SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 2004
Commission File No. 0-18774
SPINDLETOP OIL & GAS CO.
(Exact name of registrant as specified in its charter)
Texas 75-2063001
(State or other jurisdiction IRS Employer or ID #)
of incorporation or organization)
331 Melrose, Suite 102, Richardson, TX 75080
(Address of principal executive offices) (Zip Code)
(972) 644-2581
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES _______ NO __ X____
Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ___X___ NO _______
As of March 31, 2004, 7,677,471 shares of the Company's common stock were
issued and outstanding, and the aggregate market value of the voting stock
held by non-affiliates of the company as of that date is not determinable
since no significant public trading market has been established for the
Company's common stock.
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 2004
Index to Consolidated Financial Statements and Schedules
Page
Part I - Financial Information:
Item 1. - Financial Statements
Consolidated Balance Sheets
March 31, 2004 (Unaudited) and December 31, 2003 3-4
Consolidated Statements of Income or Loss (Unaudited)
Three Months Ended March 31, 2004 and 2003 5
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2004 and 2003 6
Notes to Consolidated Financial Statements 7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information:
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Part I - Financial Information
Item 1. - Financial Statements
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
-------------------------
March 31 December 31
2004 2003
(Unaudited)
----------- -----------
ASSETS
Current Assets
Cash $ 3,446,000 $ 2,662,000
Accounts receivable, trade 414,000 565,000
Accounts receivable, other - 638,000
----------- -----------
Total Current Assets 3,860,000 3,865,000
----------- -----------
Property and Equipment, at cost
Oil and gas properties (full cost method) 4,523,000 4,460,000
Rental equipment 399,000 399,000
Gas gathering systems 346,000 145,000
Other property and equipment 85,000 85,000
----------- -----------
5,353,000 5,089,000
Accumulated depreciation and amortization (3,637,000) (3,561,000)
----------- -----------
Total Property and Equipment, net 1,716,000 1,528,000
----------- -----------
Other Assets 2,000 2,000
----------- -----------
Total Assets $ 5,578,000 $ 5,395,000
=========== ===========
The accompanying notes are an integral part of these statements.
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SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
As of
-------------------------
March 31 December 31
2004 2003
(Unaudited)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 897,000 $ 962,000
Income tax payable 99,000 278,000
Tax savings benefit payable 97,000 97,000
----------- -----------
Total current liabilities 1,093,000 1,337,000
----------- -----------
Deferred income tax payable 18,000 18,000
----------- -----------
Shareholders' Equity
Common stock, $.01 par value; 100,000,000
Shares authorized; 7,607,471 shares
issued and outstanding at March 31, 2004
and 7,582,471 shares issued and outstanding
at December 31, 2003. 103,334 shares of
Treasury Stock at March 31, 2004 and
December 31, 2003.
77,000 77,000
Additional paid-in capital 796,000 796,000
Treasury Stock (18,000) (18,000)
Retained earnings 3,612,000 3,185,000
----------- -----------
Total Shareholders' Equity 4,467,000 4,040,000
----------- -----------
Total Liabilities and Shareholders' Equity $ 5,578,000 $ 5,395,000
=========== ===========
The accompanying notes are an integral part of these statements.
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SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended
-------------------------
March 31 March 31
2004 2003
----------- -----------
Revenues
Oil and gas revenue $ 911,000 $ 718,000
Revenue from lease operations 38,000 16,000
Gas gathering, compression and
Equipment rental 29,000 42,000
Interest income 23,000 30,000
Other 3,000 3,000
----------- -----------
Total revenue 1,004,000 809,000
----------- -----------
Expenses
Lease operations 296,000 269,000
Pipeline and rental operations 11,000 9,000
Depreciation and amortization 76,000 63,000
General and administrative 181,000 112,000
Interest expense - 2,000
----------- -----------
Total Expenses 564,000 455,000
----------- -----------
Income (Loss) Before Income Tax 440,000 354,000
----------- -----------
Current tax provision 13,000 92,000
----------- -----------
13,000 92,000
----------- -----------
Net Income (Loss) $ 427,000 $ 262,000
=========== ===========
Earnings (Loss) per Share of Common Stock
Basic $ 0.06 $ 0.03
=========== ===========
Diluted $ 0.06 $ 0.03
=========== ===========
Weighted Average Shares Outstanding 7,677,471 7,603,582
=========== ===========
Diluted Shares Outstanding 7,752,471 7,673,304
=========== ===========
The accompanying notes are an integral part of these statements.
