________________________________________________________________________________
                              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, 1998

OR

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

                          Commission File Number: 0-28814

                         COTTON VALLEY RESOURCES CORPORATION
              (Exact name of registrant as specified in its charter)

Yukon, Canada                                                   98-0164357
(State or other jurisdiction of                             (I.R.S. Employer 
incorporation or organization)                               Identification No.)

                                 6510 Abrams Road
                                    Suite 300
                               Dallas, Texas 75231
                     (Address of principal executive offices)

                          Telephone Number (214) 221-6500
              (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 days.

          Yes   X                          No __
     
     As of December 31, 1998, there were 20,985,570 shares of the Registrant's 
Common Stock outstanding.
________________________________________________________________________________

                        COTTON VALLEY RESOURCES CORPORATION

                                        INDEX

                         

              PART I.  FINANCIAL INFORMATION                        Page No.

Item 1.     Condensed Consolidated Financial Statements:

            Condensed Consolidated Balance Sheets as of
            December 31, 1998                                              3

            Condensed Consolidated Statements of 
            Operations for the six months and three months ended 
            December 31, 1998 and 1997                                     4

            Condensed Consolidated Statements of Cash Flow
            For the three months ended December 31, 1998 and 1997          6

            Notes to Condensed Consolidated 
            Financial Statements                                           7


Item 2.     Management's Discussion and Analysis of 
            Financial Condition and Results of Operations                  8


                         PART 11.    OTHER INFORMATION

Item 1.     Legal Proceedings                                              10

Item 5.     Other Information                                              10

Item 6.     Exhibits and Reports on Form 8K                                10

            Signatures                                                     11 



                                        -2-




PART I.  FINANCIAL INFORMATION

        ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

                       COTTON VALLEY RESOURCES CORPORATION

                       CONDENSED CONSOLIDATED BALANCE SHEET
                                 December 31, 1998
                          (Expressed in U.S. Dollars)
                                  (Unaudited)

                                     ASSETS
<TABLE>
<S>                                                       <C>
CURRENT ASSETS:

     Cash                                                 $        54,851
     Accounts receivable                                          234,373
     Materials and supplies inventory                             532,770
     Prepaid expenses                                              59,110
                                                          ---------------
Total Current Assets                                              881,104

PROVED OIL and GAS PROPERTIES (full cost method)
     Net of accumulated depletion of $502,244                  25,218,105

OFFICE FURNITURE and EQUIPMENT
     Net of accumulated depreciation of $28,719                   120,249

FINANCING COSTS and OTHER ASSETS                                  880,905
                                                          ---------------

Total Assets                                              $    27,100,363
                                                          ===============
</TABLE>
                   LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<S>                                                      <C>
CURRENT LIABILITIES:

Accounts payable                                          $    1,086,433
Accrued expenses                                                 190,755
Accrued interest                                                  47,570
Notes payable                                                    921,135
                                                          --------------
Total Current Liabilities                                      2,245,893

LONG TERM DEBT                                                 4,416,757

ADVANCES FROM RELATED PARTIES                                    119,710

DEFERRED INCOME TAXES                                          1,560,342



STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, authorized-unlimited, 
     none issued                                                   -
Common Stock, no par value, authorized-unlimited,   
     Issued:  1998 - 20,985,570 issued                        22,039,780
Warrants and beneficial conversion                               823,695
Deficit accumulated in development stage                      (3,599,756)
Accumulated loss                                                (506,058)
                                                           -------------
Total Stockholders' Equity                                    18,757,661


Total Liabilities and Stockholders' Equity                 $  27,100,363
                                                           =============
</TABLE>


See accompanying notes to these financial statements

                                        -3-

                        COTTON VALLEY RESOURCES CORPORATION 
                       CONDENSED CONSOLIDATED STATEMENTS OF 
                                   OPERATIONS 
                           (Expressed in U.S. Dollars)
                                   (Unaudited)

<TABLE>

                                            Period from           Period from
                                          July 1, 1998 to        July 1, 1997 to
                                        December 31, 1998      December 31, 1997
                                          ----------------       --------------
<S>                                       <C>                     <C>  
REVENUE:
   Oil and gas sales                       $     195,169          $    551,836
   Equipment sales                               610,333               421,622
   Other income                                   26,912                   934
                                         ----------------        --------------
                                                 832,414               974,392
                                         ----------------        --------------

