SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NO. 0-09482
COLORADO WYOMING RESERVE COMPANY
(Exact Name of Small Business Issuer as Specified in its Charter)
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WYOMING 83-0246080
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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751 HORIZON COURT, SUITE 205 81506
GRAND JUNCTION, COLORADO
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(Address of principal executive offices) (Zip Code)
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(970) 255-9995
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(Issuer's telephone number)
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 /_/
There were 10,607,694 shares of the Registrant's $.01 par value common stock
outstanding as of May 17, 2000.
Transitional Small Business Disclosure: Yes /_/ No /X/
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<TABLE>
<CAPTION>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
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2000 1999
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,772 $ 241,455
Trade accounts receivable -- 1,388
Related party receivable -- 756
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6,772 243,599
Prepaid expenses 1,500 3,224
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Total current assets 8,272 246,823
PROPERTY AND EQUIPMENT:
Unproved oil and gas properties 586,763 567,559
Other property and equipment 14,914 13,645
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601,677 581,204
Less accumulated depreciation,
other property and equipment (13,588) (10,659)
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Net property and equipment 588,089 570,545
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Total assets $ 596,361 $ 817,368
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CURRENT LIABILITIES:
Trade accounts payable $ 55,224 $ 9,134
Other accrued liabilities 2,394 33,324
Related party payables 39,140 9,988
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Total current liabilities 96,758 52,446
EQUITY
Common Stock, $.01 par value:
authorized--75,000,000 shares;
issued and outstanding--10,607,694
and 10,552,694 shares at March 31,
2000 and June 30, 1999, respectively 106,077 105,527
Additional paid-in capital 5,262,976 5,254,276
Warrants 148,100 148,100
Subscription receivable -- (78,500)
Accumulated deficit (5,017,550) (4,664,481)
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499,603 764,922
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Total liabilities and equity $ 596,361 $ 817,368
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Oil and gas sales $ -- $ -- $ -- $ 9,340
Expenses
Operation of producing
properties -- -- -- 17,302
Production taxes -- -- -- 533
Exploration cost 39,112 23,589 78,527 45,710
Depreciation, depletion
and amortization 562 1,069 2,929 3,207
General and
administrative 79,414 80,942 276,494 571,319
------------ ------------ ------------ ------------
Total expenses 119,088 105,600 357,950 638,071
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Operating loss (119,088) (105,600) (357,950) (628,731)
OTHER INCOME (EXPENSE)
Interest expense -- (36,901) -- (152,313)
Interest income 720 -- 4,881 --
Loss on sale of assets -- -- -- (11,829)
------------ ------------ ------------ ------------
Loss before income taxes (118,368) (142,501) (353,069) (792,873)
Provision for income taxes -- -- -- --
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Net loss $ (118,368) $ (142,501) $ (353,069) $ (792,873)
============ ============ ============ ============
Basic and diluted loss
per share $ (0.01) $ (0.06) $ (0.03) $ (0.32)
============ ============ ============ ============
Weighted average common
shares outstanding 10,607,694 2,491,694 10,601,471 2,490,454
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
Nine Months Ended
March 31,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(353,069) $(792,873)
Adjustments to reconcile net loss to
net used in operating activities:
Depletion, depreciation and amortization 2,929 3,207
Loss on asset sale -- 11,829
Amortization of note payable discount -- 148,000
Equity issued as compensation -- 231,000
Other non-cash compensation -- 50,000
Changes in current assets and liabilities:
Receivables 2,145 (1,378)
Payables 44,311 165,981
Prepaids 1,725 (4,360)
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Net cash (used in) operating activities (301,959) (188,594)
Cash flows from investing activities:
Additions to unproved properties (19,205) (28,473)
Asset purchases (1,269) --
Proceeds from asset sales -- 63,915
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Net cash (used in) provided by investing
activities (20,474) 35,442
Cash flows from financing activities:
Notes payable -- 57,692
Sale of warrants -- 72,408
Sale of common stock 87,750 24,000
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Net cash provided by financing activities 87,750 154,100
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Net (decrease) increase in cash and equivalents (234,683) 948
Cash and equivalents at beginning of period 241,455 --
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Cash and equivalents at end of pe$iod 6,772 $ 948
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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COLORADO WYOMING RESERVE COMPANY
("CWYR" or the "Company")
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
PERIODS ENDED MARCH 31, 2000 AND 1999 AND JUNE 30, 1999
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements are unaudited.
