__________________________________________________________________________
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 December 31, 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 February 1, 2000 there were 61,417,721 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
December 31, 1999 3
Condensed Consolidated Statements of
Operations for the three and six months ended
December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flow
for the six months ended December 31, 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 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8K 9
Signatures 9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
COTTON VALLEY RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1999
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 53,812
Accounts receivable 645,637
Materials and supplies inventory 77,305
Prepaid Cost 60,202
----------------
Total Current Assets $ 836,956
PROVED OIL and GAS PROPERTIES (full cost method)
Net of accumulated depletion of $817,504 23,043,321
OFFICE FURNITURE and EQUIPMENT
Net of accumulated depreciation of $53,677 172,204
OTHER ASSETS 7,930
-----------------
Total Assets $ 24,060,411
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 688,992
Royalties payable 44,103
Accrued expenses 109,742
Accrued interest 113,994
Notes payable and current long term debt 1,809,099
----------------
Total Current Liabilities $ 2,765,930
----------------
LONG TERM DEBT $ 3,044,520
MINORITY INTEREST $ 1,025,463
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, authorized-unlimited,
none issued -
Common Stock, no par value, authorized-unlimited,
61,417,721 issued 28,865,327
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 (14,957,671)
----------------
Total Stockholders' Equity $ 17,224,498
----------------
Total Liabilities and Stockholders' Equity $ 24,060,411
================
</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>
Three Months Ended December Six Months Ended December
1999 1998 1999 1998
------------------- -------------------------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales $ 652,417 $ 98,079 $1,310,001 $ 195,169
Equipment sales 153,400 19,913 610,333
Other income 1,659 26,912
--------- ---------- ---------- -----------
Total Revenue $ 652,417 $ 253,138 $1,329,914 $ 832,414
--------- ---------- ---------- -----------
EXPENSES:
Oil and gas production $ 91,619 $ 111,530 $ 135,820 $ 179,477
Equipment purchase
and rework 10,037 247,697
Equipment operations 72,830 9,946 175,591
General and
administrative 248,331 205,659 462,711 645,188
Depreciation and depletion 53,858 55,952 102,925 110,230
---------- --------- ---------- ----------
Total Expenses $ 393,808 $ 456,008 $ 710,402 $1,358,183
---------- --------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS $ 258,609 $(202,870) $ 619,512 $ (525,769)
Interest and financing
expense (123,527) (100,053) (249,083) (265,106)
Interest Income 159 159
----------- --------- ----------- ----------
PRETAX INCOME (LOSS) $ 135,082 $(302,764) $ 370,429 $(790,716)
INCOME TAX (None, due
to application of
prior loss) 108,995 284,658
----------- ---------- ----------- ----------
NET INCOME (LOSS)
Before Minority
Interest $ 135,082 $(193,769) $ 370,429 $(506,058)
----------- ---------- ----------- ----------
MINORITY INTEREST $ 80,676 $ 249,259
----------- ---------- ------------ ----------
NET INCOME (LOSS) $ 54,764 $(193,769) $ 121,170 $(506,058)
----------- ---------- ------------ ----------
NET INCOME (LOSS)
PER SHARE $ 0.00 $ (0.01) $ 0.00 $ (0.03)
=========== ========== ============ ==========
WEIGHTED AVERAGE
SHARES 59,751,531 19,374,945 47,600,516 18,376,111
=========== ========== ============ ==========
</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>
Six months ended December 31,
1999 1998
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 121,170 $ (506,058)
Adjustments to reconcile net
cash (used) by operating activities
Depreciation and depletion 102,925 (284,658)
Amortization 110,230
Minority Interest in earnings of subsidiary 249,259
Common stock issued for services 21,000
Changes in Operating Assets and
Liabilities
Accounts payable and
accrued liabilities (551,808) 60,409
Materials and supplies inventory 20,345 358,589
Accounts receivable and
other prepaids (263,281) 322,026
Other 18,291 3,851
------------ -----------
Net cash provided (used)
by operating activities $ (303,099) $ 159,815
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties $ (152,919) $ (937,942)
Additions to office furniture and equipment (52,464) (31,832)
------------- -----------
Net cash (used) by
investing activities $ (205,383) $ (969,774)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related parties $ $ 3,279
Sale of common stock and
exercise of warrants 715,250 261,097
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 94,090
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) (307,709)
Repayment of notes payable (389,407)
------------ -----------
Net cash provided (used)
by financing activities $ 553,211 $ 779,048
------------- -----------
INCREASE (DECREASE) IN CASH $ 44,729 $ (30,911)
CASH - Beginning of period 9,083 85,762
-------------- ------------
CASH - End of period $ 53,812 $ 54,851
============== ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 249,083 $ 4,472
Oil and gas properties acquired
with common stock
and special warrants 6,773,070
Acquisition consulting fees
paid in stock 367,083
Related party advances and accrued
salaries paid in stock 500,000
Conversion of debt to
Common Stock 273,510
</TABLE>
See accompanying notes to these financial statements
<PAGE>
COTTON VALLEY RESOURCES CORPORATION
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 development of its existing producing oil and gas properties and
the acquisition and development of oil and gas properties fields that offer the
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) Earnings per Share
Diluted earnings per share for the three and sixth month periods ended December
31, 1999 are exactly the same as basic earning per share because the exercise
price of potentially dilutive securities is greater than the average share
price during the respective period. The Company reported a loss for the three
and six month periods ended December 31,1998, and therefore, no diluted earnings
per share is presented.
