FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

MARK ONE

x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly and nine month period ended March 31,September 30, 2007
 
OR
 
 oTRANSITION REPORT pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM N/A TO N/A
r       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: 000-16731

CROFF ENTERPRISES, INC.
(Exact Name ofOf Registrant As Specified In Its Charter)
 Utah
   
 80209
 State of Incorporation 
3773 Cherry Creek Drive North, Suite 1025
 Zip Code
  
Denver, Colorado
  
   Address of principal executive offices  
     
 (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
 
Common -
$0.10 Par Value
 
None
 
Title of each class 
 Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:       None
                                      
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 washas required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo  Yes   o  No

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  oYes  x  No

Indicate by check mark whether the registrantRegistrant is a shell company (as defined in Rule 12b-212 b-2 of the Exchange Act).   oYes    x No

As of March 31, 2007, the aggregate market value of the common voting stock held by non-affiliates of the Registrant, computed by reference to the average of the bid and ask price on such date was: $635,000.

As of March 31, 2007, the Registrant had outstanding 551,244There were 551,344 shares of common stock (excludesoutstanding on October 1, 2007, exclusive of 69,399 common shares held asin treasury stock).stock.


1

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 MARCH 31,SEPTEMBER 30, 2007 (UNAUDITED).


 
 
Page Number
PART I.  UNAUDITED FINANCIAL INFORMATION 
 
    
Item 1.. 
Unaudited Financial Statements 
3
    
Item 2. 
Management’s Discussion and Analysis of Financial 
Condition and Results of Operations
8 
  8
    
Item 3. 
QuantitativeControls and Qualitative Disclosures AboutProcedures 
Market Risk 
10 
  
PART II. OTHER INFORMATION 
11
    
Item 4. 5. Controls and Procedures 
Material Subsequent Events 
11
   
PART II. OTHER INFORMATION 12
 
Item 6. 
Exhibits and Reports on Form 8-K 
12
    
Signatures  1213 
 

Forward-Looking Statements & Engineering Reports
 
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 forward looking 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 lookingforward-looking statements. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the cautionary statements in this Form 10-Q and the Company’s Annual Report on Form 10-K10-K/A for the year ended December 31, 2006. 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, business strategies, expansion and growth of the Company’s operations, cash flow and anticipated liquidity, prospects and development and property acquisitions, obtaining financial or industry partners for prospect or program development, or marketing of oil and natural gas. We caution you that these forward-looking statements are subject to risks and uncertainties.  These risks include but are not limited to: general economic conditions, the Company’s

2

ability to finance acquisitions and drilling, the market price of oil and natural gas, the risks associated with exploration, the Company’s ability to find, acquire, market, develop and produce new properties, operating hazards attendant to the oil and 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 the Company’s Annual Report on Form 10-K10-K/A for the year ended December 31, 2006.

2

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 reserve 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.

              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.

Should one or more of the risks or uncertainties described above or elsewhere in this Form 10-Q or presented in the Company’s Annual Report on Form 10-K10-K/A for the year ended December 31, 2006 occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages.
 
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

PART I.  UNAUDITED FINANCIAL INFORMATION


ITEM 1.  UNAUDITED FINANCIAL STATEMENTS

 
The financial statements included herein have been prepared in conformity with generally accepted accounting principles. The statements are unaudited but reflect all adjustments, which, in the opinion of management, are necessary to fairly present the Company’s financial position and results of operations. All such adjustments are of a normal recurring nature.

3

CROFF ENTERPRISES, INC.
BALANCE SHEETS
(Unaudited)
CROFF ENTERPRISES, INC.    
BALANCE SHEETS    
(Unaudited)       
 
  December 31,  September 30 
  2006  2007 
ASSETS      
 
 
Current assets: 
      
     Cash and cash equivalents 
 $985,729  $1,128,984 
     Accounts receivable 
  124,900   124,142 
   1,110,629   1,253,126 
 
Oil and natural gas properties, at cost, successful efforts method: 
  1,340,362   1,404,571 
     Accumulated depletion and depreciation 
  (583,830)  (621,330)
   756,532   783,241 
 
             Total assets  $1,867,161  $2,036,367 
 
             LIABILITIES AND STOCKHOLDERS’ EQUITY 
        
 
Current liabilities: 
        
