================================================================================ 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 September 30, 2001 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 ------------ ------------ ------- CROFF ENTERPRISES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Utah 87-0233535 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 621 17th St., Suite 830, Denver, Colorado 80293 ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (303) 383-1555 ---------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant has required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ------- ------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date: 526,060 shares, one class only as of October 31, 2001. ================================================================================
INDEX INDEX TO INFORMATION INCLUDED IN THE QUARTERLY REPORT (FORM 10-Q) TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001(UNAUDITED). - -------------------------------------------------------------------------------- Page Number ----------- PART I. UNAUDITED FINANCIAL INFORMATION Balance Sheets as of December 31, 2000 and September 30, 2001 3,4 Statements of Operations for the three and nine months ended September 30, 2000 and 2001 5 Statements of Stockholders' Equity for the year ended December 31, 2000 and the nine months ended September 30, 2001 6 Statements of Cash Flows for nine months ended September 30, 2000 and 2001 7 Notes to Unaudited Condensed Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 6(B) REPORTS ON FORM 8-K 10 Signatures 10 - -------------------------------------------------------------------------------- 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) <TABLE> <CAPTION> December 31, September 30, 2000 2001 -------------- -------------- ASSETS <S> <C> <C> Current assets: Cash and cash equivalents $ 191,634 $ 269,246 Marketable equity securities 6,125 62,892 Accounts receivable 91,742 53,724 Note receivable, related party - 15,446 ---------- ---------- 289,501 401,308 ---------- ---------- Oil and gas properties, successful efforts method: Proved properties 611,960 633,665 Unproved properties 97,102 97,102 ---------- ---------- 709,062 730,767 Accumulated depreciation and depletion (370,391) (400,391) ---------- ---------- 338,671 330,376 ---------- ---------- Total assets $ 628,172 $ 731,684 ========== ========== </TABLE> See accompanying notes to unaudited condensed financial statements. 3
CROFF ENTERPRISES, INC. BALANCE SHEETS (Unaudited) (Continued) <TABLE> <CAPTION> December 31, September 30, 2000 2001 -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY <S> <C> <C> Current liabilities: Accounts payable $ 10,838 $ 14,419 Accrued liabilities 5,368 17,848 ---------- ---------- 16,206 32,267 ---------- ---------- Stockholders' equity: Class A Preferred stock, no par value; 5,000,000 shares authorized, none issued or outstanding - - Class B Preferred stock, no par value; 1,000,000 shares authorized, 500,659 shares issued and outstanding 475,359 475,359 Common stock, $.10 par value 20,000,000 shares authorized, 589,143 shares issued and outstanding 58,914 58,914 Capital in excess of par value 415,797 415,797 Treasury stock, at cost 62,883 and 63,083 shares, respectively (82,951) (83,151) Accumulated other comprehensive income - 3,700 Accumulated deficit (255,153) (171,202) ---------- ---------- 611,966 699,417 ---------- ---------- Total liabilities and stockholders' equity $ 628,172 $ 731,684 ========== ========== </TABLE> See accompanying notes to unaudited condensed financial statements. 4
CROFF ENTERPRISES, INC. STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> Three months ended Nine months ended September 30, September 30, ------------------ ------------------ 2000 2001 2000 2001 -------- -------- -------- -------- <S> <C> <C> <C> <C> Revenues Oil and gas sales $ 91,586 $ 71,073 $237,456 $286,577 Other income 2,399 2,022 4,821 7,816 -------- -------- -------- -------- 93,985 73,095 242,277 294,393 -------- -------- -------- -------- Expenses Lease operating expense 23,472 23,827 69,101 98,134 Depreciation and depletion 10,500 10,000 31,500 30,000 General and administrative 20,323 23,050 70,141 71,508 Rent expense - related party 2,940 3,600 8,820 10,800 -------- -------- -------- -------- 57,235 60,477 179,562 210,442 -------- -------- -------- -------- Net income $ 36,750 $ 12,618 $ 62,715 $ 83,951 ======== ======== ======== ======== Net income applicable to Class B Preferred stockholders' $ 35,794 $ 11,243 $ 57,894 $ 79,003 ======== ======== ======== ======== Net income applicable to Common stockholders' $ 956 $ 1,375 $ 4,821 $ 4,948 ======== ======== ======== ======== Basic and diluted net income per common share *<F1> *<F1>$ .01 $ .01 ======== ======== ======== ======== <F1> *-Less than $.01 per share </FN> </TABLE> See accompanying notes to unaudited condensed financial statements. 5
CROFF ENTERPRISES, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) <TABLE> <CAPTION> Accumulated Preferred Stock Common Stock Capital in other ------------------ ------------------ excess of Treasury comprehensive Accumulated Shares Amount Shares Amount par Value stock income deficit Total ------- -------- ------- -------- ---------- -------- ------------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 1999 500,659 $350,359 589,143 $ 58,914 $540,797 $(82,286) $ - $(386,821) $480,353 Purchase of 55 shares of treasury stock - - - - - (55) - - (55) Net income for the year ended December 31, 2000 - - - - - - - 131,668 131,668 Preferred stock reallocation - 125,000 - - (125,000) - - - - ------- -------- ------- -------- ---------- -------- ---------- ----------- -------- Balance, December 31, 2000 500,659 475,359 589,143 58,914 415,797 (82,951) - (255,153) 611,966 Purchase of 200 shares of treasury stock - - - - - (200) - - (200) Unrealized gain on marketable equity securities - - - - - - 3,700 - 3,700 Net income for the nine months ended September 30, 2001 - - - - - - - 83,951 83,951 ------- -------- ------- -------- ---------- -------- ---------- ----------- -------- Balance, September 30, 2001 500,659 $475,359 589,143 $ 58,914 $415,797 $(83,151) $ 3,700 $(171,202) $699,417 ======= ======== ======= ======== ========== ======== ========== =========== ======== </TABLE> See accompanying notes to unaudited condensed financial statements. 6
