________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
OR
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-28814
COTTON VALLEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Yukon, Canada 98-0164357
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6510 Abrams Road
Suite 300
Dallas, Texas 75231
(Address of principal executive offices)
Telephone Number (214) 221-6500
(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 __
As of September 30, 1997 there were 16,511,367 shares of the Registrant's
Common Stock outstanding.
________________________________________________________________________________
COTTON VALLEY RESOURCES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Restated Condensed Consolidated Financial Statements:
Restated Condensed Consolidated Balance Sheets as of
September 30, 1997 3
Restated Condensed Consolidated Statements of
Operations for the three months ended
September 30, 1997 and 1996 4
Restated Condensed Consolidated Statements of Cash Flow
For the three months ended September 30, 1997 and 1996 5
Notes to Restated Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART 11. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 5. Other Information 8
Signatures 9
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
COTTON VALLEY RESOURCES CORPORATION
RESTATED CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1997
(Expressed in U.S. Dollars)
(Unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 1,483,640
Accounts receivable 399,199
Materials and supplies inventory 74,303
Prepaid expenses 27,619
---------------
Total Current Assets 1,984,761
PROVED OIL and GAS PROPERTIES (full cost method)
Net of accumulated depletion of $94,851 18,195,179
OFFICE FURNITURE and EQUIPMENT
Net of accumulated depreciation of $14,813 48,811
FINANCING COST and OTHER ASSETS 54,986
---------------
Total Assets $ 20,283,737
===============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 457,717
Current portion of long-term debt 729,250
--------------
Total Current Liabilities 1,186,967
LONG TERM DEBT 125,000
ADVANCES FROM RELATED PARTIES 119,710
DEFERRED INCOME TAXES 1,689,639
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, authorized-unlimited,
none issued -
Common Stock, no par value, authorized-unlimited,
16,511,367 issued (including 270,000 shares
held in treasury) 19,649,124
Warrants 344,533
Deficit accumulated in development stage (2,769,155)
Accumulated earnings (loss) (62,081)
-------------
Total Stockholders' Equity 17,162,421
Total Liabilities and Stockholders' Equity $ 20,283,737
=============
</TABLE>
See accompanying notes to these financial statements
-3-
COTTON VALLEY RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
Period from Period from
July 1, 1997 to July 1, 1996 to
September 30, 1997 September 30, 1996
---------------- --------------
<S> <C> <C>
REVENUE:
Oil and gas sales $ 299,169 $ 19,484
Equipment sales 330,000 -
----------------- --------------
Total Revenue 629,169 19,484
EXPENSES:
Oil and gas production 191,239 12,502
Equipment purchase and rework 183,190 -
Equipment operations 39,600 -
General and administrative 214,015 290,586
Depreciation and depletion 67,851 -
----------------- -------------
Total Expenses 695,895 302,788
LOSS FROM OPERATIONS (66,726) (283,304)
OTHER INCOME (EXPENSES):
Interest and financing expense (30,584) (17,581)
Interest income 309 -
----------------- --------------
Total Other (30,275) (17,581)
LOSS BEFORE INCOME TAXES (97,001) (300,885)
INCOME TAX BENEFIT 34,920 95,000
----------------- --------------
NET LOSS $ (62,081) $ (205,885)
================= ==============
NET LOSS PER SHARE $ (0.00) $ (0.02)
================= ==============
WEIGHTED AVERAGE SHARES 14,567,455 9,186,000
================= ==============
</TABLE>
See accompanying notes to these financial statements
-4-
COTTON VALLEY RESOURCES CORPORATION
RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
Period from Period from
July 1, 1997 July 1, 1996
to September 30, 1997 to September 30, 1996
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (62,081) $ (205,885)
Adjustments to reconcile to net
cash used by operating activities:
Deferred income tax benefit (34,920) (95,000)
Depreciation and depletion 67,851 2,786
Amortization 10,000 -
Common stock issued for services - 7,207
Change in accounts payable and accrued
liabilities (38,314) (73,521)
Change in materials and supplies
inventory (74,303) -
Change in accounts receivable (399,199) -
----------------- ----------------
Net Cash Provided Used by Operating
Activities (530,966) (267,676)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related
parties (20,000) -
Sale of common stock and exercise of
warrants 2,133,310 4,015
Issuance of notes payable 425,000 -
Costs related to sale of stock and
notes (60,000) -
Repayment of notes payable (349,750) -
---------------- ---------------
Net cash provided by financing
activities 2,128,560 4,015
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (748,404) (182,199)
Additions to office furniture and
equipment (8,162) (35,000)
---------------- ----------------
Net cash used by investing activities (756,566) (217,199)
INCREASE (DECREASE) IN CASH 841,028 (580,860)
CASH - Beginning of period 642,612 803,070
CASH - End of period $ 1,483,640 $ 222,210
=============== ===============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 20,584 37,010
Debt incurred in acquisition of oil
and gas properties $ 300,000 586,049
Conversion of debt to common stock - 426,474
Retirement of debenture upon merger
with Arjon - 146,300
Oil and gas properties acquired with
common stock 4,700,000 -
Issuance of common stock for stock offering
costs - 12,409
</TABLE>
See accompanying notes to these financial statements
-5-
NOTES TO RESTATED CONDENSED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
((1) Nature of Business and Basis of Preparation and Presentation
Cotton Valley Resources Corporation (the "Company") has its primary
business focus in the acquisition of ownership interests in, and the
production of oil and gas from, existing oil and gas fields that
indicate a potential for increased production through
rehabilitation. The Company purchases, repairs, rehabilitates and
sells used oilfield production equipment. Also, beginning in
February, 1998, the Company provides well servicing and horizontal
drilling services on its own properties and for other operators.
