UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 000-04395
COBB RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Mexico 85-0206160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 East Jackson, West Columbia, Texas 77486
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (409) 345-5666
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.10 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 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 9, 1998, there were outstanding 8,534,257 shares of the
registrant's $.10 par value Common Stock, and the aggregate market value held by
non-affiliates was approximately $428,425.
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Table of Contents
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PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements 14
Item 9. Changes in and Disagreements with Accountant
on Accounting and Financial Disclosure 14
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 15
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K 18
SIGNATURES 19
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PART I
ITEM 1. BUSINESS
GENERAL
Cobb Resources Corporation (the "Company"), a New Mexico corporation, has
been active in the mining and oil and gas sectors through leases under venture
developments with other parties, or held by the Company for evaluation,
development or possible resale. Since its incorporation in 1969 the Company's
business evolved from its early emphasis on the acquisition and development of
uranium properties to the purchase Chace Oil Company, then a wholly owned
subsidiary of the Company, with interests in the oil and gas sector. Following
approval by its stockholders of the sale by Chace of Chace's oil and gas
properties and related assets in 1992, the Company turned its focus to its
remaining properties and plans for their sale or future development. Through
small leasehold acquisitions, the Company continues to maintain a limited
speculative stake in minerals and oil and gas exploration and development.
MINING SECTOR
In its initial stages in the 1960s and 1970s the Company was engaged
primarily in the acquisition, exploration and development of mineral leases
including precious metals, primarily gold and silver, as well as uranium leases
and base metals such as zinc. The Company commenced production and shipment of
uranium ore in 1978. After several years of successful production, uranium
operations were discontinued following the severe worldwide price downturn in
the uranium market. Thereafter, the Company's interests in uranium properties
were written off as discontinued operations.
LONDON MINE. During 1978 the Company acquired certain leases pertaining to
the London mine, historically a major gold producer located in central Colorado
(the "London Mine"). Subsequently the Company entered into a joint venture
agreement ("London Mine Venture") with Boulder Gold, Inc., a Colorado
corporation ("Boulder") pursuant to which Boulder operated the London Mine. The
London Mine interest consisted of mining leases covering approximately 300
patented and unpatented claims. During May 1988, the London Mine, which had been
worked by various independent miners and other persons from time to time since
the late 1800s, was reopened by the operator and was operated for approximately
fourteen months until again being closed during the summer of 1989. The primary
reasons for the closing of the London Mine were the declining prices of gold,
less than projected recovery ratios and the inability to reach significant
economies of scale in operations.
In September 1990 the London Mine Venture executed a mining venture
agreement with Alma American Mining Corporation, a Colorado corporation ("Alma")
to form the Alma London Joint Venture (the "Alma Venture") for further
exploration, development and operation of the London Mine by Alma. Under the
Alma Venture, Alma operated the Alma Venture and participated with a 50%
interest, while the Company and Boulder each retained a 25% interest. Based upon
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the results of the renewed exploration and drilling operations and the continued
weakness of gold prices, during September 1991 Alma terminated its management of
and participation in the Alma Venture and control of the London Mine reverted
back to the London Mine Venture.
During June 1992, notice of intent to cancel the London Mine lease was
given to the owner of the underlying fee interests in the London Mine. Following
the lease termination, the permitted rights and obligations to which operations
of the London Mine were subject, reverted to the fee owner. As a result, the
London Mine Venture completed the liquidation of all of its assets and
liabilities and the joint venture agreement was terminated.
The Company was previously involved in the development and evaluation of
other precious metal base metal and uranium properties located in Colorado and
New Mexico. In June 1994 the Company transferred certain mining properties
including those commonly known as the London Mine, Ambrosia Lake Mine,
Vindicator Mine, and the Johnny Bull Mine, including without limitation any and
all residual rights to mining claims and mineral interests to Southwest
Resources, Inc., a wholly-owned subsidiary of the Company. These mining
properties had been fully written off in previous years as discontinued mining
operations. The Company retained royalty interests in the Copper Flat property
and a minimal interest in a limestone mineral prospect. The common stock of
Southwest Resources, Inc., was later sold to Mr. George O. Lotspeich, the former
President and a former director of the Company.
COPPER FLAT PROPERTY. Pursuant to an agreement with Hydro Resources
Corporation, a New Mexico corporation owned substantially by Mr. George O.
Lotspeich, the former President and a former director of the Company ("Hydro"),
the Company sold the Copper Flat property in July 1989 to Copper Flat Mining
Company, Ltd., a Colorado corporation ("CFMC"). Proceeds to the Company which
were paid at closing included the first year's annual minimum royalty of
$150,000 and an expense reimbursement of $25,000. The agreement with CFMC
provides for continuing minimum annual royalty payments of $150,000 until
production begins. Thereafter royalties are 2-1/2% Net Smelter Return ("NSR")
until the earlier of payout or five years and 5% NSR thereafter. NSR refers to
gross proceeds from sales of concentrates less transportation costs and
penalties. After the initial royalty payment to the Company of $150,000, the
Company and Hydro were to each receive 50% of all future payments, after
reimbursement of expenses. In an agreement entered into between the Company and
Hydro dated April 5, 1991, Hydro reconveyed a portion of its royalty and
reversionary rights in the Copper Flat property to the Company. As a result, the
Company will receive 51% of all future royalty payments after reimbursement of
expenses, and Hydro will receive the remaining 49% of each royalty payment. In
the event the Copper Flat property reverts under the agreement with CFMC, the
Company and Hydro would receive a 51% and a 49% interest, respectively, in the
property. Annual royalty payments from the Copper Flat property are due and
payable not later than September 30 of each year, although such payment may be
paid within a 60 day grace period following written notification and demand. The
Company anticipates that it will receive the next annual royalty in a timely
manner.
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On January 26, 1994, the Company and Hydro entered into an agreement with
Alta Gold Company, a Nevada Corporation, ("Alta") whereby the royalty interests
held by the Company and Hydro in the Copper Flat property would be adjusted in
order to make the development of the Copper Flat property viable. In
consideration of the foregoing, Alta agreed to provide the Company/Hydro with
375,000 restricted shares of Alta stock within thirty days of Alta's acquisition
of the Copper Flat property. At any time within two years from the date on which
the stock is issued, Alta shall have the right to repurchase 125,000 shares for
$4.00 per share, upon giving the Company/Hydro thirty days notice. The
Company/Hydro will have the option, upon written demand to Alta within thirty
days after the second anniversary date of the stock issuance, if the market
price of the stock on the second anniversary is less than $4.00 per share, to
demand that Alta pay to the Company/Hydro the difference between $4.00 per share
and the market price per share on the second anniversary date as multiplied by a
maximum of 250,000 shares. Alta shall have sixty days from the date of said
demand to pay same.
