UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
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, 1999, there were outstanding 8,534,257 shares of the
registrant's $.10 par value Common Stock. The aggregate market value of the
common stock held by non-affiliates was approximately $212,500. The Company's
revenues for the year ended June 30, 1999 were $57,757.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
PART I
<S> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . . . . . 7
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 7
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . 11
Item 8. Changes in and Disagreements with Accountant
on Accounting and Financial Disclosure . . . . . . . . . . . . 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act. . . . . . . 11
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . 12
Item 11. Security Ownership of Certain Beneficial Owners and Management 13
Item 12. Certain Relationships and Related Transactions . . . . . . . . 13
Item 13. Exhibits, and Reports on Form 8-K. . . . . . . . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE>
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. The Company owns royalty
interests and leases.
MINING SECTOR
The Company owns a royalty interest in its Copper Flat property in New
Mexico, and a minimal interest in a limestone mineral prospect. Pursuant to an
agreement with Hydro Resources Corporation ("Hydro") , a New Mexico corporation
owned substantially by Mr. George O. Lotspeich, the former President and a
former director of the Company , 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.
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.
1
<PAGE>
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.
However, in April 1999, the operator of the Copper Flat property filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code and the matter is
still pending. As a result of such reorganization at June 30, 1999, the Company
fully reserved $60,000 of royalties receivable previously accrued.
2
<PAGE>
OIL AND GAS SECTOR
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.
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.
3
<PAGE>
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.
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
4
<PAGE>
At June 30, 1999, 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 maintains its corporate offices at 302 East Jackson, West
Columbia, Texas 77486. The Company rents approximately 450 square feet at this
location and pays $639.33 per month for rent (approximately $8,000 per year)
pursuant to an informal month to month lease with the Company's president. The
Company believes that its properties are suitable and adequate for its present
and contemplated operations.
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 certain oil and gas leases in the San Juan Basin of
New Mexico totaling approximately 1,400 acres.
5
<PAGE>
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 formerly a participant in the Alma Mine Joint Venture
("AMV") and London Mine Joint Venture ("LMV"). The Company was notified by the
operator of ("LMV") that on December 8, 1991, the venture had received 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 AMV 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.
6
<PAGE>
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.
<TABLE>
<CAPTION>
HIGH LOW
QUARTER ENDED BID BID
<S> <C> <C>
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
September 30, 1998 $ .17 $ .06
December 31, 1998. $ .12 $ .10
March 31, 1999 . . $ .12 $ .08
June 30, 1999. . . $ .12 $ .08
</TABLE>
As of September 10, 1999, the closing bid price of the common stock of the
Company was $.05, there were approximately 1143 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.
The Company has not paid any cash dividends on its Common Stock and does
not expect to do so in the foreseeable future.
ITEM 6. 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.
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement for any
forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statement 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 in this Form 10-KSB are forward-looking statements. Words such as
"expects", "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. Such risks and uncertainties are set forth below. 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
limitation, 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, be achieved, or be accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause material adverse affects
on the Company's financial condition and results of operations: the ability of
the Company to maintain its rights in its mineral and oil and gas interests and
properties; and competitive factors and commodity pricing on minerals. The
Company has no obligation to update or revise these forward-looking statements
to reflect the occurrence of future events or circumstances.
7
<PAGE>
OVERVIEW
Cobb Resources Corporation's (the "Company") operations are funded
primarily through internally generated funds from operations and the sale of
certain marketable equity securities. 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.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
The Company reported copper royalty income of $76,500 for each of the years
ended June 30, 1999 and 1998, reflecting the Company's proportionate share of
the annual minimum royalty payment related to its interest in the Copper Flat
property. Such royalty income was accrued, but $60,000 of royalties receivable
were reserved when the operator of Copper Flat fled for bankruptcy protection
under Chapter 11 of the Federal Bankruptcy Code. Interest and other income
increased to $41,257 for the year ended June 30, 1999, as compared to $20,985
for the year ended June 30, 1998 due to lease rentals on certain oil and gas
properties. Interest income remained consistent for 1998 as compared to 1997.
