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FORM 10-Q. QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the period ended March 31, 2002
or -------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number: 100 ------------ ------------
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CROFF ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Utah 87-0233535
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
621 17th St., Suite 830, Denver, Colorado 80293
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(Address of principal executive offices) (Zip Code)
(303) 383-1555
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant has required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
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APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date: 566,060 shares, one class only
as of May 10, 2002.
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INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q) TO THE
SECURITIES AND EXCHANGE COMMISSION FOR THE THREE NINE MONTHS ENDED
MARCH 31, 2002 (UNAUDITED).
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Page Number
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PART I. UNAUDITED FINANCIAL INFORMATION
Balance Sheets as of December 31, 2001 and
March 31, 2002 3
Statements of Operations for the three months
ended March 31, 2001 and 2002 4
Statements of Stockholders' Equity for the year
ended December 31, 2001 and the three months
ended March 31, 2002 5
Statements of Cash Flows for three months ended
March 31, 2001 and 2002 6
Notes to Unaudited Condensed Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION 9
ITEM 6(B) REPORTS ON FORM 8-K 9
Signatures 9
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Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties; including without limitation to, the following: (i) the
Company's plans, strategies, objective, expectations and intentions are subject
to change at any time at the discretion of the Company; (ii) the Company's
plans and results of operations will be affected by the Company's ability to
manage its growth and inventory (iii) other risks and uncertainties indicated
from time to time in the Company's filings with the Securities and Exchange
Commission. Neither the Securities and Exchange Commission nor any other
regulatory body takes any position as to the accuracy of forward-looking
statements.
PART I. UNAUDITED FINANCIAL INFORMATION
CROFF ENTERPRISES, INC.
BALANCE SHEETS
(Unaudited)
December 31, March 31,
2001 2002
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ASSETS
Current assets:
Cash and cash equivalents $ 338,870 $ 378,361
Marketable equity securities, available for sale 4,600 4,000
Accounts receivable 49,226 35,704
Notes receivable, related parties 16,159 16,893
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408,855 434,958
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Oil and gas properties, at cost, successful efforts method:
Proved properties 578,091 578,091
Unproved properties 97,102 97,102
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675,193 675,193
Accumulated depletion and depreciation (388,924) (396,924)
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286,269 278,269
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Total assets $ 695,124 $ 713,227
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,568 $ 17,082
Accrued liabilities 5,471 2,439
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23,039 19,521
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Stockholders' equity:
Class A Preferred stock, no par value
5,000,000 shares authorized, none issued - -
Class B Preferred stock, no par value; 1,000,000
shares authorized, 540,659 shares issued and
outstanding 397,085 396,428
Common stock, $.10 par value; 20,000,000 shares
authorized, 629,143 shares issued and outstanding 62,914 62,914
Capital in excess of par value 530,071 530,728
Treasury stock, at cost, 63,083 shares issued and
outstanding (83,151) (83,151)
Accumulated other comprehensive loss (1,150) (1,750)
Accumulated deficit (193,618) (170,800)
Notes receivable from directors (40,066) (40,663)
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672,085 693,706
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Total liabilities and stockholders' equity $ 695,124 $ 713,227
========== ==========
See accompanying notes to unaudited condensed financial statements.
3
CROFF ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
For the three months ended March 31, 2001 and 2002
(Unaudited)
2001 2002
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Revenues
Oil and gas sales $ 122,361 $ 49,321
Gain on sale of marketable equity
securities - 23,026
Other income 3,026 1,891
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125,387 74,238
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Expenses
Lease operating expense including
production taxes 46,752 14,014
General and administrative 23,341 23,406
Overhead expense, related party 6,000 6,000
Depletion and depreciation 10,000 8,000
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86,093 51,420
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Net income 39,294 22,818
Net income (loss) applicable to
preferred B shareholders 37,883 (657)
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Net income applicable to
common shareholders $ 1,411 $ 23,475
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Basic and diluted net income
per common share $ .01 $ .04
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Weighted average common shares outstanding 526,060 566,060
========== ==========
See accompanying notes to unaudited condensed financial statements.
4
CROFF ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the year ended December 31, 2001 and
the three month period ened March 31, 2002
(Unaudited)
Accumulated
Preferred B stock Common stock Capital in other
------------------ ------------------ excess of Treasury comprehensive Accumulated
Shares Amount Shares Amount par value stock loss deficit
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at December 31, 2000 500,659 $475,359 589,143 $ 58,914 $ 415,797 $(82,951) $ - $ (255,153)
Stock warrants exercised 40,000 28,000 40,000 4,000 8,000 - - -
Purchase of 200 shares of
treasury stock - - - - - (200) - -
Net unrealized loss on marketable
equity securities - - - - - - (1,150) -
Net income for the year ended
December 31, 2001 - - - - - - - 61,535
Stock reallocation - (136,274) - - 136,274 - - -
Preferred stock reallocation - 30,000 - - (30,000) - - -
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at December 31, 2001 540,659 $397,085 629,143 $ 62,914 $ 530,071 $(83,151) $ (1,150) $ (193,618)
-------- -------- -------- -------- ---------- -------- ------------- -----------
Net unrealized loss on marketable
equity securities - - - - - - (600) -
Net income for the three months
ended March 31, 2002 - - - - - - - 22,818
Preferred stock reallocation - (657) - - 657 - - -
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at March 31, 2002 540,659 $396,428 629,143 $ 62,914 $ 530,728 $(83,151) $ (1,750) $ (170,800)
======== ======== ======== ======== ========== ======== ============= ===========
See accompanying notes to unaudited condensed financial statements.
