Form 10Q/A (April 30, 2008) for CREDO PETROLEUM CORP filed on September 15, 2008

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-8877

CREDO PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

Colorado		84-0772991
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1801 Broadway, Suite 900, Denver, Colorado		80202
(Address of principal executive offices)		(Zip Code)

303-297-2200

(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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.)

Large accelerated filer	o			Accelerated filer	x
Non-accelerated filer	o	(Do not check if a smaller reporting company)		Smaller Reporting Company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, net of treasury stock, as of the latest practicable date.

Date		Class		Outstanding
June 9, 2008		Common stock, $.10 par value		9,325,000

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EXPLANATORY NOTE

On September 2, 2008, in connection with preparing its quarterly report for third quarter 2008, management of CREDO Petroleum Corporation (the “company”) and the Audit Committee of its Board of Directors determined that the contemporaneous formal documentation it had historically prepared to support its initial hedge designations in connection with the company’s natural gas hedging program does not meet the technical requirements to qualify for cash flow hedge accounting treatment in accordance with SFAS 133. The primary reason for this determination was that the formal hedge documentation lacks specificity of the hedged items and therefore, the cash flow designations failed to meet hedge documentation requirements for cash flow hedge accounting treatment. Consequently, the unrealized gain or loss should have been recorded in the consolidated statements of operations as a component of income before income taxes. Under the cash flow accounting treatment used by the company, the fair values of the hedge contracts was recognized in the consolidated balance sheets with the resulting unrealized gain or loss, net of income taxes, recorded initially in accumulated other comprehensive income and later reclassified through earnings when the hedged production affected earnings.

The company will restate its consolidated financial statements for fiscal years ended October 31, 2005, 2006, 2007 and the first and second quarters of fiscal year ending October 31, 2008. There is no effect in any period on overall cash flows, EBITDA, total assets, total liabilities or total stockholders’ equity. The restatement did not have any impact on any of the Company’s financial covenants under its line of credit. Details of the effect of the restatement are indicated in Note 1 to the Consolidated Financial Statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Quarterly Report on Form 10-Q/A For the Period Ended April 30, 2008

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		Page No.
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

Consolidated Balance Sheets As of April 30, 2008 (Unaudited) and October 31, 2007		4

Consolidated Statements of Operations For the Three and Six Months Ended April 30, 2008 and 2007 (Unaudited)		5

Consolidated Statements of Cash Flows For the Six Months Ended April 30, 2008 and 2007 (Unaudited)		6

Notes to Consolidated Financial Statements (Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Submission of Matters to a Vote of Security Holders	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

Signatures		26

The terms “CREDO”, “Company”, “we”, “our”, and “us” refer to CREDO Petroleum Corporation and its subsidiaries unless the context suggests otherwise.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

	April 30,			October 31,
	2008			2007
	(Unaudited)			(Restated)
	(Restated)
ASSETS
Current Assets:
Cash and cash equivalents	$	6,805,000		$	7,285,000
Short-term investments	6,337,000			6,383,000
Receivables:
Accrued oil and gas sales	2,663,000			1,647,000
Trade	772,000			602,000
Derivative Assets	—			443,000
Other current assets	1,434,000			55,000
Total current assets	18,011,000			16,415,000

Long-term assets:
Oil and gas properties, at cost, using full cost method:
Unevaluated oil and gas properties	9,079,000			7,791,000
Evaluated oil and gas properties	55,063,000			51,691,000
Less: accumulated depreciation, depletion and amortization of oil and gas properties	(23,805,000		)	(22,108,000		)
Net oil and gas properties, at cost, using full cost method	40,337,000			37,374,000
Exclusive license agreement, net of amortization of $536,000 in 2008 and $501,000 in 2007	163,000			198,000
Compressor and tubular inventory to be used in development	1,408,000			1,090,000
Other, net	402,000			272,000
Total assets	$	60,321,000		$	55,349,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	1,255,000		$	1,639,000
Revenue distribution payable	1,254,000			979,000
Derivative liabilities	3,433,000			—
Other accrued liabilities	1,060,000			852,000
Income taxes payable	440,000			434,000
Total current liabilities	7,442,000			3,904,000
Long Term Liabilities:
Deferred income taxes, net	9,210,000			9,204,000
Derivative liabilities due in more than 1 year	448,000			—
Exclusive license obligation, less current obligations of $77,000 in 2008 and 2007	85,000			85,000
Asset retirement obligation	1,098,000			1,016,000
Total liabilities	18,283,000			14,209,000

Commitments

Stockholders’ Equity:
Preferred stock, no par value, 5,000,000 shares authorized, none issued	—			—
Common stock, $.10 par value, 20,000,000 shares authorized, 9,510,000 shares issued in 2008 and in 2007	951,000			951,000
Capital in excess of par value	16,047,000			15,913,000
Treasury stock at cost, 186,000 shares in 2008 and 215,000 in 2007	(437,000		)	(506,000		)
Retained earnings	25,477,000			24,782,000
Total stockholders’ equity	42,038,000			41,140,000
Total liabilities and stockholders’ equity	$	60,321,000		$	55,349,000