The Company incurred oil and gas property lease expenses of $4,163 during
the year ended June 30, 1999 as compared to $10,411 for the year ended June 30,
1998, due to reduced lease activity. Depreciation, depletion and amortization
was $8,724 for the current year as compared to $8,675 for the prior year.
Depreciation expense remained constat due to a stable equipment base. General
and administrative expenses were $215,686 for the current year and $327,158 for
the previous year. These expenses decreased significantly as a result of a
reduction in officers salaries and professional fees. This significant decrease
was partially offset by a $72,500 provision for bad debts.
The Company realized net losses on the sale of marketable equity securities
for the year ended June 30, 1999 of $219,515 compared to net losses of $157,424
for the year ended June 30, 1998. The Company had net unrealized losses on
marketable equity securities of $6,936 for the year ended June 30, 1999 as
compared to unrealized gain of $104,173 for the year ended June 30, 1998. The
performance by the Company's investment in marketable equity securities had a
significant negative impact on the Company's operating results in 1999.
Reflecting the factors discussed above, the Company reported a net loss of
$442,044 for the year ended June 30, 1999 compared to a net loss of $305,467 for
the year ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
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.
8
<PAGE>
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 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.
However, in April 1999, the operator of the Copper Flat property filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code. This matter is
still pending. As a result of this reorganization, the Company fully reserved
$49,500 of royalties receivable recognized by the Company during the nine months
ended March 31, 1999.
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.
9
<PAGE>
In 1998, 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.
At June 30, 1999, the Company had cash and cash equivalents of $70,906 as
compared to $179,588 at June 30, 1998, representing a net decrease of $108,682.
During the year ended June 30, 1999, the Company used $84,825 of cash in
operating activities as compared to $179,056 during the year ended June 30,
1998. The decreased use of cash in operations was primarily the result of a
reduction in salaries to officers and a reduction in professional fees. However,
the Company's investment in marketable equity securities yielded substantial
losses in 1999 and was primarily responsible for a $415,478 decline in working
capital at June 30, 1999 as compared to June 30, 1998.
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 its assessments, the Company believes that no significant
modifications of existing computer software will be required. The Company
believes that its 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 have not and will not be significant and will not exceed
$5,000.
The Company has assessed its relationships with significant 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 these
assessments, management believes that significant exposure does not exist with
respect to third parties.
10
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth
beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. 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. 69 Chairman, President and CEO,
Chief Accounting Officer
H. Wesley Griggs 51 Director
Christy Foster . 30 Director
</TABLE>
Directors are elected annually and hold office until the next annual
meeting of the stockholders of the Company or until their successors are elected
and qualified. 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
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. From 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.
11
<PAGE>
ITEM 10. 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>
Charles 1999 $108,737 -0- -0- -0- -0- -0- -0-
Cobb IV 1998 $127,235 -0- -0- -0- -0- -0- -0-
CEO 1997 63,420 -0- -0- -0- -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs At Options/SARs At
Fiscal Year-End Fiscal Year-End
Shares Value (#) ($)
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>
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.
12
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 9, 1999
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 Of CLASS
NAME SHARES OWNED OF COMMON STOCK
- ------------------------------- ------------- -----------------
<S> <C> <C>
Charles Cobb IV . . . . . . . . 4,250,000 (1) 49.8%
302 East Jackson
West Columbia, Texas 77486
H. Wesley Griggs. . . . . . . . -0- -0-
302 East Jackson
West Columbia, Texas 77486
Christy Foster. . . . . . . . . -0- -0-
302 East Jackson
West Columbia, Texas 77486
All Directors and Executive
Officers as a group (3 persons) 4,250,000 49.8%
<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>
The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12. 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.
