UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED December 31, 2005
COMMISSION FILE NO. 0-09482
COLORADO WYOMING RESERVE COMPANY
(Exact Name of Small Business Issuer as Specified in its Charter)
| Wyoming | 83-0246080 | |
| (State or other jurisdiction | (IRS Employer | |
| of incorporation) | Identification No.) |
| 751 Horizon Court, Suite 205, Grand Junction, Colorado | 81506 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (970) 255-9995
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
There were 10,857,694 shares of the Registrant's $.01 par value common stock outstanding as of February 13, 2005.
Transitional Small Business Disclosure: Yes o No x
Item 1. Financial Statements.
COLORADO WYOMING RESERVE COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2005
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | $ | 283 | ||
| Accounts receivable | — | |||
| Total current assets | 283 | |||
| PROPERTY AND EQUIPMENT: | ||||
| Unproved oil and gas properties | 26,598 | |||
| Other property and equipment | 14,914 | |||
| Less accumulated depreciation, other property and equipment | (14,841 | ) | ||
| Net property and equipment | 26,671 | |||
| Other | 1,960 | |||
| Total assets | $ | 28,914 | ||
| CURRENT LIABILITIES: | ||||
| Trade accounts payable | $ | 62,394 | ||
| Other accrued liabilities | 359,157 | |||
| Related party payables: | ||||
| On account | 773,518 | |||
| Convertible Notes | 280,000 | |||
| Notes payable | 25,000 | |||
| Total current liabilities | 1,500,069 | |||
| EQUITY | ||||
| Common Stock, $.01 par value: authorized- 75,000,000 shares; issued and outstanding- 10,857,694 | 108,577 | |||
| Additional paid-in capital | 5,396,976 | |||
| Warrants | 148,100 | |||
| Accumulated deficit: | ||||
| Before entering the development stage | (4,441,242 | ) | ||
| After entering the development stage | (2,683,566 | ) | ||
| Total Equity | (1,471,155 | ) | ||
| Total liabilities and equity | $ | 28,914 | ||
The accompanying notes are an integral part of these financial statements.
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COLORADO WYOMING RESERVE COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
| PERIOD FROM | ||||||||||||||||
| QUARTERS ENDED | SIX MONTHS ENDED | JANUARY 1, 1999 TO | ||||||||||||||
| DECEMBER 31, | DECEMBER 31, | DECEMBER 31, | ||||||||||||||
| 2005 | 2004 | 2005 | 2004 | 2005 | ||||||||||||
| REVENUES | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
| EXPENSES | ||||||||||||||||
| Exploration cost | 0 | 9,613 | 0 | 11,607 | 711,336 | |||||||||||
| Depreciation, depletion and amortization | 6,320 | |||||||||||||||
| General and administrative | 99,496 | 109,764 | 201,350 | 157,489 | 1,870,781 | |||||||||||
| Total expenses | 99,496 | 119,377 | 201,350 | 169,096 | 2,588,437 | |||||||||||
| Operating loss | (99,496 | ) | (119,377 | ) | (201,350 | ) | (169,096 | ) | (2,588,437 | ) | ||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest income (expense), net | (5,350 | ) | (3,322 | ) | (10,700 | ) | (6,644 | ) | (93,898 | ) | ||||||
| Loss on sale of assets | — | — | — | — | (1,231 | ) | ||||||||||
| Loss before income taxes | (104,846 | ) | (122,699 | ) | (212,050 | ) | (175,740 | ) | (2,683,566 | ) | ||||||
| Provision for income taxes | — | — | — | — | — | |||||||||||
| Net loss | $ | (104,846 | ) | $ | (122,699 | ) | $ | (212,050 | ) | $ | (175,740 | ) | $ | (2,683,566 | ) | |
| Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
| Outstanding shares | 10,857,694 | 10,607,694 | 10,857,694 | 10,607,694 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
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COLORADO WYOMING RESERVE COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED CASH FLOW STATEMENTS
| SIX MONTHS ENDED | PERIOD FROM | |||||||||
| DECEMBER 31, | JANUARY 1, 1999 TO | |||||||||
| 2005 | 2004 | DECEMBER 31, 2005 | ||||||||
| Cash flows from operating activities: | ||||||||||
| Net loss | $ | (212,050 | ) | $ | (175,740 | ) | $ | (2,683,566 | ) | |
| Adjustments to reconcile net loss to net used in operating activities: | ||||||||||
| Depletion, depreciation and amortization | 6,320 | |||||||||
| Loss on asset sale | — | — | 1,231 | |||||||
| Amortization of note payable discount | — | — | 35,000 | |||||||