The condensed consolidated financial statements of Cotton Valley
Resources Corporation and subsidiaries (collectively "Cotton
Valley") included herein have been prepared by Cotton Valley without
audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted, since Cotton Valley believes that the disclosures included
are adequate to make the information presented not misleading. In
the opinion of management, the condensed consolidated financial
statements include all adjustments consisting of normal recurring
adjustments necessary to present fairly the financial position,
results of operations, and cash flows as of the dates and for the
periods presented. These condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto included for the fiscal
year ended June 30, 1997.
(2) Common Stock
During the six months ended December 31, 1997, Cotton Valley issued
2,511,317 shares of common stock to four individuals to purchase
Aspen Energy Corporation ("Aspen") which was recorded at $4,700,000,
issued 272,700 shares of common stock in a private placement which
was recorded at $454,000 (before deducting costs of $45,400), issued
9,447 shares of common stock for acquisition of an oil and gas well
which was recorded at $35,000, and issued 1,117,430 shares of common
stock on exercise of options and warrants for $1,679,310.
(3) Acquisition of Aspen Energy Corporation
During the period, Cotton Valley acquired Aspen for $5,200,000,
consisting of $500,000 cash and notes and 2,511,317 shares of common
stock of which 270,000 shares were returned to Cotton Valley by two
Aspen shareholders in settlement of notes payable to Aspen in the
amount of $425,000. The acquisition closed on July 31, 1997 and was
accounted for as a purchase.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
First Three Months Fiscal 1998 and First Three Months Fiscal 1997
During the three months ended September 30, 1997, Cotton Valley
incurred a net loss of $62,081 which compares to a loss of $205,885
during the first three months of 1996. The improvement results from the
first used equipment sales by Cotton Valley's wholly-owned subsidiary,
Mustang Oilfield Equipment Company, oil and gas production during
August and September from the Aspen Energy Corporation properties, and
continued production from the Company's Alden Field property.
Oil and gas sales increased 1435% from $19,484 for the three
months ended September 30, 1996 to $299,169 for the three months ended
September 30, 1997, reflecting the addition of the Aspen and Alden
acquisitions. Oil and gas production costs increased 1430% from
$12,502 for the three months ended September 30, 1996 to $191,239 for
the three months ended September 30, 1997, reflecting the addition of
the acquisitions and continued remedial work required at the Alden
Field.
Used equipment sales for the first quarter of fiscal 1997 were
$330,000 as compared to no sales for the comparable quarter of fiscal
1996. Cost of goods sold for the first quarter of fiscal 1997 was
$183,190, and general and operations expense for used equipment sales
was $39,600.
General and administrative costs were $214,015 in the first
quarter of fiscal 1998, a decrease of $88,773 or 29% less than the
$302,788 incurred in the first quarter of fiscal 1997.
The Company recognized an income tax benefit of $34,920 for the
first quarter of fiscal 1998 as compared to recognition of an income
tax benefit of $95,000 for the first quarter of fiscal 1997. This is
directly related to the size of the loss before income taxes.
Liquidity and Capital Resources
As of September 30, 1997, Cotton Valley has a working capital of
$797,794 calculated by subtracting accounts payable of $457,717 and the
current portion of long-term debt of $729,250 from current assets of
$1,984,761. Management estimates that aggregate capital expenditures
of approximately $15 million will be spent during the remainder of
fiscal 1998 to acquire and develop oil and gas reserves. Cotton Valley
intends to finance its development activities with the proceeds from
private placements, exercise of warrants, traditional bank debt and
institutional mezzanine reserves based financing. No assurance can be
given that the Company will be successful in these efforts.
-7-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, there are no legal proceedings
pending against Cotton Valley, which would have a material adverse
effect.
Item 5. Other Information
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995:
Certain statements in this filing, and elsewhere (such as in other
filings by Cotton Valley with the Commission, press releases,
presentations by Cotton Valley or its management and oral statements)
constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements
of Cotton Valley to be materially different from any future results,
performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among other things, (i)
significant variability in Cotton Valley's quarterly revenues and
results of operations as a result of variations in the Cotton Valley's
production in a particular quarter while a significant percentage of
its operating expenses are fixed in advance, (ii) changes in the
prices of oil and gas, (iii) Cotton Valley's ability to obtain
capital, (iv) other risk factors commonly faced by small oil and gas
companies.
-8-
SIGNATURES
Pursuant to the requirement 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.
Dated: November 5, 1998
COTTON VALLEY RESOURCES CORPORATION
(Registrant)
/s/ Eugene A. Soltero
Eugene A. Soltero
Chief Executive Officer
-9-
EX-27
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONDENSED CONSOLIDATED BALANCE
SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEPTEMBER 1997 10Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,483,640
<SECURITIES> 0
<RECEIVABLES> 399,199
<ALLOWANCES> 0
<INVENTORY> 74,303
<CURRENT-ASSETS> 1,984,761
<PP&E> 18,195,179
<DEPRECIATION> 94,851
<TOTAL-ASSETS> 20,283,737
<CURRENT-LIABILITIES> 1,186,967
<BONDS> 244,710
0
0
<COMMON> 19,649,124
<OTHER-SE> (2,831,236)
<TOTAL-LIABILITY-AND-EQUITY> 20,283,737
<SALES> 629,169
<TOTAL-REVENUES> 629,169
<CGS> 374,429
<TOTAL-COSTS> 695,895
<OTHER-EXPENSES> 30,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,584
<INCOME-PRETAX> (97,001)
<INCOME-TAX> 34,920
<INCOME-CONTINUING> (62,081)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,081)
<EPS-PRIMARY> (.00)
<EPS-DILUTED> 0
