==============================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                                                   -----------
                                   FORM 10-QSB
(Mark One)

X Quarterly  report  pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 -

For the quarterly period ended December 31, 1996

OR

__ Transition  report pursuant to Section 13 or 15(d) of Valley's the Securities
Exchange Act of 1934

                         Commission File Number: 0-28814

                       COTTON VALLEY RESOURCES CORPORATION

             (Exact name of registrant as specified in its charter)


              Ontario, Canada                         98-0164357
      (State or other jurisdiction of              (I.R.S. Employer
      incorporation or organization)              Identification No.)
 
                           8350 N. Central Expressway
                                   Suite M2030
                               Dallas, Texas 75206

                    (Address of principal executive offices)

                         Telephone Number (214) 363-1968

              (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 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.

                  Yes ___                                     No  X

         As  of  February  1,  1997,   there  were  11,204,901   shares  of  the
Registrant's Common Stock outstanding.


<PAGE>


                       COTTON VALLEY RESOURCES CORPORATION

                                      INDEX


                                     PART I. FINANCIAL INFORMATION      Page No.

Item 1.  Condensed Consolidated Financial Statements:

         Condensed Consolidated Balance Sheet as at
         December 31, 1996                                                   3

         Condensed Consolidated Statements of Operations
         For the six months ended December 31, 1996 and 1995                 4

         Condensed Consolidated Statements of Cash Flows
         For the six months ended December 31,1996 and 1995                  5

         Notes to Condensed Consolidated Financial Statements                6

Item 2.  Management's  Discussion  and Analysis of Financial Condition and
                  Results of Operations                                      7

                                      PART 11. OTHER INFORMATION

Item 1.  Legal Proceedings                                                   9

Item 5.  Other Information                                                   9

Item 6.  Exhibits and Reports on Form 8-K                                    10

         Signatures                                                          11


<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                       COTTON VALLEY RESOURCES CORPORATION
                          (a development stage company)

                      CONDENSED CONSOLIDATED BALANCE SHEET
                           (Expressed in U.S. Dollars)
                                December 31, 1996
                                   (Unaudited)

                                     ASSETS
<TABLE>
<S>                                                                                         <C>

CURRENT ASSET - Cash                                                                         $         239,905

PROVED OIL AND GAS PROPERTIES (full cost method)                                                    11,798,858

OFFICE EQUIPMENT, net of accumulated depreciation of $7,256                                             33,226

OTHER ASSETS                                                                                            43,831
                                                                                                ---------------

       Total Assets                                                                          $      12,115,820
                                                                                                ===============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       Accounts payable                                                                      $         732,177
       Current portion of long-term debt                                                               586,049
                                                                                                ---------------
       Total Current Liabilities                                                                     1,318,226

ADVANCES FROM RELATED PARTIES                                                                          171,709

DEFERRED INCOME TAXES                                                                                1,293,000

STOCKHOLDERS' EQUITY:
       Preferred Stock, no par value, authorized-unlimited, none issued
       Common Stock, no par value, authorized-unlimited, 10,404,901 issued                          10,697,279
       Deficit accumulated in development stage                                                    (1,364,394)
                                                                                                ---------------
       Total Stockholders' Equity                                                                    9,332,885
                                                                                                ---------------

       Total Liabilities and Stockholders' Equity                                            $      12,115,820
                                                                                                ===============
</TABLE>





              See accompanying note to theses financial statements
                       COTTON VALLEY RESOURCES CORPORATION
                          (a development stage company)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           (Expressed in U.S. Dollars)
                                   (Unaudited)
<TABLE>
<S>                                        <C>                       <C>                     <C>

                                                                                                       Period from
                                               Period from July 1,     Period from July 1,       February 15, 1995
                                              1996 to December 31,        1995 to December    to December 31, 1996
                                                              1996                31, 1995
                                             ----------------------   ---------------------   ---------------------
REVENUE - Oil and gas sales                       $          41,365      $               -     $            41,365

EXPENSES:
   General and administrative                               903,319                634,572               1,938,626
   Interest                                                  35,162                 21,631                 174,133
                                                                           ----------------
                                                    ----------------                             ------------------
         Total Expenses                                     938,481                656,203               2,112,759
                                                    ----------------       ----------------      ------------------

LOSS BEFORE INCOME TAXES                                  (897,116)              (656,203)             (2,071,394)