   Accounts payable 
 $58,756  $39,098 
   Current portion of ARO 
  23,000   23,000 
   Accrued liabilities 
  33,375   4,645 
   Total Current Liabilities 
  115,131   66,743 
 
Long-term portion of ARO 
  64,695   69,535 
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 
  1,380,387   1,583,642 
   Common stock, $.10 par value; 20,000,000 shares authorized, 
        
620,643 shares issued and outstanding 
  62,064   62,064 
   Capital in excess of par value 
  155,715   155,715 
   Treasury stock, at cost, 69,399 shares 
        
       issued and outstanding in 2005 and 2006 
  (107,794)  (107,794)
   Retained earnings 
  196,963   206,462 
   1,687,335   1,900,089 
 
         Total liabilities and stockholders’ equity 
 $1,867,161  $2,036,367 


    December 31,    March 31,  
    2006    2007  
  
ASSETS          
  
Current assets:          
     Cash and cash equivalents  $985,729 $1,020,420 
     Accounts receivable   124,900  137,440 
   1,110,629  1,157,860 
 
 
Oil and natural gas properties, at cost, successful efforts method:   1,074,188  1,097,033 
     Unproved Properties   266,174  266,174 
Accumulated depletion and depreciation   (583,830) (596,330)
   756,532  766,877 
 
Total assets  $1,867,161 $1,924,737 
 
           LIABILITIES AND STOCKHOLDERS’ EQUITY        
 
Current liabilities:        
   Accounts payable  $58,756 $58,346 
   Current portion of ARO liability   23,000  23,000 
   Accrued liabilities   33,375  35,375 
   115,131  116,721 
 
Long-term portion of ARO liability   64,695  66,309 
 
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   1,380,387  1,431,278 
   Common stock, $.10 par value; 20,000,000 shares authorized,        
       620,643 shares issued and outstanding   62,064  62,064 
   Capital in excess of par value   155,715  155,715 
   Treasury stock, at cost, 69,399 shares        
     issued and outstanding in 2005 and 2006   (107,794) (107,794)
   Retained earnings   196,963  200,444 
   1,687,335  1,741,707 
 
       Total liabilities and stockholders’ equity  $1,867,161 $1,924,737 
See accompanying notes to unaudited condensed financial statements.
statements
4

CROFF ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
CROFF ENTERPRISES, INC.
 
STATEMENTS OF OPERATIONS 
(Unaudited) 
             
  Three months ended  Nine months ended 
  September 30,  September 30, 
  2006  2007  2006  2007 
Revenues:
            
  Oil and natural gas sales $231,180  $242,863  $666,286  $664,984 
  Interest income  24,657   11,065   38,536   33,397 
  Other income  --   --   --   2,760 
Gain on Sale of Asset  112,543   --   112,543   --. 
   368,380   253,928   817,365   701,237 
Expenses:
                
  Lease operating expense including                
    production taxes  73,394   74,372   196,552   212,795 
  General and administrative  36,346   33,429   135,172   118,090 
  Overhead expense, related party  19,020   17,077   43,464   41,257 
  Accretion expense  1,467   1,614   4,401   4,841 
  Depletion and depreciation  12,000   12,500   36,500   37,500 
   142,227   138,992   416,089   414,183 
Income before income taxes  226,153   114,936   401,276   286,754 
Income taxes expense  72,000   22,000   110,000   74,000 
Net income $154,153  $92,936  $291,276  $212,754 
Net income applicable to                
  preferred B shares  75,358   89,899   207,449   203,255 
Net income applicable to                
  common shares $78,795  $3,037  $83,827  $9,499 
Basic and diluted net income                
  per common share $0.14  $0.01  $0.15  $0.02 
                 
Weighted average common shares outstanding  551,224   551,224   551,224   551,224 
For the three months ended March 31, 2006 and 2007
(Unaudited)* less than $0.01 per common share.


