________________________________________________________________________________
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 December 31, 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 December 31, 1997 there were 17,283,248 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
December 31, 1997 3
Restated Condensed Consolidated Statements of Operations
For the six months ended December 31, 1997 and 1996 4
Restated Condensed Consolidated Statements of Operations
For the three months ended December 31, 1997 and 1996 5
Restated Condensed Consolidated Statements of Cash Flow
For the six months ended December 31, 1997 and 1996 6
Notes to Restated Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART 11. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Signatures 12
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
COTTON VALLEY RESOURCES CORPORATION
RESTATED CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1997
(Expressed in U.S. Dollars)
(Unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 405,430
Accounts receivable 321,699
Materials and supplies inventory 452,733
Prepaid expenses 96,562
Cash deposits 329,750
---------------
Total Current Assets 1,606,174
RESTRICTED CASH 2,570,280
PROVED OIL AND GAS PROPERTIES (full cost method)
Net of accumulated depletion of $185,026 21,914,960
OFFICE FURNITURE AND EQUIPMENT
Net of accumulated depreciation of $14,813 71,742
DEBENTURE FINANCING COSTS AND OTHER ASSETS 524,148
---------------
Total Assets $ 26,687,304
===============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,210,688
Current portion of long-term debt 150,250
--------------
Total Current Liabilities 1,360,938
LONG TERM DEBT 4,345,000
ADVANCES FROM RELATED PARTIES 119,710
DEFERRED INCOME TAXES 2,314,808
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, authorized-unlimited,
none issued -
Common Stock, no par value, authorized-unlimited,
17,283,248 issued 21,910,857
Warrants and Beneficial Conversion Feature 823,695
Deficit accumulated in development stage (2,769,155)
Treasury Stock (270,000 shares) (425,000)
Accumulated earnings (loss) (273,548)
-------------
Total Stockholders' Equity 18,546,849
Total Liabilities and Stockholders' Equity $ 26,687,304
=============
</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
December 31, 1997 December 31, 1996
---------------- --------------
<S> <C> <C>
REVENUE:
Oil and gas sales $ 551,836 $ 41,365
Equipment sales 421,622 -
Other Income 934 -
----------------- --------------
Total Revenue 974,392 41,365
EXPENSES:
Oil and gas production 336,973 -
Equipment purchase and rework 256,145 -
Equipment operations 50,595 -
General and administrative 539,404 903,319
Depreciation and Depletion 158,026 -
----------------- -------------
Total Expenses 1,341,143 903,319
LOSS FROM OPERATIONS (366,751) (861,954)
OTHER INCOME (EXPENSES):
Interest and financing expense (76,948) (35,162)
Interest income 16,280 -
----------------- --------------
Total Other (60,668) (35,162)
LOSS BEFORE INCOME TAXES (427,419) (897,116)
INCOME TAX BENEFIT 153,871 295,000
----------------- --------------
NET LOSS $ (273,548) $ (602,116)
================= ==============
NET LOSS PER SHARE (Basic and Diluted) $ (0.02) $ (0.05)
================= ==============
WEIGHTED AVERAGE SHARES 15,457,000 13,390,524
================= ==============
</TABLE>
See accompanying notes to these financial statements
-4-
COTTON VALLEY RESOURCES CORPORATION
RESTATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
Period from Period from
October 1, 1997 October 1, 1996
to December 31, 1997 to December 31,1996
----------------- -----------------
<S> <C> <C>
REVENUE:
Oil and gas sales $ 252,667 $ 21,881
Equipment sales 91,622 -
Other Income 934 -
----------------- -----------------
Total Revenue 345,223 21,881
EXPENSES:
Oil and gas production 145,734 -
Equipment purchase and rework 72,955 -
Equipment operations 10,995 -
General and administrative 325,389 591,881
Depreciation and Depletion 90,175 -
----------------- -----------------
Total Expenses 645,248 591,881
LOSS FROM OPERATIONS (300,025) (570,000)
OTHER INCOME (EXPENSE)
Interest and financing expenses (46,364) (35,162)
Interest income 15,971 -
----------------- -----------------
Total Other Income Expense (30,393) (35,162)
LOSS BEFORE INCOME TAX (330,418) (605,162)
INCOME TAX BENEFIT 118,950 151,291
---------------- -----------------
NET LOSS $ (211,468) $ (453,871)