The accompanying notes are an integral part of these consolidated financial statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Six Months Ended						Three Months Ended
	April 30,						April 30,
	2008			2007			2008			2007
	(Restated)			(Restated )			(Restated )			(Restated)

REVENUES:
Oil and gas sales	$	8,675,000		$	7,507,000		$	4,942,000		$	4,095,000
Investment income and other	76,000			453,000			81,000			206,000
	8,751,000			7,960,000			5,023,000			4,301,000

COSTS AND EXPENSES:
Oil and gas production	1,838,000			1,709,000			986,000			796,000
Depreciation, depletion and amortization	1,751,000			1,900,000			898,000			942,000
General and administrative	697,000			644,000			365,000			366,000
Interest	5,000			13,000			4,000			7,000
	4,291,000			4,266,000			2,253,000			2,111,000

INCOME FROM OPERATIONS	4,460,000			3,694,000			2,770,000			2,190,000

GAIN (LOSS) ON DERIVATIVE CONTRACTS
Realized gains (losses) from derivative contracts	852,000			986,000			5,000			590,000
Unrealized (gains) losses from derivative contracts	(4,324,000		)	(1,043,000		)	(4,008,000		)	(672,000		)
	(3,472,000		)	(57,000		)	(4,003,000		)	(82,000		)

INCOME BEFORE INCOME TAXES	988,000			3,637,000			(1,233,000		)	2,108,000

INCOME TAXES	(295,000		)	(1,046,000		)	353,000			(610,000		)

NET INCOME (LOSS)	$	693,000		$	2,591,000		$	(880,000	)	$	1,498,000

EARNINGS (LOSS) PER SHARE OF COMMON STOCK BASIC	$	.07		$	.28		$	(.09	)	$	.16

EARNINGS (LOSS) PER SHARE OF COMMON STOCK DILUTED	$	.07		$	.28		$	(.09	)	$	.16

Weighted average number of shares of Common Stock and dilutive securities:
Basic	9,299,000			9,261,000			9,302,000			9,261,000

Diluted	9,363,000			9,395,000			9,368,000			9,395,000

The accompanying notes are an integral part of these consolidated financial statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	April 30,
	2008			2007
	(Restated)			(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	693,000		$	2,591,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	1,751,000			1,900,000
Unrealized loss on derivative instruments	4,324,000			1,043,000
Deferred income taxes	6,000			834,000
Loss on short term investments	46,000			—
Compensation expense related to stock options granted	30,000			110,000
Other	84,000			29,000
Changes in operating assets and liabilities:
Proceeds from short-term investments	—			1,492,000
Purchase of short-term investments	—			(1,885,000		)
Accrued oil and gas sales	(1,016,000		)	(185,000		)
Trade receivables	(170,000		)	192,000
Other current assets	(104,000		)	(184,000		)
Accounts payable and accrued liabilities	(881,000		)	(991,000		)
Income taxes payable	6,000			113,000

NET CASH PROVIDED BY OPERATING ACTIVITIES	4,769,000			5,059,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties	(4,955,000		)	(4,404,000		)
Proceeds from sale of oil and gas properties	—			171,000
Changes in other long-term assets	(467,000		)	(134,000		)

NET CASH USED IN INVESTING ACTIVITIES	(5,422,000		)	(4,367,000		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	173,000			5,000

NET CASH PROVIDED BY FINANCING ACTIVITIES	173,000			5,000

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(480,000		)	697,000

CASH AND CASH EQUIVALENTS:
Beginning of period	7,285,000			4,577,000

End of period	$	6,805,000		$	5,274,000

Supplemental cash flow information:
Cash paid during the period for income taxes	$	282,000		$	90,000

Additions to oil and gas properties in current liabilities	$	1,369,000		$	—

The accompanying notes are an integral part of these consolidated financial statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Unaudited)

April 30, 2008

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q/A and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U. S. generally accepted accounting principles for complete financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the company’s results for the periods presented. These consolidated financial statements should be read in conjunction with the company’s Annual Report on Form 10-K/A for the fiscal year ended October 31, 2007.

Certain 2007 amounts have been reclassified to conform to the current year presentation. Such reclassifications had no effect on net income or shareholders’ equity.

The company will restate its consolidated financial statements for fiscal years ended October 31, 2005, 2006, 2007 and the first and second quarters of fiscal year ending October 31, 2008. There is no effect in any period on overall cash flows, EBITDA, total assets, total liabilities or total stockholders’ equity. The restatement did not have any impact on any of the Company’s financial covenants under its line of credit. The primary financial statement items impacted by this restatement are indicated below:

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Consolidated Statements of Income

	Six Months Ended April 30,
	2008			2007
	Reported	Restated		Reported	Restated

Oil & Gas Sales	9,527,000	8,675,000		8,493,000	7,507,000
Total Revenues	9,603,000	8,751,000		8,946,000	7,960,000

Income from Operations	5,312,000	4,460,000		4,680,000	3,694,000
Realized Gains (Losses) from derivative contracts	—	852,000		—	986,000
Unrealized Gains (Losses) from derivative contracts	—	(4,324,000	)	—	(1,043,000