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SPINDLETOP OIL & GAS CO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
-------------------------
March 31 March 31
2004 2003
----------- -----------
Cash Flows from Operating Activities
Net Income $ 427,000 $ 262,000
Reconciliation of net income
to net cash provided by (used for)
Operating Activities
Depreciation and amortization 76,000 63,000
Amortization of note discount - (2,000)
Changes in accounts receivable, trade 151,000 (177,000)
Changes in accounts receivable, other 638,000 -
Changed in prepaid income taxes - 92,000
Changes in accounts payable (65,000) (45,000)
Changes in current taxes payable (179,000) -
----------- -----------
Net cash provided by (used for) operating
Activities 1,048,000 193,000
----------- -----------
Cash flows from Investing Activities
Capitalized acquisition, exploration
and development costs (62,000) 27,000
Purchase of Gathering System/Pipeline (202,000) -
----------- -----------
Net cash provided by (used for) Investing
Activities (264,000) 27,000
----------- -----------
Cash Flows from Financing Activities
Reduction of notes payable to
related party - (1,000)
----------- -----------
Net cash provided by (used for) Financing
Activities - (1,000)
----------- -----------
Increase (decrease) in cash 784,000 219,000
Cash at beginning of period 2,662,000 2,046,000
----------- -----------
Cash at end of period $ 3,446,000 $ 2,265,000
=========== ===========
The accompanying notes are an integral part of these statements.
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SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND ORGANIZATION
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the Company's annual Form 10-K filing. Accordingly,
the reader of this Form 10-Q may wish to refer to the Company's Form 10-K for
the year ended December 31, 2003 for further information.
The consolidated financial statements presented herein include the accounts of
Spindletop Oil & Gas Co., a Texas corporation ("the Company") and its wholly
owned subsidiaries, Prairie Pipeline Co., a Texas corporation and Spindletop
Drilling Company, a Texas Corporation. All significant intercompany
transactions and accounts have been eliminated.
In the opinion of management, the accompanying unaudited interim financial
statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial condition, the
results of operations and changes in cash flows of the Company and its
consolidated subsidiaries for the interim periods presented. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including a description of significant accounting policies normally included
in financial statements prepared in accordance with generally accepted
accounting principles generally accepted in the United States of America, have
been condensed or omitted pursuant to such rules and regulations
2. RECENT ACCOUNTING DEVELOPMENTS
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue No. 04-2, "Whether Mineral Rights are Tangible or Intangible Assets
and Related Issues" (previously addressed as Issue 03-O), that mineral rights
should be considered tangible assets for accounting purposes and should be
separately disclosed in the financial statements or footnotes. The EITF
acknowledged that this consensus requires an amendment to Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" to
remove mineral rights as an example of an intangible assets. The Financial
Accounting Standards Board ("FASB") has issued FASB Staff Position Nos.
FAS 141-1 and FAS 142-1, that amend SFAS Nos. 141 and 142, respectively, to
characterize mineral rights as tangible assets. The EITF is still considering
whether oil and gas drilling rights are subject to the classification and
disclosure provisions of SFAS No. 142 if they are determined to be intangible
assets. There has been no resolution of this issue as described in EITF Issue
No. 03-S, "Application of SFAS No. 142, Goodwill and Other Intangible Assets,
to Oil and Gas Companies."
The Company classifies the cost of oil and gas mineral rights as property and
equipment and believes this is consistent with oil and gas accounting and
industry practice. Although it appears unlikely based on the consensus
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reached in EITF Issue No. 04-2, if the EITF were to determine that under EITF
Issue No. 03-S oil and gas mineral rights are intangible assets and are
subject to the applicable classification and disclosure provisions of SFAS No.