| Exploration cost paid by joint venture | — | 361,767 | ||||||||
| Equity issued as compensation | — | — | 95,600 | |||||||
| Changes in current assets and liabilities: | ||||||||||
| Receivables | 3,126 | |||||||||
| Payables | 182,280 | 170,421 | 1,153,313 | |||||||
| Other | 20 | (416 | ) | |||||||
| Net cash (used in) operating activities | (29,750 | ) | (5,319 | ) | (1,027,645 | ) | ||||
| Cash flows from investing activities: | ||||||||||
| Additions to unproved properties | — | (10,572 | ) | |||||||
| Unproved property cost recovery | — | — | 191,467 | |||||||
| Asset purchases | — | (1,269 | ) | |||||||
| Proceeds from asset sale | — | — | (2,354 | ) | ||||||
| Net cash provided by investing activities | 177,272 | |||||||||
| Cash flows from financing activities: | ||||||||||
| Sale of common stock | 12,500 | — | 846,956 | |||||||
| Borrowings under credit agreement | — | — | 130,509 | |||||||
| Repayment of joint venture advances | — | — | ||||||||
| Borrowings under credit agreement | ||||||||||
| Repayment of note payable | — | — | (130,000 | ) | ||||||
| Net cash provided by financing activities | 12,500 | 847,465 | ||||||||
| Net increase (decrease) in cash and equivalents | (17,250 | ) | (5,319 | ) | (2,908 | ) | ||||
| Cash and equivalents at beginning of period | 17,533 | 30,317 | 3,191 | |||||||
| Cash and equivalents at end of period | $ | 283 | $ | 24,997 | $ | 283 | ||||
The accompanying notes are an integral part of these financial statements.
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COLORADO WYOMING RESERVE COMPANY
("CWYR" or the "Company")
(unaudited)
Periods Ended December 31, 2005 and 2004
| 1. | INTERIM FINANCIAL STATEMENTS |
The accompanying financial statements are unaudited. However, in the opinion of management, the accompanying financial statements reflect all adjustments necessary for a fair presentation.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. Management believes the disclosures made are adequate to make the information not misleading and suggests that these financial statements be read in conjunction with the Company's June 30, 2005 Form 10-KSB.
| 2. | DEVELOPMENT STAGE ENTERPRISE; PLAN OF OPERATIONS; STRATEGY |
The Company has no operating revenues as a result of its December 1998 sale of its producing properties. Accordingly, as of January 1, 1999, the Company has re-entered the development stage.
The Company is an oil and natural gas exploration company with a geographical focus in the Rocky Mountain region of the western United States. The Company's primary objective is the acquisition of interests in undeveloped oil and gas properties, and the location and development of economically attractive accumulations of hydrocarbons in such properties through the use of a highly-integrated, interpretive approach to the application of three-dimensional (3D) geophysical data (seismic data acquired and processed to yield a three-dimensional picture of the subsurface). The Company's acquisitions of undeveloped oil and gas properties are accomplished primarily by the acquisition of direct mineral leasehold interests from private, state and federal lands. The Company's Southwest Lisbon property is currently in production and once payout is achieved the Company will begin to have operating income.
The Company is a 3D Seismic exploration and production company focused on the Paradox Basin of Southeast Utah. CWYR has defined seven structures, after four years of seismic science and the expenditure of approximately $5 million on science, acreage and drilling, by it and its partners. After payout, the Company shall own 10.6% of structures one and two with structure one under development. Structure one is producing into a sales pipeline. Structures three through five, where the Company owns 42.5% working interest, remain to be drilled. Structures six and seven are in the acquisition phase and the Company would own 42.5% of these to be acquired structures. The Company anticipates additional 3D Seismic work around the identified structures. The Company would like to expand its current 16,640 acre 3D Seismic shoot generated in the years 2000 to 2002 by an additional 64,000 acres, in the future, in order to look for additional structures. Finally, it is worth noting that structures two through seven need to be drilled.
