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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 June 30, 2004
or -------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number: 100 ------------ ------------
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CROFF ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Utah 87-0233535
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
621 17th St., Suite 830, Denver, Colorado 80293
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(Address of principal executive offices) (Zip Code)
(303) 383-1555
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant has required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
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There were 566,900 shares of common stock outstanding on August 6, 2004,
exclusive of 53,243 common shares held in treasury stock.
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INDEX
INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q) TO THE
SECURITIES AND EXCHANGE COMMISSION FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2004 (UNAUDITED).
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Page Number
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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
Item 3. Controls and Procedures 12
PART II. OTHER INFORMATION 12
Item 5 Other Information 12
Item 6 Exhibits and reports on Form 8-K 12
Signatures 13
Certifications 14
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Forward-Looking Statements
Certain information included in this report, other materials filed or to be
filed by the Company with the Securities and Exchange Commission ("SEC"), as
well as information included in oral statements or other written statements made
or to be made by the Company contain or incorporate by reference certain
statements (other than statements of historical or present fact) that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements, other than statements of historical or present facts, that
address activities, events, outcomes or developments that the Company plans,
expects, believes, assumes, budgets, predicts, forecasts, estimates, projects,
intends or anticipates (and other similar expressions) will or may occur in the
future are forward-looking statements. These forward-looking statements are
based on management's current belief, based on currently available information,
as to the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the cautionary statements in this Form 10-Q
and the Company's Annual Report on Form 10-K for the year ended December 31,
2003. Such forward-looking statements appear in a number of places and include
statements with respect to, among other things, such matters as: future capital,
development and exploration expenditures (including the amount and nature
thereof), drilling, deepening or refracing of wells, oil and gas reserve
estimates (including estimates of future net revenues associated with such
reserves and the present value of such future net revenues), estimates of future
production of oil and natural gas, business strategies, expansion and growth of
the Company's operations, cash flow and anticipated liquidity, prospects and
development and property acquisitions, obtaining financial or industry partners
for prospect or program development, or marketing of oil and natural gas. We
caution you that these forward-looking statements are subject to risks and
uncertainties. These risks include, but are not limited to, general economic
conditions, the Company's ability to finance acquisitions and drilling, the
market price of oil and natural gas, the risks associated with exploration, the
Company's ability to find, acquire, market, develop and produce new properties,
operating hazards attendant to the oil and gas business, uncertainties in the
estimation of proved reserves and in the projection of future rates of
production and timing of development expenditures, the strength and financial
resources of the Company's competitors, the Company's ability to find and
retain skilled personnel, climatic conditions, labor relations, availability
and cost of material and equipment, environmental risks, the results of
financing efforts, regulatory developments and the other risks described in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way.
The accuracy of any reserve estimate depends on the quality of available data
and the interpretation of that data by geological engineers. In addition, the
results of drilling, testing and production activities may justify revisions
of estimates that were made previously. If significant, these revisions could
change the schedule of any further production and/or development drilling.
Accordingly, reserve estimates are generally different from the quantities of
oil and natural gas that are ultimately recovered.
Should one or more of the risks or uncertainties described above or
elsewhere in this Form 10-Q or presented in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003 occur, or should underlying
assumptions prove incorrect, actual results and plans could differ materially
from those expressed in any forward-looking statements. We specifically
disclaim all responsibility to publicly update any information contained in a
forward-looking statement or any forward-looking statement in its entirety
and therefore disclaim any resulting liability for potentially related damages.
All forward-looking statements attributable to us are expressly qualified
in their entirety by this cautionary statement.
PART I. UNAUDITED FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
The financial statements included herein have been prepared in conformity
with generally accepted accounting principles. The statements are unaudited but
reflect all adjustments, which, in the opinion of management, are necessary to
fairly present the Company's financial position and results of operations. All
such adjustments are of a normal recurring nature.
CROFF ENTERPRISES, INC.
