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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended March 31, 2005

For the Transition Period From              to             

Commission File Number 01-100

CROFF ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(g) of the Act: None

Certain information included in this report, other materials filed or to be filed by the Company with the Securities and Exchange Commission (SEC), as well as information included in oral statements or other written statements made or to be made by the Company contain or incorporate by reference certain statements (other than statements of historical or present fact) that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

All statements, other than statements of historical or present facts, that address activities, events, outcomes or developments that the Company plans, expects, believes, assumes, budgets, predicts, forecasts, estimates, projects, intends or anticipates (and other similar expressions) will or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the cautionary statements in this Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2004. Such forward-looking statements appear in a number of places and include statements with respect to, among other things, such matters as: future capital, development and exploration expenditures (including th e amount and nature thereof), drilling, deepening or refracing of wells, oil and natural gas reserve estimates (including estimates of future net revenues associated with such reserves and the present value of such future net revenues), estimates of future production of oil and natural gas, business strategies, expansion and growth of the Company's operations, cash flow and anticipated liquidity, prospects and development and property acquisitions, obtaining financial or industry partners for prospect or program development, or marketing of oil and natural gas. We caution you that these forward-looking statements are subject to risks and uncertainties. These risks include but are not limited to: general economic conditions, the Company's ability to finance acquisitions and drilling, the market price of oil and natural gas, the risks associated with exploration, the Company's ability to find, acquire, market, develop and produce new properties, operating hazards attendant to the oil and natural gas business, uncertainties in the estimation of proved reserves and in the projection of future rates of production and timing of development expenditures, the strength and financial resources of the Company's competitors, the Company's ability to find and retain skilled personnel, climatic conditions, labor relations, availability and cost of material and equipment, environmental risks, the results of financing efforts, regulatory developments and the other risks described in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data and the interpretation of that data by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, these revisions could change the schedule of any further production and/or development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered.

Should one or more of the risks or uncertainties described above or elsewhere in this Form 10-Q or presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2004 occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

Part I. Financial Information

Item 1. Financial Statements

The financial statements included herein have been prepared in conformity with generally accepted accounting principles. The statements are unaudited but reflect all adjustments, which, in the opinion of management, are necessary to fairly present the Company’s financial position and results of operations. All such adjustments are of a normal recurring nature.

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CROFF ENTERPRISES, INC.

BALANCE SHEETS

(Unaudited)

See accompanying notes to unaudited condensed financial statements.

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CROFF ENTERPRISES, INC.

STATEMENT OF OPERATIONS

For the three months ended March 31, 2004 and 2005

(Unaudited)

See accompanying notes to unaudited condensed financial statements.

3

CROFF ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the year ended December 31, 2004 and the three months ended March 31, 2005
(Unaudited)

During the three month period ended March 31, 2005, the Company purchased 1,500 shares of its
common stock for $2,362, now included in the treasury, using an advance from a related party.

See accompanying notes to unaudited condensed financial statements.

4

CROFF ENTERPRISES, INC.

STATEMENT OF CASH FLOWS

For the three months ended March 31, 2004 and 2005

(Unaudited)

Supplemental disclosure of non-cash investing and financing activities:

During the three month period ended March 31, 2005, the Company purchased 1,500 shares of its common stock for $2,362, now included in the treasury, using an advance from a related party.

See accompanying notes to unaudited condensed financial statements.

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CROFF ENTERPRISES, INC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Basis of Presentation

The condensed financial statements for the three month periods ended March 31, 2004 and 2005 in this report have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of the management, all adjustments necessary to present fairly the results of the operations of the interim periods presented herein. Certain information in footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes the disclosures presented herein are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Compa ny’s Annual Report on Form 10-K for the year ended December 31, 2004, which report has been filed with the Securities and Exchange Commission. The Annual Report is available from the Company’s website at www.croff.com, and online at the Securities and Exchange Commission website at www.sec.gov/edgar.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Croff Enterprises, Inc. ("Croff' or the "Company") was incorporated in Utah in 1907. Croff is an independent energy company engaged in the business of oil and natural gas exploration and production, primarily through the acquisition of producing oil and natural gas leases as well as the ownership of perpetual mineral interests. Other companies operate almost all of the wells from which Croff receives revenues and Croff has no control over the factors which determine royalty or working interest revenues, such as markets, prices and rates of production. Today, Croff participates as a working interest owner in approximately 40 wells or units of several wells. Croff holds small royalty interests in approximately 250 wells.