INCOME TAX BENEFIT                                          295,000                230,000                 707,000
                                                    ----------------       ----------------      ------------------

NET LOSS                                          $       (602,116)      $       (426,203)     $       (1,364,394)
                                                    ================       ================      ==================

NET LOSS PER SHARE                                $          (0.05)      $          (0.04)
                                                    ================       ================

WEIGHTED AVERAGE SHARES                                  13,390,524              9,923,236
                                                    ================       ================
</TABLE>















              See accompanying note to theses financial statements


<PAGE>


                       COTTON VALLEY RESOURCES CORPORATION
                          (a development stage company)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                           (Expressed in U.S. Dollars)
                                   (Unaudited)
<TABLE>
<S>                                                  <C>                  <C>                   <C>

                                                        Period from July     Period from July           Period from
                                                              1, 1996 to           1, 1995 to     February 15, 1995
                                                       December 31, 1996    December 31, 1995      to June 30, 1996
                                                     -------------------- --------------------    -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                              $    (602,116)   $        (426,203)   $      (1,364,394)
     Adjustments to reconcile net loss to net cash 
       used by operating activities:
         Deferred income tax benefit                            (295,000)            (230,000)            (707,000)
         Amortization of debt discount                                  -                    -               88,000
         Depreciation                                               5,572                    -                7,256
         Common stock issued for services                         322,932              446,950              772,063
         Change in accounts payable                              (85,674)                    -              201,016
         Other                                                    (3,263)                    -                2,580
                                                        ------------------   ------------------   ------------------
     Net Cash Used by Operating Activities                      (657,549)            (209,253)          (1,000,479)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Advances from related parties                                      -              112,500              171,709
     Sale of common stock                                         455,949                    -            2,555,821
     Issuance of convertible debentures                                 -              426,474              426,474
     Issuance of note payable subsequently converted
       into convertible debentures                                      -              146,300              146,300
     Costs related to sale of stock and debentures               (14,600)                    -            (423,976)
     Issuance of note payable                                           -                    -              250,000
     Repayment of note payable                                          -                    -            (250,000)
                                                        ------------------   ------------------   ------------------
     Net cash provided by financing activities                    441,349              685,274            2,876,328

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of oil and gas properties                      (303,134)            (477,021)          (1,554,893)
     Purchase of other assets                                    (43,831)                    -             (81,051)
     Net cash used by investing activities                      (346,965)            (477,021)          (1,635,944)
                                                        ------------------   ------------------   ------------------

INCREASE (DECREASE) IN CASH                                     (563,165)              (1,000)              239,905

CASH  - Beginning of period                                       803,070                1,000                    -

CASH - End of                                             $       239,905   $              nil   $          239,905
     period
                                                        ==================   ==================   ==================

SUPPLEMENTAL INFORMATION
     Cash paid for                                       $         17,581   $                -   $           54,591
     interest
     Debt incurred in acquisition of oil and gas                        -                    -            1,086,049
     properties
     Conversion of debentures to common stock                           -                    -              426,474
     Retirement of debenture upon merger with Arjon                     -                    -              146,300
     Oil and gas property acquired with note payable              355,000                    -              585,000
     Oil and gas properties acquired with common stock                  -                    -            7,072,914
     Issuance of common stock for stock offering costs                  -                    -              506,409
</TABLE>

              See accompanying note to theses financial statements

<PAGE>


                       COTTON VALLEY RESOURCES CORPORATION
                          (a development stage company)

                     NOTE TO CONDENSED FINANCIAL STATEMENTS
                           (Expressed in U.S. Dollars)
                                   (Unaudited)

 (1)  Nature of Business and Basis of Preparation and Presentation

      Cotton primary  business focus is the  acquisition of ownership  interests
     in, and the  production  of oil and gas from,  existing  oil and gas fields
     that indicate a potential for increased production through rehabilitation.

      The condensed consolidated financial statements of Cotton Valley Resources
     Corporation and subsidiaries (collectively "Cotton Valley") included herein
     have been prepared by Cotton Valley, without audit. Certain information and
     footnote  disclosures normally included in financial statements prepared in
     accordance  with  generally  accepted   accounting   principles  have  been
     condensed or omitted,  since Cotton Valley  believes  that the  disclosures
     included are adequate to make the information presented not misleading.  In
     the opinion of management,  the condensed consolidated financial statements
     include  all  adjustments   consisting  of  normal  recurring   adjustments
     necessary to present fairly the financial position,  results of operations,
     and  cash  flows  as of the  dates  and for the  periods  presented.  These
     condensed  consolidated  financial statements should be read in conjunction
     with the consolidated  financial  statements and the notes thereto included
     herein for the fiscal year ended June 30, 1996.