142, certain costs would need to be reclassified from property and equipment
to intangible assets on its consolidated balance sheets. These amounts would
represent oil and gas mineral rights. In addition, the disclosures required
by SFAS Nos. 141 and 142 would be made in the notes to the consolidated
financial statements. There would be no effect on the consolidated
statements of income or cash flows as the intangible assets related to oil
and gas mineral rights would continue to be amortized under the full cost
method of accounting.
3. ISSUANCE OF COMMON STOCK AND STOCK OPTIONS
Effective October 7, 2002, the board of directors of the Company authorize
the issuance of 25,000 shares of restricted common stock at a value of $0.30
per share, along with payment of cash, and an option to purchase an additional
75,000 shares of restricted common stock of the Company in consideration for
the purchase of certain oil and gas leases in North Texas. The options
granted under the stock option agreement expire in July, 2004.
The above options, along with options to acquire another 70,000 shares of
common stock of the Company, which expire in July 2003, were accounted for in
2002, using FASB Statement 123, Accounting for Stock-Based Compensation, which
had the effect of charging the oil and gas properties account with $26,850,
which will be amortized using the full cost method of accounting.
On July 9, 2003, options to purchase 70,000 shares of restricted common stock
were exercised and 70,000 shares of restricted common stock were issued. The
remaining 75,000 options, which expire in July, 2004 did not have a dilutive
effect on earnings per share at December 31, 2003.
As of March 31, 2004, none of the options to purchase 55,000 shares of the
Company's common stock have been exercised, and none of the options have had
a dilutive effect on earnings per share. (See Footnote 5. SUBSEQUENT EVENTS)
4. EARNINGS PER SHARE
Earnings per share ("EPS") are calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128), which
was adopted in 1997 for all years presented. Basic EPS is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding during the period. All calculations have
been adjusted for the effects of the stock split discussed in Note 2. The
adoption of SFAS 128 had no effect on previously reported EPS. Diluted EPS is
computed based on the weighted number of shares outstanding, plus the
additional common shares that would have been issued had the options
outstanding been exercised.
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5. SUBSEQUENT EVENTS
On April 23, 2004, subsequent to the end of the first quarter of 2004, the
Company purchased 83,334 shares of Treasury Stock for a purchase price of
$40,323 ($0.4839 per share). This acquisition brought the total number of
shares in the Company's treasury to 186,668 shares at a total cost of $58,406.
On April 28, 2004, options to purchase 75,000 shares of restricted common
stock were exercised, and 75,000 restricted shares of common stock were issued
for the option price of $0.30 per share. The Company issued the 75,000 shares
out of the Company's treasury stock, accounting for the issuance using the
first-in, first-out basis ("FIFO"). After the two transaction described
above, the Company has 111,668 shares remaining in its Treasury Stock account
at a cost of $45,281.
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Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
2004 Compared to 2003
Oil and gas revenue increased for the three months ended March 31, 2004 as
compared to the same period in 2003 due to differences in average prices
received and increases in both oil and gas production. Average Gas prices
received decreased slightly in the 1st Quarter of 2004, going from an average
price of $5.51 per mcf in 2003 to $5.31 per mcf in 2004. Average Oil prices
received were higher in 2004 than in the previous year. Average prices per
barrel were $34.04 in 2004 compared to $32.77 in 2003.
In addition to price differences for natural gas and crude oil, production
for the first quarter of 2004 was higher than in 2003. Production for the
first quarter in 2004 was higher due to 28 oil and gas wells that were
acquired subsequent to the first quarter in 2003. Oil production for the 1st
Quarter of 2004 was approximately 3,000 bbl more that that sold in the same
period of 2003. Gas production was up approximately 113,000 mcf.
Approximately 15% of the gas increase was due to the Olex #1 well in Denton
County, Texas coming online.
Lease operations in the first quarter of 2004 are higher than in 2003, due to
an increase in the number of properties being operated and related increases
in operating costs and general inflation.