On June 14, 1994 Alta acquired the Copper Flat property and thereafter on
June 22, 1994 Alta issued to the Company its pro rata 51% of the 375,000 shares
of Alta common stock. At that date, the market price of the Alta common stock as
traded on NASDAQ was $1.25 per share. As a result of the transaction, the
Company reported a net gain of $679,394. The Company's interest in the Copper
Flat property had been previously written off as discontinued mining operations.
At various times in July and August 1996, the Company sold all its holdings
totaling 191,250 shares of common stock in Alta for combined net proceeds of
$674,173. In accordance with the agreement, Alta paid the Company $55,781 in
September 1996 which represented the difference between $4.00 per share and the
market price per share on the second anniversary date of the agreement.
As a result of the agreement, Alta will be obligated to pay the
Company/Hydro a 2-1/2% Net Smelter Return for as long as Alta operates the
Copper Flat property which amends the 5% Net Smelter Return as above. The annual
minimum royalty payment will be credited against future production royalties
after Alta acquires the Copper Flat property. If the Copper Flat property is not
in production at the end of the five year period, the annual minimum royalty
payment will no longer be credited against future production royalty. In no
event, however, will the production royalty due the Company/Hydro be less than
$150,000 per year.
The Company/Hydro also granted Alta a Right of First Refusal on the royalty
interest held. Alta will have sixty days from the date it is notified to
exercise its Right of First Refusal. The Right of First Refusal granted will
have a term of 10 years from the date Alta exercises its option to purchase the
Copper Flat property.
OIL AND GAS SECTOR
The Company entered the business of oil and gas exploration and development
through acquisition of Chace Oil Company, Inc. ("Chace") in 1980. The Company's
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oil and gas operations were conducted principally through wholly-owned
subsidiaries and a series of limited partnerships and joint ventures sponsored
by Chace for which Chace served as operator and general partner. Chace's
principal area of interest was in the San Juan Basin in northwestern New Mexico.
Chace's oil and gas leases were acquired through farmout agreements with various
companies and individuals and were held by production.
As part of its exploration and production activities, the Company has
owned, acquired and sold oil and gas leases and other mineral interests and
conducted exploration and development activities for its own account and for
joint venture or partnership accounts. In order to spread the risks inherent in
exploration and development activities, the Company generally attempted to
include participation from third parties.
During 1991 the Company entered into an Asset Purchase Agreement with
Golden Oil Company, a Delaware corporation, ("Golden"), which provided for the
sale to Golden of substantially all of the Company's and Chace's oil and gas
properties and related oil and gas assets for consideration of 5,132,563 shares
of Golden Common Stock, subject to certain adjustments. Such transaction was
approved and ratified by the Company stockholders at their meeting in March
1992. Following consummation of the transaction, the Company distributed ninety
percent of the Golden shares to Company stockholders.
The Company participated in the successful completion of two gas wells
located in the Permian Supai Formation on the crest of the St. John's Anticline
in Arizona. There were plans to drill five additional wells to increase
producibility for the industrial parks being developed to utilize carbon dioxide
reserves. The land lease holdings exceed 40,000 acres covering three known
surface structures. The Company had a 5 percent working interest in the Arizona
project.
During March 1997, the Company exchanged its working interest in the
Arizona project for 115,385 shares of common stock of Arizona Resources
Industries, Inc., a Canadian company. During April 1997, the Company entered
into a stock purchase and voting agreement with Ridgeway Petroleum Corp., a
Canadian company, whereby the Company will receive 115,385 shares of
unrestricted common stock of Ridgeway Petroleum Corp. in exchange for the
115,385 shares of Arizona Resources Industries, Inc. As a result of these
transactions, the Company now has only limited oil and gas related assets.
During 1998, the Company participated in the drilling and completion of 3
gas wells in the San Juan Basin of New Mexico. These wells are now producing
moderate amounts of gas from the Dakota formation. Based on electric logs, the
Gallup formation could contain hydrocarbons, although this formation has not
been tested. The Company's net interest in these wells is 2.5%. Accordingly,
the Company does not anticipate that these wells will have a material impact on
the Company's financial condition or operations. The Company also owns certain
oil and gas leases in the San Juan Basin of New Mexico totaling 1,400 acres.
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GOVERNMENT REGULATION
Mining operations are subject to extensive federal, state and local
regulations. Permits must be obtained from various federal, state and local
agencies prior to the establishment of any mining and milling operations. The
Company has not experienced difficulty obtaining such required permits for its
past operations and believes that it is in substantial compliance with
regulations pertaining to its operations. The Company believes its costs to
comply with such laws have been generally consistent with the levels experienced
throughout the industry. However, the Company can give no assurance that permits
for any future mining or milling operations will continue to be obtainable or
that the associated costs to comply with laws concerning government regulations
will be affordable for any future mining operations. The Company cannot predict
future legislation or regulations that may be passed or adopted which could
require additional expenses, capital expenditures, restrictions or delays in
operations which could have a materially adverse effect on the value of the
Company's mining lease holdings or its mining or minerals operations.
The Company's domestic production and sale of oil and gas are subject to
regulation by the Department of Energy. Rates of production have for many years
been subject to federal and state conservation laws and the petroleum industry
has been subject to federal tax laws dealing specifically with the industry.
The Company is subject to various federal, state and local regulations
regarding, among other things, environmental and ecological matters. While
environmental laws affecting oil and gas operations may potentially require
significant capital outlays, such laws and related regulations did not
materially hinder or adversely affect the Company's production and sale of oil
and gas.
COMPETITION
The Company's mining operations have competed with other entities which
have financial and other resources greater than those of the Company. The
acquisition, exploration, development, production and sale of precious and base
metals, are subject to many factors which are outside the Company's control.
The exploration for and development of minerals is highly speculative and
involve greater risks than many other businesses. The Company's mining
operations, in addition to being subject to environmental issues, are subject to
operating hazards and risks which are normal in the development of mineral
properties, such as encountering unusual or unexpected formations. Unforeseen or
uninsured losses or liabilities might occur which could adversely affect the
Company's ability to operate.
