SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
751 HORIZON COURT, SUITE 205
GRAND JUNCTION, COLORADO 81506
(Address of principal executive (Zip Code)
offices)
(970) 255-9995
(Issuer's telephone number)
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 / / No /X/
There were 10,607,694 shares of the Registrant's $.01 par value common stock
outstanding as of May 13, 2002.
Transitional Small Business Disclosure: Yes / / No /X/
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COLORADO WYOMING RESERVE COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
CURRENT ASSETS:
Cash and cash equivalents $ 10,380
Accounts receivable 17,912
-----------
Total current assets 28,292
PROPERTY AND EQUIPMENT:
Unproved oil and gas properties 56,786
Other property and equipment 14,914
-----------
71,700
Less accumulated depreciation, other property and equipment (14,736)
-----------
Net property and equipment 56,964
Other 1,160
-----------
Total assets $ 86,416
===========
CURRENT LIABILITIES:
Trade accounts payable $ 58,201
Other accrued liabilities 30,492
Related party payables:
On account 268,889
Note payable to joint venture 147,000
Notes payable 52,800
-----------
Total current liabilities 557,382
EQUITY
Common Stock, $.01 par value: authorized-
75,000,000 shares; issued and outstanding-
10,607,694 106,077
Additional paid-in capital 5,336,976
Warrants 148,100
Accumulated deficit:
Before entering the development stage (4,441,241)
After entering the development stage (1,620,878)
-----------
(6,062,119)
-----------
(470,966)
-----------
Total liabilities and equity $ 86,416
===========
The accompanying notes are an integral part of these financial statements.
2
COLORADO WYOMING RESERVE COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
QUARTERS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, PERIOD FROM
------------------------------ ------------------------------ JANUARY 1, 1999 TO
2002 2001 2002 2001 MARCH 31, 2002
------------ ------------ ------------ ------------ ------------------
REVENUES $ -- $ -- $ -- $ -- $ --
EXPENSES
Exploration cost 14,293 40,227 69,152 64,898 590,640
Depreciation,
depletion and amortization 105 106 315 431 6,215
General and administrative 30,028 119,248 147,800 292,764 986,469
------------ ------------ ------------ ------------ -----------------
Total expenses 44,426 159,581 217,267 358,093 1,583,324
------------ ------------ ------------ ------------ -----------------
Operating loss (44,426) (159,581) (217,267) (358,093) (1,583,324)
OTHER INCOME (EXPENSE)
Interest income (expense), net (3,938) 6,030 (9,163) 7,882 (36,318)
Loss on sale of assets -- -- -- -- (1,231)
------------ ------------ ------------ ------------ -----------------
Loss before income taxes (48,364) (153,551) (226,430) (350,211) (1,620,873)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ -----------------
Net loss $ (48,364) $ (153,551) $ (226,430) $ (350,211) $ (1,620,873)
============ ============ ============ ============ =================
Basic and diluted loss per share $ (.01) $ (0.01) $ (0.02) $ (0.03)
============ ============ ============ ============
Outstanding shares 10,607,694 10,607,694 10,607,694 10,607,694
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
3
COLORADO WYOMING RESERVE COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED CASH FLOW STATEMENTS
NINE MONTHS ENDED
MARCH 31, PERIOD FROM
---------------------------- JANUARY 1, 1999 TO
2002 2001 MARCH 31, 2002
----------- ----------- ------------------
Cash flows from operating activities:
Net loss $ (226,430) $ (350,211) $ (1,620,874)
Adjustments to reconcile net loss to net used in
operating activities:
Depletion, depreciation and amortization 315 431 6,215
Loss on asset sale -- -- 1,231
Amortization of note payable discount -- -- 35,000
Exploration cost paid by joint venture 56,295 43,532 418,062
Equity issued as compensation -- 74,000 95,600
Changes in current assets and liabilities:
Receivables (15,390) -- (14,786)
Payables 130,466 87,762 194,135
Other -- -- 2,064
----------- ---------- ------------------
Net cash (used in) operating activities (54,744) (144,486) (883,353)
Cash flows from investing activities:
Additions to unproved properties (24,078) -- (97,058)
Unproved property cost recovery -- 15,768 189,767
Asset purchases -- -- (1,269)
Proceeds from asset sale -- -- (2,354)
----------- ----------- -----------------
Net cash (used in) provided by investing activities (24,078) 15,768 89,086
Cash flows from financing activities:
Sale of common stock -- -- 784,456
Advances from joint venture -- 26,509 130,509
Repayments of joint venture advances (14,509) -- (14,509)
Notes payable 31,000 -- 31,000
Repayment of notes payable -- 109,000 (130,000)
----------- ----------- -----------------
Net cash provided by financing activities 16,491 135,509 801,456
----------- ----------- -----------------
Net (decrease) increase in cash and equivalents (62,331) 6,791 7,189
Cash and equivalents at beginning of period 72,711 208 3,191
----------- ----------- -----------------
Cash and equivalents at end of period $ 10,380 $ 6,999 $ 10,380
=========== =========== =================
The accompanying notes are an integral part of these financial statements.