However, in the opinion of management, the accompanying financial
statements reflect all adjustments necessary for a fair presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. Management
believes the disclosures made are adequate to make the information not
misleading and suggests that these financial statements be read in
conjunction with the Company's June 30, 1999 Form 10-KSB.
2. FINANCINGS
The Company closed a private equity offering on May 28, 1999, selling
7.845 million restricted shares of Common Stock at $.10 per share
pursuant to an exemption from registration under Rule 505 of Regulation
D of the Securities Act of 1933, as amended. At June 30, 1999, 785,000
private offering shares were subscribed but not paid for; payment for
those shares occurred during the quarter ended September 30, 1999.
During July 1999, the Company granted to its president an incentive
stock option pursuant to the Equity Incentive Plan, to purchase 500,000
shares of Common Stock at an exercise price of $.75 per share
(determined to be at least 110% of the fair market value at the date of
grant). The option has a five year life and is exercisable as of the
date of grant.
3. COMMITMENTS AND CONTINGENCIES
Effective January 1, 1998, the Company entered into an Agreement for
Administrative Services (the "Trinity Agreement") with Trinity Petroleum
Management LLC, a Colorado limited liability company ("Trinity").
Pursuant to the terms of the Trinity Agreement, Trinity performs certain
management functions for the Company. Trinity bills for its services on
an hourly basis, receives a flat fee of $1,000 per month (formerly
$3,000 per month) and is reimbursed for third party expenses. The
Trinity Agreement is on a month-to-month basis and may be terminated by
either party upon written notice. J. Samuel Butler, a member of the
Board of Directors of the Company, currently serves as President of
Trinity and owns approximately 24 percent of Trinity through his
ownership of Butler Resources, LLC. In connection with certain
additional services
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provided to the Company by Trinity pursuant to the Company's merger
with Shoreline Resource Company, on January 22, 1998 the Company
issued to Trinity 25,000 restricted shares of Common Stock as well as
an option to purchase up to 100,000 shares of the Company's Common
Stock at an exercise price of $1.50 per share, subsequently repriced
to $.10 per share in May 1999.
The Company entered into an employment contract with Mr. Fuerst on
October 1, 1996 pursuant to which Mr. Fuerst received a salary of
$10,000 per month and was granted incentive stock options to purchase up
to 500,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share (repriced to $.25 per share in May 1999). The contract
had an initial term of three years commencing October 1, 1996 and is
renewed automatically for succeeding periods of one year unless
terminated. The Contract may be terminated by Mr. Fuerst upon 90-days
prior written notice to the Company and by the Company without prior
notice to Mr. Fuerst for cause (as defined in the contract). The
Company's salary obligation to Mr. Fuerst of $10,000 per month for the
months of June through October 1998 was extinguished in connection with
the purchase by FM Energy, LLC (of which Mr. Fuerst owns 50 percent and
serves as co-manager) of the Company's properties located in North
Dakota. The satisfaction of the Company's salary obligation for such
months served as partial consideration for the purchase. Mr. Fuerst
determined to forego his salary during the months of November and
December 1998, and January through April 1999. In May 1999, Mr. Fuerst's
salary was reduced to $5,000 per month pursuant to an amendment to his
employment agreement. See also Note 2 for a description of a stock
option to purchase 500,000 shares of Common Stock granted to Mr. Fuerst
in July 1999.
4. LOSS PER SHARE
Basic and diluted earnings per share are the same, as the effect of
warrants and options is antidilutive.
5. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") 133 ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES in June 1998. SFAS 133 established
new accounting and reporting standards for derivative instruments and
for hedging activities. This statement requires an entity to establish
at the inception of a hedge, the method it will use for assessing the
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. In June 1999 the
FASB issued SFAS 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT 133. SFAS
137 states that SFAS 133 shall be effective for all fiscal quarters
beginning after June 15, 2000.
The Company believes that these statements will have no material effect
on the Company's financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
UNCERTAINTY OF FORWARD-LOOKING INFORMATION
This quarterly report on Form 10-QSB includes statements that are not purely
historical and are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ from projected results.