(3) Common Stock
During the six months ended December 31, 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; the Company issued 1,122,857 shares of common stock and 1,122,857
warrants exercisable at $0.185 per share for 18 months in a private placement to
one investor for $196,500 in cash; and the Company issued 543,333 shares for
consulting services in connection with the private placements of stock.
(4) 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,
<PAGE>
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 acquisition and
development programs. The Company is unable to quantify the amount of such
contingent liability. However, the Company believes that any future claims
regarding the registration of securities are banned by the statute of
limitations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
First Six Months Fiscal 2000 and First Six Months Fiscal 1999
During the six months ended December 31, 1999, Cotton Valley earned net
income of $121,170 which compares to a loss of $506,058 during the first six
months of fiscal 1999. The increase in earnings is a result of production from
newly purchased oil and gas properties.
Oil and gas sales increased to $1,310,001, an increase of $1,114,832 or
571% during the six months ended December 31, 1999, when compared to the prior
fiscal period. 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 and related cost decreased from $610,333 and $423,288
respectively in 1999 to immaterial amounts in the six months ended December 31,
1999. This decrease reflects the cessation of and the termination of the
equipment sales operations.
General and administrative expenses decreased approximately 28% to
$462,711 during the six months ended December 31, 1999. The decrease reflects
the discontinuance of equipment operations, the change in the location of
the Corporate Offices, the reduction in the number of administrative employees
and the elimination of other associated overhead expenses.
Second Three Months Fiscal 2000 and Second Three Months Fiscal 1999
During the three months ended December 31, 1999, Cotton Valley earned net
income of $54,406 which compares to a loss of $193,769 during the second 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 $652,417, an increase of $554,338 or 565%
during the three months ended December 31, 1999. This increase reflects the
results of oil and gas properties acquired during the three months ended
September 30,1999. 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 and related cost decreased from $153,400 and $82,867
respectively in 1999 to nothing in the three months ended December 31, 1999.
This decrease reflects the cessation of and the termination of the equipment
sales operations.
General and administrative expenses increased approximately 21% to $248,331
during the three months ended December 31, 1999. The increase reflects
increased professional fees related to asset acquisitions and related
matters offset somewhat by the discontinuance of equipment operations and the
reduction in the number of administrative employees.
<PAGE>
Liquidity and Capital Resources
As of December 31, 1999, Cotton Valley had a working capital deficiency of
$1,928,974 calculated by subtracting current liabilities of $2,765,930 from
current assets of $ 836,956. Cotton Valley intends to finance its development
activities with the proceeds from existing oil and gas revenues, 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 29, 1999, all of which have
been certified as "Year 2000 Compliant." All 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" should not have any material effect on the Company.
As of February 3, 2000, the Company has not experienced any "Year 2000
Problems".
<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 2. Changes in Securities and Use of Proceeds.
On December 31,1999, the Company issued 1,122,857 shares of common stock
and 1,122,857 warrants to purchase shares of common stock for $0.185 per share
for 18 months in a private placement to one investor for $196,500 in cash.
Also, on December 31,1999, the Company issued 543,333 shares of common stock to
one company in exchange for consulting services. Both issuances of securities
were made in reliance on Section 4 (2) of the Securities Act. The Company
determined that the purchasers of these securities were sophisticated investors
who had the financial ability to assume the risk of their total investment,
acquired the securities for their own account and not with a view to any
distribution to the public.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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, and (iv) other risk factors commonly faced by small oil and gas
companies.
Item 6. Exhibits and Reports on Form 8-K
The Company made no filings on Form 8-K during the three months ended
December 31,1999.
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: February 4, 2000
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
<TABLE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF COTTON VALLEY RESOURCES CORPORATION FOR
THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH DOCUMENTS
<S> <C>
[PERIOD-TYPE] 6 - MOS
[FISCAL-YEAR-END] JUN-30-1999
[PERIOD-START] JUL-01-1999
[PERIOD-END] DEC-31-1999
[CASH] 53,812
[SECURITIES] 0
[RECEIVABLES] 645,637
[ALLOWANCES] 0
[INVENTORY] 137,507
[CURRENT-ASSETS] 836,956
[PP&E] 24,086,706
[DEPRECIATION] 871,181
[TOTAL-ASSETS] 24,060,411
[CURRENT-LIABILITIES] 2,765,930
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 28,865,327
[OTHER-SE] (11,640,829)
[TOTAL-LIABILITY-AND-EQUITY] 24,060,411
[SALES] 1,329,914
[TOTAL-REVENUES] 1,329,914
[CGS] 134,820
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 824,841
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 249,083
[INCOME-PRETAX] 121,170
[INCOME-TAX] 0
[INCOME-CONTINUING] 121,170
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 121,170
[EPS-BASIC] .00
[EPS-DILUTED] .00
</TABLE>