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COLORADO WYOMING RESERVE COMPANY
("CWYR" or the "Company")
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Periods Ended March 31, 2002 and 2001
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements are unaudited. However,
in the opinion of management, the accompanying financial statements
reflect all adjustments necessary for a fair presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. Management
believes the disclosures made are adequate to make the information not
misleading and suggests that these financial statements be read in
conjunction with the Company's June 30, 2001 Form 10-KSB.
2. DEVELOPMENT STAGE ENTERPRISE
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.
3. COMMITMENTS AND CONTINGENCIES
Effective January 1, 1998, the Company entered into an Agreement for
Administrative Services (the "Trinity Agreement") with Trinity Petroleum
Management LLC, a Colorado limited liability company ("Trinity"). Pursuant
to the terms of the Trinity Agreement, Trinity performs certain management
functions for the Company. Trinity bills for its services on an hourly
basis, receives a flat fee of $1,100 per month and is reimbursed for third
party expenses. The Trinity Agreement is on a month-to-month basis and may
be terminated by either party upon written notice. J. Samuel Butler, a
member of the Board of Directors of the Company, currently serves as
President of Trinity and owns approximately 24 percent of Trinity through
his ownership of Butler Resources, LLC. In connection with certain
additional services provided to the Company by Trinity pursuant to the
Company's merger with Shoreline Resource Company, on January 22, 1998 the
Company issued to Trinity 25,000 restricted shares of Common Stock as well
as an option to purchase up to 100,000 shares of the Company's Common
Stock at an exercise price of $1.50 per share, subsequently repriced to
$.10 per share in May 1999.
The Company entered into an employment contract with Mr. Fuerst on
October 1, 1996 pursuant to which Mr. Fuerst received a salary of
$10,000 per month and was granted incentive stock options to purchase
up to 500,000 shares of the Company's Common Stock at an exercise
price of $1.00 per share (repriced to $.25 per share in May 1999). The
contract had an initial term of three years commencing October 1, 1996
and is renewed automatically for succeeding periods of one year unless
terminated. The Contract may be terminated by Mr. Fuerst upon 90-days
prior written notice to the Company and by the Company without prior
notice to Mr. Fuerst for cause
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(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.
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
On September 28, 2000, the Company entered into a Farmout Agreement,
effective September 22, 2000, with the Farmees. Certain directors and
stockholders of the Company are directors, officers and controlling
stockholders of the Farmees.
Pursuant to the terms of the Farmout Agreement, the Company assigned 50
percent of its mineral working interests in and to certain oil and gas
leases and seismic options covering approximately 64,000 gross leased
acres (approximately 25,500 net leased acres) of land located in the
Paradox Basin Project in San Juan County, Utah, to the Farmees. Prior to
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. The Farmout Agreement
requires the Company to bear its 42.5 percent share of the costs of
maintaining the Paradox Basin Project leasehold.