BALANCE SHEETS
(Unaudited)
December 31, June 30,
2003 2004
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ASSETS
Current assets:
Cash and cash equivalents $ 154,490 $ 256,302
Investments
Marketable equity securities, available for sale 48,470 -
Mutual fund 77,429 -
Natural gas "put" contracts, at fair value 7,660 -
Accounts receivable 80,531 87,025
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368,580 343,327
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Oil and gas properties, at cost,
successful efforts method: 985,565 1,083,629
Accumulated depletion and depreciation (455,924) (476,924)
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529,641 606,705
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Total assets $ 898,221 $ 950,032
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,383 $ 35,097
Accrued liabilities 10,726 4,608
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32,109 39,705
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Stockholders' equity:
Class A Preferred stock, no par value
5,000,000 shares authorized, none issued - -
Class B Preferred stock, no par value; 1,000,000
shares authorized, 540,659 shares issued and
outstanding 559,295 607,857
Common stock, $.10 par value; 20,000,000 shares
authorized, 620,143 shares issued and outstanding 62,014 62,014
Capital in excess of par value 369,761 321,199
Treasury stock, at cost, 53,243 shares issued and
outstanding (83,151) (83,151)
Accumulated other comprehensive loss (41,210) -
Retained earnings (deficit) (597) 2,408
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866,112 910,327
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Total liabilities and stockholders' equity $ 898,221 $ 950,032
========== ==========
See accompanying notes to unaudited condensed financial statements.
4
CROFF ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
2003 2004 2003 2004
-------- -------- -------- --------
Revenues
Oil and gas sales $121,569 $139,068 $224,677 $270,142
Loss on natural gas "put" contracts (26,790) - (31,821) (7,599)
Loss on sale of marketable
equity securities - - - (38,166)
Other income 751 1,131 2,974 1,623
-------- -------- -------- --------
95,530 140,199 195,830 226,000
-------- -------- -------- --------
Expenses
Lease operating expense including
production taxes 36,983 70,873 66,718 106,703
Proposed drilling fund 4,581 2,093 10,973 8,468
General and administrative 23,621 23,461 58,743 62,344
Overhead expense, related party 6,000 12,000 12,000 24,000
Depreciation and depletion 10,000 10,500 20,000 21,000
-------- -------- -------- --------
81,185 118,927 168,434 222,515
-------- -------- -------- --------
Pretax income 14,345 21,272 27,396 3,485
Provision for income taxes 2,000 (6,400) 4,000 480
-------- -------- -------- --------
Net income $ 12,345 $ 27,672 $ 23,396 $ 3,005
======== ======== ======== ========
Net income applicable to
preferred B shareholders 12,001 29,088 22,377 48,562
-------- -------- -------- --------
Net income (loss) applicable to
Common shareholders $ 344 $ (1,416) $ 1,019 $(45,557)
======== ======== ======== ========
Basic and diluted net income
per common share $ *<F1> $ *<F1> $ *<F1> $ (0.08)
======== ======== ======== ========
Weighted average common shares
outstanding 566,900 566,900 566,900 566,900
======== ======== ======== ========
<F1>
* Less than $0.01 per share
</FN>
See accompanying notes to unaudited condensed financial statements.
5
CROFF ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the year ended December 31, 2003 and
the six months ended June 30, 2004
(Unaudited)
Accumulated
Preferred B stock Common stock Capital in other Retained
------------------ ------------------ excess of Treasury comprehensive Earnings
Shares Amount Shares Amount par value stock loss (deficit)
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at December 31, 2002 540,659 $470,910 629,143 $ 62,914 $ 456,246 $(83,151) $ (65,205) $ (94,706)
Net unrealized gain on marketable
equity securities - - - - - - 23,995 -
Net income for the year ended
December 31, 2003 - - - - - - - 65,622
Common stock issued for services - - 1,000 100 900 - - -
Cancellation of treasury stock - - (10,000) (1,000) 1,000 - - -
Preferred stock allocation - 88,385 - - (88,385) - - -
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at December 31, 2003 540,659 559,295 620,143 62,014 369,761 (83,151) (41,210) (597)
-------- -------- -------- -------- ---------- -------- ------------- -----------
Net loss on marketable equity
securities - - - - - - 41,210 -
Net income for the six months
ended June 30, 2004 - - - - - - - 3,005
Preferred stock allocation - 48,562 - - (48,562) - - -
-------- -------- -------- -------- ---------- -------- ------------- -----------
Balance at June 30, 2004 540,659 $607,857 620,143 $ 62,014 $ 321,199 $(83,151) $ - $ 2,408
======== ======== ======== ======== ========== ======== ============= ===========
See accompanying notes to unaudited condensed financial statements.