  
   2006     2007  
Revenues        
   Oil and natural gas sales  $226,074 $210,329 
   Interest Income   6,658  11,149 
   232,732  221,478 
Expenses      
Lease operating expense including
     production taxes 
  65,689  75,086 
   General and administrative   62,952  43,372 
   Overhead expense, related party   16,318  12,125 
   Accretion expense   1,467  1,613 
   Depletion and depreciation   12,500  12,500 
 
   158,926  145,106 
 
Pretax income   73,806  76,372 
Provision for income taxes   16,000  22,000 
 
Net income  $57,806 $54,372 
 
Net income applicable to
     preferred B shares
 $55,408 $50,891 
 
Net income applicable to
     common shares 
 $2,398 $3,481 
 
Basic and diluted net income 
   per common share 
 $* $* 
 
* Less than $.01 per share      
 
Weighted average common shares outstanding   551,244  551,244 
See accompanying notes to unaudited condensed financial statements.

statement.
5

CROFF ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY 
For the year ended December 31, 2006 and the nine months ended September 30, 2007
CROFF ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the year ended December 31, 2006 and the three months ended March 31, 2007
(Unaudited)
 

              Capital in       
  Preferred B stock  Common stock  excess of  Treasury  Accumulated 
  Shares  Amount  Shares  Amount  par value  stock  earnings 
 
Balance at December 31, 2006 
  540,659  $1,380,387   620,643  $62,064  $155,715  $(107,794) $196,963 
 
   Net income for the nine months 
                            
   ended September 30, 2007 
  -   -   -   -   -   -   212,754 
   Preferred stock reallocation 
  -   203,255   -   -   -   -   (203,255)
 
Balance at September 30, 2007 
  540,659  $1,583,642   620,643  $62,064  $155,715  $(107,794) $206,462 
                Capital in          
  Preferred B stock  Common stock  excess of   Treasury   Acumulated  
 Shares        Amount  Shares    Amount    par value    stock    earnings  
  
Balance at December 31, 2006   540,659 $1,380,387  620,643 $62,064 $155,715 $(107,794)$196,963 
 
Net income for the three months               
ended March 31, 2007   -  -  -  -  -  -  54,372 
Preferred stock reallocation   -  50,891  -  -  -     (50,891)
 
 
Balance at March 31, 2007   540,659 $1,431,278  620,643 $62,064 $155,715 $(107,794)$200,444 
 
 
See accompanying notes to unaudited condensed financial statements.
statement
6
CROFF ENTERPRISES, INC.

STATEMENTS OF CASH FLOWS
CROFF ENTERPRISES, INC.
 
STATEMENTS OF CASH FLOWS 
For the nine months ended September 30, 2006 and 2007 
(Unaudited) 
       
       
       
  2006  2007 
Cash flows from operating activities:      
  Net income $291,449  $212,754 
  Adjustments to reconcile net income to        
    net cash provided by operating activities:        
      Depletion, depreciation and accretion  40,901   42,341 
      Gain on sale of assets  (112,543)  -- 
      Changes in operating assets and liabilities:        
        Accounts receivable  26,104   757 
        Accounts payable  49,941   (19,658)
        Accrued liabilities  20,587   (28,730)
    Net cash provided by operating activities  316,439   207,464 
         
Cash flows from investing activities:        
  Proceeds from sale of assets  210,550   -- 
  Acquisition of property leases and improvements  (110,065)  (64,209)
    Net cash provided by investing activities  100,485   (64,209)
         
Cash flows from investment activities:        
  Costs incurred for the benefit of farmout agreement  (300,621)  -- 
    Net cash (used) by financing activities  (300,621)  -- 
         
Net increase in cash and cash equivalents  116,303   143,256 
Cash and cash equivalents at beginning of period  902,257   985,729 
Cash and cash equivalents at end of period $1,018,560  $1,128,984 
         
Supplemental disclosure of non-cash investing and financing activities: None     
For the three months ended March 31, 2006 and 2007
(Unaudited)


   2006   2007  
Cash flows from operating activities:        
   Net income  $57,806 $54,372 
   Adjustments to reconcile net income to        
       net cash provided by operating activities:        
Depletion, depreciation, and accretion   13,967  14,114 
Changes in operating assets and liabilities:        
Accounts receivable   25,900  (12,540)
Accounts payable   8,310  (410)
Accrued liabilities   (25,929) 2,000 
       Net cash provided by operating activities   80,054  57,536 
   
 
Cash flows from investing activities:        
   Proceeds from sale of equipment   -  - 
 Acquisition of property leases and improvements   (10,454) (22,845)
       Net cash provided (used) by investing activities   (10,454) (22,845)
 
Cash flows from financing activities:        
   Costs incurred for the benefit of farmout agreement   (300,621)   
       Net cash (used) by financing activities   (300,621)   
 