In years 2000 to 2002 the Company acquired 68,000 acre leases and then shot, processed and interpreted 16,640 acres, state of the art 3D Seismic shoot. In 2003 the interpretation of the shoot was perfected. In 2004, the Partners and the Company drilled two, 3D Science confirming wells, in May and December respectively, on structure one. In 2005 the Company and Partners caused the Pipeline Contract and hook-up of two wells on structure one. The Company anticipates an aggressive posture in pursuit of this area.
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The Company is currently focusing its exploratory efforts on its mineral interests in approximately 16,640 gross leased acres (approximately 4,214 net leased acres) in the central Paradox Basin of southeastern Utah (the "Paradox Basin Project" or the "Project"). During fiscal 2001, the Company obtained a 3D seismic survey (the "Seismic Survey") covering a 26 square mile portion of its Paradox Basin leasehold position. The survey results indicate that further exploratory work is warranted on the Paradox Basin Project. Together with its joint venture partners, CWYR has recently undertaken drilling and intends to raise additional capital in order to be able to participate in the next phase of development of the Paradox Basin Project.
On December 17, 2003, pursuant to the terms of a farmout agreement, Colorado Wyoming Reserve Company (the “Company”) elected to participate in the extension of an assignment of a lease regarding land located in San Juan County, Utah. The Company has a 42.5% working interest in the lease, and the lessor is the Department of the Interior.
On January 5, 2004, pursuant to the terms of a farmout agreement, the Company elected to participate in the acquisition of an oil and gas lease with respect to two wells located in San Juan County, Utah. The lessor is the Bureau of Land Management, and the Company and the other participants intend to recomplete the two wells upon resolution of certain contractual obligations and other issues.
On March 3, 2005, the Company confirmed its proprietary 3D Seismic Science with two exploratory successes at its Paradox Basin Exploration Project in Southeast Utah. The science, four years under development, has been confirmed by the completion of the Federal 1-31 and the Evelyn Chambers wells on the Southwest Lisbon structure, 3 ½ miles southwest of the 155 million barrel oil equivalent Lisbon Field in the same Mississippian formation. Both wells tested in the range of 2 MMCFD in the formation analogous to the productive formation at Lisbon. The wells are awaiting pipeline contract and hook-up.
The Company owns 10.6% APO of this 700-acre structure and 10.6% of the surrounding 8,960 acres. Further additional seismic work in light of this successful discovery is anticipated on the structure.
The Company owns 42 ½ % of two other, 3D delineated, structures in the Paradox Basin Project. Additionally, the Company will have 42 ½ % of two other, tentatively identified, structures in the area.
On July 21, 2005 the Company announced that it had received BLM approval to drill a third well on its previously 3D seismic identified Southwest Lisbon structure in the Paradox Basin Exploration Project in Southeast Utah.
The initial two successful wells are currently being production tested.
The Company also stated that there is the possibility that up to a total of 12 to 16 wells from multiple zones on the Southwest Lisbon structure can be drilled.
The Company anticipates an extensive 3D seismic shooting program and drilling on its currently identified structures.
The Company plans an extensive 3D seismic shooting and drilling program in other parts of the Paradox Basin.
| 3. | COMMITMENTS AND CONTINGENCIES |
The Company entered into an employment contract with Mr. Fuerst on October 1, 1996 pursuant to which Mr. Fuerst received a salary of $10,000 per month and was granted incentive stock options to purchase up to 500,000 shares of the Company's Common Stock at an exercise price of $1.00 per share (repriced to $.25 per share in May 1999). The contract had an initial term of three years commencing October 1, 1996 and is renewed automatically for succeeding periods of one year unless terminated. The Contract may be terminated by Mr. Fuerst upon 90-days prior written notice to the Company and by the Company without prior notice to Mr. Fuerst for cause (as defined in the contract). In May 1999, Mr. Fuerst's salary was reduced to $5,000 per month pursuant to an amendment to his employment agreement.