6
CROFF ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2003 and 2004
(Unaudited)
2003 2004
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Cash flows from operating activities:
Net income $ 23,396 $ 3,005
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depletion and depreciation 20,000 21,000
Realized loss on marketable
equity securities - 38,166
Loss on natural gas "put" contracts 31,821 7,599
Changes in operating assets and
liabilities:
Accounts receivable (25,183) (6,494)
Accrued interest on notes receivable (474) -
Accounts payable 2,354 13,714
Accrued liabilities 5,738 (6,118)
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Net cash provided by operating activities 57,652 70,872
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Cash flows from investing activities:
Purchase of natural gas contracts (58,041) -
Proceeds from sale of natural gas contracts - 61
Acquistion of property leases and improvements (98,187) (98,064)
Purchase of working interest in proved properties (49,585) (30,000)
Proceeds from sale of marketable equity securities - 51,514
Proceeds from sale of mutual fund - 77,429
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Net cash provided by (used in) investing activities (156,228) 30,940
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Cash flows from financing activities:
Payment on note receivable from a director 10,600 -
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Net Cash provided by financing activities 10,600 -
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Net increase (decrease) in cash and cash equivalents (87,976) 101,812
Cash and cash equivalents at beginning of period 316,473 154,490
---------- ----------
Cash and cash equivalents at end of period $ 228,497 $ 256,302
========== ==========
Supplemental disclosure of non-cash investing and financing activities:
During the six month period ended June 30, 2003, the Company had unrealized
gains on available for sale securities in the amount of $24,370. During the six
month period ended June 30, 2003, the Company had net unrealized losses on
natural gas contracts of $31,821
See accompanying notes to unaudited condensed financial statements.
7
CROFF ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Basis of preparation
The condensed financial statements for the six month periods ended June 30,
2003 and 2004 in this report have been prepared by the Company without audit
pursuant to the rules and regulations of the Securities and Exchange Commission
and reflect, in the opinion of the management, all adjustments necessary to
present fairly the results of the operations of the interim periods presented
herein. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to such
rules and regulations, although the Company believes the disclosures presented
herein are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003, which report has been
filed with the Securities and Exchange Commission, and is available from the
Company or from the Company's website at www.croff.com.
Subsequent events
Subsequent to June 30, 2004, Croff has incurred and capitalized
approximately $177,000 related to the successful completion of the phase 1
re-entry on the Helen Gips #1 well in DeWitt County, Texas; which is part of
the Company's 2004 Yorktown Re-Entry Program.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Croff Enterprises, Inc. ("Croff" or the "Company") was incorporated in
Utah in 1907. Croff is an independent energy company engaged in the business
of oil and natural gas exploration and production, primarily through the
acquisition of producing oil and natural gas leases as well as the ownership
of perpetual mineral interests. Other companies operate almost all of the
wells from which Croff receives revenues and Croff has no control over the
factors which determine royalty or working interest revenues, such as markets,
prices and rates of production. Today, Croff participates as a working
interest owner in approximately 50 wells or units of several wells. Croff
also holds small royalty interests in approximately 200 wells.
Croff's business strategy is focused on targeting opportunities that are
of lower risk with the potential for stable cash flow and long asset life
while seeking to keep operating costs low. The Company has no short-term or
long-term debt outstanding. The Company over the last four years acquired
three wells in Michigan, one well in Montana, six wells in Oklahoma and eight
wells in Texas. The Company continues to actively search for oil and natural
gas properties that may fit into our overall business strategy.