Net increase (decrease) in cash and cash equivalents   (231,021) 34,691 
Cash and cash equivalents at beginning of period   902,257  985,729 
Cash and cash equivalents at end of period  $671,236 $1,020,420 


See accompanying notes to unaudited condensed financial statements.

statement.
7

CROFF ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Basis of Preparation

The condensed financial statements for the three and nine month periods ended March 31,September 30, 2006 and 2007 in this report have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of the management, all adjustments necessary to present fairly the results of the operations of the interim periods presented herein.  Certain information in footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes the disclosures presented herein are adequate to make the information presented not misleading.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K10-K/A for the year ended December 31, 2006, which report has been filed with the Securities and Exchange Commission.  The Annual Report is available from the Company’s website at  www.croff.com, and online at the Securities and Exchange Commission website at www.sec.gov/edgar.

ITEM 2.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Overview
Croff Enterprises, Inc. (“Croff’ or the “Company”) was incorporated in Utah in 1907.  Croff is an independent energy company engaged in the business of oil and natural gas exploration and production, primarily through the acquisition of producing oil and natural gas leases as well as the ownership of perpetual mineral interests.  Other companies operate almost all of the wells from which Croff receives revenues and Croff has no control over the factors which determine royalty or working interest revenues, such as markets, prices and rates of production.  Today, Croff participates as a working interest owner in approximately 4042 wells or units of several wells.  Croff holds small royalty interests in approximately 212 wells.

Summary of Current and Subsequent Material Events - Change of Control & Sale of Assets
      Croff Enterprises, Inc. announced on December 14, 2006, a Stock Equivalent Exchange Agreement providing for the majority acquisition of the Taiyun Rongan Business Trading Company Limited, hereafter “TRBT”, a Chinese company located in the city of Taiyun, Shanxi Province, in the People’s Republic of China. The stock equivalent Exchange Agreement (hereafter “exchange agreement”) provides 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 provide for Croff to issue over 11 million new common shares (92.5%) of its common stock to the owners 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 majority shareholder vote and the completion and closing of the Exchange Agreement, Croff would own 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 own approximately sixty-one percent (61%) net interest in the shopping malls. At closing, TRBT shareholders will receive and own approximately 92.5% of the common shares of Croff and the current Croff shareholders will continue 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,” will, subject to shareholder vote, acquire 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

8

   Class B Preferred Shares currently held by these Croff Principals. The Croff Principals will exchange 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 liabilities including related bank accounts of the Company will be transferred. These class “B” preferred shares will be cancelled by the Company upon assignment. The Croff Principals will, concurrently, tender the sum of six hundred thousand dollars ($600,000) in cash to the Company, in exchange for the remaining 32.8% of the shares of the new subsidiary holding all of the Croff oil and gas assets.
    Croff will then, prior to the exchange closing, convert all remaining preferred “B” shares as held by the Croff shareholders other than the principal shareholders, being approximately 32.8% of the issued and outstanding preferred “B” shares, to common shares on a ratio of two common shares for each “B” preferred share cancelled. Prior to the closing of the exchange transaction, all “B” preferred shares will be cancelled and terminated of record, and all non-principal holders of Croff Preferred “B” shares will receive two common shares in exchange. All non-principal preferred “B” shareholders subsequent to the exchange will hold only common shares. The foregoing exchange transaction would not apply to Croff’s shareholders exercising their dissenting shareholders rights, whereby their Preferred B shares would be re-acquired by Croff for cancellation at $4.20 per Preferred B share and $1.25 per common share, or as otherwise appraised. As provided in the exchange agreement, the Company will have outstanding only common shares after the exchange. The Company is authorized to pay a dividend of twenty cents per share to all non-principal common shareholders of record prior to closing. The dividend would not be paid on the new common shares to be issued to the preferred shareholders prior to closing, or to the Croff principals. The exchange agreement also provides 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.
If the transaction is closed, the shareholders will have elected a new Board of Directors nominated and designated by TRBT. The new Board will appoint new officers for the company. As a net result, the business of the company will be changed from oil and gas production to primarily the acquisition, development, and management of retail properties in Taiyuan, China, including the initial six properties as identified. It is expected that the Company’s offices in the United States will be moved to the Salt Lake City area from Denver, CO.
Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operation are based upon financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year.  The Company analyzes its estimates, including those related to oil and natural gas revenues, oil and natural gas properties, marketable securities, income taxes and contingencies.

