONS TO PROVEN OIL AND GAS RESERVES IN 2006
Crude oil reserves increased in Michigan and Montana due to the revision of previous estimates as the decline curve on these oil wells decreased. In North Dakota, rework on a well increased the recoverable reserves. Oil reserves decreased in Texas due to the sale of minerals in place. In Utah, oil reserves increased due to extensions and discoveries on Uintah County fields. Wyoming oil reserves increased due to revision of previous estimates resulting from the engineer’s increasing the life of a lease in Campbell County, Wyoming. Natural gas reserves increased in Colorado and New Mexico due to extensions of existing fields on the Company’s leases in the Four Corners coal bed methane production area. In Michigan, improved recovery on one lease and revisions of previous quantity estimates in Otsego County, increased natural gas reserves. Extensions and discoveries in Uintah County, Utah increased natural gas reserves in that area.
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES – UNAUDITED
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The results of operations for oil and gas producing activities, excluding capital expenditures, impairment charges, corporate overhead and interest expense, are as follows for the years ended December 31, 2004, 2005 and 2006:
| | | 2004 | | | 2005 | | | 2006 |
| |
Revenues | | | | | | | | |
Oil and natural gas sales | | $ | 615,731 | | | $ | 934,525 | | | $ | 842,400 |
Loss on natural gas “put” contracts | | | (7,599 | ) | | | -- | | | | -- |
Other revenue (lease payments) | | | 6,196 | | | | 7,330 | | | | 660 |
| | | | 614,328 | | | | 941,855 | | | | 843,060 |
| |
| |
Lease operating costs | | | 148,844 | | | | 257,813 | | | | 150,011 |
Production taxes | | | 43,343 | | | | 66,954 | | | | 55,360 |
Impairment charges | | | -- | | | | 52,638 | | | | -- |
Depletion, depreciation and accretion | | | 42,000 | | | | 55,187 | | | | 54,368 |
Income tax expense | | | 8,877 | | | | 82,478 | | | | 110,000 |
| |
| | | | 243,064 | | | | 515,070 | | | | 369,739 |
| |
Results of operations from producing | | | | | | | | | | | |
activities (excluding capital | | | | | | | | | | | |
expenditures, corporate overhead, | | | | | | | | | | | |
and interest expense) | | $ | 371,264 | | | $ | 426,785 | | | $ | 473,321 |
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES – UNAUDITED
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES
| | | Year ended December 31, | |
| | | 2004 | | | 2005 | | | 2006 | |
Future cash inflows | | $ | 4,829,000 | | | $ | 7,618,000 | | | $ | 7,343,000 | |
Future production and development costs | | | (2,259,000 | ) | | | (2,790,000 | ) | | | (2,679,000 | ) |
| | | | 2,570,000 | | | | 4,828,000 | | | | 4,664,000 | |
Future income tax expense | | | (450,000 | ) | | | (966,000 | ) | | | (933,000 | ) |
Future undiscounted net cash flows | | | 2,120,000 | | | | 3,862,000 | | | | 3,731,000 | |
10% annual discount for | | | | | | | | | | | | |
estimated timing of cash flows | | | (477,000 | ) | | | (1,023,000 | ) | | | (1,146,000 | ) |
Standardized measure of | | | | | | | | | | | | |
discounted future net | | | | | | | | | | | | |
cash flows | | $ | 1,643,000 | | | $ | 2,839,000 | | | $ | 2,585,000 | |
| |
The following are the principal sources of | | | | | | | | | | | | |
change in the standardized measure of | | | | | | | | | | | | |
discounted future net cash flows: | | | | | | | | | | | | |
| |
Beginning balance | | $ | 1,257,000 | | | $ | 1,643,000 | | | $ | 2,839,000 | |
| |
Evaluation of proved undeveloped | | | | | | | | | | | | |
reserves, net of future production | | | | | | | | | | | | |
and development costs | | | -- | | | | -- | | | | -- | |
Purchase of proved reserves | | | 7,000 | | | | 43,000 | | | | 58,000 | |
Sales and transfer of oil and gas | | | | | | | | | | | | |
produced, net of production costs | | | (405,000 | ) | | | (607,000 | ) | | | (638,000 | ) |
Net increase (decrease) in prices and costs | | | 1,022,000 | | | | 2,207,000 | | | | (124,000 | ) |
Extensions and discoveries | | | - | | | | 60,000 | | | | 223,000 | |
Revisions of previous quantity estimates | | | (106,000 | ) | | | 522,500 | | | | 381,000 | |
Accretion of discount | | | (55,000 | ) | | | (649,500 | ) | | | (158,000 | ) |
Net change in income taxes | | | (77,000 | ) | | | (380,000 | ) | | | 4,000 | |
Other | | | -- | | | | -- | | | | -- | |
| |
Ending balance | | $ | 1,643,000 | | | $ | 2,839,000 | | | $ | 2,585,000 | |
CROFF ENTERPRISES, INC.
SUPPLEMENTAL INFORMATION - DISCLOSURES
ABOUT OIL AND GAS PRODUCING ACTIVITIES – UNAUDITED
PROVED OIL AND GAS RESERVE QUANTITIES
(All within the United States)
| | | Oil Reserves | | | Gas Reserves | |
| | | (bbls) | | | (mcf) | |
| |
Balance at December 31, 2003 | | | 84,110 | | | | 531,377 | |
| |
Revisions of previous estimates | | | 4,119 | | | | (66,837 | |
Extensions, discoveries and other additions | | | 250 | | | | 2,500 | |
Production | | | (8,011 | ) | | | (59,959 | |
| |
Balance at December 31, 2004 | | | 80,468 | | | | 407,084 | |
| |
Revisions of previous estimates | | | 5,434 | | | | 32,837 | |
Extensions, discoveries and other additions | | | (576 | ) | | | 5,293 | |
Production | | | (7,630 | ) | | | (59,403 | |
Balance at December 31, 2005 | | | 77,696 | | | | 385,811 | |
| |
Revisions of previous estimates | | | 11,198 | | | | 79,054 | |
Extensions, discoveries and other additions | | | 6,110 | | | | 38,277 | |
Production | | | (7,888 | ) | | | (59,915 | |
| |
Balance at December 31, 2006 | | | 87,116 | | | | 443,227 | |
| |
Proved developed reserves | | | | | | | | |
December 31, 2004 | | | 72,262 | | | | 352,974 | |
December 31, 2005 | | | 77,696 | | | | 385,811 | |
December 31, 2006 | | | 87,116 | | | | 443,227 | |
Costs incurred in oil and gas producing activities for the years ended December 31, 2004, 2005, and 2006 are as follows:
| | | 2004 | | | 2005 | | | 2006 | |
Property acquisition | | | | | | | | | |
| Proven | | $ | 122,222 | | | $ | 30,000 | | | $ | -- | |
Unproven | | | -- | | | | -- | | | | -- | |
Exploration costs capitalized | | | -- | | | | -- | | | | -- | |
Development costs capitalized | | $ | 188,832 | | | $ | 62,228 | | | $ | 57,825 | |
Impairment of property | | | -- | | | | 52,638 | | | | -- | |
Production costs | | | 192,187 | | | | 272,129 | | | | 205,371 | |
Depletion, depreciation, and accretion | | | 42,000 | | | | 55,187 | | | | 54,368 | |