The Company has acquired rights in certain oil and gas properties for a
proposed drilling program to develop oil and natural gas producing trends in
the Wilcox, Edwards and Georgetown in south Texas, titled the "2004 Yorktown
Re-entry Program". The 2004 Yorktown Re-entry Program currently contains
eleven re-entry prospects on 1,100 leased acres. The successful development
of these assets will, among other things, require the Company to raise
several million dollars or to contract with a joint-venture partner(s) with
the financial resources to complete this program. The Company has no
financing or joint-venture commitments at this time and there is no
assurance of any such commitments being obtained.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and
results of operations are based upon financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the year. The Company
analyzes its estimates, including those related to oil and gas revenues,
oil and gas properties, marketable securities, income taxes and
contingencies. The Company bases its estimates on historical experience
and various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes the following
critical accounting policies affect its more significant judgments and
estimates used in the preparation of its financial statements and the
uncertainties that it could impact results of operations, financial
condition and cash flows. The Company accounts for its oil and gas
properties under the successful efforts method of accounting. Depletion,
depreciation and amortization of oil and gas properties and the periodic
assessments for impairment are based on underlying oil and gas reserve
estimates and future cash flows using then current oil and gas prices
combined with operating and capital development costs. There are numerous
uncertainties inherent in estimating quantities of proved oil and gas
reserves and in projecting future rates of production and timing of
development expenditures. The Company has designated its marketable
equity securities as "securities available for sale". The Company
follows SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivatives' fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Historically, oil and gas prices have experienced significant fluctuations and
have been particularly volatile in recent years. Price fluctuations can result
from variations in weather, levels of regional or national production and
demand, availability of transportation capacity to other regions of the
country and various other factors. Increases or decreases in oil and gas
prices received could have a significant impact on future results.
Liquidity and Capital Resources
At June 30, 2004, the Company had assets of $950,032 and current assets
totaled $343,327 compared to current liabilities of $39,705. Working capital
at June 30, 2004 totaled $303,622, a decrease of 10% compared to $336,471 at
December 31, 2003. The Company had a current ratio at June 30, 2004 of
approximately 9:1. During the first quarter of 2004, the Company sold its
portfolio of marketable equity securities and mutual fund for a net realized
loss of $38,166. In addition, the Company sold its remaining natural gas "put"
contracts during the first quarter of 2004 for a realized loss of $7,599.
During the six month period ended June 30, 2004, net cash provided by
operations totaled $70,872, as compared to $57,652 for the same period in 2003.
The Company's cash flow from operations is highly dependent on oil and gas
prices. The Company had no short-term or long-term debt outstanding at
June 30, 2004.
At June 30, 2004, the Company anticipated drilling expenditures of
approximately $160,000 for phase 1 of the first well in he 2004 Yorktown
Reentry Program. Subsequent to June 30, 2004, Croff incurred and capitalized
approximately $177,000 related to the successful completion of the
phase 1 re-entry on the Helen Gips #1 well in DeWitt County, Texas; which is
part of the Company's 2004 Yorktown Re-Entry Program. Capital expenditures
for six months ended June 30, 2004, totaled $98,064. During 2004, the Company
has acquired or extended mineral leases with re-entry wells in DeWitt County,
Texas for $49,950 and spent $48,114 for pipe and other costs related to this
2004 Yorktown Re-Entry Program. The successful development of these assets
will, among other things, require the Company to raise several million dollars
or to contract with a joint-venture partner(s) with the financial resources to
complete this program. The Company has no financing or joint-venture
commitments at this time and there is no assurance of any such commitments
being obtained.
The Company's plans for ongoing development, acquisition and exploration
expenditures, and possible equity repurchases over and beyond the Company's
operating cash flows will depend entirely on the Company's ability to secure
acceptable financing. Bank borrowings may be utilized to finance the Company's
2004 capital budget as well as possible joint ventures or future public or
private offerings of debt or the Company's equity securities. In addition,
the Company will utilize its internal operating cash flows, however, future
cash flows are subject to a number of variables, including the level of
production and oil and natural gas prices, and 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. In connection
with the planned funding of 2004 Yorktown Reentry Program 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, especially in commodity prices, is
generally favorable to the Company.
