FORM 10-Q/10-Q. QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the period ended September 30, 1998March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _______________ to _____________________
Commission File Number: 1-100100
CROFF ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0233535
(State or other jurisdiction of (I.R S.(I.R.S. Employer
incorporation or organization)organization Identification No.)
1675 Broadway, Suite 1030, Denver, COColorado 80202
(Address of principal executive offices) (Zip Code)
(303)628-1963 -
(Registrant's telephone number, including area code)
_______________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant has required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes ______ No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
_____ Yes ______ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classesclass of common stock, as of the latest practicable date: 516,265516,315
shares, one class only as of September 30, 1998.May 1, 1999.
INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q)
TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1998 (UNAUDITED)MARCH 31, 1999(UNAUDITED).
_________________________________________________________________
PART I. FINANCIAL INFORMATION Page
Number
Balance Sheets as of December 31, 19971998
and September 30, 1998March 31, 1999 3 4
Statements of Operations for
the Three Months
Ended March 31, 1999 and Nine months ended September 30, 1998 and 1997 5
Statements of Cash Flows
for the NineThree Months
Ended September 30,March 31, 1999 and 1998 and 1997 6
Notes to Financial Statements 7
Management's'Management's Discussion and Analysis of Financial
Condition and Results of Operations 97
PART II. OTHER INFORMATION
Changes in Securities 9
Other Information 9
Exhibits andITEM 5 OTHER INFORMATION 10
Reports on Form 8-K 10
Signatures.Signatures 10
_________________________________________________________________
The condensed financialForward-looking statements included hereinin this report, including without
limitation, statements relating to the Company's plans,
strategies, objectives, expectations, intentions and adequacy of
resources, are formade pursuant to the Registrant, Croff Enterprises, Inc. The financialsafe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are
cautioned that such forward-looking statements forinvolve risks and
uncertainties; including without limitation to, the nine months ended September 30, 1998following:
(i) the Company's plans, strategies, objective, expectations and
1997intentions are unaudited; however,
they reflect all adjustments which,subject to change at any time at the discretion of
the Company; (ii) the Company's plans and results of operations
will be affected by the Company's ability to manage its growth
and inventory (iii) other risks and uncertainties indicated from
time to time in the opinionCompany's filings with the Securities and
Exchange Commission. Neither the Securities and Exchange
Commission nor any other regulatory body takes any position as to
the accuracy of management, are
necessary to present fairly the results of the interim periods. All
adjustments necessary to a fair representation of the financial
statements are of a normal recurring nature.forward-looking statements.
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
Decembe Septemb
rDec. March
31, er 30,
199731,
1998 1999
CURRENT ASSETS:
Cash and Cash Equivalents: $ 166,88314,294 $ 23,8586,639
Marketable equity securities 15,687 2,5003,125 2,813
Accounts receivable:
Oil and gas purchasers 26,552 35,09632,271 39,380
Refundable income taxes 3,200 3,1312,900 3,600
Total current assets $ 212,32252,590 $ 64,58552,432
PROPERTY AND EQUIPMENT, AT COST:
Oil & gas properties, successful
efforts method:
Proved properties 429,903 646,769636,595 636,595
Unproved properties 97,102 97,102
$ 527,005733,697 $ 743,871733,697
Less accumulated depletion and (250,72 (276,81(288,717) (298,517)
depreciation 9) 1)
Net property and equipment $ 276,276 $467,06
0444,980 435,180
Coal Investment 16,277 16,277investment 11,277 11,277
Total Assetsassets $ 504,875508,847 $ 547,922