5
CROFF ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2001 and 2002
(Unaudited)
2001 2002
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Cash flows from operating activities:
Net income $ 39,294 $ 22,818
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depletion and depreciation 10,000 8,000
Realized (gain) loss on marketable
equity securities 375 (23,026)
Changes in operating assets and
liabilities:
Accounts receivable (1,817) 13,522
Accrued interest on notes receivable - (1,331)
Other assets (5,205) -
Accounts payable 6,120 (486)
Accrued liabilities (1,476) (3,032)
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Net cash provided by operating
activities 47,291 16,465
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Cash flows from investing activities:
Purchase of marketable equity securities - (165,502)
Proceeds from sale of marketable equity
securities - 188,528
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Net cash provided by investing activities - 23,026
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Cash flows from financing activities:
Purchase of treasury stock (200) -
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Net Cash used in financing activities (200) -
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Net increase in cash and
cash equivalents 47,091 39,491
Cash and cash equivalents
at beginning of period 191,634 338,870
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Cash and cash equivalents
at end of period $ 238,725 $ 378,361
========== ==========
Supplemental disclosure of non-cash investing and financing activities:
During the three month period ended March 31, 2002, the Company had
unrealized losses on available for sale securities in the amount of $600.
See accompanying notes to unaudited condensed financial statements.
6
CROFF ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Basis of preparation
The condensed financial statements for the three month periods ended
March 31, 2002 and 2001 in this report have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect, in the opinion of the management, all
adjustments necessary to present fairly the results of the operations of
the interim periods presented herein. Certain information in footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been omitted pursuant to such rules and
regulations, although the Company believes the disclosures presented
herein are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2001, which report has been filed with the Securities and Exchange
Commission, and is available from the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 adopted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the year. The Company analyzes its estimates, including
those related to oil and gas revenues, oil and gas properties, marketable
securities, income taxes and contingencies. The Company bases its estimates
on historical experience and various other assumptions that are believed to
be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The Company believes
the following critical accounting policies affect its more significant
judgments and estimates used in the preparation of its financial statements
and the uncertainties that it could impact our results of operations,
financial condition and cash flows. The Company accounted for its oil and
gas properties under the successful efforts method of accounting. The
Company periodically evaluates its oil and gas properties for possible
impairment. 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 gas properties on the unit-
of-production method, based upon estimates of recoverable oil and gas reserves
from the property.
7
Results of Operations
Three months ended March 31, 2002 compared to three months ended March 31, 2001.
Revenues for the first quarter of 2002 totaled $74,238, a 41% decrease from
the prior year period. Net income for the first quarter of 2002 totaled $22,818,
a decrease of 42% compared to the first quarter of 2001. Oil and gas sales for
the first quarter totaled $49,321, a 60% decrease from the prior year period.
The major factor in this decrease in revenue was the combination of price and
production for oil and natural gas. The average sale price of oil in 2002 for
the Company was approximately $17 compared to $25 in 2001. The average sale
price of natural gas in 2002 for the Company was $1.80 per Mcf, compared to
$5.80 per Mcf in 2001. Production of both oil and gas decreased during the
first quarter of 2002 compared to the first quarter of 2001 as the operators of
the Company's wells slowed production due to low prices and reduced demand.
During 2002, the Company realized a gain on the sale of marketable equity
securities totaling $23,026.
Lease operation expense, which includes all production related taxes for
the first quarter of 2002, totaled $14,014 compared to the first quarter of
2001, which totaled $46,752. This decrease was attributable to the decrease
in oil and gas production and lower taxes for 2002.
Depreciation and depletion expense for the first quarter of 2002 totaled
$8,000, a 20% decrease from the prior year period, which totaled $10,000.
General and administrative expense, including rent for the first quarter
of 2002 totaled $29,406, which is comparable to the prior year period.
Financial condition and capital resources
At March 31, 2002, the Company had $713,227 of assets and $693,706 of
stockholders' equity. In the first three months of 2002, net cash provided by
operations totaled $16,465 as compared to $47,291 for the prior year period.
Working capital at March 31, 2002 totaled $415,437, an increase of 8% compared
to $385,816 at December 31, 2001. The Company had a favorable current ratio
at March 31, 2002 of approximately 22:1. For the remainder of 2002, the
Company expects to continue to operate at a positive cash flow and intends to
resume purchasing oil and natural gas leases. The Company has no short-term
or long-term debt at this time.
Because the Company's revenues are based primarily on the commodity
price of oil and natural gas, and, because the Company does not have
significant operating expenses, inflation, generally, is favorable to the
Company.
8
PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION
On June 15, 2001, the Company loaned $15,000 to Reef Energy Corporation, a
company in which Croff's President owns approximately a one-fourth interest.
This short-term secured note bears interest at 10% per annum. In December 2001,
the Company loaned three of its Directors a total of $40,000 associated with the
exercise of their stock warrants. The fully recourse notes due December 31, 2002
bear interest at 6% per annum.
ITEM 6(B) REPORTS ON FORM 8-K
The registrant has filed no reports on Form 8-K for the quarter ended
March 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
REGISTRANT: CROFF ENTERPRISES, INC.
By: /s/ Gerald L. Jensen
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Gerald L. Jensen
Chief Executive Officer
By: /s/ Stuart D. Kroonenberg
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Stuart D. Kroonenberg
Chief Financial Officer
Dated: May 14, 2002
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