EXPENSES:
   Oil and gas production                        179,477               336,973
   Equipment purchase and rework                 247,697               256,145
   Equipment operations                          175,591                50,595
   General and administrative                    645,188               539,404
   Depreciation and depletion                    110,230               158,026
                                          ---------------         -------------
                                               1,358,183             1,341,143
                                          ---------------         -------------

LOSS FROM OPERATIONS                            (525,769)             (366,751)

OTHER INCOME (EXPENSES): 
    Interest and financing expense              (265,106)              (76,948)
    Interest income                                  159                16,280
                                          -----------------       --------------
                                                (264,947)              (60,668)
                                          -----------------       --------------

LOSS BEFORE INCOME TAXES                        (790,716)             (427,419)

INCOME TAX BENEFIT                               284,658               153,871
                                          -----------------       --------------
 
NET LOSS                                   $    (506,058)          $  (273,548)
                                          =================       ==============

NET LOSS PER SHARE                          $      (0.02)          $     (0.02)
                                          =================       ==============

WEIGHTED AVERAGE SHARES                       18,376,111            15,457,000
                                          =================       ==============
</TABLE>

See accompanying notes to these financial statements

                                         -4-   


                       COTTON VALLEY RESOURCES CORPORATION 
                       CONDENSED CONSOLIDATED STATEMENTS OF 
                                   OPERATIONS 
                           (Expressed in U.S. Dollars)
                                   (Unaudited)

<TABLE>

                                            Period from           Period from
                                       October 1, 1998 to     October 1, 1997 to
                                        December 31, 1998      December 31, 1997
                                          ----------------       --------------
<S>                                       <C>                     <C>  
REVENUE:
   Oil and gas sales                       $      98,079          $    252,667
   Equipment sales                               153,400                91,622
   Other income                                    1,659                   934
                                         ----------------        --------------
                                                 253,138               345,223
                                         ----------------        --------------
EXPENSES:
   Oil and gas production                        111,530               145,734
   Equipment purchase and rework                  10,037                72,955
   Equipment operations                           72,830                10,995
   General and administrative                    205,659               325,389
   Depreciation and depletion                     55,952                90,175
                                          ---------------         -------------
                                                 456,008               645,248
                                          ---------------         -------------

LOSS FROM OPERATIONS                            (202,870)             (300,025)

OTHER INCOME (EXPENSES): 
    Interest and financing expense              (100,053)              (46,364)
    Interest income                                  159                15,971
                                          -----------------       --------------
                                                 (99,894)              (30,393)
                                          -----------------       --------------

LOSS BEFORE INCOME TAXES                        (302,764)             (330,418)

INCOME TAX BENEFIT                               108,995               118,950
                                          -----------------       --------------
 
NET LOSS                                   $    (193,769)          $  (211,468)
                                          =================       ==============

NET LOSS PER SHARE                          $      (0.01)          $     (0.01)
                                          =================       ==============

WEIGHTED AVERAGE SHARES                       19,374,945            16,620,000
                                          =================       ==============
</TABLE>

See accompanying notes to these financial statements

                                         -5-  





 
                        COTTON VALLEY RESOURCES CORPORATION

                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                          (Expressed in U.S. Dollars)
                                   (Unaudited)

<TABLE>
                                            Period from          Period from 
                                           July 1, 1998         July 1, 1997 
                                   to December 31, 1998   to December 31, 1997
                                        -----------------     -----------------
<S>                                     <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:         
     Net loss                            $    (506,058)        $     (273,548)
     Adjustments to reconcile to net 
      cash used by operating activities:
     Deferred income tax benefits             (284,658)              (153,871)
     Depreciation and depletion                110,230                158,026
     Amortization                               74,426                 20,000
     Common stock issued for services           21,000                   -
     Change in accounts payable and accrued 
       liabilities                              60,409                417,651 
     Change in materials and supplies 
       inventory                               358,589               (457,536)
     Change in accounts receivable             162,017               (236,097)
     Change in prepaid expenses                160,009                   -
     Increase in deposits                         -                  (329,750)
     Other                                       3,851                (27,527)
                                         -----------------      ----------------
     Net Cash Used by Operating 
       Activities                              159,815               (882,652)