498,889
PART I: FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEET
Decembe Septemb
rDec. March
31, er 30,
199731,
1998 1999
CURRENT LIABILITIES:
Accounts payable $ 4,37819,290 $ 11,89034,572
Accrued liabilities 2,605 2,1608,065 13,627
Note payable - Union Bank 0 46,21523,369 00
Total current liabilities $ 6,98350,724 $ 60,26548,199
CONTINGENCIES (NOTE 2)
STOCKHOLDERS' EQUITY:
Class A Preferred,preferred stock, no par value;
500,000 shares, none issuedissue
Class B Preferred stock, no par value:value;
520,000 authorized, 516,265516,505 shares
364,328(1997) and 490,859 shares (1998) 329,559 329,559
issued 12/31/97
520,000 authorized, 490,860 shares 346,232
issued 9/30/98and outstanding
Common stock, $.10 par value
20,000,000 shares
authorized 579,143 shares issued 57,914 57,914
Capital in excess of par value 542,215 542,215552,797 552,797
Accumulated deficit (383,66 (375,80
9) 8)(399,251) (406,684)
$ 580,788541,019 $ 570,553533,586
Less commontreasury stock at cost, 62,628
shares (1997 and 1998)
in 1996 and 62,87862,828 in 1997 (82,896 (82,896
) )(82,896) (82,896)
Total stockholders' equity $ 497,892458,123 $ 487,657450,143
Total Liabilitiesliabilities & Equityequity $ 504,875508,847 $ 547,922
498,889
CROFF ENTERPRISES, INC.
Statement of Operations
For the Three And Nine Months Ended September 30,months ended March 31, 1998, (Unaudited)
For Three Months Ended For Nine Months
Ended
9/30/9 9/30/9 9/30/9 9/30/9
7 8 7 8and 1999
1998 1999
REVENUE:
Oil and gas sales $ 45,53742,730 $ 51,485 $ 151,05 $ 141,89
4 040,196
Gain on disposal of oil and - -
gas properties
Other income 4,120 (363) 7,364 5,880
(loss)..... 4,723 47
Total revenue $ 49,65747,453 $ 51,122 $ 158,41 $ 147,77
8 040,243
COSTS AND EXPENSES:
Lease operating 7,589 11,572 25,760 32,717
expense 11,052 12,397
Depreciation and depletion 6,000 13,000 18,000 25,500
depletion9,800
General and 17,668 19,441 58,584 62,015
administrative Interest Expense 0 1,638 0 4,76622,721 22,539
Rent Expense - Related Party 2,940 2,940
8,820 8,820
Party
Write down of coal 62,000 62,000
investment
Total Expensescost and expenses $ 96,21542,713 47,676
Net Income (Loss) $ 48,5914,740 $ 173,16 $ 133,81
4 8
Net income (loss) $ (46,55 $ 2,531 $ (14,74 $ 13,953
8) 6)
Earnings(7,433
)
Earning (Loss) Per Share $ ( $ .01 $ ( $ .02
.09) .03)
(.01)
CROFF ENTERPRISES, INC.
Statement of Cash Flows
For the Nine Months
Ended
September 30, 1998 1997 19981999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (14,744,740 $ 13,952
6)(7,433)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities and
depletion:activities:
Depreciation and depletion 18,000 26,082
Write down of coal investment 62,000 0
Decrease(Increase)6,157 9,800
Change in receivables 11,850 (8,475
)
Decrease(Increase)assets and liabilities:
(Increase) decrease in accounts 688 (7,109)
receivable
(Increase) decrease in other assets 0 8,555
Decrease(Increase) in accounts payable 1,713 (7,869
)
Decrease(Increase)(700)
Increase (decrease) in notes payable (46,21
5)
Decrease(Increase)(23,369)
Increase (decrease) in accounts (2,284) 15,282
payable
Increase (decrease) in accrued 1,130 5,562
liabilities
493 445
(Gains) onIncrease (decrease) in marketable (2,876) 312
securities (1,813
)
Total adjustments 90,630 (29,29
0)$ 2,815 $ (222)
Net cash provided by operating activities: $ 75,8847,555 $ (15,33
7)(7,655)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)Sale of oil & gas properties: (38,49 (208,5
6) 00)
(Purchase) of Preferred Stock (24,18
8)
SaleSale/depreciation of marketable equity -
securities
(4,750 15,000
)
$ (43,24 $ (217,6
6) 88)Sale/purchase of producing properties -
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (250)
Proceeds from- -
Note Payable 0payable-Union Bank and Trust 90,000 -
Increase (decrease) in cash: 32,388 (143,0
25)cash 97,555 (7,655)
Cash and cash equivalents at beginning of period: 184,56 166,88
5 3166,883 14,294
period
Cash and cash equivalents at end of period:period $ 216,95264,438 $ 23,858
3
6,639
CROFF ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODSPERIOD ENDED SEPTEMBER 30,MARCH 31, 1998
PART I BASIS OF PREPARATIONPREPARATION.