Results of Operations
Three months ended June 30, 2004 compared to three months ended June 30, 2003.
Revenues for the second quarter of 2004 totaled $140,199, a 47% increase
from the same period in 2003. Net income for the three months ended June 30,
2004 and 2003 totaled $27,672 and $12,345, respectively. Oil and gas sales for
the second quarter of 2004 totaled $139,068, a 14% increase from the same
period in 2003. A combination of increased oil and natural gas prices,
combined with slight increases in oil production levels during the second
quarter of 2004, were major factors causing this increase in oil and gas sales
compared to the same period in 2003. The Company's average sale price per
barrel of oil in the second quarter of 2004 was approximately $29 per barrel
compared to $25.62 per barrel for the same period in 2003. The Company's
average sale price of natural gas in the second quarter of 2004 was
approximately $4.18 per Mcf (Mcf equates to one thousand cubic feet), compared
to $3.71 per Mcf for the same period in 2003. Production of crude oil
primarily increased due to the acquisition of a working interest in a well in
Michigan and a well in Texas. Other income for the months ended June 30, 2004
and 2003 totaled $1,131 and $751, respectively.
Lease operation expense, which includes all production related taxes for
the second quarter of 2004 totaled $70,873 and is compared to the $36,983
incurred for the same period in 2003. Included in the 2004 lease operating
expense is approximately $20,000 for well workover costs. In addition, recent
acquisitions of working interests have increased operating expenses as a percent
of oil and gas sales for 2004 compared to 2003.
Depletion and depreciation expense for the second quarter of 2004 totaled
$10,500 and is comparable to the $10,000 incurred for the same period in 2003.
Proposed drilling fund expenses incurred during the second quarter of 2004
totaled $2,093 compared to the $4,581 incurred for the same period in 2003.
In accordance with the "successful efforts" method of accounting, certain
geological and geophysical activities are charged to expense as incurred and
are not capitalized as part of the drilling program. In addition, the proposed
drilling fund expenses include certain professional fees and travel expenses
incurred in connection with the drilling program.
General and administrative expense, including overhead expense paid to a
related party, for the second quarter of 2004, totaled $35,461 compared to
$29,621 for the same period in 2003. Overhead expense paid to a related party
for the second quarter of 2004 totaled $12,000 compared to the $6,000 incurred
for the same period in 2003. In November 2004, the Company's Board of Directors
authorized an increase in the overhead from $2,000 per month to $4,000 per
month, due to the amount of additional services being rendered to the Company
from Jenex Petroleum Corporation, which is owned by the Company's President.
Provision for income taxes for the second quarter of 2004 totaled $(6,400)
compared to $2,000 from the same period in 2003. The provision for income taxes
for the second quarter of 2004 reflects an $8,400 overpayment of the Company's
2003 federal income taxes.
Six months ended June 30, 2004 compared to six months ended June 30, 2003.
Revenues for the six months ended June 30, 2004 totaled $226,000, a 15%
increase from the prior year period. Net income for the six months ended
June 30, 2004 and 2003 totaled $3,005 and $23,396, respectively. During the
first quarter of 2004, the Company sold its portfolio of marketable equity
securities and mutual funds for a net realized loss of $38,166 and sold its
remaining natural gas "put" contracts for a realized loss of $7,599. The
Company's liquidation of its marketable equity securities, mutual fund and
natural gas "put" contracts combined for a net realized loss of $45,765.
Oil and gas sales for the six months ended June 30, 2004 totaled $270,142,
a 20% increase from the same period in 2003. The increase in oil and gas sales
in 2004 compared to 2003 is primarily attributable to increased oil and natural
gas prices as well as slightly higher oil production levels during 2004.
