__________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT 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, 1999
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.)
3300 Bank One Center
100 North Broadway
Oklahoma City, Oklahoma 73102
(Address of principal executive offices)
Telephone Number (405) 606-8500
(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, 1999 there were 59,198,537 shares of the Registrant's
Common Stock outstanding.
___________________________________________________________________________
<PAGE>
COTTON VALLEY RESOURCES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 1999 3
Condensed Consolidated Statements of
Operations for the three months ended
September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flow
for the three months ended September 30, 1999 and 1998 5
Notes to 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
Item 6. Exhibits and Reports on Form 8K 8
Signatures 8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
COTTON VALLEY RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1999
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 272,571
Accounts receivable 487,091
Materials and supplies inventory 88,490
----------------
Total Current Assets $ 848,152
PROVED OIL and GAS PROPERTIES (full cost method)
Net of accumulated depletion of $597,528 22,233,148
OFFICE FURNITURE and EQUIPMENT
Net of accumulated depreciation of $45,749 127,668
OTHER ASSETS 7,930
-----------------
Total Assets $ 23,216,898
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 711,450
Accrued expenses 81,547
Accrued interest 114,188
Notes payable and current long term debt 1,809,100
----------------
Total Current Liabilities $ 2,716,285
----------------
LONG TERM DEBT 3,262,966
MINORITY INTEREST 944,785
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, authorized-unlimited,
none issued -
Common Stock, no par value, authorized-unlimited,
59,731,198 issued $ 27,988,097
Special Warrants, 21,230,897 issued 2,707,583
Less subscriptions for 400,601 shares (214,436)
Warrants and beneficial conversion 823,695
Deficit accumulated in development stage (15,012,077)
----------------
Total Stockholders' Equity $ 16,292,862
----------------
Total Liabilities and Stockholders' Equity $ 23,216,898
================
</TABLE>
See accompanying notes to these financial statements
<PAGE>
COTTON VALLEY RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
Period from Period from
July 1, 1999 to July 1, 1998 to
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
REVENUE:
Oil and gas sales $ 657,584 $ 97,090
Equipment sales 19,913 456,933
Other income - 25,253
----------------- --------------
Total Revenue $ 677,497 $ 579,276
----------------- --------------
EXPENSES:
Oil and gas production $ 43,201 $ 67,947
Equipment purchase and rework 9,160 237,660
Equipment operations 786 102,761
General and administrative 214,380 439,529
Depreciation and depletion 49,067 54,278
--------------- -------------
Total Expenses $ 316,594 $ 902,175
--------------- -------------
INCOME (LOSS) FROM OPERATIONS $ 360,903 $ (322,899)
Interest and financing expense (125,556) (165,053)
--------------- -------------
INCOME (LOSS) BEFORE TAXES $ 235,347 $ (487,952)
INCOME TAX (None, due to application
of prior loss)
--------------- --------------
NET INCOME (LOSS) BEFORE $ 235,347 $ (487,952)
MINORITY INTEREST --------------- --------------
MINORITY INTEREST $ 168,583
--------------- --------------
NET INCOME (LOSS) $ 66,764 $ (487,952)
--------------- --------------
NET INCOME (LOSS) PER SHARE $ (0.00) $ (0.03)
=============== ==============
WEIGHTED AVERAGE SHARES 35,449,501 17,377,278
=============== ==============
</TABLE>
See accompanying notes to these financial statements
<PAGE>
COTTON VALLEY RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
Period from Period from
July 1, 1999 July 1, 1998 to
to September 30, 1999 September 30, 1998
--------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 66,764 $ (487,952)
Adjustments to reconcile net
cash used by operating activities:
Depreciation and depletion 49,067 54,278
Amortization - 35,468
Common stock issued for services - 21,000
Changes in operating assets and
liabilities
Accounts payable and
accrued liabilities (352,195) 157,438
Materials and supplies inventory 9,160 286,959
Accounts receivable and
other prepaids (59,219) 163,792
Other 18,291 (9,553)
---------------- --------------
Net cash provided (used)
by operating activities $ (268,132) $ 221,430
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related parties $ - $ 3,279
Sale of common stock and
exercise of warrants 518,750 142,500
