Colorado Wyoming Reserve (CWYR) 10QSB 2007 Q1 Quarterly report (small business)

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 September 30, 2006

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

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.           

Large accelerated filer  o            Accelerated filer  o            Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date:

As of November 13, 2006, 16,365,982 shares of common stock $.01 par value were outstanding.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

COLORADO WYOMING RESERVE COMPANY

(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEET

September 30, 2006

CURRENT ASSETS:
Cash and cash equivalents	$	975
Accounts receivable		—
Total current assets		975
PROPERTY AND EQUIPMENT:
Unproved oil and gas properties		62,570
Other property and equipment		14,914
Less accumulated depreciation, other property and equipment		(14,841	)
Net property and equipment		62,643
Other		1,960
Total assets	$	65,578
CURRENT LIABILITIES:
Trade accounts payable	$	82,260
Other accrued liabilities		244,450
Related party payables:
On account		802,568
Advances from Lightening Draw		122,000
Note payable to joint venture		305,000
Total current liabilities		1,556,277
EQUITY
Common Stock, $.01 par value: authorized-75,000,000 shares; issued and outstanding-16,137,694		161,377
Additional paid-in capital		9,398,676
Warrants		148,100
Accumulated deficit:
Before entering the development stage		(4,441,242	)
After entering the development stage		(6,757,610	)
Total Equity		(1,490,699	)
Total liabilities and equity	$	65,578

The accompanying notes are an integral part of these financial statements.

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COLORADO WYOMING RESERVE COMPANY

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS

(UNAUDITED)

							PERIOD FROM
	QUARTERS ENDED SEPTEMBER 30,						JANUARY 1, 1999
	2006			2005			SEPTEMBER 30, 2006
REVENUES	$	—		$	—		$	—
EXPENSES
Exploration cost		6,874			—			730,703
Depreciation, depletion and amortization								6,320
General and administrative		99,124			101,854			5,911,649
Total expenses		105,998			101,854			6,648,672
Operating loss		(105,998	)		(101,854	)		(6,648,672	)
OTHER INCOME (EXPENSE)
Interest income (expense), net		(5,401	)		(5,350	)		(107,710	)
Loss on sale of assets		—			—			(1,231	)
Income (Loss) before income taxes		(111,399	)		(107,204	)		(6,757,613	)
Provision for income taxes		—			—			—
Net loss	$	(111,399	)	$	(107,204	)	$	(6,757,613	)
Basic and diluted loss per share	$	(.01	)	$	(0.01	)
Outstanding shares		16,137,694			10,807,694

The accompanying notes are an integral part of these financial statements.

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COLORADO WYOMING RESERVE COMPANY

(A DEVELOPMENT STAGE ENTERPRISE)

CASH FLOW STATEMENTS

							PERIOD FROM
	QUARTERS ENDED SEPTEMBER 30,						JANUARY 1, TO 1999
	2006			2005			SEPTEMBER 30, 2006
Cash flows from operating activities:
Net loss	$	(111,399	)	$	(107,204	)		(6,757,613	)
Adjustments to reconcile net loss to net used in operating activities:
Stock based Compensation								95,600
Stock issued for Services								3,690,000
Stock based Deferred Compensation
Stock issued for Oil and Gas Properties
Warrants issued for Oil and Gas Properties
Stock issued for Financing Costs								27,000
Warrants issued for Financing Costs
Depletion, depreciation and amortization		—			—			6,320
Loss on asset sale		—			—			1,231
Amortization of note payable discount		—			—			35,000
Loss from joint venture investment					—			361,767
Changes in current assets and liabilities:
Receivables		—			—			3,126
Payables		110,912			92,167			1,209,522
Other					—			(436	)
Net cash (used in) operating activities		(487	)		(15,037	)		(1,328,483	)
Cash flows from investing activities:
Additions to unproved properties		—			—			(46,544	)
Unproved property cost recovery					—			191,467
Asset purchases		—			—			(1,269	)
Proceeds from asset sale		—			—			(2,354	)
Net cash (used in) provided by investing activities		0			0			141,300
Cash flows from financing activities:
Sale of common stock		—			—			1,184,456
Advances from joint venture		—						130,509
Repayment of joint venture advances					—			—
Repayment of notes payable		—			—			(130,000	)
Net cash provided by financing activities		—			—			1,184,965
Net increase (decrease) in cash and equivalents		(487	)		(15,037	)		(2,218	)
Cash and equivalents at beginning of period		1,463			17,553			3,191
Rounding		(1	)					2
Cash and equivalents at end of period	$	975		$	2,516		$	975
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest expense	$	—		$	—
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock based compensation	$	—		$	—
Stock issued for services	$	—		$	—
Stock based deferred compensation	$			$	—
Stock issued for oil and gas properties	$			$	—
Warrants issued for oil and gas property consulting	$			$	—
Stock issued for financing costs	$	—		$	—
Warrants issued for financing costs	$			$	—

The accompanying notes are an integral part of these financial statements.

