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 June 30, 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
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 June 30, 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
JUNE 30, 2004
Index to Consolidated Financial Statements and Schedules
Page
Part I - Financial Information:
Item 1. - Financial Statements
Consolidated Balance Sheets
June 30, 2004 (Unaudited) and December 31, 2003 . . . . . . . . 3-4
Consolidated Statements of Income or Loss (Unaudited)
Six months ended June 30, 2004 and 2003
Three months ended June 30, 2004 and 2003 . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 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
Item 4. - Controls and Procedures . . . . . . . . . . . . . . . . . . 10
Part II - Other Information:
Item 6. - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 11
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Part I - Financial Information
Item 1. - Financial Statements
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
--------------------------
June 30 December 31
2004 2003
(Unaudited)
----------- -----------
ASSETS
Current Assets
Cash $ 3,516,000 $ 2,662,000
Accounts receivable, trade 577,000 565,000
Accounts receivable, other - 638,000
----------- -----------
Total Current Assets 4,093,000 3,865,000
----------- -----------
Property and Equipment, at cost
Oil and gas properties (full cost method) 4,773,000 4,460,000
Rental equipment 399,000 399,000
Gas gathering systems 346,000 145,000
Other property and equipment 102,000 85,000
----------- -----------
5,620,000 5,089,000
Accumulated depreciation and amortization (3,736,000) (3,561,000)
----------- -----------
Total Property and Equipment, net 1,884,000 1,528,000
----------- -----------
Other Assets 1,000 2,000
----------- -----------
Total Assets $ 5,978,000 $ 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
--------------------------
June 30 December 31
2004 2003
(Unaudited)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 1,030,000 $ 962,000
Income tax payable 55,000 278,000
Tax savings benefit payable 97,000 97,000
----------- -----------
Total current liabilities 1,182,000 1,337,000
----------- -----------
Deferred income tax payable 18,000 18,000
----------- -----------
Shareholders' Equity
Common stock, $.01 par value; 100,000,000
Shares authorized; 7,677,471 shares
issued and outstanding at June 30, 2004
and 7,677,471 shares issued and outstanding
at December 31, 2003. 111,668 shares of
Treasury Stock at June 30, 2004 and
103,334 shares at December 31, 2003.
77,000 77,000
Additional paid-in capital 806,000 796,000
Treasury Stock (45,000) (18,000)
Retained earnings 3,940,000 3,185,000
----------- -----------
Total Shareholders' Equity 4,778,000 4,040,000
----------- -----------
Total Liabilities and Shareholders' Equity $ 5,978,000 $ 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)
Six Months Ended Three Months Ended
--------------------- ---------------------
June 30 June 30 June 30 June 30
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues
Oil and gas revenue $1,830,000 $1,302,000 $ 919,000 $ 584,000
Revenue from lease
Operations 68,000 37,000 30,000 21,000
Gas gathering, compression
and equipment rental 79,000 71,000 50,000 29,000
Interest income 48,000 54,000 25,000 24,000
Other 7,000 3,000 4,000 -
---------- ---------- ---------- ----------
Total Revenues 2,032,000 1,467,000 1,028,000 658,000
---------- ---------- ---------- ----------
Expenses
Lease operations 597,000 527,000 301,000 258,000
Pipeline and rental
Operations 18,000 16,000 7,000 7,000
Depreciation and
Amortization 174,000 132,000 98,000 71,000
General and administrative 319,000 252,000 138,000 140,000
Interest expense - 2,000 - -
---------- ---------- ---------- ----------
Total Expenses 1,108,000 929,000 544,000 476,000
---------- ---------- ---------- ----------
Net Income Before Tax 924,000 538,000 484,000 182,000
Current income tax provision 169,000 154,000 156,000 61,000
---------- ---------- ---------- ----------
Net Income $ 755,000 $ 384,000 $ 328,000 $ 121,000
========== ========== ========== ==========
Earnings per share of
common stock
Basic $ 0.10 $ 0.05 $ 0.04 $ 0.02
========== ========== ========== ==========
Diluted $ 0.10 $ 0.05 $ 0.04 $ 0.02
========== ========== ========== ==========
Weighed average shares
Outstanding 7,677,471 7,605,537 7,677,471 7,603,582
========== ========== ========== ==========
Diluted shares outstanding 7,727,334 7,750,399 7,752,471 7,748,304
========== ========== ========== ==========
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)
Six Months Ended
--------------------------
June 30 June 30
2004 2003
----------- -----------
Cash Flows from Operating Activities
Net Income $ 755,000 $ 384,000
Reconciliation of net income
to net cash provided(used) by
Operating Activities
Depreciation and amortization 174,000 132,000
Amortization of note discount - (3,000)
Changes in accounts receivable, trade (12,000) 115,000
Changes in accounts receivable, other 638,000 -
Changes in prepaid income taxes - 109,000
Changes in accounts payable 68,000 253,000
Changes in current taxes payable (223,000) 45,000
Changes in other assets 1,000 (5,000)
----------- -----------
Net cash provided(used) by Operating Activities 1,401,000 1,030,000
----------- -----------
Cash flows from Investing Activities
Capitalized acquisition, exploration
and development costs (312,000) (441,000)
Purchase of gathering system/pipeline (201,000) -
Purchase of property and equipment (17,000) -
----------- -----------
Net cash provided(used) by Investing Activities (530,000) (441,000)
----------- -----------
Cash Flows from Financing Activities
Reduction of notes payable to related party - (39,000)
Purchase of 103,334 shares of treasury stock (40,000) -
Issuance of 75,000 shares of common stock
out of treasury stock 23,000 -
----------- -----------
Net cash provided(used) by Financing Activities (17,000) (39,000)
----------- -----------
Increase (decrease) in cash 854,000 550,000
Cash at beginning of period 2,662,000 2,046,000
----------- -----------
Cash at end of period $ 3,516,000 $ 2,596,000
=========== ===========
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.
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
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
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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 authorized
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 expired 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
referred to in the immediately preceding paragraph 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.
On April 23, 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 described in the first paragraph of this footnote 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 transactions described above, the Company has
111,668 shares remaining in its Treasury Stock account at a cost of $45,281.
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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Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Total oil and gas revenues reported for the first six months ended June 30,
2004 were $1,830,000, while total oil and gas revenues reported for the same
period in 2003 were $1,302,000. Oil sales for the period in 2004 were
$397,000 compared to $209,000 for the same period in 2003, an increase of
approximately $188,000. Average oil prices for production sold in the first
six months of 2004 was $34.90 per bbl compared to $31.32 per bbl for the first
six months of 2003. Gas sales in the first six months of 2004 were
$1,433,000 compared to $1,093,000 for the same period in 2003, an increase of
approximately $340,000. Average gas prices for production sold in the first
six months of 2004 was $5.10 per Mcf compared to $5.84 per Mcf in 2003. The
primary cause for the increase in production in the first six months of 2004
compared to 2003 is the Olex wells in the Barnett Shale field which were not
drilled and on production in 2003.
The increase in lease operations is due to additional operated wells drilled
by the Company along with an increase of work on wells needing maintenance or
workovers and increased costs by vendors and suppliers.
The depletion calculation for the first six months 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 as well as increase the provision for the
amount of cost to develop proven but undeveloped reserves. In addition,
production is up for the first six months of 2004 due to the added properties.
General and administrative costs for the first half 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 half of 2003.
Three months ended June 30, 2004 compared to three months ended June 30, 2003
Total oil and gas revenues reported for the three months ended June 30, 2004
were $919,000, while total oil and gas revenues reported for the same period
in 2003 were $584,000. Oil sales for the period in 2004 were $197,000
compared to $114,000 for the same period in 2003, an increase of approximately
$83,000. Average oil prices for production sold in the second quarter of 2004
was $37.06 per bbl compared to $28.91 per bbl for the second quarter of 2003.
Gas sales for the three months ended June 30, 2004 were $722,000 compared to
$470,000 for the same period in 2003, an increase of approximately $252,000.
Average gas prices for production sold in the second quarter of 2004 was $5.20
per Mcf compared to $5.74 per Mcf in 2003.
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In addition to price differences for natural gas and crude oil, production for
the second quarter of 2004 was higher than in 2003.
Lease operations in the second 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 second 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 second
quarter of 2004 due to the added properties.
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.
Item 4. - Controls and Procedures
Based on their most recent evaluation, which was completed within 90 days of
the filing of this Form 10-Q, our Acting Principal Executive Officer and
Acting Chief Financial Officer, believe our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) are effective. There were
not any significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation, and there has not been any corrective action 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
None
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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: August 16, 2004 By: /s/ Chris G. Mazzini
Chris G. Mazzini
President, Acting Principal
Executive Officer
Date: August 16, 2004 By: /s/ Michelle H. Mazzini
Michelle H. Mazzini
Secretary
Date: August 16, 2004 By: /s/ Robert E. Corbin
Robert E. Corbin
Controller, Acting Principal
Financial Officer
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Exhibit 31.1
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):
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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 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
August 16, 2004
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Exhibit 31.2
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):
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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 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
August 16, 2004
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURUSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Spindletop Oil & Gas Co. ("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"), 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: August 16,2004 By: /s/Chris G. Mazzini
Chris G. Mazzini
President, Acting Principal
Executive Officer
Date: August 16,2004 By: /s/Robert E. Corbin
Robert E. Corbin
Controller, Acting Principal
Financial Officer
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