The depletion calculation for the first quarter of 2004 is higher than that
calculated in 2003. The company has re-evaluated and increased its proved
oil and gas reserve quantities, but at the same time increased the capitalized
costs that are being amortized. In addition, production is up for the first
quarter of 2004 due to the added properties.
General and administrative costs for the first quarter of 2004 was up slightly
due to the increased administrative activity involved with evaluation of
potential property purchases, and the resulting administrative and accounting
work necessary to process new acquisitions and the related accounting. In
addition, the management fee charged by a related entity was increased by
$10,000 per month over that reported in the 1st Qtr of 2003.
Financial Condition and Liquidity
The Company's operating capital needs, as well as its capital spending program
are generally funded from cash flow generated by operations. Because future
cash flow is subject to a number of variables, such as the level of production
and the sales price of oil and natural gas, the Company can provide no
assurance that its operations will provide cash sufficient to maintain current
levels of capital spending. Accordingly, the Company may be required to seek
additional financing from third parties in order to fund its exploration and
development programs.
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Item 4. - Controls and Procedures
(a) Within the 90 days prior to the date of this report, Spindletop Oil & Gas
Co. carried out an evaluation, under the supervision and with the
Participation of the Company's management, including the Company's Acting
Principal Executive Office and Acting Principal Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon the
evaluation, the Company's Acting Principal Executive Officer and Acting
Principal Financial Officer concluded that the Company's disclosure controls
and procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) which is
required to be included in the Company's periodic SEC filings.
(b) There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the Company's internal
controls subsequent to the date the Company carried out this evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
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Part II - Other Information
Item 6. - Exhibits and Reports on Form 8-K
Exhibit 99.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Spindletop Oil & Gas Co.
("the Company") on Form 10-Q for the period ending March 31, 2004 as filed
with the Securities and Exchange Commission on the date hereof ("the Report"),
We, Chris G. Mazzini, President and Acting Principal Executive Officer and
Robert E. Corbin, Controller and Acting Principal Financial Officer of the
Company, hereby certify that to our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: May 17,2004
By: /s/ Chris G. Mazzini
President, Acting Principal Executive Officer
Date: May 17,2004
By: /s/ Robert E. Corbin
Controller, Acting Principal Financial Officer
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPINDLETOP OIL & GAS CO.
(Registrant)
Date: May 17,2004 By: /s/ Chris G. Mazzini
Chris G. Mazzini
President, Acting Principal
Executive Office
Date: May 17,2004 By: /s/ Michelle H. Mazzini
Michelle H. Mazzini
Secretary
Date: May 17,2004 By: /s/ Robert E. Corbin
Robert E. Corbin
Controller, Acting Principal
Financial Office
- 13 -
CERTIFICATION
I, Chris Mazzini, Acting Principal Executive Officer of Spindletop Oil and
Gas Co. ("the Company"), certify that:
I have reviewed this quarterly report on Form 10-Q of the Company;
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;
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;
The Company's other certifying officer(s) 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
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 Company and its
consolidated subsidiaries is made known to us by others within those
entities, particularly for the periods presented in this report;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principals;
c) Evaluated the effectiveness of the Company'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 periods covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Company's internal control
over financial reporting that occurred during the Company's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
The Company's other certifying officer(s) 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 (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
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reasonably likely to adversely affect the Company'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 Company's internal control
over financial reporting.
/s/ Chris G. Mazzini
Acting Principal Executive Officer
May 17, 2004
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CERTIFICATION
I, Robert E. Corbin, Acting Principal Financial Officer of Spindletop Oil and
Gas Co. ("the Company"), certify that:
I have reviewed this quarterly report on Form 10-Q of the Company;
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;
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;
The Company's other certifying officer(s) 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) 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 Company and its
consolidated subsidiaries is made known to us by others within those
entities, particularly for the periods presented in this report;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principals;
c) Evaluated the effectiveness of the Company'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 periods covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Company's internal control
over financial reporting that occurred during the Company's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
The Company's other certifying officer(s) 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 (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
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reasonably likely to adversely affect the Company'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 Company's internal control
over financial reporting.
/s/ Robert E. Corbin
Acting Principal Financial Officer
May 17, 2004
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