CASH FLOWS FROM FINANCING ACTIVITIES:
     Advances from related 
        parties                                  3,279                (20,000)
     Sale of common stock and exercise of  
        warrants                               261,097              3,306,044
     Issuance of convertible debentures          -                  4,220,000
     Issuance of notes payable                 350,000                469,710
     Conversion of trade payables to 
        long term debt                         278,291                   -
     Conversion of debenture to common stock   100,000                   -
     Conversion of accounts payables to
        common stock                            94,090                   -
     Costs related to sale of stock and 
        notes                                 (307,709)              (400,000)
     Repayment of notes payable                   -                  (504,750)
                                       ----------------        ---------------
     Net Cash Used by Financing  
        Activities                             779,048              7,071,004

CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions to oil and gas properties      (937,942)            (3,823,621)
     Increase in restricted cash                  -                (2,570,820)
     Additions to office furniture and 
        fixtures                               (31,832)               (31,093)
                                        ----------------      ----------------
     Net Cash Used by Investing Activities    (969,774)            (6,425,534)


INCREASE (DECREASE) IN CASH                    (30,911)              (237,182)

CASH - Beginning of period                      85,762                642,612

CASH - End of period                    $       54,851         $      405,430
                                        ===============        ===============


SUPPLEMENTAL INFORMATION

Cash paid for interest                  $       4,472                 27,388
Conversion of debt to common stock            273,510                100,000
Debt incurred in acquisition of oil 
   and gas properties                            -                   300,000
Oil and gas properties acquired with 
   common stock                                  -                 4,530,000
Beneficial conversion feature on 
   convertible debentures                        -                   479,162

</TABLE>

See accompanying notes to these financial statements

                                       -6-

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

(1) NATURE OF BUSINESS AND BASIS OF PREPARATION AND PRESENTATION
 
Cotton Valley Resources Corporation (the "Company") has its primary 
business focus in 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 Company 
purchases, repairs, rehabilitates and sells used oilfield production 
equipment.  
 
 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 for the fiscal year ended June 30, 1998.
 
(2) COMMON STOCK

During the six months ended December 31, 1998, the Company issued 285,000 
shares of common stock to three entities in a private placement for 
$142,500, issued 606,197 shares of common stock in a private placement to 
five entities for $132,606, issued 142,000 shares of common stock for 
services valued at $32,000, issued 150,899 shares of  common stock in 
payment of $78,865 of trade payables, issued 205,000 shares of common 
stock as employee compensation, and issued 1,994,840 shares of common 
stock to the holders of its 7% convertible debentures in payment of 
$296,221 in interest through December 31, 1998 and $198,334 of penalty and 
waiver fees. In addition, a debenture of $100,000 plus accumulated 
interest was converted to 421,400 shares of common stock at the conversion 
price of $0.247917 per share.
     
(3)  YUKON CONTINUANCE CONTINGENT LIABILITY

Potential Securities Act Violation
On March 16, 1998, the Company filed with the Commission a Registration 
Statement on Form SB-2 (the "March 1998 Registration Statement") for the 
purpose of registering up to 10,891,184 shares of the Company's Common 
Stock for sale by certain shareholders of the Company, including 
approximately 5.7 million shares to be issued upon exercise of outstanding 
warrants and conversion of the Convertible Debentures.  On May 1, 1998, 
the Company received a letter of comments from the Staff of the Commission 
(the "May 1998 Staff Comment Letter") relating to the March 1998 
Registration Statement.  In the May 1998 Staff Comment Letter, the Staff 
advised the Company that it should have registered the Yukon Continuance 
under the Securities Act. The Yukon Continuance was not registered under 
the Securities Act.

The Company in its supplemental response on May 26, 1998 to the Staff's 
May 1998 Comment Letter contended, with the concurrence of  the Company's 
U.S. securities counsel, that the Yukon Continuance was a transaction not 
subject to the registration requirements of Section 5 of the Securities 
Act.  The Staff has advised the Company that is does not agree with the 
Company and its U.S. securities counsel's conclusion regarding the Yukon 
Continuance.