The Company maintains its corporate offices at 302 East Jackson, West
Columbia, Texas 77486, which is the home of the president of the Company, Mr.
Charles Cobb, who also owns 49.8% percent of the common stock of the Company.
This arrangement is of an indefinite duration. During fiscal 1998 and 1999, the
Company paid $7,675 in rent for its offices. The Company believes that
the terms and conditions of this arrangement were no less as favorable to the
Company than terms attainable from unaffiliated third parties. The Company
believes that its properties are suitable and adequate for its present and
contemplated operations.
H. Wesley Griggs, a director and legal counsel to the Company, borrowed
$60,000 from the Company. Mr. Grigs executed a promissory note in the principal
face amount of $60,000 payable to the Company. This note bears interest at the
rate of 12% per annum. This note matures on December 31, 1999. The Company
believes that the terms and conditions of this arrangement were no less as
favorable to the Company than terms attainable from unaffiliated third parties.
13
<PAGE>
ITEM 13. EXHIBITS REPORTS ON FORM 8-K.
(a) 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
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
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the Company's last fiscal
quarter of 1999.
14
<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 on October 11, 1999.
COBB RESOURCES CORPORATION
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.
October 11, 1999 By: /s/ Charles Cobb IV
-------------------------------
Charles Cobb, IV
Director, President and
Chief Accounting Officer
October 11, 1999 By: /s/ H. Wesley Griggs
-------------------------------
H. Wesley Griggs
Director
October 11, 1999 By: /s/ Christy Foster
-------------------------------
Christy Foster
Director
15
<PAGE>
COBB RESOURCES CORPORATION
__________
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
AS OF JUNE 30, 1999 AND FOR THE YEARS ENDED
JUNE 30, 1999 AND 1998
<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, 1999. F-3
Consolidated Statements of Operations for the
years ended June 30, 1999 and 1998 . . . . . . F-4
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1999 and 1998 . . F-5
Consolidated Statements of Cash Flows for the
years ended June 30, 1999 and 1998 . . . . . . 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, 1999, and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended June 30, 1999. 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, 1999, and the results of its operations and its cash
flows for each of the two years in the period ended June 30, 1999, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue has a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
September 23, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999
__________
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 70,906
Marketable equity securities. . . . . . . 138,257
Notes receivable. . . . . . . . . . . . . 60,000
Accrued interest receivable . . . . . . . 14,664
------------
Total current assets. . . . . . . . . . 283,827
Property and equipment, net . . . . . . . . 17,243
Non-producing oil and gas properties. . . . 133,503
------------
Total assets. . . . . . . . . . . . . $ 434,573
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------
Current liabilities:
Notes payable and current portion of
long-term debt. . . . . . . . . . . . . $ 7,195
Accounts payable and accrued liabilities. 10,000
------------
Total current liabilities . . . . . . . 17,195
Long-term debt, net of current portion. . . 630
------------
Total liabilities . . . . . . . . . . 17,825
------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value; 25,000,000
shares authorized; 8,534,257 shares
issued and outstanding at June 30, 1999 853,426
Additional paid-in capital. . . . . . . . 6,156,172
Accumulated deficit . . . . . . . . . . . (6,592,850)
------------
Total stockholders' equity. . . . . . . 416,748
------------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . $ 434,573
============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
__________
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Mining royalty income, net. . . . $ 76,500 $ 76,500
Interest and other income . . . . 41,257 20,985