The Company competes with numerous other parties in the exploration and
acquisition of oil and gas reserves, in the marketing of oil and gas and in the
raising of funds to explore for oil and gas. The Company's competitors include
major oil companies, independent oil companies and individuals, many of which
have financial resources, staffs and facilities substantially greater than those
of the Company. Despite product price fluctuations, competition remains intense
for the acquisition of oil and gas prospects and properties.
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Competitive conditions in marketing of products are influenced by factors
including the production volume of other domestic crude oil and crude oil
imports; the proximity of pipelines to producing properties; the regulation by
states of allowable rates of production; and the regulation by federal
authorities of the marketing of crude oil and natural gas. All of the foregoing
are variable factors which are influenced by economic and political forces
beyond the Company's control and which can not be predicted with assurance.
EMPLOYEES
At June 30, 1998, the Company had one full time employee. In addition, the
Company periodically employs part time personnel and retains outside
professionals which provide accounting, legal, administrative and other
services.
The Company's business does not presently require expenditure of
substantial funds for research and development. Sales of oil and gas tend to be
influenced by factors including local demand, the availability of transportation
and seasonal weather conditions with increased sales during the colder winter
months. The Company does not believe that any other materials aspects of its
business are significantly seasonal in nature.
Other than mineral leases with various state, federal and private entities,
the Company has no material mining patents, trademarks, licenses, franchises or
concessions.
ITEM 2. PROPERTIES
OFFICE FACILITIES
The Company's principal executive office is located at 302 East Jackson,
West Columbia, Texas 77486.
MINING PROPERTIES
The Copper Flat property is located in the Hillsboro Mining District,
Sierra County, New Mexico approximately five miles northeast of Hillsboro, New
Mexico. The property is accessible by private unpaved roads and consists of
unpatented lode and placer mining claims, unpatented mill site claims and
patented mining claims. Geological reports support primarily copper deposits
although gold, silver and molybdenum are indicated in lesser amounts.
OIL AND GAS LEASES
The Company also owns cetain oil and gas leases in the San Juan Basin of
New Mexico totaling approximately 1,400 acres.
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ITEM 3. LEGAL PROCEEDINGS
Other than routine litigation incidental to the Company's business, the
following summarizes the legal proceedings of which management is aware and in
which the Company or its wholly-owned subsidiaries and any of their directors or
officers are party:
On October 30, 1990, a mining joint venture (the "Venture") in which the
Company was previously involved, received notice from the United States
Environmental Protection Agency ("EPA") that the Venture was believed by the EPA
to be a "potentially responsible party" for the release of certain allegedly
hazardous substances at a site located in central Colorado. The Venture operated
the facility for only a brief period, but may be required to bear its share of
any costs incurred in connection with this matter. Any such amounts for which
the Company may ultimately be held liable may not be adequately covered by
insurance.
The Company believes that other parties have taken appropriate response
action required at this central Colorado site and have obtained EPA approval of
their cleanup actions. In the opinion of the Company's management and based on
independent advice from professional experts engaged to assess the site, it
appears unlikely that the Company will be responsible to bear material liability
in this matter.
The Company was notified by the operator of the London Mine Venture ("LMV")
that the venture had received on December 8, 1991, a notice of violation from
the Colorado Department of Health ("Department") in connection with alleged
noncompliance with certain amended standards of water discharge permits at the
London Mine from July 1991 through October 1991. The London Mine was operated
during this period by the operators of each of the Alma London Joint Venture and
the LMV. The notice of violation included a cease and desist order with respect
to further violations and notes the possibility of imposition of significant
fines. To date, while the Department has not assessed any fines, the Company is
not able to assess fully the extent to which, if any remedial action is
determined to be necessary, the Company may be held responsible for any such
required remediation, and there can be no assurance that the ultimate resolution
of this matter will not have a material adverse effect on the Company in the
future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to vote by security holders during the fourth
quarter of the fiscal year ended June 30, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's trading symbol is COBB. The ranges of reported high and low
bid quotations for the Company's Common Stock for each quarterly period within
the two years ended June 30, 1998 are set forth below. Quotations are as
reported by the National Quotation Bureau or members of the National Association
of Securities Dealers who maintain a market in the Company's Common Stock on the
OTC Bulletin Board. Such quotations represent prices between dealers without
retail markup, markdown or commissions and do not necessarily represent actual
transactions.
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HIGH LOW
QUARTER ENDED BID BID
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September 30, 1996 $0.15 $0.06
December 31, 1996 $0.15 $0.06
March 31, 1997 $0.15 $0.06
June 30, 1997 $0.15 $0.06
September 30, 1997 $0.12 $0.06
December 31, 1997 $0.12 $0.06
March 31, 1998 $0.12 $0.06
June 30, 1998 $0.09 $0.06
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As of September 9, 1998 there were approximately 1,200 shareholders of
record of the Company's Common Stock. The Company's transfer agent is C/W
Registrar & Transfer Agency, Inc., in care of Securities Transfer Corporation,
16910 Dallas Parkway, Suite 100, Dallas, Texas 75248.
can Cons
The Company has not paid any cash dividends on its Common Stock and does
not expect to do so in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information has been derived from, and is
qualified by reference to and should be read in conjunction with, the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein.
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YEARS ENDED JUNE 30,
(in dollars)
1998 1997 1996 1995 1994
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Revenues $ 201,658 426,329 95,447 125,993 946,944
Net earnings (loss) $(305,4670) 126,835 (45,492) (1,244) 855,944
Net earnings (loss) per
common share $ (.04) .01 (.01) (.00) 1.00
Total assets $ 877,641 1,125,338 1,050,221 1,033,946 676,000
Long-term debt $ 14,849 34,053 108,942 13,862 -0-
Stockholders' equity $ 862,792 1,059,688 938,433 1,016,916 1,024,160
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
Report. See Financial Statements. Certain statements in the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") are forward looking statements. Words such as "expect",
"anticipates", "estimates" and similar expressions are intended to identify
forward looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected.
OVERVIEW
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Cobb Resources Corporation's (the "Company") operations are funded
primarily through internally generated funds from operations and the sale of
certain marketable equity securities. The Company is currently placing renewed
emphasis on its minerals sector and selective oil and gas prospects. Management
intends to continue to hold fixed and administrative expenditures to low levels
which are consistent with the Company's balance sheet financial ratios and
anticipated income.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's primary source of operating income has been the royalty
interest on its Copper Flat property in southern New Mexico and proceeds from
the sale of certain marketable equity securities and office building. Since
1990 the Copper Flat property has been held for possible development by Copper
Flat Mining Company, Ltd., a subsidiary of Gold Express Corporation ("Gold
Express") with the payment of annual delay rentals to the Company of $150,000
per year on a gross basis. Such amounts are then divided on a 51/49% basis with
Hydro Resources Corporation. Annual royalty payments from the Copper Flat
property are due and payable not later than September 30 of each year, although
such payment may be paid within a 60 day grace period following written
notification and demand. The payment for the next annual royalty is expected to
be received by the Company during September 1997.