The condensed financial statements for the three and nine month
periods ended September 30,March 31, 1999 and 1998 and 1997 in this report have been
prepared by the Company without audit pursuant to the rules and
regulations of the Securities and Exchange Commission and
reflect, in the opinion of the management, all adjustments
necessary to present fairly the results of the operations of the
interim periods presented herein. Certain reclassifications have
been made to the prior years'year's financial statements to conform to
the 19981999 presentation. Certain information in footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been omitted pursuant to such rules and regulations, although the
Company believes the disclosures presented herein are adequate to
make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1997,1998, which report has been filed with the Securities and
Exchange Commission, and is available from the Company.
MANAGEMENT'S'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Month PeriodThree-Month period Ended September 30, 1998,March 31, 1999
as Compared to the Three MonthThree-Month Period Ended September 30, 1997.March 31, 1998.
OIL AND GAS OPERATIONS
Oil and gas income,revenue, primarily from royalties, for the three
months ended September 30, 1998,March 31, 1999, was $51,485$40,196 compared to $45,537$42,730 for
the quarter ending September 30, 1997. This small increaseMarch 31, 1998. The primary cause for this
decrease was the lower average price for oil, which remained at
historic low prices until just before the quarter ended. In
1998, the prices declined throughout the quarter, but averaged
higher. Natural gas prices were also lower, declining in revenue was causedthe
first quarter by the increased production from new leases purchased during the last year,over ten percent. These decreases were
partially offset by the drastic drop in oil prices and a smaller dropan increase in natural gas prices. Prices for oil decreased from approximately $17-$18 per
barrel in this quarter in 1997, to slightly over $12-$13 per barrel, this
year. Natural gas prices continued their decline to a level of more than
twenty percent lower than one year ago. Production increased as the
Company has added nine new producing leases this year, which produce
primarily natural gas.production.
Production costs, which includeincludes lease operating expenses
and all production related taxes, for the three months ended
September 30, 1998,
dueMarch 31, 1999, increased slightly to new operating leases, increased to $11,572 in 1998, compared to
$7,589 during the same quarter year of 1997. The operating expenses
increased on the new working interests, which were purchased since last
year. Overall, operating expenses are low due to the large amount of
royalty income. Depletion doubled due to the purchase of the new wells.
Nine Month Period Ended September 30, 1998,
as Compared to the Nine Month Period Ended September 30, 1997.
OIL AND GAS OPERATIONS
Oil and gas income, primarily from royalties, for the nine months
ending September 30, 1998, was $141,890 compared to $151,054 for the same
time period of the prior year. This decrease was due to the drastic drop
in oil prices and significant drop in natural gas prices. During this
nine month period some wells were shut-in, revenue dropped from all
wells, and activity slowed. Because of the new leases, production
increased, but with such low prices, overall revenue fell.
Production costs, which include lease operating expenses and all
production related taxes, for the nine months ended September 30, 1998,
increased$12,397 when compared to
the same time periodproduction costs of $11,052 incurred during the prior year,
$32,717 in 1998 compared to $25,760 in 1997.quarter ended
March 31, 1998. This increase was due to the operating costsownership of the additional ninesix
larger working interests purchased in late 1997 andOklahoma natural gas wells that were
acquired in the second quarter of 1998.