The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements and the uncertainties that it could impact results of operations, financial conditions and cash flows.  The Company accounts for its oil and natural gas properties under the successful efforts method of accounting.  Depletion, depreciation and amortization of oil and natural gas properties and the periodic assessments for impairment are based on underlying oil and natural gas reserve estimates and future cash flows using then current oil and natural gas prices combined with operating and capital development costs. There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures. Historically, oil and natural gas prices have experienced significant fluctuations and have been particularly volatile in recent years. Price fluctuations can result from variations in weather, levels of regional or national production and demand, availability of transportation capacity to other regions of the country and various other factors. Increases or decreases in oil and natural gas prices received could have a significant impact on future results.

98

Liquidity and Capital Resources

At March 31,September 30, 2007, the Company had assets of $1,924,737$2,036,367 and current assets totaled $1,157,860$1,253,126 compared to current liabilities of $116,721.$66,743.  Working capital at March 31,September 30, 2007 totaled $1,041,139,$1,176,383 an increase of approximately 5%18.17% compared to $995,498 at December 31, 2006.  The Company had a current ratio at March 31,September 30, 2007, of approximately 10:19:1. During the threenine month period ended March 31,September 30, 2007, net cash provided by operations totaled $57,536,$207,464, as compared to $80,054$316,439 for the same period in 2006. This decrease was due primarily to higher lease operating expenses and payment accrued of liabilitiesa one time sale, providing the additional cash in the first quarter of 2007.2006. The Company’s cash flow from operations is highly dependent on oil and natural gas prices.  The Company had no short-term or long-term debt outstanding at March 31,September 30, 2007. 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 at December 31, 2006. Capital expenditures for the first quarter of 2007, totaled $22,845, primarily incurred for the costs of the Shriners II well located in Duchesne County, Utah.  

Capital expenditures were not significant during the first nine months of 2007.  The Company’s plans for ongoing oil and gas development, acquisition and exploration expenditures, and possible equity repurchases over and beyond the Company’s operating cash flows will depend entirely uponon the completion ofCompany’s ability to secure acceptable financing, and reasonably priced opportunities.  Bank borrowings may be utilized to finance the proposed exchange agreement. If the exchange agreement is not completed, thenCompany’s 2007 capital budget.  To date, the Company will utilize the Company’s capital budget andhas utilized its internal operating cash flows to attempt to secure reasonably priced opportunities.flows.  Future cash flows are subject to a number of variables, including the level of production and oil and natural gas prices.  There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned levels of capital expenditures or that increased capital expenditures will not be undertaken.

The Company believes that borrowings from financial institutions, projected operating cash flows and the cash on hand will be sufficient to cover its working capital requirements for the next 12 months.months, if continuing its current oil and gas activities.  In connection with consummating any significant acquisition or funding an exploratory or development drilling program, additional debt or equity financing will be required, which may or may not be available on terms that are acceptable to the Company.

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 expenses.

Results of Operations

Three months ended March 31,September 30, 2007 compared to three months ended March 31,September 30, 2006.

The Company had a net income for the firstthird quarter of 2007 which totaled $54,372$92,936 compared to a net income of $57,806$154,153 for the same period in 2006.  Revenues were lowerThis decrease in income from 2006 was due to gain from the one time sale of leases in 2006 and one time higher interest income in the third quarter of 2006.  Oil and gas operations produced more income in the third quarter of 2007 andthan in the same quarter of 2006. The company expects lease operating expenses were higher. This decrease in net income was partially offset by higher interest incometo remain relatively stable and lower general and administrative expenses resulting in a small decrease in net income.to be higher due to strategic corporate changes.

RevenuesOil and natural gas sales for the firstthird quarter of 2007 totaled $221,478 compared to $232,732 for$242,863, a 5.1% increase from the same period ending March 31, 2006, a slight decrease. Interest income increased from $6,658 in 2006 to $11,149 in the first quarter of 2007. Decreased2006.  Increased oil andprices were mostly offset with lower natural gas prices duringin the firstcurrent quarter.  The Company’s average sales price of oil in the third quarter of 2007 werewas approximately $5 per barrel higher than the primary factorssame period in oil and2006.  The Company’s average sales price of natural gas revenues decreasing from $226,074 in the firstthird quarter of 2006 was approximately $5.50 per Mcf (Mcf equates to $210,329 inone thousand cubic feet), approximately the firstsame as the third quarter of 2007.