Such statements address activities, events or developments that the Company
expects, believes, projects, intends or anticipates will or may occur, including
such matters as future access to capital, completion of a joint venture
arrangement to fund exploration, the Company's ability to maintain an interest
in its properties and cash flow and anticipated liquidity. Factors that could
cause actual results to differ materially ("Cautionary Disclosures") include,
among others: general economic conditions, the market price of oil and natural
gas, concentration of the Company's properties in a small area in the Paradox
Basin, the strength and financial resources of the Company's competitors,
climatic conditions, environmental risks, the results of financing efforts and
regulatory developments. Many of such factors are beyond the Company's ability
to control or predict. All forward-looking statements included or incorporated
by reference in this Form 10-QSB are based on information available to the
Company on the date hereof. Although the Company believes that the assumptions
and expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct or
that the Company will take any actions that may presently be planned. All
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Disclosures.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998 the Company revised its strategy of seeking to purchase
producing oil and gas properties and, instead, implemented a strategy centered
on exploration. To help implement its new strategy, the Company entered into an
exploration joint venture and a merger agreement. In conjunction with its merger
with Shoreline Resource Company, Inc., the Company obtained its Paradox Basin
acreage.
Pursuant to the joint venture mentioned above, the Company purchased a once
producing field in North Dakota from a financially distressed entity. The
purchase included seven producing wells, a saltwater disposal well and a total
of 1,300 acres. Subsequently, an additional 1,700 developmental acres were
acquired. However, in order to raise cash to meet its short term obligations,
the Company sold the property during the quarter ended December 31, 1998.
During the quarter ended June 30, 1999, the Company raised approximately
$785,000 ($767,000 net of offering costs) in a private equity sale. The proceeds
allowed the Company to settle all outstanding payables, and provided funds for
recurring administrative costs and the cost of marketing its Paradox Basin
Project. The proceeds, together with an advance of $23,000 from the Company's
president, also allowed the Company to meet delay lease rental obligations
(necessary for the Company to maintain ownership of the leases underlying its
Paradox Basin
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Project) during the nine months ended March 31, 2000. The Company had a cash
balance of approximately $7,000 as of March 31, 2000.
Subsequent to March 31, 2000, the Company signed (i) a Letter of Intent with The
Shoreline Companies, Inc., an entity of which F. Robert Tiddens, a director and
stockholder of the Company, is President, Chief Executive Officer, Secretary, a
director and a 50% stockholder, and of which John Greene, a director and a
stockholder of the Company, is a director and a 50% stockholder, (ii) a Letter
of Intent with FM Energy LLC, a California limited liability company of which
Kim Fuerst, the Company's director, President, Chief Executive Officer and
Treasurer and principal stockholder, is Co-Chairman and a 50% stockholder, and
of which James E. Moore, a principal stockholder of the Company, is Co-Chairman
and a 50% stockholder, (iii) an Option Agreement with Edwards Energy
Corporation, a Colorado Corporation, and ST Oil Company, a Nevada corporation of
which J. Samuel Butler, a director and principal stockholder of the Company, is
Chairman, Chief Executive Officer and a principal stockholder. Each of these
agreements has a term of 120 days from April 30, 2000. These agreements
contemplate a joint venture arrangement by which the Company would contribute
all of its Paradox Basin acreage together with technical data in exchange for a
50 percent joint venture interest. Shoreco, FM Energy and ST Oil/Edwards Energy
have the right to acquire 20%, 20% and 10% interests, respectively, in the joint
venture by funding on a proportionate basis up to $1.1 million. The $1.1 million
will be used for the following:
o the leasing of additional mineral rights in the Paradox Basin;
o delay rentals on existing leases;
o a 38 mile seismic survey of Company acreage; and
o interpretation of the resulting seismic data.
ST Oil/Edwards Energy paid $24,000 pursuant to the Option Agreement. This amount
was used by the Company for certain general and administrative expenses.
However, the Company's accounts payable balance exceeds its cash availability,
and the Company has no revenues. In order to remedy the working capital deficit
and as a condition to the formation of the joint venture, the Company has agreed
to undertake a private placement of its common stock. The Company may not be
successful in completing a private placement. If the Company is not successful
in completing a private placement or if the joint venture is not formed and
the related $1.1 million in funding is not received, the Company may have to
liquidate on terms unfavorable to its shareholders.