CROFF ENTERPRISES, INC. STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> For the nine months ending September 30, ------------------------------- 2000 2001 -------------- -------------- <S> <C> <C> Cash flows from operating activities: Net income $ 62,715 $ 83,951 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 31,500 30,000 Changes in operating assets and liabilities: (Increase) decrease in marketable securities (1,875) - (Increase) decrease in accounts receivable (9,394) 38,018 (Increase) decrease in other assets (1,797) (446) Increase (decrease) in accounts payable 982 3,581 Increase (decrease) in accrued liabilities 454 12,480 ---------- ---------- Net cash provided by operating activities 82,585 167,584 ---------- ---------- Cash flows from investing activities: Purchased working interest in proved properties - (21,705) Purchase of marketable equity securities - (53,067) Issuance of short-term note receivable - (15,000) ---------- ---------- Net cash used in investing activities - (89,772) ---------- ---------- Cash flows from financing activities: Purchase of treasury stock (55) (200) ---------- ---------- Net cash used in financing activities (55) (200) ---------- ---------- Increase in cash and cash equivalents 82,530 77,612 Cash and cash equivalents at beginning of period 57,716 191,634 ---------- ---------- Cash and cash equivalents at end of period $ 140,246 $ 269,246 ---------- ---------- </TABLE> 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 three and nine month periods ended September 30, 2001 and 2000 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 nterim periods presented herein. Certain reclassifications have been made to the prior year's condensed financial statements to conform to the 2001 presentation. Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes the disclosures presented herein are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, 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 Results of Operations Three months ended September 30, 2001 compared to three months ended September 30, 2000. Revenues for the third quarter of 2001 totaled $73,095, a 22% decrease from the prior year period. Net income for the third quarter of 2001 totaled $12,618, a decrease of 66% compared to the third quarter of 2000. Oil and gas sales for the third quarter totaled $71,073, a 22% decrease from the prior year period. This decrease was attributable to declines in both oil and natural gas prices as well as lower demand for natural gas. The Company's oil and gas revenues are generally divided approximately equally between royalties and working interest. Other income for the third quarter of 2001 totaled $2,022, a 16% decrease from the prior year period. This decrease is primarily a result of lower rates of return earned on the Company's money market investments. Lease operation expense, which includes all production related taxes for the third quarter of 2001, totaled $23,827, approximately equal with the third quarter of 2000, which totaled $23,472. Depreciation and depletion expense for the third quarter of 2001 totaled $10,000, a 5% decrease from the prior year period, which totaled $10,500. General and administrative expense, including rent for the third quarter of 2001 totaled $26,650, a 15% increase from the prior year period. This increase is attributable to the fact that costs associated with the Company's annual report were incurred in the third quarter this year verses the second quarter last year. 8
Nine months ended September 30, 2001 compared to nine months ended\ September 30, 2000. Revenues for the nine months ended September 30, 2001 totaled $294,393, a 22% increase from the prior year period. Net income for the nine months ended September 30, 2001 totaled $83,951, an increase of 34% compared to the prior year period. Oil and natural gas sales for the nine months ended September 30, 2001 totaled $286,577, an 21% increase from the prior year period. This increase was primarily attributable to higher oil and natural gas prices. The Company's oil and gas revenues are divided approximately equally between royalties and working interest. Other income for the nine months ended September 30, 2001, total $7,816, a 62% increase from the prior year period. The Company earned higher interest and dividend income due to an increase in the value of the Company's cash and cash equivalents. Lease operating expense, which includes all production related taxes for the nine months ended September 30, 2001, totaled $98,134, an increase of 42% compared to the prior year period. The primary reason for this increase was the expenditure of $22,000 incurred in a five percent participation in an unsuccessful new well in Oklahoma. The well was completed but has produced a minimal amount. The remaining increase was due to higher production taxes due to higher prices and inflation in oil field costs. Depreciation and depletion expense for the nine months ended September 30, 2001 totaled $30,000, a 5% decrease from the prior year period. General and administrative expense, including rent for the nine months ended September 30, 2001 totaled $82,308, compared to $78,961 from the prior year period. The Company expects general and administrative costs to remain stable this year. Financial condition and capital resources At September 30, 2001, the Company had $731,684 of assets and $699,417 of stockholders' equity. In the first nine months of 2001, net cash provided by operations totaled $167,584 as compared to $82,585 for the prior year period. Working capital at September 30, 2001 totaled $369,041, an increase of 100% compared to $184,857 at September 30, 2000. The Company's current ratio at September 30, 2001 is approximately 12:1. At September 30, 2001, there were no significant commitments for capital expenditures. The Company is currently accumulating cash and liquid assets to prepare for a possible reverse merger of the Company. The Company expects to continue to operate at a positive cash flow for the remainder of this year and resume buying producing oil and natural gas properties. In the first nine months 2001, the Company repurchased 200 shares of its common stock for $200. On June 15, 2001, the Company loaned $15,000 to a related party corporation, the President of which is also the President of the Company. This short-term secured note bears interest at 10% per annum. 9
PART II. OTHER INFORMATION ITEM 6(B) REPORTS ON FORM 8-K The registrant has filed no reports on Form 8-K for the quarter ended June 30, 2001. 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 ----------------------------------------------------- Gerald L. Jensen Chief Executive Officer and Chief Financial Officer By: /s/ Stuart D. Kroonenberg ----------------------------------------------------- Stuart D. Kroonenberg Chief Accounting Officer Dated: November 14, 2001 ------------------