On January 26, 1994, the Company and Hydro entered into an agreement with
Alta Gold Company, a Nevada Corporation, ("Alta") whereby the royalty interests
held by the Company and Hydro in the Copper Flat property would be adjusted in
order to make the development of the Copper Flat property viable. In
consideration of the foregoing, Alta agreed to provide the Company/Hydro with
375,000 restricted shares of Alta stock within thirty days of Alta's acquisition
of the Copper Flat property. At any time within two years from the date on
which the stock is issued, Alta shall have the right to repurchase 125,000
shares for $4.00 per share, upon giving the Company/Hydro thirty days notice.
The Company/Hydro will have the option, upon written demand to Alta within
thirty days after the second anniversary date of the stock issuance, if the
market price of the stock on the second anniversary is less than $4.00 per
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share, to demand that Alta pay to the Company/Hydro the difference between $4.00
per share and the market price per share on the second anniversary date as
multiplied by a maximum of 250,000 shares. Alta shall have 60 days from the
date of said demand to pay same.
On June 14, 1994 Alta acquired the Copper Flat property and thereafter on
June 22, 1994 Alta issued to the Company its pro rata 51% of the 375,000 shares
of Alta common stock. At that date, the market price of the Alta common stock
as traded on NASDAQ was $1.25 per share. As a result of the transaction, the
Company reported a net gain of $679,394. The Company's interest in the Copper
Flat property had been previously written off as discontinued mining operations.
As a result of the agreement, Alta will be obligated to pay the
Company/Hydro a 2-1/2% Net Smelter Return for as long as Alta operates the
Copper Flat property which amends the 5% Net Smelter Return as above. The
annual minimum royalty payment will be credited against future production
royalties after Alta acquires the Copper Flat property. If the Copper Flat
property is not in production at the end of said five year period, the annual
minimum royalty payment will no longer be credited against future production
royalty. In no event, however, will the production royalty due the
Company/Hydro be less than $150,000 per year.
At various times in July and August 1996, the Company sold all its holdings
totaling 191,250 shares of common stock in Alta for combined net proceeds of
$674,173. In accordance with the agreement, Alta paid the Company $55,781 in
September 1996 which represented the difference between $4.00 per share and the
market price per share on the second anniversary date of the agreement.
The Company/Hydro also granted Alta a Right of First Refusal on the royalty
interest held. Alta will have sixty days from the date it is notified to
exercise its Right of First Refusal. The Right of First Refusal granted will
have a term of 10 years from the date Alta exercises its option to purchase the
Copper Flat property.
In conjunction with its reorientation of its business objectives, the
Company terminated all cost for full-time employees and entered into a contract
for the sale of its New Mexico office building. The sale transaction was
completed in August 1996 with the Company receiving net proceeds of $92,294.
The Company anticipates that for the near term, the Company's operating
expenditures will continue to be strictly limited and that cash proceeds from
sale of common stock in Alta and from sale of its New Mexico office building
will provide adequate working capital to sustain the Company's operations.
Cash and cash equivalents decreased to $179,588 from $419,280, a net
decrease of $239,692 at June 30, 1998 as compared to June 30, 1997. For the
year ended June 30, 1998, the Company used $179,056 of cash in operating
activities compared to net cash provided by operating activities of $446,550 for
the prior year. The increased use of cash in operations was primarily the
result of higher general and administrative expenses and poorer performance of
marketable equity securities in the Company's trading portfolio. As of June 30,
1998 the Company had working capital of $682,110 compared to $966,428 as of June
30, 1997.
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At present, the Company plans to remain a public entity operating
principally in the minerals and oil and gas business. The Company holds
interests in several oil and gas prospects and its royalty interest in the
Copper Flat property.
RESULTS OF OPERATIONS
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1998 COMPARED TO 1997
- ------------------------
The Company reported mining royalty income for the current and prior year
of $76,500. The royalty income reflects the Company's proportionate share of
the annual minimum royalty payment related to the Copper Flat property.
Interest income and other income totaled $20,985 for the year ended June 30,
1998 compared to $23,960 for the previous year.
There were oil and gas property lease expenses of $10,411 during the
current year compared to $4,226 for the prior year. Depreciation, depletion and
amortization was $8,675 and $9,538 for each respective year ended June 30, 1998
and 1997. General and administrative expenses were $327,158 for the year ended
June 30, 1998 compared to $145,817 for the year ended June 30, 1997. These
expenses increased due to increased compensation to the Company's president and
increased amounts paid for legal, accounting and other professional services
during 1998.
The Company realized net loss on the sale of marketable equity securities
for the current year of $157,424 compared to a net loss of $148,006 in the prior
year.
The Company had net unrealized gain on marketable equity securities for the
current year of $104,173 compared to a unrealized gain of $330,674 in the prior
year.
Primarily reflecting the factors discussed above, the Company reported a
net loss of $305,467 for the year ended June 30, 1998 compared to net earnings
of $126,835 for the prior year ended June 30, 1997.
1997 COMPARED TO 1996
- ------------------------
The Company reported mining royalty income for the current and prior year
of $76,500 and $76,500, respectively. The royalty income reflects the Company's
proportionate share of the annual minimum royalty payment related to the Copper
Flat property. For additional information concerning the Copper Flat property,
see Notes to Consolidated Financial Statements and Note 6 thereof. Interest and
other income totaled $23,960 for the year ended June 30, 1997 compared to $856
for the previous year. The increase is due to increased funds available for
investment.
There were oil and gas property lease expenses of $4,226 during the current
year compared to $6,190 for the prior year. Depreciation, depletion and
12
<PAGE>
amortization was $9,538 and $24,040 for each respective years ended June 30,
1997 and 1996. General and administrative expenses increased marginally to
$145,817 for the year ended June 30, 1997 compared to $110,349 for the prior
year. These expenses continue at relatively low levels primarily as a result of
management's efforts to impose strict limitations on operating expenditures.
General and administrative expenses for the year ended June 30, 1997 and 1996
primarily included limited administrative, legal, consulting and other
professional services and general expenses. During the current year, the
Company participated in the drilling of an exploratory well which was determined
to be not commercially productive. As a result, the Company recorded dry hole
expense of $23,712 for the year ended June 30, 1997.