For the firstthird quarter of 2007, lease operationoperating expenses, which includesinclude all production related taxes, totaled $75,086$74,372 compared to $65,689$73,394 incurred for the same period in 2006. This increase was due to more workover expenses, non capitalized costs with new wells, and timing of lease expenses.

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Estimated depreciation and depletion expense for the firstthird quarter of 2007 totaled $12,500 and for 2006, was unchanged at $12,500.totaled $12,000.


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General and administrative expense, including overhead expense paid to a related party, for the firstthird quarter of 2007 totaled $43,372$50,506 compared to $62,952$55,366 for the same period in 2006.  This decrease related primarily to more general and administrative expensesthe costs incurred in the first quarter of 2006. Overhead expense paid to a related party for the first quarter of 2007 totaled $12,125 compared to $16,318 in 2006 which related to one time extra costsTRBT acquisition and proxy in 2006. The Company has incurred additional costs during the third quarter in both 2006 and 2007, associated with compliance with the Sarbanes-Oxley Act of 2002, and anticipated augmented compliance in 2008.

Provision for income taxes for the firstthird quarter of 2007 totaled $22,000 compared to $16,000$72,000 for the same period in 2006.  In the third quarter of 2006 the Company made a one time larger estimate for income taxes.

Nine Months ended September 30, 2007 compared to the nine months ended September 30, 2006.

Net income for the nine months ended September 30, 2007 and 2006 totaled $212,754 and $291,276 respectively. This decrease in the net income was due to no gain on sale of assets in 2007.

Oil and gas sales for the nine months ended September 30, 2007 totaled $664,984 a .01% decrease from the $666,286 for the same period in 2006. This slight decrease in oil and gas sales in 2007 compared to 2006 is primarily attributed to a decrease in natural gas prices.

Lease operation expense which includes all production related taxes for the nine months ended September 30, 2007 totaled $212,795 an 8.3% increase from $196,552 in 2006. This increase was primarily due to higher oilfield service costs in 2007.

Depletion and depreciation expense for the nine months ended September 30, 2007 totaled $37,500 from the sum of $36,500 incurred for the same period in 2006. This increase was due to the small increase in producing assets in 2007.

General and administrative expenses, including overhead expense paid to related party, for the nine months ended September 30, 2007 totaled $159,347 compared to $178,636 for the same period in 2006. Overhead expense paid to related party for the nine months ended September 30, 2007 totaled $41,257 compared to $43,464 incurred for the same period in 2006. The decrease in overhead expenses is primarily attributed to timing of professional fees in the cancelled TRBT acquisition.  The Company has also incurred additional costs during both 2006 and 2007 with respect to strategic planning and Sarbanes Oxley compliance.

Provision for income taxes for the nine months ending September 30, 2007 totaled $74,000 compared to $110,000 from the same period in 2006. This increase is primarily attributable to a higher estimate taxable income for taxes duethe gain on the sale of assets in 2007.2006.

Accounting Pronouncements Regarding Interim 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 changed 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).

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The Company’s major current market risk exposure is in crude oil and natural gas prices.  Realized pricing is primarily driven bybased on the prevailing domestic price for oil and natural gas.  Historically, prices received for oil and natural gas production have been volatile and unpredictable.  The price for oil is driven primarily by international political events, trading factors, and world wide supply and demand, including the safety of delivery.  Pricing volatility is expected to continue.  Croff has no control over oil and gas prices.  Natural gas price realizations for the threenine months ended March 31,September 30, 2007, ranged from a monthly low of approximately $5.00$3.50 per Mcf to a monthly high of approximately $7.50$8 per Mcf.  Oil prices ranged from a monthly low of approximately $48$55 per barrel to a monthly high of approximately $62$80 per barrel. A decline in prices of oil or natural gas could have a material adverse effect on the Company’s financial condition and results of operations.  For the threenine months ended March 31,September 30, 2007, a 10% reduction in oil and natural gas prices would have reduced revenues by approximately $20,000. If the exchange agreement is completed, then the company will incur entirely new and distinct risk factors as a real estate company as more fully disclosed in its pending proxy materials.$66,000.