================= =================
NET LOSS PER SHARE
(Basic and Diluted) $ (0.01) $ (0.03)
================= =================
WEIGHTED AVERAGE SHARES 16,620,000 13,390,000
================= =================
</TABLE>
See accompanying notes to these financial statements
-5-
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 December 31, 1997 to December 31, 1996
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ (273,548) $ (602,116)
Adjustments to reconcile to net
cash used by operating activities:
Deferred income tax (benefit) (153,871) (295,000)
Depreciation and depletion 158,026 5,572
Amortization 20,000 -
Common stock issued for services - 322,932
Change in accounts payable and other
liabilities 417,651 (85,674)
Change in materials and supplies
inventory (457,536) -
Change in accounts receivable (236,097) -
Increase in deposits (329,750)
Other (27,527) (3,263)
----------------- ----------------
Net Cash Used by Operating
Activities 882,652 (267,676)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (3,823,621) (303,134)
Increase in restricted cash (2,570,820) -
Additions to office furniture and
equipment (31,093) (43,831)
---------------- ----------------
Net cash used by investing activities (6,425,534) (346,965)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in advances from related
parties (20,000) -
Sale of common stock and exercise of
warrants 3,306,044 455,949
Issuance of convertible debenture 4,220,000 -
Costs related to sale of stock and
notes (400,000) (14,600)
Issuance of notes payable 469,710 -
Repayment of notes payable (504,750) -
---------------- ---------------
Net cash provided by financing
activities 7,071,004 441,349
DECREASE IN CASH (237,209) (563,165)
CASH - Beginning of period 642,612 803,070
CASH - End of period $ 405,430 $ 239,905
=============== ===============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 27,388 -
Conversion of debt to common stock 100,000 -
Debt incurred in acquisition of oil
and gas properties $ 300,000 355,000
Oil and gas properties acquired with
common stock 4,530,000 -
Issuance of common stock for stock offering
costs - 12,409
Beneficial conversion feature on
convertible debentures 479,162 -
</TABLE>
See accompanying notes to these financial statements
-6-
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 for proceeds of
$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 1,716,296 shares of common stock on exercise of
options and warrants for $2,877,042.
(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 (2) 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. The operations of Aspen are consolidated with the Company
beginning on August 1, 1997.
-7-
(4) Acquisition of Sears Ranch Prospect
During the period, Cotton Valley acquired the 6,600 acre Sears Ranch Prospect
in Nolan and Fisher Counties, Texas, for $400,000.
(5) Acquisition of Horizontal Drilling Equipment
During the period, Cotton Valley acquired substantially all the business and
equipment of M&M Directional Services Consultants for $550,000, through a
newly formed subsidiary, Mustang Horizontal Services, Inc.
(6) Acquisition of Well Service Rigs and Equipment
During the period, Cotton Valley acquired two (2) well service rigs and
related well service equipment for $1,220,000, and formed Mustang Well
Servicing Company to operate the rigs and provide well servicing.
(7) Secured Convertible Debenture
During the period, Cotton Valley sold $4,320,000 of 7% Secured Convertible
Debentures to a group of private investors. $4,220,000 was received at
closing on December 30, 1997; the remaining $100,000 was received during
January 1998. Portions of the proceeds were used to complete the
acquisition of the well service rigs and related equipment.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
First Six Months Fiscal 1998 and First Six Months Fiscal 1997
During the six months ended December 31, 1997, Cotton Valley incurred a
loss of $273,548, which compares to a loss of $602,116 during the first six
months of fiscal 1997. The improvement results from the first used equipment
sales by Cotton Valley's wholly-owned subsidiary, Mustang Oilfield Equipment
Company, oil and gas production beginning August, 1997, from the Aspen Energy
Corporation properties, oil and gas production beginning November, 1997, from
the Sears Ranch Prospect, and continued production from the Company's Alden
Field and Cheneyboro properties.