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At February 13, 2006, the Company had no cash, no operations and no revenues. These factors raise substantial doubts about the Company's ability to continue as a going concern without raising significant additional capital.
At February 13, 2006, the following major events have taken place since June 2004:
In accordance with the terms of the Farmout Agreement, the Farmees have provided interpreted seismic data to the Company, and the Company has, in turn, made assignments of the respective leasehold ownership interests to the Farmees. Based on the results of the Seismic Survey, the Company believes that exploratory test wells are warranted on at least three prospects. As the Seismic Survey covered less than one-third of CWYR's acreage position, the Company also believes additional acreage should be surveyed.
The Company and the Farmees may elect to sell the Paradox Basin Project for cash and to retain an overriding royalty interest in the Project. This option would require the Company to raise capital sufficient to fund its share of the costs of maintaining and marketing the Project, to pay its existing creditors and to run day-to-day operations until the Project is sold. Alternatively, the Company and the Farmees could enter into a farmout agreement with an industry partner whereby the industry partner pays all the cost of one or more exploratory wells and possibly a second seismic shoot. The Company would need to raise additional capital sufficient to fund its share of the drilling of future exploratory and development wells. Finally, the Company and the Farmees could decide to participate in the drilling of the initial exploratory well and all future drilling and seismic shoots. This third option would require extensive capital.
The Company plans to raise funds to meet its obligation to fund its 42.5 percent share of the costs of maintaining the Paradox Basin Project leasehold (estimated at $33,000 per year) and the costs of marketing the Project, to repay the $177,246 loan (which includes $122,000 principal plus $55,246 interest) borrowed under the Credit Agreement and due and payable in full on September 28, 2001, and to pay existing accounts payable. If the Company is not successful in raising additional capital to fund its short term needs, the Company may have to liquidate and stockholders may suffer a complete loss of their investment.
If the Company and the Farmees elect to sell the property, the Company intends to use its share of the proceeds to pay outstanding obligations, including the $177,246 loan (which includes $122,000 principal plus $55,246 interest) under the Credit Agreement and existing accounts payable. Remaining proceeds, if any, may be used to purchase new oil and gas leases. If the joint venture elects to enter into a farmout agreement with an industry partner or to drill an exploratory well or wells, the Company would need significant additional financing. If an industry partner is brought in to drill or if the Company is not successful in raising additional capital, its interests in the Project would be further reduced. The failure to raise additional capital could also lead to forfeiture of the Company's interest in the Project.
| 4. | LOSS PER SHARE |
Basic and diluted earnings per share are the same, as the effect of warrants and options is antidilutive.
| 5. | FARMOUT AGREEMENT |
The Company entered into a farmout agreement (the "Farmout Agreement") with ST Oil Company ("ST Oil"), FM Energy, LLC (whose rights and interest were subsequently assigned to Moore Energy LLC ("Moore Energy")) and The Shoreline Companies, LLC, ("Shoreline") (collectively, "the Farmees"), effective September 22, 2000, to finance exploration of the Paradox Basin Project. Certain directors and stockholders of the Company are directors, officers and controlling stockholders of ST Oil, Moore Energy and Shoreline. Under the Farmout Agreement, the Company assigned 50 percent of its mineral working interests in the Paradox Basin Project to the Farmees in exchange for the Seismic Survey. Prior to the commencement of the Seismic Survey, the Company sold an additional 7.5 percent of its mineral working interests to the Farmees in February 2001 for $150,000. The purchase price was determined using the same valuation of the Paradox Basin Project as was used in the Farmout Agreement. The cost of completing, processing and interpreting the Seismic Survey of approximately $1.1 million was borne by the Farmees.
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The Farmout Agreement requires the Company to bear 42.5 percent of the cost of maintaining the Paradox Basin Project leasehold, which cost is estimated at approximately $33,000 per year. The Company currently has no funds available to meet this obligation, and its interest in the Project consequently could be reduced or eliminated.