Issuance of notes payable - 350,000
Conversion of trade payables to
long term debt - 278,291
Conversion of debenture to common stock - 100,000
Conversion of accounts payables
to common stock - 44,000
Proceeds from Long Term Debt 200,000
Cash obtained in acquisition of
East Wood Energy Venture, Inc. 66,816
Costs related to sale of stock
and notes (39,448) (86,666)
Repayment of notes payable (170,960) -
---------------- --------------
Net cash provided (used)
by financing activities $ 575,158 $ 831,404
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties $ (43,538) $ (891,878)
Additions to office furniture and equipment (19,839)
---------------- --------------
Net cash (used) by
investing activities $ (43,538) $ (911,717)
---------------- --------------
INCREASE (DECREASE) IN CASH $ 263,488 $ 141,117
CASH - Beginning of period 9,083 85,762
---------------- --------------
CASH - End of period $ 272,571 $ 226,879
================ ==============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 88,020 $ 4,472
Oil and gas properties acquired
with common stock
and special warrants 5,895,840
Acquisition consulting fees
paid in stock 272,000
Related party advances and accrued
salaries paid in stock 500,000
Conversion of debt to
Common Stock 144,000
</TABLE>
See accompanying notes to these financial statements
<PAGE>
NOTES TO 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 development.
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, 1999.
(2) Common Stock
During the three months ended September 30, 1999, the Company issued 25,000,000
shares of common stock and 21,230,897 special warrants as consideration for oil
and gas properties valued at $5,895,840; the Company issued 1,700,000 shares of
common stock valued at $272,000 for consulting services in connection with the
acquisition of oil and gas properties; the Company issued 2,200,000 shares and
1,000,000 warrants exercisable at $0.21875 per share for three years in private
placements to two investors for $518,750 in cash less $39,448 in costs related
to the sale of the common stock; the company issued 3,125,000 shares of common
stock in settlement of $500,000 of accrued salaries and advances from related
parties; and the Company issued 339 shares of common stock to balance
certain shareholder accounts.
(3) Yukon Continuance Contingent Liability
Potential Securities Act Violation
On March 16, 1998, the Company filed with the Commission a Registration
Statement on Form SB-2 (the "March 1998 Registration Statement") for the purpose
of registering up to 10,891,184 shares of the Company's Common Stock for sale by
certain shareholders of the Company, including approximately 5.7 million shares
to be issued upon exercise of outstanding warrants and conversion of the
Convertible Debentures. On May 1, 1998, the Company received a letter of
comments from the Staff of the Commission (the "May 1998 Staff Comment Letter")
relating to the March 1998 Registration Statement. In the May 1998 Staff
Comment Letter, the Staff advised the Company that it should have registered the
Yukon Continuance under the Securities Act. The Yukon Continuance was not
registered under the Securities Act.
The Company in its supplemental response on May 26, 1998 to the Staff's May 1998
Comment Letter contended, with the concurrence of the Company's U.S. securities
counsel, that the Yukon Continuance was a transaction not subject to the
registration requirements of Section 5 of the Securities Act. The Staff has
advised the Company that is does not agree with the Company and its U.S.
securities counsel's conclusion regarding the Yukon Continuance. The Company,
therefore, may have a contingent liability to certain of its shareholders, who
may sue the Company to recover the consideration paid, if any, for shares of the
Company's Common Stock, with interest thereon, from the date of the Yukon
Continuance to the date of repayment by the Company less the amount of any
income received thereon, upon tender of such securities, or for damages if the
shareholder no longer owns such securities. The Company intends to vigorously
defend any such shareholder lawsuit and believes that it may have valid
defenses, including the running of applicable statutes of limitations, against
claims by some or all of its shareholders. However, to the extent that any of
the Company's shareholders obtain a judgment for damages against
the Company, the Company's net assets and net worth will be reduced, which in
turn could reduce the Company's ability to obtain financing for its exploration
and drilling operations and cause the Company to curtail operations.