Oil and gas sales increased 1234% from $41,365 for the six months ended
December 31, 1996 to $551,836 for the six months ended December 31, 1997,
reflecting the addition of the Aspen, Alden and Sears Ranch acquisitions.
Oil and gas production costs increased to $336,973 for the six months ended
December 31, 1997, reflecting the addition of the acquisitions and continued
remedial work required at the Alden Field.
Used equipment sales for the first half of fiscal 1998 were $421,622 as
compared to no sales for the comparable quarter of fiscal 1997. Cost of
goods sold for the first half of fiscal 1998 was $256,145.
General and administrative costs were $539,404 in the first half of
fiscal 1998, a decrease of $363,915 or 40% less than the $903,319 incurred in
the first half of fiscal 1997. The decrease was due, in part, to lower costs
of investor relations consultants and resignation of two senior executives
who were replaced by lower management personnel.
The Company has recognized an income tax benefit of $153,871 for the
first half of fiscal 1998 as compared to recognition of an income tax benefit
of $295,000 for the first half of fiscal 1997. This is directly related to
the size of the profit or loss before income taxes.
2nd Quarter Fiscal 1998 and 2nd Quarter Fiscal 1997
During the three months ended December 31, 1997, Cotton Valley incurred
a net loss of $252,667, which compares to a loss of $453,871 during the 2nd
Quarter 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 beginning August, 1997, from the Aspen Energy
Corporation properties, oil and gas production beginning November, 1997, from
the Sears Ranch Prospect, and continued production from the Company's Alden
Field and Cheneyboro properties.
Oil and gas sales increased 1055% from $21,881 for the three months
ended December 31, 1996 to $252,667 for the three months ended December 31,
1997, reflecting the addition of the Aspen, Alden and Sears Ranch
acquisitions. Oil and gas production costs increased to $145,734 for the
three months ended December 31, 1997, reflecting the addition of the
acquisitions and continued remedial work required at the Alden Field.
Used equipment sales for the 2nd quarter of fiscal 1998 were $91,622 as
compared to no sales for the comparable quarter of fiscal 1997. Cost of
goods sold for the 2nd quarter of fiscal 1998 was $72,955. The used
equipment subsidiary also, during the period, acquired, refurbished, and
sold, at cost, to its production affiliates approximately $150,000 of
additional equipment.
-9-
General and administrative costs were $325,389 in the 2nd quarter of
fiscal 1998, a decrease of $266,492 or 45% less than the $591,881 incurred in
the 2nd quarter of fiscal 1997.
The Company has an income tax benefit of $118,950 for the 2nd quarter
of fiscal 1998 as compared to an income tax benefit of $151,291 for the 2nd
quarter of fiscal 1997. This is directly related to the size of the profit
or loss before income taxes.
Liquidity and Capital Resources
As of December 31, 1997, Cotton Valley has working capital of $245,236.
In addition Cotton Valley has $2,570,280 of restricted cash which may be used
for acquisition and development of additional assets. Management estimates
that aggregate capital expenditures of approximately $5 million will be spent
during the remainder of fiscal 1998 to acquire and develop oil and gas
reserves. Cotton Valley intends to finance this acquisition and development
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.
-10-
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 development stage oil and gas companies.
-11-
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
-12-
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 DECEMBER 1997 10Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 405,430
<SECURITIES> 0
<RECEIVABLES> 321,699
<ALLOWANCES> 0
<INVENTORY> 452,733
<CURRENT-ASSETS> 1,606,174
<PP&E> 21,914,960
<DEPRECIATION> 185,026
<TOTAL-ASSETS> 26,687,304
<CURRENT-LIABILITIES> 1,360,938
<BONDS> 4,464,710
0
0
<COMMON> 21,190,857
<OTHER-SE> (3,467,703)
<TOTAL-LIABILITY-AND-EQUITY> 26,687,304
<SALES> 974,392
<TOTAL-REVENUES> 974,392
<CGS> 593,118
<TOTAL-COSTS> 1,341,143
<OTHER-EXPENSES> 60,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,948
<INCOME-PRETAX> (427,419)
<INCOME-TAX> 153,871
<INCOME-CONTINUING> (273,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (273,548)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