Croff's business strategy is focused on targeting opportunities that are of lower risk with the potential for stable cash flow and long asset life while seeking to keep operating costs low. The Company has no short-term or long-term debt outstanding. Over the last five years, the Company acquired an interest in three wells in Michigan, one well in Montana, six wells in Oklahoma and eight wells in Texas. In 2004 the Company sold its Yorktown Re-entry Program to Tempest Energy Resources LP, retaining a 25% interest in the Area of Mutual Interest (AMI). The first re-entry well in this program may be noncommercial. The Company continues to actively search for oil and natural gas properties that may fit into our overall business strategy.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operation are based upon financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The Company analyzes its estimates, including those related to oil and natural gas revenues, oil and natural gas properties, marketable securities, income taxes and contingencies. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may diffe r from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements and the uncertainties that it could impact results of operations, financial conditions and cash flows. The Company accounts for its oil and natural gas properties under the successful efforts method of accounting. Depletion, depreciation and amortization of oil and natural gas properties and the periodic assessments for impairment are based on underlying oil and natural gas reserve estimates and future cash flows using then current oil and natural gas prices combined with operating and capital development costs.

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 There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures. The Company has designated its marketable equity securities as “securities available for sale”. Historically, oil and natural gas prices have experienced significant fluctuations and have been particularly volatile in recent years. Price fluctuations can result from variations in weather, levels of regional or national production and demand, availability of transportation capacity to other regions of the country and various other factors. Increases or decreases in oil and natural gas prices received could have a significant impact on future results.

Liquidity and Capital Resources

At March 31, 2005, the Company had assets of $1,182,678 and current assets totaled $467,324 compared to current liabilities of $57,449. Working capital at March 31, 2005 totaled $409,875, an increase of 24% compared to $330,243 at December 31, 2004. The Company had a current ratio at March 31, 2005 of approximately 8:1. During the first quarter of 2004, the Company sold its portfolio of marketable equity securities and mutual fund for a net realized loss of $38,166. In addition, the Company sold its remaining natural gas “put” contracts during the first quarter of 2004 for a realized loss of $7,599. During the three month period ended March 31, 2005, net cash provided by operations totaled $106,992, as compared to $14,336 for the same period in 2004. The Company’s cash flow from operations is highly dependent on oil and natural gas prices. The Company had no short-term or long-term debt o utstanding at March 31, 2005. In January, 2005, the Company purchased 1,500 shares of its common stock at a cost of $2,362, which is included in the treasury at March 31, 2005, using an advance from a related party.

Capital expenditures for the first quarter of 2005, totaled $42,437 primarily incurred to acquire mineral leases with re-entry wells in DeWitt County, Texas, for costs on the Helen Gips #1 well. As of March 31, 2005, the Company has capitalized $186,687 related to the 2004 Yorktown Re-Entry Program. The Company’s only oil and natural gas asset not pledged to the Preferred B shares is the Yorktown Re-Entry Program in Dewitt County, Texas. This approximate 1,100 acre project was sold to Tempest Energy Resources LP in the fourth quarter of 2004 with the Company retaining a carried 15% interest in the re-entry wells, and an additional 10% paid participation for a 25% working interest. The first well in this project, the Helen Gips #1, had been started by Croff and was completed by Tempest during the first quarter 2005. While small amounts of oil and natural gas have been produced from this well, Tempest and Croff have determined that the formation is too tight and the well may be non-commercial pending further evaluation. Tempest purchased a second lease in the Area of Mutual Interest (AMI) known as the Wiggins well, a producing Wilcox well, with an additional plugged and abandoned re-entry well. Croff exercised its right to participate with respect to a 25% interest in this lease, but has no carried interest. The Wiggins well is currently producing from the Wilcox formation at a rate of approximately 30 mcf per day. Tempest and Croff have agreed to attempt to re-complete this well in an upper formation of the Wilcox which has not been depleted. Any further attempts at re-entry completions in the former Croff acreage will occur after the re-completion attempt on the Wiggins well. As part of the Yorktown Re-entry Program, Croff had purchased 3 ½ inch casing and other equipment for a re-entry well, which equipment Tempest has declined to use. Croff then sold this equipment during the first quarter of 2 005 for approximately $48,500, yielding an approximate $14,000 gain over its cost in the casing. The only current commitment of Croff for future capital expenditures will be for future drilling or re-entries in Dewitt County.

The Company’s plans for ongoing development, acquisition and exploration expenditures, and possible equity repurchases over and beyond the Company’s operating cash flows will depend entirely on the Company’s ability to secure acceptable financing. Bank borrowings may be utilized to finance the Company’s 2005 capital budget. In addition, the Company will utilize its internal operating cash flows. Future cash flows are subject to a number of variables, including the level of production and oil and natural gas prices. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned levels of capital expenditures or that increased capital expenditures will not be undertaken.