The Company is unable to quantify the amount of such contingent liability.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
First Three Months Fiscal 2000 and First Three Months Fiscal 1999
During the three months ended September 30, 1999, Cotton Valley earned a net
income of $66,764 which compares to a loss of $487,952 during the first three
months of fiscal 1999. The increase in earnings is a result production from
newly purchased oil and gas properties.
Oil and gas sales increased to $657,584 during the three months ended September
30, 1999. This increase reflects the results of oil and gas properties acquired
during this period. The properties which are located in Alabama, Arkansas,
California, Louisiana, Mississippi, Montana, Oklahoma, Texas and Wyoming
represent interests in approximately 400 producing oil and gas properties.
Equipment sales decreased $437,018 or 96% to $19,913 during the three
months ended September 30, 1999. The decrease reflects the discontinuance of
equipment operations.
General and administrative expenses decreased approximately 50% to $214,380
during the three months ended September 30, 1999. The decrease reflects the
discontinuance of equipment operations and the reduction in the number of
administrative employees.
Liquidity and Capital Resources
As of September 30, 1999, Cotton Valley has a working capital deficit of
$1,868,133 calculated by subtracting current liabilities of $2,716,285 from
current assets of $ 848,152. Cotton Valley intends to finance its development
activities with the proceeds from private placements, exercise of warrants and
traditional bank debt. No assurance can be given that the Company will be
successful in these efforts.
Year 2000 Issues
The "Year 2000 Problem" arose because many existing computer programs
use only the last two digits to refer to a year. Cotton Valley has purchased
all its computer programs and computers since January 1, 1995, all of which have
been certified as "Year 2000 Compliant." Most of Cotton Valley's principal
suppliers and customers have also certified to Cotton Valley that their computer
systems are "Year 2000 Compliant." Therefore, the Company has determined that
the "Year 2000 Problem" is not likely to have any material effect on the
Company.
<PAGE>
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.
Item 6. Exhibits and Reports on Form 8K
On September 7, 1999, the Company filed Form 8-K disclosing that Eugene A.
Soltero resigned as an Officer and Director and that John M. Haley resigned as
a Director.
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: December 9, 1999
COTTON VALLEY RESOURCES CORPORATION
(Registrant)
/s/ Jack E. Wheeler
Jack E. Wheeler
Chief Executive Officer
<PAGE>
EX-27
Financial Data Schedule
[TYPE]EX-27
<SEQUENCE>2
[ARTICLE] 5
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
1999 10Q
<TABLE>
<S> <C>
[PERIOD-TYPE] 3 - MOS
[FISCAL-YEAR-END] JUN-30-1999
[PERIOD-START] JUL-01-1999
[PERIOD-END] SEP-30-1999
[CASH] 272,571
[SECURITIES] 0
[RECEIVABLES] 487,091
[ALLOWANCES] 0
[INVENTORY] 88,490
[CURRENT-ASSETS] 848,152
[PP&E] 23,004,093
[DEPRECIATION] 643,277
[TOTAL-ASSETS] 23,216,898
[CURRENT-LIABILITIES] 2,716,285
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 27,988,097
[OTHER-SE] (11,711,703)
[TOTAL-LIABILITY-AND-EQUITY] 20,044,767
[SALES] 677,497
[TOTAL-REVENUES] 677,497
[CGS] 52,361
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 264,233
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 125,556
[INCOME-PRETAX] 235,347
[INCOME-TAX] 0
[INCOME-CONTINUING] 235,347
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] (168,583)
[NET-INCOME] 66,764
[EPS-BASIC] .00
[EPS-DILUTED] .00
</TABLE>