The Company, therefore, may have a contingent liability to certain of its 
shareholders, who may sue the Company to recover the consideration paid, 
if any, for shares of the Company's Common Stock, with interest thereon, 
from the date of the Yukon Continuance to the date of repayment by the 
Company less the amount of any income received thereon, upon tender of 
such securities, or for damages if the shareholder no longer owns such 
securities.  The Company intends to vigorously defend any such shareholder 
lawsuit and believes that it may have valid defenses, including the 
running of applicable statutes of limitations, against claims by some or 
all of its shareholders.  However, to the extent that any of the Company's 
shareholders obtain a judgment for damages against the Company, the 
Company's net assets and net worth will be reduced, which in turn could 
reduce the Company's ability to obtain financing for its exploration and 
drilling operations and cause the Company to curtail operations.  The 
Company is unable to quantify the amount of such contingent liability.

                                   -7-

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

Results of Operations

FIRST SIX MONTHS FISCAL 1999 AND FIRST SIX MONTHS FISCAL 1998

     During the six months ended December 31, 1998, Cotton Valley incurred a 
net loss of $506,058, which compares to a loss of $273,548 during the first 
six months of 1997. The decline results primarily from lower oil and gas 
sales, higher general and administrative expenses and higher interest and 
financing expense.

     Oil and gas sales 65% from $551,836 for the six months ended December 
31, 1997 to $195,169 for the six months ended December 31, 1998, reflecting 
lower oil and gas prices and production declines.  Oil and gas production 
costs decreased 48% for the six months ended December 31, 1998, reflecting 
lower production levels and curtailment of maintenance work on marginal wells 
due to lower oil prices.

     Used equipment sales for the first half of fiscal 1999 were $610,333 as 
compared to sales of 421,622  for the comparable period of fiscal 1998.  The 
gross margins from the used equipment business were $187,045 and $114,882, 
respectively, for the six months ended December 31, 1998 and 1997.

     General and administrative costs were $645,188 in the first half of 
fiscal 1999, an increase of $105,784 or 20% more than the $539,404 incurred 
in the first half of fiscal 1998.  Most of the increase was due to legal 
expenses associated with the Yukon Continuance Problem and revisions of 
agreements with the holders of the Company's 7% Convertible Debentures.  
Interest expense and financing costs increased by approximately $200,000 
during the first half of fiscal 1999 as compared with the first half of 
fiscal 1998.  

     The Company has recognized an income tax benefit of $284,658 for the 
first half of fiscal 1999 as compared to recognition of an income tax benefit 
of $153,871 for the first half of fiscal 1998.  This is directly related to 
the size of the loss before income taxes.


SECOND THREE MONTHS FISCAL 1999 AND SECOND THREE MONTHS FISCAL 1998

     During the three months ended December 31, 1998, Cotton Valley incurred 
a net loss of $193,769 which compares to a loss of $211,468 during the second 
three months of fiscal 1998. Lower oil and gas revenue and higher interest 
and finance expense were offset by lower general and administrative costs and 
higher gross margins from used equipment sales.
 
     Oil and gas sales decreased 61% from $252,667 for the three months 
ended December 31, 1998 to $97,090 for the three months ended December 31, 
1998, reflecting lower oil prices and the shutting in of several wells which 
became uneconomic to produce as a result of low oil prices.  Oil and gas 
production costs decreased 25% from $145,734 for the three months ended 
December 31, 1997 to $111,530 for the three months ended December 31, 1998, 
reflecting the lower production levels.

     Used equipment sales for the second quarter of fiscal 1999 were 
$153,400 as compared to $91,622 for the comparable quarter of fiscal 1998.  
Cost of goods sold for the second quarter of fiscal 1999 was $82,867, as 
compared with $83,950 for the second quarter of fiscal 1998.  The gross 
margin from used equipment sales increased from $7,672 for the second quarter 
of fiscal 1998 to $70,533 for the second quarter of fiscal 1999.  

     General and administrative costs were $205,659 in the second quarter of 
fiscal 1999, a decrease of 37% from the $325,389 incurred in the second 
quarter of fiscal 1998.  Most of the decrease is attributable to staff 
reductions made during the second quarter of fiscal 1999.  Net interest 
expense was $68,501 higher in the second quarter of fiscal 1999 over fiscal 
1998 primarily due to the costs of carrying the Company's 7% Convertible 
Debentures.

                                       -8-
 
     The Company recognized an income tax benefit of $175,663 for the second 
quarter of fiscal 1999 as compared to recognition of an income tax benefit of 
$118,950 for the second quarter of fiscal 1998.  This is directly related to 
the size of the  loss before income taxes.