The Company realized net losses on the sale of marketable equity securities
for the current year of $148,006 compared to a gain of $6,297 in the prior year.
Such losses resulted from the sale of common stocks and other various
investments. The Company also completed the sale of its office building in
Albuquerque, New Mexico which resulted in a net gain on sale of $27,000 during
the current year ended June 30, 1997.
The Company had net unrealized gain on marketable equity securities for the
current year of $330,674 compared to a unrealized gain of $11,794 in the prior
year. Such gain resulted from the sale of oil and gas interests for common
stock.
Primarily reflecting the factors discussed above, the Company reported net
earnings of $126,835 for the year ended June 30, 1997 compared to a net loss of
$45,492 for the prior year ended June 30, 1996.
IMPACT OF YEAR 2000
- ----------------------
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruption of business activities.
Based on ongoing assessments, the Company believes that no significant
modifications of existing computer software will be required. The Company
believes that for applications in which computer systems are utilized, such
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company also believes that costs related to the Year 2000
issue will not be significant.
The Company is currently assessing its relationships with suppliers and
major customers to determine the extent to which the Company is vulnerable to
any third party's failure to remedy their own Year 2000 issues. Based on
preliminary assessments, management believes that significant exposure does not
exist with respect to third parties. In the worst case, management believes
that it could experience delays in its ability to trade securities and obtain
proceeds from such trades, resulting in losses for the Company.
13
<PAGE>
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD LOOKING STATEMENTS
- -----------------------------------------------------------------------------
The Company is including the following cautionary statement in this
Quarterly Report on Form 10-KSB to make applicable and take advantage of the
safe harbor provision of the Private Securities Litigation Reform Act of 1995
for any forward looking statements made by, or on behalf of the Company.
Forward looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result, or be achieved, or be accomplished.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
In connection with certain business transactions in the past, the Company
received shares of stock of publicly traded companies. The Company has sold
certain amounts of such shares. Further, the Company invests in shares of stock
of publicly traded companies from time to time for trading purposes.
ITEM 8. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) The Company has recently engaged Ham, Langston & Brezina, L.L.P.
("Ham, Langston & Brezina") as its independent accountants effective
immediately. The decision to engage Ham, Langston & Brezina as the Company's
independent accountants was recommended and approved by the chairman of the
Company's Board of Directors.
(b) Coopers & Lybrand, L.L.P. last reported on the Company's financial
statements since the fiscal year ended June 30, 1992 and such report did not
contain an adverse opinion or disclaimer of opinion, nor was such report
qualified or modified as to uncertainty, audit scope, or accounting principles.
However, the Company has not engaged an independent accountant since that date.
14
<PAGE>
(c) During the Company's two fiscal years ended June 30, 1998 and the
subsequent interim period preceding the decision to engage independent
accountants, there were no "reportable events" (hereinafter defined) requiring
disclosure pursuant to Section 229.304(a)(1)(v) of Regulation S-K. As used
herein, the term "reportable event" means any of the items listed in paragraphs
(a)(1)(v)(A)-(D) of Section 304 of Regulation S-K.
(d) Effective June 11, 1998, the Company engaged Ham, Langston & Brezina
as its independent accountant. During the two fiscal years ended June 30, 1998
and the subsequent interim period preceding the decision to engage independent
accountants, neither the Company nor anyone on its behalf consulted Ham,
Langston & Brezina regarding either the application of accounting principles to
a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements, nor has
Ham, Langston & Brezina provided to the Company a written report or oral advice
regarding such principles or audit opinion.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the directors and executive officers of the
Company
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Charles Cobb IV 68 Chairman, President and CEO,
Chief Accounting Officer
H. Wesley Griggs 50 Director
Christy Foster 29 Director
</TABLE>
Directors are to be elected annually and hold office until the next annual
meeting of the stockholders of the Company or until their successors are elected
and qualified. However, elections have not been held for four years. Officers
serve at the discretion of the Board of Directors. Mr. Cobb is the father of
Ms. Foster. Mr. Cobb is the uncle of Mr. Griggs. Ms. Foster and Mr. Griggs are
cousins.
BIOGRAPHIES
15
<PAGE>
Charles Cobb IV serves as Chairman, President and CEO of the Company. He
has been a Director and the President of the Company since 1992.
H. Wesley Griggs has been a Director of the Company since 1992. He has been
an attorney since 1974. Mr. Griggs has a B.A. Degree from Rice University and a
J.D. Degree from the University of Texas.
Christy Foster has been a Director of the Company since 1992. From 1992
until 1993, Ms. Foster was a travel agent with CUC International. During 1994,
Ms. Foster attended Sam Houston State University. During 1995, Ms. Foster was
with Court's Saddlery in a sales position. During 1996, Ms. Foster attended
Stephen F. Austin State University. Beginning in 1997 through the present, Ms.
Foster has been employed at East Texas Tack and Veterinarian Supply.
CERTAIN SECURITIES FILINGS
The Company believes that the reports required by Section 16(a) of the
Exchange Act have been filed timely by Messrs. Cobb and Griggs and Ms. Foster.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
ALL
SECURITIES PAYOUTS OTHER
NAME AND ANNUAL COMPENSATION RESTRICTED UNDERLYING COM-
PRINCIPAL STOCK OPTIONS/ LTIPS PENSA-
POSITION YEAR SALARY BONUS OTHER AWARDS SARS PAYOUTS TION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO 1998 $127,235 -0- -0- -0- -0- -0- -0-
Charles Cobb IV 1997 63,420 -0- -0- -0- -0- -0- -0-
1996 34,009 -0- -0- -0- -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs At Options/SARs At
Fiscal Year-End Fiscal Year-End
Shares Value (#) ($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Charles Cobb IV -0- -0- 250,000 / -0- $ 10,000 / -0-
</TABLE>
16
<PAGE>
DIRECTOR COMPENSATION
The Company does not currently pay any cash director's fees, but it pays
the expenses, if any, of its directors in attending board meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 9, 1998
respect to the beneficial ownership of shares of Common Stock by (I) each person
who is known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each stockholder has sole voting
and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF PERCENT CLASS OF
NAME SHARES OWNED OF CLASS SECURITIES
<S> <C> <C> <C>
Charles Cobb IV 4,250,000 (1) 49.8% Common Stock
302 East Jackson
West Columbia, Texas 77486
H. Wesley Griggs -0- -0- Common Stock
302 East Jackson
West Columbia, Texas 77486
Christy Foster -0- -0- Common Stock
302 East Jackson
West Columbia, Texas 77486
All Directors and
Executive Officers
as a group (3) 4,250,000 49.8% Common Stock
<FN>
(1) Includes an option to purchase 250,000 shares of the Company's common
stock at an exercise price of $0.06 per share which expires on July 10, 2004.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The current Board of Directors of the Company has adopted a policy that
Company affairs will be conducted in all respects by standards applicable to
publicly-held corporations.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a)(1) Financial statements:
Audited Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and 1997.