The Company believes that borrowings from financial institutions, projected operating cash flows and the cash on hand will be sufficient to cover its working capital requirements for the next 12 months. In connection with consummating any significant acquisition or funding an exploratory or development drilling program, additional debt or equity financing will be required, which may or may not be available on terms that are acceptable to the Company.

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While certain costs are affected by the general level of inflation, factors unique to the oil and natural gas industry result in independent price fluctuations. Over the past five years, significant fluctuations have occurred in oil and natural gas prices. Although it is particularly difficult to estimate future prices of oil and natural gas, price fluctuations have had, and will continue to have, a material effect on the Company. Overall, it is management’s belief that inflation is generally favorable to the Company since it does not have significant operating expenses.

Results of Operations

Three months ended March 31, 2005 compared to three months ended March 31, 2004.

The Company had a net income for the first quarter of 2005 which totaled $76,153 compared to a net loss of $24,667 for the same period in 2004. The loss in 2004 was due to losses on natural gas put contracts and marketable equity securities.

Revenues for the first quarter of 2005 totaled $194,429, a 127% increase from the same period in 2004. Oil and natural gas sales for the first quarter of 2005 totaled $181,292, a 38% increase from the same period in 2004. $22,600 in net natural gas sales related to production on the State Forest #1-14 in Michigan, from which revenue in suspense was released in the first quarter of 2005 which exceeded amounts accrued at the end of 2004. A combination of increased oil and natural gas prices, combined with slight increases in production levels during the first quarter of 2005, were major factors causing this increase in oil and natural gas sales compared to the same period in 2004. The Company’s average sales price of oil in the first quarter of 2005 was approximately $44 per barrel compared to $27 per barrel for the same period in 2004. The Company’s average sales price of natural gas in the first quarter of 2005 was approximately $5.50 per Mcf (Mcf equates to one thousand cubic feet), compared to $4.00 per Mcf for the same period in 2004. Production of oil primarily increased due to the acquisition of a working interest in a well in Michigan.

For the first quarter of 2005 lease operation expenses, which includes all production related taxes, totaled $46,666 compared to $35,830 incurred for the same period in 2004. Acquisitions of oil well working interests have also increased the operating expenses for the first quarter of 2005 compared to the same period in 2004.

Estimated depreciation and depletion expense for the first quarter of 2005 and 2004 totaled $10,500 for each quarter.

General and administrative expense, including overhead expense paid to a related party, for the first quarter of 2005, totaled $53,260 compared to $50,883 for the same period in 2004. Overhead expense paid to a related party for the first quarter of 2005 and 2004 totaled $12,000 per quarter. The Company has also incurred additional costs during the first quarter of 2005 associated with compliance with the Sarbanes-Oxley Act of 2002 compared to the same period in 2004.

Provision for income taxes for the first quarter of 2005 totaled $7,850 compared to $6,880 from the same period in 2004. This increase is primarily attributable to an increase in net income for the quarter.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 123R, "Share-Based Payment." This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and recognize the expense in the statements of operations. SFAS 123R will be effective for all i nterim or annual periods beginning after June 15, 2005. The anticipated adoption of this announcement in July 2005 is not expected to have a material impact on the Company’s financial condition or results of operations as the Company currently does not receive employee services in exchange for either equity instruments of the Company or liabilities that are based on the fair value of the Company's equity instruments or that may be settled by the issuance of such equity instruments.

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In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29". This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. The Statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company has not entered into these types of nonmonetary asset exchanges during the last five years. Accordingly, the adoption of this pronouncement is not expected to have a material impact on the Company’s current financial condition or results of operations.

Quantitative and Qualitative Disclosures About Market Risk

The Company’s major market risk exposure is in crude oil and natural gas prices. Realized pricing is primarily driven by the prevailing domestic price for oil and natural gas. Historically, prices received for oil and natural gas production have been volatile and unpredictable. Pricing volatility is expected to continue. Natural gas price realizations during 2004 and the three months ended, 2005, ranged from a monthly low of $4.31 per Mcf to a monthly high of $6.47 per Mcf. Oil prices ranged from a monthly low of $31.87 per barrel to a monthly high of $49.82 per barrel during 2004 and the first quarter of 2005. A decline in prices of oil or natural gas could have a material adverse effect on the Company’s financial condition and results of operations. For the three months ended March 31, 2005, a 10% reduction in oil and natural gas prices would have reduced revenues by approximately $18,000.