Unrealized gain on marketable
equity securities . . . . . . . - 104,173
----------- -----------
Total revenues. . . . . . . . . 117,757 201,658
----------- -----------
Costs and expenses:
Property lease expenses . . . . . 4,163 10,411
Dry hole expense. . . . . . . . . 26,405 -
Loss on sale of property. . . . . 16,965 -
Depreciation expense. . . . . . . 8,724 8,675
General and administrative. . . . 275,686 327,158
Realized loss on marketable
equity securities . . . . . . . 219,515 157,424
Unrealized loss on marketable
equity securities . . . . . . . 6,936 -
Interest expense. . . . . . . . . 1,407 3,457
----------- -----------
Total costs and expenses. . . . 559,801 507,125
----------- -----------
Net loss. . . . . . . . . . . . . . $ (442,044) $ (305,467)
=========== ===========
Basic and diluted net loss per
common share. . . . . . . . . . . $ (0.05) $ (0.04)
=========== ===========
Weighted average shares outstanding 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, 1999 AND 1998
__________
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 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
Treasury stock issued to
an officer/stockholder
as compensation (60,000
shares) . . . . . . . . . - - - - 6,000 - 6,000
Net loss for the year
ended June 30, 1999 . . . - - - (442,044) - - (442,044)
--------- -------- ----------- ------------- ---------- ------------- -----------
Balance at June 30, 1999. . 8,534,257 $853,426 $ 6,156,172 $ (6,592,850) $ - $ - $ 416,748
========= ======== =========== ============= ========== ============= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COBB RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
__________
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . $(442,044) $(305,467)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation expense. . . . . . . . . . . . . 8,724 8,675
Loss on sale of property. . . . . . . . . . . 16,965 -
Realized loss on marketable equity
securities. . . . . . . . . . . . . . . . . 219,515 157,424
Unrealized loss (gain) on marketable
equity securities . . . . . . . . . . . . . 6,936 (104,173)
Dry hole expense. . . . . . . . . . . . . . . 26,405 -
Bad debt expense. . . . . . . . . . . . . . . 72,500 -
Issuance of treasury stock for compensation . 6,000 -
Changes in operating assets and
liabilities:
Decrease in marketable equity
securities. . . . . . . . . . . . . . . . 7,852 93,068
Increase in accrued interest
receivable. . . . . . . . . . . . . . . . (7,678) (6,986)
Decrease in accounts payable and
accrued liabilities . . . . . . . . . . . - (21,597)
---------- ----------
Net cash used in operating activities . . (84,825) (179,056)
---------- ----------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . (55,551) (38,518)
Proceeds from sale of oil and gas
properties. . . . . . . . . . . . . . . . . . 28,718 -
Proceeds from certificate of deposits . . . . . 10,000 -
Increase in receivable from a stockholder . . . - (2,914)
---------- ----------
Net cash used in investing activities . . (16,833) (41,432)
---------- ----------
Cash flows from financing activities:
Principal payments on notes payable . . . . . . (7,024) (19,204)
---------- ----------
Net cash used in financing activities . . (7,024) (19,204)
---------- ----------
Net decrease in cash and cash equivalents . . . . (108,682) (239,692)
Cash and cash equivalents at beginning of
period. . . . . . . . . . . . . . . . . . . . . 179,588 419,280
---------- ----------
Cash and cash equivalents at end of period. . . . $ 70,906 $ 179,588
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense. . . . . . . . . . $ 1,407 $ 3,457
========== ==========
</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)
__________
2. NOTES RECEIVABLE
-----------------
Notes receivable as of June 30, 1999 consists of the following:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
-------- -------------
<S> <C> <C>
Notes receivable. . . . . . . . $ 60,000 $ 12,500
Allowance for doubtful accounts - (12,500)
-------- -------------
$ 60,000 $ -
======== =============
</TABLE>
The $60,000 note receivable is due from the Company's primary legal counsel, who
is also a member of the Company's board of directors. Such note is
uncollateralized, bears interest at 12% per year and is due December 31, 1999.