Consolidated Statements of Operations for the years ended June 30, 1998,
1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended June 30, 1998,
1997 and 1996.
(a)(2) Financial statement schedules: NONE.
(a)(3) Compensation Plans: NONE.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the Company's last fiscal
quarter of 1998.
(c) EXHIBITS
3.1 * Articles of Incorporation as amended
3.2 * Bylaws
10.1 * Alta Gold Company Agreement
10.2 * Royalty Deed related to Exhibit 10.1
16.1 * Letter from Coopers & Lybrand, L.L.P.
27.1 ** Financial Data Schedule
_______________________
* Incorporated by reference to the Company's Annual Report on Form 10-K
Amendment Number One for the fiscal year ended June 30, 1997, as
filed with the Commission on July 16, 1998.
** Filed herewith
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COBB RESOURCES CORPORATION
Date: September 28, 1998 By: /s/ Charles Cobb IV
Charles Cobb, IV
Director, President and Chief
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date: September 28, 1998 By: /s/ Charles Cobb IV
Charles Cobb, IV
Director, President and Chief
Accounting Officer
Date: September 28, 1998 By: /s/ H. Wesley Griggs
H. Wesley Griggs
Director
Date: September 28, 1998 By: /s/ Christy Foster
Christy Foster
Director
19
<PAGE>
COBB RESOURCES CORPORATION
__________
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
TABLE OF CONTENTS
__________
PAGE(S)
-------
<S> <C>
Report of Independent Auditors F-2
Audited Financial Statements
Consolidated Balance Sheets as of June 30,
1998, 1997 and 1996 F-3
Consolidated Statements of Operations for the
years ended June 30, 1998, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the
years ended June 30, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Cobb Resources Corporation
We have audited the accompanying consolidated balance sheets of Cobb Resources
Corporation as of June 30, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cobb Resources
Corporation as of June 30, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles.
/s/ Ham, Langston & Brezina, LLP
Houston, Texas
September 14, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
__________
ASSETS JUNE 30,
- -------------------------------------------- ------------
1997
1998 (RESTATED)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 179,588 $ 419,280
Certificate of deposit 10,000 10,000
Marketable equity securities 372,560 518,879
Accounts receivable - mining royalty 60,000 60,000
Notes receivable 60,000 -
Accrued interest receivable 6,986 -
------------ ------------
Total current assets 689,134 1,008,159
Property and equipment, net 25,967 34,124
Non-producing oil and gas properties 150,040 10,555
Notes receivable 12,500 72,500
------------ ------------
Total assets $ 877,641 $ 1,125,338
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------
Current liabilities:
Notes payable and current portion of
long-term debt $ 7,024 $ 10,134
Accounts payable and accrued liabilities 10,000 31,597
------------ ------------
Total current liabilities 17,024 41,731
Long-term debt, net of current portion 7,825 23,919
------------ ------------
Total liabilities 24,849 65,650
------------ ------------
Contingencies (Notes 7 and 8)
Stockholders' equity:
Common stock, $0.10 par value; 25,000,000
shares authorized; 8,534,257 shares
issued and outstanding at June 30, 1998
and 1997 853,426 853,426
Additional paid-in capital 6,156,172 6,156,172
Accumulated deficit (6,150,806) (5,845,339)
Treasury stock, 60,000 shares at cost (6,000) (6,000)
Receivable from a stockholder - (98,571)
------------ ------------
Total stockholders' equity 852,792 1,059,688
------------ ------------
Total liabilities and stockholders'
equity $ 877,641 $ 1,125,338
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
__________
YEAR ENDED JUNE 30,
-------------------------------------
1997 1996
1998 (RESTATED) (RESTATED)
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Mining royalty income, net $ 76,500 $ 76,500 $ 76,500
Gain on sale of property - 27,000 -
Interest and other income 20,985 23,960 856
Realized gain on marketable
equity securities - - 6,297
Unrealized gain on marketable
equity securities 104,173 330,674 11,794
----------- ----------- -----------
Total revenues 201,658 458,134 95,447
----------- ----------- -----------
Costs and expenses:
Property lease expenses 10,411 4,226 6,190
Dry hole expense - 23,712 -
Depreciation expense 8,675 9,538 24,400
General and administrative 327,158 141,224 107,718
Realized loss on marketable
equity securities 157,424 148,006 -
Interest expense 3,457 4,593 2,631
----------- ----------- -----------
Total costs and expenses 507,125 331,299 140,939
----------- ----------- -----------
Net income (loss) $ (305,467) $ 126,835 $ (45,492)
=========== =========== ===========
Basic and diluted net income
(loss) per common share $ (0.04) $ 0.01 $ (0.01)
=========== =========== ===========
Weighted average shares outstanding 8,534,257 8,534,257 8,534,257
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
__________
ADDITIONAL RECEIVABLE
COMMON STOCK PAID-IN ACCUMULATED TREASURY FROM
--------- --------
SHARES AMOUNT CAPITAL DEFICIT STOCK STOCKHOLDER TOTAL
--------- -------- ----------- ------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995,
as previously reported 8,534,257 $853,426 $ 6,156,172 $ (6,424,582) $ (6,000) $ - $ 579,016
Prior period adjustments
(See Note 2) - - - 497,900 - (65,000) 432,900
--------- -------- ----------- ------------- ---------- ------------- -----------
Balance at June 30, 1995,
as restated 8,534,257 853,426 6,156,172 (5,926,682) (6,000) (65,000) 1,011,916
Advances to stockholder - - - - - (27,991) (27,991)
Net loss for the year
ended June 30, 1996, as
restated - - - (45,492) - - (45,492)
--------- -------- ----------- ------------- ---------- ------------- -----------
Balance at June 30, 1996,
as restated 8,534,257 $853,426 $ 6,156,172 $ (5,972,174) $ (6,000) $ (92,991) $ 938,433
Advances to stockholder - - - - - (5,580) (5,580)
Net income for the year
ended June 30, 1997, as
restated - - - 126,835 - - 126,835
--------- -------- ----------- ------------- ---------- ------------- -----------
Balance at June 30, 1997,
as restated 8,534,257 853,426 6,156,172 (5,845,339) (6,000) (98,571) 1,059,688
Payments from stockholder,
net - - - - - 98,571 98,571
Net loss for the year
ended June 30, 1998 - - - (305,467) - - (305,467)
--------- -------- ----------- ------------- ---------- ------------- -----------
Balance at June 30, 1998 8,534,257 $853,426 $ 6,156,172 $ (6,150,806) $ (6,000) $ - $ 852,792
========= ======== =========== ============= ========== ============= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
__________
YEAR ENDED JUNE 30,
------------------------------------
1997 1996
1998 (RESTATED) (RESTATED)
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(305,467) $ 126,835 $ (45,492)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation expense 8,675 9,538 24,400
Gain on sale of property - (27,000) -
Realized loss (gain) on marketable