Liquidity and Capital Resources

     As of December 31, 1998, Cotton Valley has a working capital deficit of 
$1,364,789 calculated by subtracting current liabilities of $2,245,893 from 
current assets of $881,104.  Approximately $860,000 of the current 
liabilities is attributable to advances under the $10 million working capital 
and development credit facility provided to the Company by Triassic Energy 
Partners, L.P. ("Triassic"), under which the Company is in default of certain 
principal and interest repayment obligations, and which is secured by the 
Company's interest in its Means Field property, Andrews County, Texas.  In 
cooperation with Triassic, the Company is attempting to sell a portion of its 
interest in the Means Field to third parties to satisfy its current 
obligations to Triassic.  The Company and Triassic continue to discuss other 
ways in which the obligations may be satisfied and development activities 
resumed at Means Field.  

     During December 1998, the Company entered into a letter of intent with 
the holders (the "Holders") of the Company's 7% convertible debentures (the 
"Debentures") to redeem their total outstanding amount of $4.2 million in 
long-term debt in exchange for the transfer and assignment of the Holders' 
collateral (well servicing equipment, horizontal drilling equipment and 
certain oil and gas leases) plus an additional 40% working interest in the 
Company's Cheneyboro leases in Navarro County, Texas.  The formal agreements 
and closing of this transaction, expected to occur during late February or 
early March 1999, would eliminate the conversion rights of the Holders and 
approximately $80,000 per month of interest and penalty charges.       Over 
the next few months, the Holders will seek buyers for the transferred assets, 
and the Company will have the right of first refusal to repurchase any of the 
major assets assigned to the Holders.  The assets to be transferred have a 
book value which exceeds the amount of the outstanding Debentures by 
approximately $7 million.  Upon completion of the transaction, the Company 
expects to take a one-time charge of approximately $7 million relating to the 
transaction.  The Holders will refund to the Company any amount of sales 
proceeds which exceeds: (i) $4.2 million plus interest from January 1, 1999 
at 7% per annum; less (ii) 50% of the proceeds the Holders receive from sale 
of the 2 million shares of common stock the Holders received in November 1998 
in payment of interest and waiver and penalty fees.  The market value of any 
cash or assets returned will be recorded as a gain on sale of assets in the 
period returned.  Any deficiency which may arise from the sale of the assets 
and shares will be borne by the Holders.

     The Company, with the assistance of its Canadian securities counsel, 
has developed a program for the orderly repayment of trade debt during 
calendar 1999 through the issuance and sale in Canada of shares of common 
stock.  Although there can be no assurance, but based on number of trade 
creditors who have agreed to join the program, the Company expects the 
majority of its trade debt to be paid through this program.

     The Company, upon completion of its exchange with the Holders and 
initiation of the trade payables program, intends to seek merger and 
acquisition opportunities as well as finance development activities with the 
proceeds from private placements, exercise of warrants, traditional bank debt 
and institutional mezzanine reserves based financing.  No assurance can be 
given that the Company will be successful in these efforts.  

Year 2000 Issues

     The "Year 2000 Problem" arose because many existing computer programs 
use only the last two digits to refer to a year.  Cotton Valley has purchased 
all its computer programs and computers since January 1, 1995, all of which 
have been certified as "Year 2000 Compliant."  Most of Cotton Valley's 
principal suppliers and customers have also certified to Cotton Valley that 
their computer systems are "Year 2000 Compliant."  Therefore, the Company has 
determined that the "Year 2000 Problem" is not likely to have any material 
effect on the Company.

                                      -9-
 
                           PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

     As of the date of this filing, there are several legal proceedings 
pending against Cotton Valley relating to approximately $150,000 of trade 
accounts payable, the principal amounts of which are included in liabilities 
on the Company's balance sheet.  Claims for interest and legal fees amounting 
to approximately $20,000 have not been recorded.  

 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 small oil and gas companies.

Item 6.  Exhibits and Reports on Form 8K

     During the quarter ended December 31, 1998, the Company made no filings 
on Form 8K.
        

                                     -10-

                               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, 1998


                       COTTON VALLEY RESOURCES CORPORATION
                       (Registrant)


                         /s/ Eugene A. Soltero
                         Eugene A. Soltero
                         Chief Executive Officer 



                         /s/ Malcolm Bennett
                         Malcolm Bennett
                         Controller


                                    -11-

<PAGE>



EX-27
Financial Data Schedule