Production of crude oil primarily increased due to the Company's acquisition of
a working interest in a well in Michigan and a well in Texas
Lease operation expense, which includes all production related taxes for
the six months ended June 30, 2004 totaled $106,703, a 60% increase from the
prior year period. Included in the 2004 lease operating expense is
approximately $20,000 for well workover costs. In addition, recent acquisitions
of oil well working interests have increased the operating expenses for 2004 as
compared to 2003.
Depletion and depreciation expense for the six months ended June 30, 2004
totaled $21,000 and is comparable to the $20,000 incurred for the same period in
2003.
Proposed drilling fund expense for the six months ended June 30, 2004
totaled $8,468 compared to $10,973 incurred for the same period in 2003.
General and administrative expense, including overhead expense paid to a
related party, the six months ended June 30, 2004 totaled $86,344 compared to
$70,743 for the same period in 2003. Overhead expense paid to a related party
for the six months ended June 30, 2004 totaled $24,000 compared to the $12,000
incurred for the same period in 2003. This increase in overhead expenses is
primarily attributable to the additional time incurred establishing the 2004
Yorktown Re-entry Program. The Company has also incurred additional costs
during 2004 associated with compliance with the Sarbanes-Oxley Act of 2002
compared to 2003.
Provision for income taxes for 2004 totaled $480 compared to $4,000 from
the same period in 2003. This decrease is primarily attributable to an
overpayment of the Company's 2003 Federal income taxes which has been
recognized during the second quarter of 2004.
Quantitative and qualitative disclosures about market risk
The Company's major market risk exposure is in the pricing applicable to
its oil and natural gas production. Realized pricing is primarily driven by
the prevailing domestic price for oil and natural gas. Historically, prices
received for oil and natural gas production have been volatile and
unpredictable. Pricing volatility is expected to continue. Natural gas price
realizations during 2003 and the six months ended June 30, 2004, ranged from a
monthly low of $2.05 per Mcf to a monthly high of $7.17 per Mcf. Oil prices
ranged from a monthly low of $20.05 per barrel to a monthly high of $36.75 per
barrel during 2003 and the first quarter of 2004. A decline in prices of oil
or natural gas could have a material adverse effect on the Company's financial
condition and results of operations. For the six months ended June 30, 2004,
a 10% reduction in oil and natural gas prices would have reduced revenues by
approximately $28,000.
ITEM 3. CONTROLS AND PROCEDURES
Croff's principal executive officer and principal financial officer have
evaluated the effectiveness of Croff's "disclosure controls and procedures,"
as such term is defined in Rule 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934, as amended, within 90 days of the filing date of this
Quarterly Report on Form 10-Q. Based upon their evaluation, the principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, since the date the controls were
evaluated.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The registrant has filed no exhibits or reports on Form 8-K for the
quarter ended June 30, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
REGISTRANT: CROFF ENTERPRISES, INC.
Date: August 13, 2004 By: /S/Gerald L. Jensen
------------------ ------------------------------
Gerald L. Jensen, President,
Chief Executive Officer
Date: August 13, 2004 By: /s/Stuart D. Kroonenberg
------------------ ------------------------------
Stuart D. Kroonenberg,
Chief Financial Officer
Exhibit 31.1
CERTIFICATIONS
I, Gerald L. Jensen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Croff
Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 13, 2004 By: /S/Gerald L. Jensen
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Gerald L. Jensen, President,
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Stuart D. Kroonenberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Croff
Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 13, 2004 By: /s/Stuart D. Kroonenberg
------------------ ------------------------------
Stuart D. Kroonenberg,
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Croff Enterprises, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gerald L. Jensen, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) I further certify to the best of my knowledge that the information
contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
Date: August 13, 2004 By: /S/Gerald L. Jensen
------------------ ------------------------------
Gerald L. Jensen, President,
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Croff Enterprises, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stuart D. Kroonenberg, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) I further certify to the best of my knowledge that the information
contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
Date: August 13, 2004 By: /s/Stuart D. Kroonenberg
------------------ ------------------------------
Stuart D. Kroonenberg,
Chief Financial Officer
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