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COLORADO WYOMING RESERVE COMPANY

("CWYR" or the "Company")

NOTES TO FINANCIAL STATEMENTS

(unaudited)

Periods Ended September 30, 2006 and 2005

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, 2006 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. Although the Company's Southwest Lisbon property is currently in production, the Company shall own an interest in this property only after payout. The Company will begin to have operating income once payout is achieved. The Southwest Lisbon property is located in the upper 1/3^rd of the Paradox Basin on the Utah side and the Paradox Basin is located in the S.E. corner of Utah and the S.W. corner of Colorado.

The Company is a 3D Seismic exploration and production company focused on the Paradox Basin which is located in the S.E. corner of Utah and the S.W. corner of Colorado. CWYR has defined seven structures, after four years of seismic science and the expenditure of approximately $6 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.

Payout will occur after the some $6 million dollars spent by the partners is recovered from the production of these wells. From an economic standpoint the income from these wells continues to be sporadic and insufficiently regular to enable an accurate and reliable assessment to be made as to whether the wells will ever reach payout. Since the Company’s interest in these wells is a 10.6% interest AFTER PAYOUT, as of November 13, 2006 the Company still has no ownership of any producing property. 

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 22,640 gross leased acres (approximately 6,764 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 undertaken drilling and intends to raise additional capital in order to be able to participate in the development of the Paradox Basin Project.

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 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 ‘Evelyn Chambers’ well is hooked up to the plant, line laid and producing. The Federal 1-31 well currently has a work-over rig on it examining other potentially productive zones. It is also already hooked up to the plant, line laid but currently not producing. At June 30, 2006 CWYR owns only an after-payout interest in these two productive oil and gas wells and the associated developed acreage. Variables affecting payout are: Price per mcf of gas and price per barrel of oil. These vary over time and have been very volatile of late. Payout will occur after the some $6 million dollars spent by the partners is recovered from the production of these wells. From an economic standpoint the income from these wells continues to be sporadic and insufficiently regular to enable an accurate and reliable assessment to be made as to whether the wells will ever reach payout. Since the Company’s interest in these wells is a 10.6% interest AFTER PAYOUT, as of November 13, 2006 the Company still has no ownership of any producing property.

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.

The Company plans additional 3D Seismic science work in the whole of the Paradox Basin Project area as well as a development drilling program in the Southwest Lisbon structure.  

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. 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 already owns the acreage where this drilling is expected to occur.

The Company anticipates an extensive 3D seismic shooting program and drilling on its currently identified structures.

In May 2006 the Company acquired a 42 ½% interest in an additional 6,000 acres underneath and bordering its 3D Seismic Shoot in Southeast Utah. The acquisition of the 6,000 acres raises the Company’s acreage position in the area to 22,640 acres (approximately 6,764 net leased acres). The acquired acreage borders the Company’s 16,640-acre 3D Seismic Shoot.

Additional 3D Seismic Shooting is planned for and the Company anticipates 3 test wells in the area in 2007.

CURRENT DEVELOPMENT:

In October 2006 we learned from the Operator that some of the partners in the Federal 1-31 well were intending to re-enter the well with a view to examining the possibility of producing hydrocarbons from the three other potentially productive zones that had been encountered while drilling to the Mississippian previously. This work finally began upon a work-over rig becoming available in the latter half of October.

3. COMMITMENTS AND CONTINGENCIES

At November 13, 2006, the Company had no revenues. These factors raise substantial doubts about the Company's ability to continue as a going concern without raising significant additional capital.

4. LOSS PER SHARE

Basic and diluted earnings per share are the same, as the effect of warrants and options is antidilutive.

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5. FARMOUT AGREEMENT

In October 2006 we learnt from the Operator that some of the partners in the Federal 1-31 well were intending to re-enter the well with a view to examining the possibility of producing hydrocarbons from the three other potentially productive zones that had been encountered while drilling to the Mississippian previously. This work finally began upon a work-over rig becoming available in the latter half of October.

6. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:

In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment," which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) is effective for public companies for interim or annual periods beginning after June 15, 2005, supersedes APB Opinion 25, Accounting for Stock Issued to Employees, and amends SFAS 95, Statement of Cash Flows.

SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative. We have adopted SFAS 123 (R) as of January 1, 2006.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNCERTAINTY OF FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-QSB includes statements that are not purely historical and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve risks and uncertainties that could cause actual results to differ from projected results. Such statements address activities, events or developments that the Company expects, believes, projects, intends or anticipates will or may occur, including such matters as 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 success or failure in finding commercial quantities of oil and gas, 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, 2006, 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.

PLAN OF OPERATIONS

At November 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.

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 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 ‘Evelyn Chambers’ well is hooked up to the plant, line laid and producing. The Federal 1-31 well currently has a work-over rig on it examining other potentially productive zones. It is also already hooked up to the plant, line laid but currently not producing. CWYR owns only an after-payout interest in two productive oil and gas wells and the associated developed acreage at November 13, 2006. Variables affecting payout are: Price per mcf of gas and price per barrel of oil. These vary over time and have been very volatile of late. Payout will occur after the some $6 million dollars spent by the partners is recovered from the production of these wells. From an economic standpoint the income from these wells continues to be sporadic and insufficiently regular to enable an accurate and reliable assessment to be made as to whether the wells will ever reach payout. Since the Company’s interest in these wells is a 10.6% interest AFTER PAYOUT, as of November 13, 2006 the Company still has no ownership of any producing property.

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On May 25, 2006 the Company announced that it has acquired a 42 ½% interest in an additional 6,000 acres underneath and bordering its 3D Seismic Shoot in Southeast Utah. The acquisition of the 6,000 acres raises the Company’s acreage position in the area to 22,640 acres (approximately 6,764 net leased acres). The acquired acreage borders the Company’s 16,640-acre 3D Seismic Shoot.

Additional 3D Seismic Shooting is planned for later this year and the Company anticipates 3 test wells in the area in 2007.

LIQUIDITY AND CAPITAL RESOURCES

The Company has a negative working capital balance of approximately $1.6mm at September 30, 2006. The principal owed amounts are to management $720,000 (no interest accrues on these owed amounts), Convertible bondholders $350,000, the Operator $220,000, other working interest partners $160,000, for a total of approximately $1.5mm. The amounts owed to management are accrued but not paid and an understanding is in place that these will not be payable till the Company is reasonably well-funded.

Under farmout agreements to which the Company is a party, the Company is obligated to pay its share of all costs associated with maintaining the Paradox Basin property. Further the Company anticipates no revenues for fiscal 2007, and any expenses incurred by the Company will exacerbate its working capital deficit. In order to remedy the existing working capital deficit and to fund future expenditures, the Company will need to raise additional capital through a debt or equity financing. If the Company is not successful in raising additional capital, the Company may have to liquidate on terms unfavorable to its shareholders.

RESULTS OF OPERATIONS

GENERAL AND ADMINISTRATIVE EXPENSE. The general and administrative expense remained the same for the quarter ended September 30, 2006 as compared to the quarter ended September 30, 2005.

OTHER. Interest accrued increased slightly for this quarter ($5,401 versus $5,350) as compared to the quarter ended September 30, 2005.

Item 4. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our President and Chief Executive Officer, and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President and Chief Executive Officer, and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2006 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or because of intentional circumvention of the established process.

During the period covered by this report, there have been no changes in our internal controls over financial reporting or in other factors, which could significantly affect internal controls over financial reporting.

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PART II.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A — RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1 Description of Business” in our Annual Report on Form 10-KSB for the year ended June 30, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-KSB, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes in our risk factors from those disclosed in our 2006 annual report on Form 10-KSB

Item 2. Changes in Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits

(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.

32.1Certification of Chief Executive Officer Pursuant to U.S.C. 18, Section 1350.

32.2Certification 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: November 13, 2006	By:	/s/ Waseem A. Sayed
		Waseem A. Sayed
		President, Chief Executive Officer (Principal Executive Officer)

By:	/s/ Rafiq A. Sayed
	Rafiq A. Sayed
	Chief Financial Officer (Principal Financial Officer)

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