equity securities 157,424 148,006 (6,297)
Unrealized gain on marketable equity
securities (104,173) (330,674) (11,794)
Dry hole expense - 23,712 -
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable - 55,781 (55,781)
Decrease in marketable equity
securities 93,068 411,601 48,039
Increase in accrued interest
receivable (6,986) - -
Increase (decrease) in accounts
payable and accrued liabilities (21,597) 28,751 (322)
---------- ----------- -----------
Net cash provided by (used in)
operating activities (179,056) 446,550 (47,247)
---------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (38,518) (4,501) (35,161)
Proceeds from sale of building - 92,294 -
Purchased certificate of deposits - (10,000) -
Decrease (increase) in notes receivable - (34,500) 18,750
Increase in receivable from a stockholder (2,914) (5,580) (27,991)
---------- ----------- -----------
Net cash provided by (used in)
investing activities (41,432) 37,713 (44,402)
---------- ----------- -----------
Cash flows from financing activities:
Advances on note payable - - 100,000
Principal payments on notes payable (19,204) (113,959) (4,920)
---------- ----------- -----------
Net cash provided by (used in)
financing activities (19,204) (113,959) 95,080
---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (239,692) 370,304 3,431
Cash and cash equivalents at beginning of
period 419,280 48,976 45,545
---------- ----------- -----------
Cash and cash equivalents at end of period $ 179,588 $ 419,280 $ 48,976
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $ 3,457 $ 4,593 $ 2,631
========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------
Cobb Resources Corporation (the "Company") is a New Mexico Corporation that
holds a royalty interest in and collects royalty payments on a certain New
Mexico copper property. The Company was historically involved in oil and gas
exploration and development but has now sold or written off substantially all of
its oil and gas working interests and has turned its attention to investing in
publicly traded oil and gas companies that management feels are undervalued.
Following is a summary of the Company's significant accounting policies.
PRINCIPLES OF CONSOLIDATION
-----------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after elimination of all significant intercompany
accounts and transactions.
MANAGEMENT ESTIMATES
---------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. These
estimates primarily involve the useful lives of property and equipment, the
valuation of investments and deferred tax assets and the realizability of
accounts receivable.
REVENUE RECOGNITION
--------------------
Royalty income is recognized ratably over the year in which it is earned. The
Company is paid annually.
CONCENTRATIONS OF CREDIT RISK
--------------------------------
Financial instruments which subject the Company to concentrations of credit risk
include cash, marketable equity securities and accounts receivable. The
Company maintains its cash in well known banks selected based upon management's
assessment of the banks' financial stability. Balances periodically exceed the
$100,000 federal depository insurance limit; however, the Company has not
experienced any losses on deposits. Accounts receivable generally arise from a
U.S. mining company operating in New Mexico and relate to the Company's minimum
royalty on certain copper properties.
F-7
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------
CASH EQUIVALENTS
-----------------
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
PROPERTY AND EQUIPMENT
------------------------
Property and equipment is stated at cost. Depreciation is computed principally
by the straight-line method over the estimated useful lives of 5 years for
office furniture and equipment, and 3 years for transportation equipment.
INCOME TAXES
-------------
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and income tax carrying amounts of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
INVESTMENTS
-----------
Marketable equity securities are classified as trading and are carried at quoted
market values. The change in unrealized gain or loss with respect to these
securities is recorded currently in operations.
EARNINGS PER SHARE
--------------------
Earnings per share are computed based upon the weighted average number of shares
of common stock outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
The Company includes fair value information in the notes to financial statements
when the fair value of its financial instruments is different from the book
value. When the book value approximates fair value, no additional disclosure is
made.
F-8
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------
RECENTLY ISSUED PRONOUNCEMENTS
--------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. It requires (a) classification of the
components of other comprehensive income by their nature in a financial
statement and (b) the display of the accumulated balance of the other
comprehensive income separate from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130 is
effective for years beginning after December 15, 1997 and is not expected to
have a material impact on financial position or results of operations.
2. PRIOR PERIOD ADJUSTMENTS
--------------------------
The Company's financial statements for the years ended June 30, 1997 and 1996
were previously issued without audit. Subsequent to the issuance of such
financial statements, the Company engaged auditors and has restated its
financial statements for the years ended June 30, 1997 and 1996 to reflect
adjustments principally related to the timing of when certain recurring costs
are recognized. These adjustments relate primarily to unrealized gains and
losses on marketable equity securities, recognition of dry hole expenses and
recognition of compensation expense. Following is an analysis of the effect of
such prior period adjustments on previously reported retained earnings and
results of operations:
F-9
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
2. PRIOR PERIOD ADJUSTMENTS, CONTINUED
--------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Income (loss) before income taxes:
As previously reported $ 371,000 $ (35,000)
As restated 126,835 (45,492)
Net income (loss):
As previously reported $ 371,000 $ (35,000)
As restated 126,835 (45,492)
Net income (loss) per common share:
As previously reported $ .04 $ .00
As restated .01 (.01)
Accumulated deficit:
As previously reported $(6,092,000) $(6,463,000)
As restated (5,845,339) (5,972,174)
</TABLE>
3. PROPERTY AND EQUIPMENT
------------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Vehicles $ 43,106 $43,106
Furniture and fixtures 518 -
--------- --------
43,624 43,106
Less accumulated depreciation (17,657) (8,982)
--------- --------
$ 25,967 $34,124
========= ========
</TABLE>
During the year ended June 30, 1997, the Company sold its New Mexico office
building and related business assets for proceeds of $92,294 and recognized a
gain of $27,000 on the sale.