The Farmout Agreement establishes an area of mutual interest (the "AMI") until September 22, 2010. If during the ten-year term of the AMI, any party to the Farmout Agreement acquires an oil or gas leasehold interest in the AMI, that party must give all the other parties the opportunity to participate. The acquiring party must notify all other parties of the acquisition, and each recipient of this notice has thirty (30) days to notify the acquiring party of its election to participate or not participate. If a party elects to participate, the acquiring party must promptly assign to the party an interest in the leasehold interest proportionate to the party's interest under the Farmout Agreement. While there can be no assurance that the Company will have the funds to participate in future AMI acquisitions, it did participate during fiscal 2001, spending $54,000 on additional leases.
On September 25, 2002, Colorado Wyoming Reserve Company (the "Company") entered into a Farmout Agreement (the "2002 Farmout Agreement") with ST Oil Company, a Nevada corporation, and The Shoreline Companies, LLC, a Colorado limited liability company (collectively, the "Farmees"). The Company owns a 42.5% working interest and the Farmees collectively own a 34.5% working interest in certain oil and gas leases covering approximately 64,000 acres of land located in the Paradox Basin in San Juan County, Utah. J. Samuel Butler, a director of the Company till September 22, 2004, and a stockholder of the Company, is also President and Chief Executive Officer and a stockholder of ST Oil Company. F. Robert Tiddens and John F. Greene, directors of the Company till September 22, 2004, and stockholders of the Company, are also directors and 50% stockholders of The Shoreline Companies, LLC.
Under the 2002 Farmout Agreement, the Farmees agreed to drill a test well in the Remington Prospect, which covers approximately 1,440 acres in the Paradox Basin. The well must be drilled to a certain depth on or after November 15, 2002. The Company, as Farmor, will have the option to either participate in the drilling of the first test well for its proportionate share or to farmout its interest to the Farmees. If the Company wants to participate in the first test well, the Company must submit its proportionate share of the estimated drilling costs within 10 days of receipt of a notice to commence drilling. The Company's failure to submit drilling costs within such time will be deemed the Company's election not to participate and to farmout its interests to the Farmees.
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UNCERTAINTY OF FORWARD-LOOKING INFORMATION
This quarterly report on Form 10-QSB includes statements that are not purely historical and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve risks and uncertainties that could cause actual results to differ from projected results. Such statements address activities, events or developments that the Company expects, believes, projects, intends or anticipates will or may occur, including such matters as its ability to raise capital sufficient enough to repay outstanding indebtedness, to fund its share of maintaining and marketing the Project and to participate in future Paradox Basin activities, the Company's use of proceeds from any financing or sale of its interest, the Company's beliefs regarding results of the Seismic survey and the next phase of development, volatility of common Stock prices, anticipated lack of revenues, anticipated losses, plans to market the Project to third parties and the effect of the application of certain accounting rules. Factors that could cause actual results to differ materially ("Cautionary Disclosures") include, among others: general economic conditions, the market price of oil and natural gas, concentration of the Company's properties in a small area in the Paradox Basin, the timing and results of the seismic shoot to be conducted under the farmout agreement, the strength and financial resources of the Company's competitors, climatic conditions, environmental risks, the results of financing efforts and regulatory developments and the factors identified in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004, under the caption "Business-Risk Factors.". Many of such factors are beyond the Company's ability to control or predict. All forward-looking statements included in this Form 10-QSB are based on information available to the Company on the date hereof. Although the Company believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct or that the Company will take any actions that may presently be planned. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Disclosures.
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None.
Item 2. Changes in Securities and Use of Proceeds.
A total of 50,000 shares were issued consequent to an exercise of outstanding options at $0.25 per share.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
None.
| (a) | Exhibits |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of Chief Executive Officer Pursuant to U.S.C. 18, Section 1350. |
| 32.2 | Certification Chief Financial Officer Pursuant to U.S.C. 18, Section 1350. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
COLORADO WYOMING RESERVE COMPANY
Dated: February 13, 2006
By: /s/ KIM M. FUERST
Kim M. Fuerst
President, Chief Executive Officer and Treasurer
(Principal Executive Officer)
By: /s/ Rafiq A. Sayed
Rafiq A. Sayed
Chief Financial Officer
(Principal Financial Officer)
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