 (2)  Common Stock

      During the six months ended December 31, 1996, Cotton Valley issued 36,888
     shares of common stock to  individuals  for services  which was recorded at
     $30,932,  issued  73,750  shares of common  stock to settle debts which was
     recorded  at $53,838,  issued  400,000  shares of common  stock to Liviakis
     Financial  Communications,  Inc.  which was  recorded at  $292,000,  issued
     302,667 shares of common stock to former Arjon  stockholders on exercise of
     warrants for $145,524,  issued  300,000  shares of common stock in Canadian
     private  placements  for proceeds of $235,425  (before  deducting  costs of
     $14,600),  and issued 100,000 shares of common stock to Liviakis  Financial
     Communications, Inc. for cash of $75,000.


 (3)      Liviakis Financial Communications, Inc.

         During  the  period,  Cotton  Valley  entered  into an  agreement  with
Liviakis Financial Communications,  Inc. of Sacramento,  California ("Liviakis")
to assist and consult with Cotton Valley in matters concerning corporate finance
and to  provide  investor  communications  and  public  relations  services.  In
consideration of Liviakis' services,  Cotton Valley will sell a total of 500,000
shares of common stock to Liviakis and an officer of Liviakis for $.75 per share
and issue 1,490,000 shares of its common stock to Liviakis for services.  Cotton
Valley also  granted  Liviakis  and an officer of Liviakis  warrants to purchase
500,000 shares of its common stock from January 2, 1998,  until November 8, 2001
at $.80 per share.





<PAGE>


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


Results of Operations

First Six Months Fiscal 1997 and First Six Months Fiscal 1996

     During the six months ended December 31, 1996, Cotton Valley incurred a net
loss of  $602,116.  From  February 15, 1995  (inception),  to December 31, 1996,
Cotton Valley accumulated a deficit of $1,364,394.

         The loss of  $602,116  for the first six months of 1997  compares  to a
loss of $426,203 during the first six months of 1996. There was greater business
activity  during the first six  months of fiscal  1997 and  during  this  period
Cotton  Valley  issued  400,000  shares of common  stock to  Liviakis  Financial
Communications, Inc. for services. The stock was valued at $.73 per share, based
on trading  on the  Canadian  over-the-counter  market,  for a total  expense of
$292,000.

         During  the first  six  months of fiscal  1996,  Cotton  Valley  issued
300,000  shares for  services  which was recorded at  $446,950.  Other  expenses
during this period were $209,253. The loss before income tax benefit of $230,000
was $656,203.

     Rehabilitation  work on two  wells in the  Cheneyboro  Field in the  fourth
quarter of fiscal 1996 resulted in oil and gas sales of $41,365 during the first
six months of 1997.

     Cotton Valley acquired its interest in the Alden Field in December 1996 for
$390,000 of which $35,000 was paid and $355,000 is payable upon closing which is
expected to be in February or March 1997.

         During the six months ended  December 31, 1996,  Cotton  Valley  issued
36,888 shares of common stock to individuals  for services which was recorded at
$30,932, issued 73,750 shares of common stock to settle debts which was recorded
at  $53,838,  issued  400,000  shares  of  common  stock to  Liviakis  Financial
Communications, Inc. (See "Principal Shareholders--Liviakis") which was recorded
at $292,000,  issued 302,667 shares of common stock to former Arjon shareholders
on exercise of warrants for $145,524,  issued  300,000 shares of common stock in
Canadian private  placements for proceeds of $235,425 (before deducting costs of
$14,600),  and  issued  100,000  shares of common  stock to  Liviakis  Financial
Services, Inc. for cash of $75,000.

Liquidity and Capital Resources

         As of December 31, 1996, Cotton Valley had a working capital deficiency
of $1,078,321  calculated by  subtracting  accounts  payable of $732,177 and the
current portion of long-term debt of $586,049 from cash of $239,905. Included in
accounts  payable is $230,000  representing an unpaid part of the purchase price
of the Movico  Filed  which is not due until  others who hold an interest in the
property decide to commence  drilling.  The current portion of long-term debt is
described in the following paragraph.