OTHER INCOME
During the three month period ended September 30, 1998, the Company
had a loss on other income of ($363) compared to a gain of $4,120 for the
quarter ending September 30, 1997. This was due to a loss on securities
held in 1998, and a decrease in interest income because the Company
invested the large cash balances it held in 1997 in new oil and gas
leases, so interest income is now insignificant.
During the nine month period ended September 30, 1998,March 31, 1999, the
Company had other income of $5,880, primarily$47 from interest, dividends, and
lease bonuses. Duringinterest. This was a
decrease from $4,723 in the first nine months of 1997, the Company had
other income of $7,364, primarily from the dividends and interest.same period in 1998. The decrease
was due to the Company's receiving lowerless interest in 1998and dividend income, due to lower cash
balances after buying leases.and no lease bonus income in 1999.
GENERAL AND ADMINISTRATIVE.ADMINISTRATIVE EXPENSES
General and administrative expenses for the nine month periodquarter ending
September 30, 1998,March 31, 1999, were $62,015$22,539 plus rent expense of $8,820,$2,940 for a
total of $70,835,$25,479 compared to $58,584$22,721 plus rent expense of $8,820$2,940 for a total of
$64,528 for$25,661 in the nine monthsame period ending September 30, 1997. This
increase was due to a small cost increase, reflecting inflation, of the
Company's overhead payment forin 1998. These were essentially
unchanged from one year ago. The Company expects general and
administrative expenses.costs to remain stable this year.
YEAR 2,000 DISCLOSURE
There has been increasing concern about the effect upon the
financial results of all public companies due to the year 2000
problem. The year 2000 problem is based on the concern that
certain computer programs and computers are not presently
configured to recognize the year 2000 or succeeding years. This
defect in computer functions could have an adverse impact upon
our company and other industries in which we deal if the various
programs and applications cease to function or function
erroneously as we approach the year 2000. Programs dealing with
accounting and financial functions of the Company could cease to
function if they are not year 2000 compliant. Our Company has
viewed the year 2000 problem hereafter "Y2K" compliance, in three
general categories. The first is the impact on the Company's own
information technology system consisting of its computers,
software, and financial records. The second is the possible
failure of other equipment which the Company uses such as
security systems, telephone systems, vehicles, and gas meters
which rely on computer components. The third, are third party
service and product suppliers, including payment by the various
companies which operate oil and natural gas wells which pay the
Company.
The Company has addressed the first problem, its own
accounting and financial records, and its well records by
confirming the software systems are Y2K compliant. The Company
financial records, are being transferred to the "Roughneck"
system which has been Y2K compliant for two years and amply
tested. This system is owned and operated by Jenex Petroleum
Corp. which provides it to the Company as part of its overhead
services. The Company intends to have its complete 1999 records
on the Roughneck system and fully compliant by June 30, 1999.
The previous records of the Company are also being kept on a Y2K
compliant system, primarily on Excel, which has been upgraded to
a Y2K compliant status. The Company anticipates no further
problems with its own records in order to be fully Y2K compliant.
With respect to other IT systems which may fail on or around
the advent of the year 2000, the Company is conferring with its
supplier of services, Jenex, and has confirmed that its
telephone, fax, and email systems are Y2K compliant. The Company
does not anticipate any major problems with these systems.
Because the Company does not operate any of its oil or natural
gas wells, it is in a position to withstand, without any material
adverse consequences, a break down of days or even weeks in these
systems.
With respect to the third possibility, the third party
suppliers from which the Company derives its cash flow being
unable to operate wells and or pay timely for the Company's
production, the Company has begun a program of reserving cash, as
a contingency in the event of a disruption in its cash flow. The
Company believes in its capacity as a low overhead company with
no operations of its own, and that this problem can be addressed
by simply having adequate cash reserves to replace at least two
months of total revenue. The Company plans to be in this
position by the end of 1999.