The Farmout Agreement also establishes an area of mutual interest (the
"AMI") for a term of ten years from the effective date of the Farmout
Agreement. If during the ten-year term, any party to the Farmout Agreement
acquires an oil or gas leasehold interest in the AMI, that party must give
all other parties the opportunity to participate.
In September 2000, the Company entered into a Credit Agreement with the
Farmees. The Credit Agreement established an unsecured revolving line of
credit for the Company in an aggregate principal amount of $110,000.
Amounts borrowed under the Credit Agreement bear interest at the rate of 8
percent per annum. At March 31, 2002, the Company had a balance owing
the Farmees of $122,000. The note was due and payable in full on
September 28, 2001, and remains unpaid as of May 13, 2002.
6. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, and establishes that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful lives
no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for
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Long-Lived Assets to Be Disposed Of. The Company does not expect to be
affected by either SFAS Nos. 141 or 142.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or normal use
of the asset.
SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset. The
liability is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than the
carrying amount of the liability, the Company will recognize a gain or
loss on settlement.
While the Company presently has no assets that would be affected by SFAS
No. 143, should producing wells be drilled on the Paradox Basin acreage,
the estimated abandonment cost of such wells could be subject to SFAS No.
143. However, the financial statement impact cannot be estimated at
present.
In August 2001, the FASB also approved SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 replaces SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The new accounting model for long-lived assets
to be disposed of by sale applies to all long-lived assets, including
discontinued operations, and replaces the provisions of APB Opinion No.
30, Reporting Results of Operations Reporting the Effects of Disposal of a
Segment of a Business, for the disposal of segments of a business. SFAS
144 requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. Therefore,
discontinued operations will no longer be measured at net realizable value
or include amounts for operating losses that have not yet occurred. SFAS
144 also broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from the
rest of the entity and that will be eliminated from the ongoing operations
of the entity in a disposal transaction. The provisions of SFAS 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and, generally, are to be applied prospectively. At this
time, the Company cannot estimate the effect of this statement on its
financial position, results of operations, or cash flows.
Effective July 1, 2000 FASB Interpretation No. 44 (the "Interpretation"),
Accounting for Certain Transactions Involving Stock Compensation, became
effective. Pursuant to the Interpretation provisions, the Company's stock
option plan, which had previously been defined as a "fixed plan", became a
"variable plan" as a result of certain option repricings which occurred
between December 15, 1998 and June 30, 2000. Variable plans are subject to
the recognition of "mark-to-market" expense. While the Company has not
recognized any mark-to-market expense (since the quoted prices for the
Company's shares at the end of the respective quarters have always been
under $1.00 per share, the quoted price at July 1, 2000) should the share
price be higher at the end of a future quarter than it was at July 1,
2000, the Company would recognize such expense.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
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 suffici8ent 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, 2001, 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 March 31, 2002, the Company had no cash, no operations and no revenues.
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 have
presented the Paradox Basin Project to qualified industry companies for the
purpose of determining the market value of the project and the terms on which an
industry partner might be brought into the Project. The Company believes that
the next phase of Project development is the drilling of an exploratory well on
the Project and conducting a seismic shoot on prospects not included in the
first shoot. No decision can be made regarding the next phase of development of
the Paradox Basin Project without the approval of CWYR and the Farmees holding
an aggregate 80 percent interest in the Paradox Basin Project. In addition to
the implications of the Farmout Agreement on the decision, the Company's current
lack of capital limits the options available to it.
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
8
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
$122,000 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
$122,000 due 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.
As of May 13, 2002, CWYR and the Farmees have not reached agreement with any
third party industry partners for the drilling of the initial exploratory well.
Accordingly, the Company is currently discussing the possibility of farming out
the drilling of the initial well to the Farmees.
At May 13, 2002, the Company continues to have 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.
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLORADO WYOMING RESERVE COMPANY
Dated: May 13, 2002 By: /s/ KIM M. FUERST
-----------------------------------------
Kim M. Fuerst
President, Chief Executive Officer and
Treasurer
(Principal Executive and Financial
Officer)
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