         Cotton Valley has promissory  notes payable  totaling  $586,049 for the
unpaid  purchase price of the Cheneyboro oil and gas  properties.  The notes are
collateralized  by the properties and are due July 17,1997.  Interest is payable
quarterly  at 12%.  Management  believes  the notes will be  extended  if Cotton
Valley is unsuccessful in its initial public offering.

         During the first six months of fiscal 1997, Cotton Valley purchased oil
and gas  interests  in the Alden Field,  Caddo  County,  Oklahoma for  $390,000.
Cotton  Valley paid $35,000 and $355,000 is due on closing  which is expected to
happen during the third quarter of fiscal 1997.

         Management  is  currently   taking  the  following   action  to  obtain
short-term financing:


-    it has encouraged warrant holders to exercise warrants,

-    it is actively  seeking  participation  from other oil and gas companies to
     fund part of the Cheneyboro Field development,

-    it is in negotiation  with three parties for debt financing,  in the nature
     of a "bridge loan" to be repaid with net proceeds of its intended  offering
     of securities in the U.S., and

-    it has entered into an agreement  with Liviakis  Financial  Communications,
     Inc. of  Sacramento,  California  ("Liviakis")  which  includes a provision
     whereby  Liviakis has agreed to purchase  500,000 of Cotton Valley's shares
     for $375,000.

         Management  believes a  combination  of the above  steps  will  provide
liquidity  until an intended  offering of securities  is completed.  There is no
assurance management will be successful.

         Management  expects to pay the  outstanding  amount of the Alden  Field
purchase of $355,000  from  proceeds  of a loan it is  negotiating.  There is no
assurance  management will be successful.  In the event management cannot obtain
financing  to complete  the  purchase  and  management  cannot  find  acceptable
alternative financing, Cotton Valley may not be able to close on the Alden Field
purchase.

         The net proceeds of an intended  U.S.  offering of  securities  and the
anticipated sale of an interest in the offshore  California property will not be
sufficient to develop fully the properties.  If the cash flow generated from the
first  five wells is less than  expected,  the  development  of  properties  may
require  capital  resources  greater than the net  proceeds of this  offering or
resources otherwise  currently available to Cotton Valley.  Cotton Valley has no
current  arrangements with respect to, or sources of, additional  financing.  No
assurance can be given that any additional financing will be available to Cotton
Valley  on  acceptable  terms or at all.  The  inability  to  obtain  additional
financing  would  have a material  adverse  effect on Cotton  Valley,  including
requiring  Cotton  Valley  to  curtail   significantly  its  deployment  of  the
properties.  Any additional  financing may involve  substantial  dilution to the
interests of Cotton Valley's then existing shareholders.




<PAGE>


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

As of the date of this filing,  there are no legal  proceedings  pending against
Cotton Valley.

Item 5.  Other Information

Safe Harbor  Statement  under the Private  Securities  Litigation  Reform Act of
1995:

Certain  statements in this filing,  and elsewhere  (such as in other filings by
Cotton  Valley with the  Commission,  press  releases,  presentations  by Cotton
Valley  or its  management  and  oral  statements)  constitute  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Such  forward-looking  statements  involve  known and  unknown  risks,
uncertainties and other factors which may cause the actual results,  performance
or  achievements  of Cotton  Valley to be materially  different  from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking  statements.  Such  factors  include,  among other  things,  (i)
significant  variability in Cotton  Valley's  quarterly  revenues and results of
operations  as a result of  variations  in the Cotton  Valley's  production in a
particular quarter while a significant  percentage of its operating expenses are
fixed in  advance,  (ii)  changes  in the  prices of oil and gas,  (iii)  Cotton
Valley's  ability to obtain capital,  (iv) other risk factors  commonly faced by
development stage oil and gas companies.


<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

9a)      Exhibits

         The following documents are filed with this report as exhibits:

Exhibit
Number                  Description
27.01                   Financial Data Schedule







(b) No reports on Form 8-K were filed  during the  quarter  ended  December  31,
1996.



<PAGE>


                                   SIGNATURES

Pursuant  to the  requirement  of the  Securities  Exchange  Act  of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Dated:  February 19, 1997



                       COTTON VALLEY RESOURCES CORPORATION
                                  (Registrant)






Eugene A. Soltero
Chief Executive Officer




Peter Lucas
Chief Financial Officer
(Principal Financial and Accounting Officer)