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ITEM 4.   CONTROLS AND PROCEDURES

EvaluationAs of September 30, 2007, 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 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 Controlscontrols and Procedures 

The Company maintainsprocedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Companyan issuer in the reports that it files or submits under the Securities Exchange Act of 1934is 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 have concluded that our disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported withinby our management on a timely basis in order to comply with our disclosure obligations under the time periods specified inExchange Act, and the rules and forms of the Securities and Exchange Commission. At the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer, and the Company’s Chief Accounting Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer, and the Chief Accounting Officer concluded that as of the end of such period, the Company’s disclosure control and procedures are effective in alerting them to material information that is required to be included in the reports the Company files or submits under the Securities Exchange Act of 1934.

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Changes in Internal Controls Over Financials Reportingregulations promulgated thereunder.

There have beenFurther, there were no changes in the Company’sour internal control over financial reporting during the most recentfirst two fiscal quarterquarters that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.reporting


PART II.OTHER INFORMATION

ITEM 5.  SUBSEQUENT EVENTS

(a)
On September 27, 2007 the Croff Board of Directors adopted a Plan of Corporate Division and Reorganization. The Plan was then drafted and executed by all the directors. The Plan, in essence, divides Croff into a new private company containing the assets pledged to the Preferred B shares, and the existing public company holding the remaining assets. The new company would contain all the Preferred B share assets and liabilities and be owned by the Preferred B shareholders.  The Preferred B shares have all of the oil and gas assets pledged to them. The common shares would then be left with the currently traded public company with the primary asset being cash. This plan will require shareholder approval after submission of a proxy to the S.E.C. On October 25, 2007, the Company submitted a proxy to the S.E.C. for a shareholder meeting to approve this Plan, along with the election of directors and other routine matters. The proxy materials will be sent to all shareholders upon completion of the S.E.C. review.
The Plan requires the formation of a new Utah corporation to be known as Croff Oil Company, as a separate corporation from Croff Enterprises, Inc. All of the oil and gas assets, bank accounts, and other oil and gas assets and liabilities will be exchanged to this new corporation. Each Croff Preferred B shareholder will be entitled to one restricted common share in the new corporation for each Preferred B currently held. The Croff Preferred B shares will then be cancelled of record. All Croff Preferred B share holders will have the right to receive the new common shares. Three of the existing Croff directors, Richard Mandel, Gerald Jensen, and Julian Jensen will serve as the initial Board of directors of Croff Oil Company. Croff Enterprises, Inc. will continue as a public corporation seeking various merger or acquisition or other reorganization opportunities. Under Utah law dissenting shareholders will be offered a cash buyout alternative. A copy of this Plan is attached to this Form 10-Q.
(b) On September 27, 2007, the Board of Directors elected Sarah Straughan as the Chief Accounting Officer for Croff Enterprises Inc. to fill the existing vacancy.
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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  
Exhibits -– The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:
Exhibit 2 – The Plan of Corporate Division and Reorganization dated October 25, 2007 is filed as an Exhibit hereto. *
Exhibits:
31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1Certification of Chief Executive Officer, dated November 12, 2007, pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2Certification Chief Accounting Officer, dated November 12, 2007, pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002. *
* 
Filed herewith

31.1 Certification of Chief Executive Officer pursuant to Section 302 of
(b)   The following reports on Form 8-K were filed by Registrant during the Sarbanes-Oxley Act of 2002. *
31.2 Certification of Acting Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1 Certification of Chief Executive Officer, dated May 12, 2006, pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2 Certification of Acting Chief Financial Officer, dated May 12, 2006, pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002. *
*Filed herewitquarter ended September 30, 2007:
 
         None
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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.



 CROFF ENTERPRISES, INC.
 
Date: May 15, 2006November 12, 2007    By 
                      By:/s/ Gerald L. Jensen
Gerald L. Jensen, President,
Chief Executive Officer
   Gerald L. Jensen, President,  
                      
   Chief Executive Officer  
                      
Date: November 12, 2007 By:/s/ Sarah Straughan
 Sarah Straughan,
Date: May 15, 2006  By
                      /s/ Jennifer A. Miller  
                      
Secretary/Treasurer
Chief Accounting Officer
   Jennifer A. Miller,  
                      
   Chief Accounting Officer  
                      
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