In summary, the Company has no cash flow from operations, but the Company
believes it has undertaken certain steps to convert its only significant asset
into cash or a cash generating investment. Additionally, it is attempting to
raise equity capital. Given its negative working capital position, the Company's
continued existence is dependent on the success of the capital raising efforts.
OPERATIONS. Cash used in operating activities was $301,959 for the nine months
ended March 31, 2000 versus $188,594 for the comparable 1999 period, an increase
of approximately 60 percent. The increase results primarily from changes in the
accounts payable balances in each of the respective periods.
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INVESTING. The Company made additions to its Paradox Basin property during both
the nine months ended 2000 ($19,205) and the nine months ended 1999 ($28,473).
The 1999 proceeds from asset sales of $63,915 represent funds received for the
sale of the Company's producing properties.
FINANCING. At June 30, 1999 the Company had a subscriptions receivable balance
of $78,500. This balance was converted to cash during the nine months ended
March 31, 2000. Additionally, the Company realized $9,250 from the proceeds of
stock option exercises during the same period. During the nine months ended
March 31, 1999, the Company sold 24,000 shares of stock at $1 per share and
entered into a short term financing agreement providing for the borrowing of
$130,000. The $130,000 was repaid during the quarter ended June 30, 1999.
RESULTS OF OPERATIONS
OIL AND GAS OPERATIONS. The Company's producing properties began losing money
during fiscal 1998. For this reason, and due to the Company's lack of liquidity,
all of the Company's producing properties were sold during fiscal 1998 and 1999.
EXPLORATION COSTS. Exploration costs during the three and nine month periods
ended March 31, 2000 were higher than during the year earlier comparable periods
due to higher delay lease rentals paid to maintain CWYR's ownership position in
certain Paradox Basin leases. Additionally, the Company purchased a seismic
option for $10,883 during the nine months ended 2000.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense of
$571,319 for the nine months ended March 31, 1999 included a noncash
compensation expense charge of $231,000; there was no such charge incurred
during the nine months ended March 31, 2000 (total general and administrative
expense of $276,494). The 1999 figure, exclusive of the noncash charge, was
$340,913. The 19 percent decrease in general and administrative expense
exclusive of noncash items from 1999 to 2000 results primarily from lower 2000
salary expense and legal fees, net of increases in consulting fees related to
the marketing of the Company's Paradox Basin project.
OTHER. Interest income of $4,881 earned during the nine months ended March 31,
2000 ($720 for the quarter) was generated from the investment of the Company's
common stock sale proceeds. Interest expense of $152,313 (including amortization
of a note payable discount of $148,000) incurred during the nine months ended
March 31, 1999 related to the short term financing entered into by the Company
during 1999. Interest expense of $36,901 for the quarter ended March 31, 1999
included amortization of note payable discount of $35,000.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES in June 1998. SFAS 133 established new accounting and
reporting standards for derivative instruments and for hedging activities. This
statement requires an entity to establish at the inception of a hedge, the
method it will use for assessing the effectiveness of the hedging derivative and
the
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measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk. In June
1999 the FASB issued SFAS 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT 133. SFAS 137
states that SFAS 133 shall be effective for all fiscal quarters beginning after
June 15, 2000.
The Company believes that these statements will have no material effect on the
Company's financial statements
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PART II
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Letter of Intent, dated May 10, 2000, between Colorado
Wyoming Reserve Company and The Shoreline Companies,
Inc.
10.2 Letter of Intent, dated May 15, 2000, between
Colorado Wyoming Reserve Company and FM Energy LLC.
10.3 Option Agreement, dated May 10, 2000, between Colorado
Wyoming Reserve Company, ST Oil Company and Edwards
Energy Corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLORADO WYOMING RESERVE COMPANY
Dated: May 31, 2000 By: /s/ KIM M. FUERST
-------------------------------------
Kim M. Fuerst
President, Chief Executive Officer
and Treasurer
(Principal Executive and
Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
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10.1 Letter of Intent, dated May 10, 2000, between Colorado
Wyoming Reserve Company and The Shoreline Companies, Inc.
10.2 Letter of Intent, dated May 15, 2000, between Colorado
Wyoming Reserve Company and FM Energy LLC.
10.3 Option Agreement, dated May 10, 2000, between Colorado
Wyoming Reserve Company, ST Oil Company and Edwards
Energy Corporation.
27 Financial Data Schedule