F-10
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
5. NOTES PAYABLE AND LONG-TERM DEBT
------------------------------------
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------- ---------
1998 1997
-------- ---------
<S> <C> <C>
Bank note payable in monthly install-
ments of $633, including interest
at 8.75%, through August 2000,
collateralized by a vehicle $14,849 $ 20,343
Bank note payable in monthly install-
ments of $437, including interest
at 8.25%, through June 2000,
collateralized by a vehicle - 13,710
-------- ---------
14,849 34,053
Less current portion (7,024) (10,134)
-------- ---------
$ 7,825 $ 23,919
======== =========
</TABLE>
Future annual maturities of long-term debt at June 30, 1998 are as follows:
YEAR ENDING
JUNE 30,
----------
1999 $ 7,024
2000 801
----------
$ 7,825
==========
F-11
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
6. INCOME TAXES
-------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $1,192,243 $1,762,394
General business tax credit
carryforward 12,271 13,322
Deferred compensation for tax
purposes - 39,881
---------- ----------
Total deferred tax assets 1,204,514 1,815,597
Valuation allowance on deferred
tax assets 1,169,096 1,705,193
---------- ----------
35,418 110,404
Deferred tax liabilities:
Cumulative unrealized gains on
marketable equity securities 35,418 110,404
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
</TABLE>
The difference between the Federal statutory rate and the Company's effective
income tax rate was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------
1998 1997 1996
----------- ------ ---------- ------ --------- -----
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------- ------ ---------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) at
Federal statutory rate $ (103,859) (34)% $ 43,124 34% $(15,468) (34)%
Change in valuation allow-
ance (536,127) (176)% (219,194) (173)% 13,811 30%
Utilization of net opera-
ting loss carryforward - - % (112,894) (89)% - - %
Expiration of net opera-
ting loss and tax credit
carryforwards and other 639,986 210 % 288,964 228% 1,657 4%
----------- ------ ---------- ------ --------- -----
$ - - % $ - - % $ - - %
=========== ====== ========== ====== ========= =====
</TABLE>
F-12
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
6. INCOME TAXES, CONTINUED
-------------------------
At June 30, 1998, for federal income tax reporting purposes, the Company has
approximately $3,300,000 of unused net operating losses available for
carryforward to future years. The benefit from carryforward of such net
operating losses will expire during the years 1999 to 2013. The benefit from
utilization of net operating loss carryforwards could be subject to limitations
if significant ownership changes occur in the Company.
7. CONTINGENCIES
-------------
On October 30, 1990, a mining joint venture (the "Venture") in which the Company
was previously involved, received notice from the United States Environmental
Protection Agency ("EPA") that the Venture was believed by the EPA to be a
"potentially responsible party" for the release of certain allegedly hazardous
substances at a site located in central Colorado. The Venture operated the
facility for only a brief period, but may be required to bear its share of any
costs incurred in connection with this matter. Any such amounts for which the
Company may ultimately be held liable may not be adequately covered by
insurance.
The Company believes that other parties have taken appropriate response action
required at this central Colorado site and have obtained EPA approval of their
cleanup actions. In the opinion of the Company's management and based on
independent advice from professional experts engaged to assess the site, it
appears unlikely that the Company will be responsible to bear material liability
in this matter.
The Company was notified by the operator of the Venture that the Venture had
received on December 8, 1991 a notice of violation from the Colorado Department
of Health ("Department") in connection with alleged noncompliance with certain
amended standards of water discharge permits at a gold mine owned by the Venture
from July 1991 through October 1991. To this date, while the Department has not
assessed any fines, the Company is not able to assess fully the extent to which
response or remedial action may be required. The mine and the Company may be
held responsible for any such required actions. There can be no assurance that
the ultimate resolution of this matter will not have a material adverse effect
on the Company in the future.
F-13
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
8. MAJOR CUSTOMERS
----------------
The Company received 100% of its mining royalty income from a single U.S. mining
company during the years ended June 30, 1998, 1997 and 1996. Accounts
receivable-mining royalty of $60,000 at June 30, 1998 and 1997 are due from such
U.S. mining company.
9. RELATED PARTY TRANSACTIONS
----------------------------
Notes receivable at June 30, 1998 and 1997 include a $60,000 note
receivable from a director of the Company. This note originated in connection
with cash advances to the director and the sale of certain oil and gas
properties. The note bears interest at 12% per year and is due December 31,
1998.
During the years ended June 30, 1998, 1997 and 1996, the Company made
non-interest bearing advances to the Company's President, who is also the
Company's most significant stockholder, as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Beginning balance $ 98,571 $ 92,991 $ 65,000
Cash advance 130,149 69,000 62,000
Oil and gas properties received
in payment of advances (101,485) - -
Amount recognized as compensation (127,235) (63,420) (34,009)
---------- --------- ---------
Ending balance $ - $ 98,571 $ 92,991
========== ========= =========
</TABLE>
F-14
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
10. NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------
The Company engaged in certain non-cash investing and financing activities
during the year ended June 30, 1998, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1998 1997 1996
-------- ------- -----
<S> <C> <C> <C>
Received interest in certain oil
and gas properties in payment
of receivable from a stockholder $101,485 $ - $ -
Exchanged interest in certain oil
and gas properties for market-
able equity securities - 49,909 -
Exchanged interest in certain oil
and gas properties for note
receivable - 25,500 -
Purchased transportation equip-
ment in exchange for directly
related long-term debt - 39,070 -
</TABLE>
F-15
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
3.1 * Articles of Incorporation as amended
3.2 * Bylaws
10.1 * Alta Gold Company Agreement
10.2 * Royalty Deed related to Exhibit 10.1
16.1 * Letter from Coopers & Lybrand, L.L.P.
27.1 ** Financial Data Schedule
_______________________
* Incorporated by reference to the Company's Annual Report on Form 10-K
Amendment Number One for the fiscal year ended June 30, 1997, as
filed with the Commission on July 16, 1998.
** Filed herewith
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 179588
<SECURITIES> 382560
<RECEIVABLES> 60000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 689134
<PP&E> 193664
<DEPRECIATION> 17657
<TOTAL-ASSETS> 877641
<CURRENT-LIABILITIES> 17024
<BONDS> 0
<COMMON> 854426
0
0
<OTHER-SE> (1634)
<TOTAL-LIABILITY-AND-EQUITY> 877641
<SALES> 76500
<TOTAL-REVENUES> 201658
<CGS> 0
<TOTAL-COSTS> 503668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3457
<INCOME-PRETAX> (305467)
<INCOME-TAX> 0
<INCOME-CONTINUING> (305467)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (305467)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