Under the Company's agreements, the Company's costs to
become Y2K compliant, will not increase its overhead from its
normal operations. The Company feels its efforts are adequate to
handle any Y2K problems that can be reasonably anticipated.
FINANCIAL CONDITIONRESOURCES AND LIQUIDITY
As of September 30,March 31, 1999, the Company's current assets exceeded
current liabilities by $4,233. As of December 31, 1998, the
Company's current assets were $64,585,
which exceeded current liabilities of $60,265, for ratio of 1.1 to 1. As
of December 31, 1997, theby $1,866.
The Company's current assets were $212,322, and
current liabilities were $6,983, givingratio is approximately 1:1. On March 23,
1998, the Company aborrowed $90,000 from its bank in order to
provide sufficient cash to close on the purchase of working
capital
positioninterests in six natural gas wells in Oklahoma. The Company
reduced its cash reserves in purchasing these working interests
in April of over $200,000, and a ratio1998, but paid off its bank loan in March of 30 to 1. This decrease was due
to the Company spending much of its accumulated cash and borrowing an
additional $90,000 to purchase oil and gas leases during late 1997
through April 1, 1998.1999.
The
Company is repaying the $90,000 debt over one year, and expects its'
current ratio to reach 2:1 by the end of the year. Although the current
low energy prices greatly reduce the Company's cash flow, the Company expects to continue to operate at a positive
cash flow for the calendarremainder of this year, even with thelow oil
prices. The Company intends to use its' cash flow being used to repay bank debt.achieve a
more liquid position and improve its current ratio.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
For the last two years the Company has conducted a clearing house
where it brings together buyers and sellers of its Preferred B stock,
which is not otherwise traded. At the conclusion of the trading period,
one large purchaser was unable to complete its intended purchases, due to
lack of financing. The Board of Directors discussed this matter, and
determined to purchase the tendered shares at the request of the sellers.
In April, 1998, the Company completed these transactions, purchasing
25,646 shares of the Preferred B stock for the purchase price of
$24,188.20. This purchase reduced the issued and outstanding Preferred B
shares these 25,646 shares, leaving a balance of issued and outstanding
Preferred B shares remaining of 490,860 shares. The Board of Directors
did this as a response to a unique situation, and does not intend to be a
bidder at the next clearing house.
ITEM 5. OTHER INFORMATION
On April 7, 1998, the Company purchased six working leasehold
interests in oil and gas wells in Oklahoma. The Company paid the sum of
$208,000 for the working and minor royalty interests in these leases.
The wells are commonly known as the Harper #1 and Miller Wells in
Woodward County, Oklahoma, the Fanny Brown Well in Caddo County,
Oklahoma, the Dickerson and Mueggenborg Wells in Kingfisher County,
Oklahoma, and the Duncan Well in LeFlore County, Oklahoma. In addition,
Jenex Operating Company, which is owned by the President of Croff
Enterprises, Inc., and which is the operator of these wells, agreed to
provide a credit of $150 per month per well against the operating
expenses of these wells for each month that Croff Oil Company was the
owner of such wells. In order to complete this purchase the Company
borrowed the sum of $90,000 from Union Bank and Trust Company on a one-
year note payable monthly in twelve installments. The balance was paid
from the Company's cash reserves. The effective date of this transfer
was April 1, 1998.
ITEM 6. EXHIBITS AND6(B) REPORTS ON FORM 8-K.8-K
The registrant has filed no reports on Form 8-K for the
period ending September 30, 1998.
S I G N A T U R E SMarch 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
REGISTRANT: CROFF ENTERPRISES,
INC.
By:
_________________________________
Gerald L. Jensen
Chief Executive Officer and Chief
Financial Officer
By_________________________________By:
Beverly Licholat
Chief Accounting Officer
Date: ___________________, 1998Dated: