FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
Commission File No. 000-18774
SPINDLETOP OIL & GAS CO.
(Exact name of registrant as specified in its charter)
Texas 75-2063001
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
12850 Spurling Rd., Suite 200, Dallas, TX 75230
(Address of principal executive offices) (Zip Code)
(972) 644-2581
(Registrant's telephone number, including area code)
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
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES ___X___ NO _______
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES _______ NO __X____
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 2005, 7,677,471 shares of the Company's common stock were
issued and outstanding.
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 2005
Index to Consolidated Financial Statements and Schedules
Page
Part I - Financial Information:
Item 1. - Financial Statements
Consolidated Balance Sheets
March 31, 2005 (Unaudited) and December 31, 2004 3-4
Consolidated Statements of Income or Loss (Unaudited)
Three Months Ended March 31, 2005 and 2004 5
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2005 and 2004 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 11
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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
2005 2004
(Unaudited)
----------- -----------
ASSETS
Current Assets
Cash $ 5,089,000 $ 4,352,000
Accounts receivable, trade 179,000 617,000
Prepaid income tax 133,000 190,000
----------- -----------
Total Current Assets 5,401,000 5,159,000
----------- -----------
Property and Equipment, at cost
Oil and gas properties (full cost method) 6,164,000 5,983,000
Rental equipment 399,000 399,000
Gas gathering systems 145,000 145,000
Other property and equipment 116,000 102,000
----------- -----------
6,824,000 6,629,000
Accumulated depreciation and amortization (4,178,000) (4,059,000)
----------- -----------
Total Property and Equipment, net 2,646,000 2,570,000
----------- -----------
Real Estate Property, at cost
Land 688,000 688,000
Commercial office building 1,298,000 1,298,000
Accumulated depreciation (2,000) (1,000)
----------- -----------
Total Real Estate Property, net 1,984,000 1,985,000
----------- -----------
Other Assets 1,000 1,000
----------- -----------
Total Assets $10,032,000 $ 9,715,000
=========== ===========
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
2005 2004
(Unaudited)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable, current portion $ 120,000 $ 120,000
Accounts payable and accrued liabilities 2,053,000 2,068,000
Tax savings benefit payable 97,000 97,000
----------- -----------
Total current liabilities 2,270,000 2,285,000
----------- -----------
Notes payable, long-term portion 1,620,000 1,680,000
----------- -----------
Deferred income tax payable 524,000 461,000
----------- -----------
Shareholders' Equity
Common stock, $.01 par value; 100,000,000
Shares authorized; 7,677,471 shares
issued and outstanding at March 31, 2005
and at December 31, 2004. 103,334 shares of
Treasury Stock at March 31, 2005 and at
December 31, 2004. 77,000 77,000
Additional paid-in capital 806,000 806,000
Treasury Stock (45,000) (45,000)
Retained earnings 4,780,000 4,451,000
----------- -----------
Total Shareholders' Equity 5,618,000 5,289,000
----------- -----------
Total Liabilities and Shareholders' Equity $10,032,000 $ 9,715,000
=========== ===========
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
2005 2004
----------- -----------
Revenues
Oil and gas revenue $ 953,000 $ 911,000
Revenue from lease operations 37,000 38,000
Gas gathering, compression and
Equipment rental 38,000 29,000
Real estate rental income 71,000 -
Interest income 26,000 23,000
Other 2,000 3,000
----------- -----------
Total revenue 1,127,000 1,004,000
----------- -----------
Expenses
Lease operations 213,000 296,000
Pipeline and rental operations 17,000 11,000
Real estate operations 61,000 -
Depreciation and amortization 119,000 76,000
General and administrative 241,000 181,000
Interest expense 27,000 -
----------- -----------
Total Expenses 678,000 564,000
----------- -----------
Income (Loss) Before Income Tax 449,000 440,000
----------- -----------
Current tax provision 57,000 13,000
Deferred tax provision 63,000 -
----------- -----------
120,000 13,000
----------- -----------
Net Income (Loss) $ 329,000 $ 427,000
=========== ===========
Earnings (Loss) per Share of Common Stock
Basic $ 0.04 $ 0.06
=========== ===========
Diluted $ 0.04 $ 0.06
=========== ===========
Weighted Average Shares Outstanding 7,677,471 7,677,471
=========== ===========
Diluted Shares Outstanding 7,677,471 7,752,471
=========== ===========
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
2005 2004
----------- -----------
Cash Flows from Operating Activities
Net Income $ 329,000 $ 427,000
Reconciliation of net income
to net cash provided by (used for)
Operating Activities
Depreciation and amortization 119,000 76,000
Changes in accounts receivable, trade 438,000 151,000
Changes in accounts receivable, other - 638,000
Changed in prepaid income taxes 57,000 -
Changes in accounts payable (15,000) (65,000)
Changes in current taxes payable - (179,000)
Changes in deferred tax payable 63,000 -
----------- -----------
Net cash provided by (used for) operating
Activities 991,000 1,048,000
----------- -----------
Cash flows from Investing Activities
Capitalized acquisition, exploration
and development costs (180,000) (62,000)
Purchase of property and equipment (14,000) -
Purchase of Gathering System/Pipeline - (202,000)
----------- -----------
Net cash provided by (used for) Investing
Activities (194,000) (264,000)
----------- -----------
Cash Flows from Financing Activities
Decrease in notes payable (60,000) -
----------- -----------
Net cash provided by (used for) Financing
Activities (60,000) -
----------- -----------
Increase (decrease) in cash 737,000 784,000
Cash at beginning of period 4,352,000 2,662,000
----------- -----------
Cash at end of period $ 5,089,000 $ 3,446,000
=========== ===========
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, 2004 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 inter-
company 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
During 2002, the board of directors of the Company entered into two stock
option agreements with third-parties and issued stock options to purchase up
to 145,000 shares of restricted common stock at a value of $0.30 per share
and other consideration to obtain interests in oil and gas properties. On
July 9, 2003, options to purchase 70,000 shares of stock were exercised and
70,000 shares of common stock were issued. On April 30, 2004 options to
purchase 75,000 shares of common stock were exercised and 75,000 shares were
issued using treasury stock of the Company.
The Company has elected to account for the options using FASB Statement 123,
"Accounting for Stock-Based Compensation," (FAS No. 123) which requires the
use of option valuation models. The fair value of these options was estimated
at the date of grant using the Black-Scholes option pricing model with the
following assumption ranges: risk free interest rates of 1-2%, volatility
factor of 170, and an expected life of 1 year - 1.5 years. Using the Black-
Scholes option evaluation model, the weighted average value of the option
granted during 2002 was $0.19, per option respectively. The effect of
applying the fair value method of FAS No. 123 to the stock options granted
during 2002 had a $26,850 effect which was applied to the oil and gas
properties and will be amortized using the full cost method. These options had
no dilutive effect on earnings per share
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
2005 Compared to 2004
Oil and gas revenues increased for the three months ended March 31, 2005.
This was due to an increase in oil and gas prices and in increase in natural
gas volumes. There was an approximate 12 % increase in average gas prices
from $4.94 per Mcf in the first quarter of 2004 to $5.55 per Mcf in the first
quarter of 2005. Average oil prices received by the Company also increased
approximately 41 % from $31.93 per bbl in the first quarter of 2004 to
$45.14 per bbl in the first quarter of 2005. Natural gas production was
approximately 153,540 Mcf in the first three months of 2005 compared to
142,493 Mcf in the first three months of 2004, an increase of approximately
8 %. Oil production was approximately 5,453 Bbls in the first quarter of
2005 compared to 4,707 in the first quarter of 2004, an approximate decrease
of 16 %.
Lease operations in the first quarter of 2005 were lower than in 2004. This
is the result of the Company cutting back on work-over related expenses
during the first quarter of 2005 after re-evaluating the projects that need
to be concentrated on during the year.
The depletion calculation for the first quarter of 2005 is higher than that
calculated in 2004. 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 was up for the first
quarter of 2005 due to the added properties.
General and administrative costs for the first quarter of 2005 were up due to
the addition of several full-time employees during 2005 and the increased use
of independent consultants and contractors as the Company expanded its
operations into drilling wells and identification and acquisition of projects
to develop. Costs associated with these new employees and associated benefits
were included in the first quarter of 2005, but not in the first quarter of
2004.
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
The following exhibits are filed herewith or incorporated by reference as
indicated.
Exhibit
Designation Exhibit Description
----------- -----------------------------------------------
31.1 Certification pursuant to Rules 13a-14 and 15d
under the Securities Exchange Act of 1934.
31.2 Certification pursuant to Rules 13a-14 and 15d
under the Securities Exchange Act of 1934.
32.1 Certification pursuant to 18 U.S.C. Section 1350
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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 16, 2005 By: /s/ Chris G. Mazzini
Chris G. Mazzini
President, Chief Executive Officer
Date: May 16, 2005 By: /s/ Michelle H. Mazzini
Michelle H. Mazzini
Vice President, Secretary
Date: May 16, 2005 By: /s/ Robert E. Corbin
Robert E. Corbin
Controller, Principal Financial
Officer
- 12 -
Exhibit 31.1
CERTIFICATION
I, Chris G. Mazzini, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Spindletop Oil & Gas
Co.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13-15(e) and 15d-15e) and have 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
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(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; and
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures as of the end of the
period covered by this report based on such evaluation; and
(d) 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 that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
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5. The registrant's other certifying officers 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 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
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
controls.
Dated: May 16, 2005.
/s/ Chris G. Mazzini
CHRIS G. MAZZINI
Chief Executive Officer
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Exhibit 31.2
CERTIFICATION
I, Robert E. Corbin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Spindletop Oil & Gas
Co.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13-15(e) and 15d-15e) and have 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
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(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; and
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures as of the end of the
period covered by this report based on such evaluation; and
(d) 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 that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
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5. The registrant's other certifying officers 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 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
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
controls.
Dated: May 16, 2005.
/s/ Robert E. Corbin
ROBERT E. CORBIN
Principal Financial Officer
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Exhibit 32.1
Officers' Section 1350 Certifications
The undersigned officer of Spindletop Oil & Gas Co., a Texas corporation (the
"Company"), hereby certifies that (i) the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2005 fully complies with the requirements
of Section 13(a) of the Securities Exchange Act of 1934, and (ii) the
information contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005 fairly presents, in all material respects, the
financial condition and results of operations of the Company, at and for the
periods indicated.
Dated: May 16, 2005.
/s/ Chris G. Mazzini
CHRIS G. MAZZINI
Chief Executive Officer
/s/ Robert E. Corbin
ROBERT E. CORBIN
Principal Financial Officer
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