(See Note 9)
3. PROPERTY AND EQUIPMENT
------------------------
Property and equipment as of June 30, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Vehicles. . . . . . . . . . . $ 43,106
Furniture and fixtures. . . . 518
---------
43,624
Less accumulated depreciation (26,381)
---------
$ 17,243
=========
</TABLE>
4. NOTES PAYABLE AND LONG-TERM DEBT
------------------------------------
Notes payable and long-term debt as of June 30, 1999 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Bank note payable in monthly install-
ments of $633, including interest
at 8.75%, through August 2000,
collateralized by a vehicle . . . . $ 7,825
--------
7,825
Less current portion. . . . . . . . . (7,195)
--------
$ 630
========
</TABLE>
F-9
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
4. NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED
------------------------------------------------
Future annual maturities of long-term debt at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
------------
<S> <C>
2000 $ 7,195
2001 630
------------
$ 7,825
============
</TABLE>
5. 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 as of June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $1,029,507
General business tax credit
carryforward . . . . . . . . . 10,374
Cumulative unrealized losses on
marketable equity securities . 2,358
----------
Total deferred tax assets. . . 1,042,239
Valuation allowance on deferred
tax assets . . . . . . . . . . 1,042,239
----------
Net deferred tax assets. . . . . . $ -
==========
</TABLE>
The difference between the Federal statutory rate and the Company's effective
income tax rate as of June 30, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Benefit at Federal statutory rate $(150,295) (34)%
Change in valuation allowance . . (126,857) (29)%
Expiration of net opera-
ting loss and tax credit
carryforwards and other . . . . 277,152 63 %
---------- -----
$ - - %
========== =====
</TABLE>
F-10
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
5. INCOME TAXES, CONTINUED
-------------------------
At June 30, 1999, for federal income tax reporting purposes, the Company has
approximately $3,000,000 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 2000 to 2019. The benefit from
utilization of net operating loss carryforwards could be subject to limitations
if significant ownership changes occur in the Company.
6. 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-11
<PAGE>
COBB RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________
7. GOING CONCERN CONSIDERATIONS
------------------------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the years ended June 30, 1999 and 1998, the Company incurred
losses of $442,044 and $305,467, respectively, and at June 30, 1999 the Company
had an accumulated deficit of $6,592,850.
In addition, as described in Note 7, the Company's primary source of income,
copper royalties, has become questionable because the company paying the
royalties, Alta Gold Company, filed for reorganization under Chapter 11 of the
Federal Bankruptcy Code in April 1999. (See Note 8)
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, and ultimately
to attain profitability.
8. MAJOR CUSTOMERS
----------------
During the years ended June 30, 1999, and 1998, the Company received 100% of its
mining royalty income from a single U.S. mining company, Alta Gold Company
("Alta"). In April 1999, Alta filed for reorganization under Chapter 11 of the
Federal Bankruptcy Code. This matter is still pending; however, as a result of
this reorganization, the Company fully reserved $60,000 of royalties receivable
recognized during the year ended June 30, 1999.
9. RELATED PARTY TRANSACTIONS
----------------------------
Notes receivable at June 30, 1999 includes 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, 1999. (See Note 2)
The Company maintains its corporate offices in the home of the Company's
president and most significant shareholder. During the years ended June 30,
1999 and 1998, the Company paid approximately $7,675 in rent expense to this
individual.
F-12
<PAGE>
10. 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 its assessments, the Company believes that no significant
modifications of existing computer software will be required. The Company
believes that its 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 have not and will not be significant and will not exceed
$5,000.
The Company has assessed its relationships with significant 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 these
assessments, management believes that significant exposure does not exist with
respect to third parties.
11. STOCK OPTIONS
-------------
The Company periodically issues incentive stock options to key employees,
officers, and directors to provideadditional incentives to promote the success
of the Company's business and to enhance the ability to attract and retain the
services of qualified persons. The issuance of such options are approved by the
Board of Directors. The exercise price of an option granted is determined by
the fair market value of the stock on the date of grant. At June 30, 1999, 1998
and 1997, the Company had outstanding 250,000 currently exercisable options with
an exercise price of $0.06 per share, expiring in July 2004. Such options were
issued prior to January 1, 1996.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation", requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options on
the date of grant, no compensation expense has been recognized.
F-13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 283827
<PP&E> 177127
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0
0
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</TABLE>
